Home / Companies / News /  Danone bets on ‘dahi’ to crack Indian market

New Delhi: Plastic tubs of yogurt are very important right now for Jochen Ebert. “Dahi is the name of the game," he declares.

The ebullient 43-year-old German, the managing director of Danone Food and Beverages (India) Pvt. Ltd, is heading a campaign to carve out a place for his company in a market over which Amul, Mother Dairy and Nestlé have a strong grip, having themselves battled to convince Indians to buy curd rather than make it at home.

Ebert knows the key lies in getting taste and texture right. Which is why he’s recruited focus groups consisting of women, mostly homemakers, for regular tasting sessions in the National Capital Region, after which their feedback is recorded on consistency, flavour and the like.

His office in Gurgaon is located a few kilometres from the building where the tasting takes place. What emerges from his conversation is a near-obsession with the fermented milk product as being critical to the Danone’s success in India. The range extends beyond just dahi to flavoured yogurt, lassi and other spin-offs.

Danone entered India in 2008 through a joint venture with Britannia Industries Ltd, but that broke up just a year later and since then it’s been on its own in the country.

The €36.1 billion ( 2.67 trillion) French company operates globally in four business segments—dairy, bottled water, medical nutrition and infant food—and all of these are present in India. Danone Food runs the company’s dairy operations in the country and is still relatively small, selling products in Mumbai, Delhi, Bangalore, Pune and Hyderabad.

The business is still a work in progress and will continue to evolve as Danone looks for the right fit, Ebert says. “We want to, as a company, focus on what works first and we keep that brand. We are here to develop dahi consumption."

For instance, a so-called “bottom of the pyramid" business unit that started in 2011 was absorbed into the bigger company a year ago. It had been started as an attempt to sell low-priced flavoured smoothies and milk shakes to masses, but the numbers were “too small" to justify its existence as a stand-alone business, Ebert says. After this, he was asked to focus on the India business, giving up additional charge of the Bangladesh business.

That brings the conversation back to Ebert’s area of focus and the company’s core strategy—curd and other related products.

“We have to focus on areas that the Indian consumers want from us, and right now they are telling us we want dahi," he says. Dahi accounts for 60% of the company’s volumes.

The current range consists of plain dahi, flavoured yogurt, drinks in the form of lassi, chaas, milk shake (the Fundooz brand), flavoured smoothies (the Danette brand) and ultra-high-temperature (UHT) milk in tetrapacks. A version of the Bengali mishti doi (sweetened curd) is expected to be launched soon.

Over the next few months, the company will seek to increase volume in existing markets by expanding distribution, Ebert said.

The yogurt market has gained significant momentum in the past few years.

Yogurt and sour milk (lassi) are expected to grow by a compounded annual growth rate (CAGR) of 18% to 78.9 billion by the end of 2017, according to a March 2013 report by research agency Euromonitor. Demand has surged in the past five years, helped by the perception that such products are wholesome and healthy, the report said.

Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF), which makes and sells the Amul range of products, dominates the market with the highest share of 18.3% in the yogurt and sour milk (lassi) product category. New Delhi-based Mother Dairy Fruit and Vegetable Pvt. Ltd has a market share of 12.7%, and Nestlé India Ltd, whose parent competes with Danone globally, has been adding to a market share that’s estimated at 7.8%. In comparison, Danone’s numbers are negligible.

Meanwhile, the competition in dairy looks set to intensify, so Danone needs to get its act together as quickly as it can. Companies from New Zealand and the US have finalized plans to enter the Indian market, industry experts say.

The investments by the larger companies such as Nestlé, Amul and Mother Dairy in the market will ensure that the category will continue to grow, according to Rachna Nath, leader, retail and consumer, at consulting firm PricewaterhouseCoopers. Lifestyle changes, according to her, are driving trends for probiotic products, including packaged flavoured yogurt.

However, per-capita consumption of the dahi category remains abysmally low in the country. At 2.5kg a year, India stands at a significant distance from more mature markets such as France, where consumption is 30kg. Of this, that of packaged dahi is much lower at 0.3kg.

“So, our main focus right now to push the 0.3 to 2.5 (kg)," says Ebert. According to the Euromonitor report, un-packaged yogurt continues to account for significant volume sales arising from strong demand in smaller cities and rural areas.

The lack of cold-chain infrastructure in the country also severely limits the scope for dairy companies.

“Having a cold-chain supply across India can be a big challenge for companies looking at scaling up due to lack of existing infrastructure," says Nitin Mathur, a consumer research analyst at Mumbai-based brokerage firm Espirito Santo Securities.

While companies such as Nestle and Amul outsource distribution, Danone continues to invest heavily in owning and creating its own network. “That’s the way we want to go about it," says Ebert, adding that Danone is still in its investment phase in India.

Nath at PricewaterhouseCoopers agrees that there is a risk of high levels of saturation in urban areas, and expanding to small cities could be a challenge owing to the lack of proper cold-chain supply. Distribution needs to be accompanied by proximity to production sites due to the short shelf life of the product, industry experts said.

“It is a capital-intensive business primarily due to the cold-chain infrastructure," says the head of the dairy business at a Delhi-based firm.

The category has expanded dramatically over the past few years, says Subhashish Basu, business head, dairy products, at Mother Dairy, which started selling packaged dahi nearly a decade ago.

“As the economy progresses, the need for protein in the form of fresh fermented dairy products goes up," he said.

Mother Dairy is available at 40,000 outlets across North and West India and has just started operations in Kolkata. It aims to scale up operations in new markets and launch new products in the coming months, Basu said.

The decentralizing of production was a critical part of expanding the market, said R.S. Sodhi, managing director, GCMMF. “To gain scale, you need to be need to be close to the source of consumption."

The company started selling packaged dahi nearly a decade ago and currently retails a range of products through 75,000 outlets primarily in North and West India. Sodhi also cautioned that the fresh dairy business runs on wafer-thin margins and that companies need to keep in mind that the Indian consumer is highly price sensitive and be able to cater to the masses.

The Euromonitor reports suggests that an increasing number of consumers is likely to switch to packaged products.

As for Danone, Ebert wants to make sure it gets things right in the markets that it’s currently in before venturing elsewhere.

“Well, if I look at it, we would rather expand in a market like Mumbai, which has a high per-capita consumption of the category than to enter new markets," says Ebert, who adds that India can teach Danone more than vice versa.

Ebert, who has been with Danone for more than two decades, has worked in West Asia, Germany, the UK and France. He’s been heading the India business since 2008, although he was doing so from Paris and Germany until last year, when he moved to the country.

ABOUT THE AUTHOR

Suneera Tandon

Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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