Ravi Jaipuria’s $5-billion dream

PepsiCo bottler RJ Corp’s chief Ravi Jaipuria sees dairy and retail as sectors that will drive growth for the company


Ravi Jaipuria’s decision to go big in dairy may have something to do with PepsiCo CEO Indra Nooyi’s November 2014 statement that her firm would look to launch value-added dairy products in India. Photo: Vishal Koul/Outlook Business
Ravi Jaipuria’s decision to go big in dairy may have something to do with PepsiCo CEO Indra Nooyi’s November 2014 statement that her firm would look to launch value-added dairy products in India. Photo: Vishal Koul/Outlook Business

New Delhi: Ravi Kant Jaipuria is 62 and knows it, but is setting himself an audacious goal that he admits will probably be his “last one”.

Jaipuria wants the revenue of his group, controlled through RJ Corp., and spanning businesses in carbonated beverages, ice-cream, fast food, schools, real estate, retail, and healthcare, to cross $5 billion (Rs.34,000 crore) by 2020, from around $1.6 billion now.

Jaipuria, whose name is often mentioned in the same breath as PepsiCo Inc.’s Indian operations —he is one of the company’s largest bottlers—says the $5 billion target is “not just a number”.

“It’s an achievable goal.”

RJ Corp. has a plan. Revenue from the company’s main businesses—Varun Beverages Ltd (bottling) and Devyani International Pvt. Ltd (fast food), companies that are named after Jaipuria’s children—are expected to double by 2020. And much of the rest will come from dairy, Jaipuria’s next big bet, and retail.

Jaipuria seems to have it all worked out. Even as the group expands the bottling business to new countries, and grows the fast-food business through new brands (Devyani International is a master franchisee for several global brands) and outlets, it will build a large dairy business and create a front-end for all business through retail.

He admits that growth in the other businesses will be slow.

Currently, around 60% of RJ Corp.’s revenue comes from Varun Beverages—the second largest bottling partner for the US food and beverages company PepsiCo. According to Jaipuria, bottling will remain the largest piece of RJ Corp’s business. Devyani, which accounts for 7-8% of RJ Corp group’s revenue, has the master franchise for Pizza Hut, KFC, Costa Coffee, and a few other international brands, and also operates restaurants under its own brands such as Vaango and Foodie’s Bar. This business will show steady growth, Japuria said.

White gold

Dairy, Jaipuria says, is “the big bet”. “The target is to take our dairy business in India to $1 billion in the next five years.” Devyani Food Industries Ltd has been selling Cream Bell ice-creams in India since 2003, and will now expand into every possible dairy product—from ghee, yoghurt and lassi, to flavoured buttermilk and cheese. “The focus will be on value-added products and milk-based ready-to-drink products,” Jaipuria said.

Devyani Food Industries, at present, accounts for just around 4% of the Group’s estimated revenue. Its revenue for the year ended 31 March 2015 was Rs.452 crore and it made a profit of Rs.25.11 crore.

Dairy is not an unknown territory for Jaipuria. While he has stuck to just ice-cream in India, he runs the largest dairy company in Uganda, and has companies in Kenya and Zambia, that sell a range of dairy products like milk, butter, ghee, yoghurt, cheese and powder milk.

"The target is to take our dairy business in India to $1 billion in the next five years. The focus will be on value-added products and milk-based ready-to-drink products"- Ravi Jaipuria, RJ Corp.

Jaipuria’s decision to go big in dairy in India may have something to do with PepsiCo chairman and chief executive officer Indra Nooyi’s November 2014 statement that the firm would look to launch value-added dairy products in India.

If PepsiCo executes its plan, Jaipuria could be a preferred partner. A spokesperson for PepsiCo India Holdings Pvt. Ltd declined comments for the story.

Jaipuria plans to set up three green-field dairy plants—one each in West Bengal, Haryana, and somewhere in western India —within the next two years at an estimated investment of Rs.100-120 crore each.

Dairy won’t be an easy business to crack. Devyani Foods will be operating in a crowded market. India’s fragmented dairy market is dominated by Gujarat Co-operative Milk Marketing Federation (GCMMF) that sells milk and other dairy products under the Amul brand.

Nestle India Ltd has been selling dairy products in the country for more than 100 years.

ALSO READ | Everyone wants a taste of India’s white gold

Other significant companies in the market include French food products firm Danone SA, Britannia Industries Ltd, Mother Dairy Fruit and Vegetables Pvt. Ltd, and Parag Milk Foods Ltd.

And that’s not counting the regional biggies.

The dairy business is also a magnet for new companies. ITC Ltd ventured into the dairy business in October 2015.

Jaipuria says the opportunity is huge (and untapped), simply because around 80% of the market is still unorganized, and he plans to operate in the “value-added, good-for-you” segment.

“Despite low (profit) margins, dairy is attractive because of the size of the market, most of which is unorganized. In the past few years, we’ve seen private (equity) money flowing into the sector. The market is also maturing towards ready-to-drink and value-added products where margins are higher. There’s scope. But, the back-end is a challenge,” said Abneesh Roy, an analyst at Edelweiss Securities Ltd.

There’s another reason why Jaipuria is betting on dairy—industry potential.

ALSO READ | Organised dairy market to perform better in next three years: report

An October 2013 report by Investor Relations Society, a global network for investor- relations professionals, predicted India’s dairy industry (organized and unorganised) to reach $140 billion by 2020, from around $70 billion in 2013. Credit rating firm CARE Ratings in a July 2014 report said that demand for milk in India will touch 200 million tonne by 2022 from 132 million tonne in 2013. According to Sachin Bobade, a Mumbai-based equity analyst, the dairy business will test the ability of RJ Corp. to build a brand—a challenge that Jaipuria didn’t have to face while establishing his bottling or foods business.

Fast food

Jaipuria is looking to grow Devyani International by launching a few more international brands. “We have already tied up with Singapore-based luxury tea brand TWG Tea that will be pushed through select retailers and five-star hotels, starting this year. We are also looking at Chinese and Thai fast food brands. We hope to bring one this year and another early next year.”

Devyani International, which operates about 600 fast food outlets of KFC, Pizza Hut, Costa Coffee, Vaango and ice-cream chain Swensen’s, had a revenue of Rs.794 crore with a loss of Rs.102 crore in the year to 31 March 2015. “The fast food industry has gone through a tough time in the recent years. But things are now looking up. This business should see growth,” Jaipuria said.

Still it won’t be easy. Many companies in the business have seen their same store sales fall in recent months.

Same store sales refers to sales in outlets that have been existence for more than a year.

“One of the reasons why QSR (quick-service restaurant) brands are witnessing slow growth or fall in same-store growth is pricing. Despite the fact that real estate cost is high in India, products need to be cheaper in India than they are now,” said Rajat Wahi, partner and head (consumer markets), at consultancy KPMG in India.

“QSR brands also need to work on their menus, adapting more Indian food options, which most of them have been doing,” Wahi added. “QSR is yet to be a daily habit of Indian consumers. Eventually, growth will come faster than it is now because consumption is growing and will continue to grow. QSR, as a business, is a good place to be in.”

The fizz

Jaipuria, who so far banked on private equity investments from Standard Chartered PE, ICICI Venture and Temasek Holdings to fund his bottling and food business, is currently busy with roadshows to attract anchor investors for Varun Beverages that is in the market to raise about Rs.1,000 crore through an initial public offering (IPO).

ALSO READ | Ravi Jaipuria to list Pepsi bottler in Rs1,000 crore IPO

According to its draft red herring prospectus, Varun Beverages had sales of Rs.3,905.89 crore and profit of Rs.87.03 crore in the year to 31 December 2015. The company is a bottler for PepsiCo in India, Nepal, Sri Lanka Morocco, Zambia and Mozambique, and is entering Zimbabwe with a green-field bottling unit.

Jaipuria is confident Varun Beverages’ IPO will be a success. He plans to use the money raised to expand the company’s operations. And, in two years, he said, Devyani International would raise money through an IPO too.

Retail and gen-next

Jaipuria’s son Varun and daughter Devyani have been part of the family business for the past few years. Both have an eye on retail which, Jaipuria believes, could emerge as a “key business in the long run”.

Varun is a franchisee for Nike; Devyani has started a convenience store business J-Mart under a new company Alisha Retail. Alisha has already set up 50 J-Mart stores, typically spread across 300 sq.ft., in the National Capital Region. The stores are modelled on 7-Eleven stores popular in the US and Japan.

"I’ll not dive into anything completely new at this age. I’m not 20 anymore"- Ravi Jaipuria of RJ Corp

“We are opening 10-15 stores a month. Once we cross 300 stores, we will go national,” said Jaipuria. J-Mart is the front-end for the group and “all products produced by the group companies will be pushed through these stores,” he added.

No company has a national presence in convenience stores, and Bobade, the Mumbai-based analyst, said Jaipuria’s challenge is to capture the market before anyone else has the same idea. A retail business built around convenience stores is a good business model, he added.

Retail apart, the group could enter other new businesses, but that decision will be taken by Varun and Devyani, said Jaipuria. “I’ll not dive into anything completely new at this age,” he added. “I am not 20 anymore.”

READ MORE