Frost bite for ice cream lovers as milk prices soar

Hindustan Unilever Ltd, which sells ice creams under the Kwality Wall’s brand, has taken selective price hikes. “Commodity inflation continues to be a significant challenge for the industry. In the current inflationary scenario, our priority is to provide value to consumers, invest behind our brands and protect our financial business model. Given the recent-all round increase in material prices, including dairy, which is a key raw material for ice cream, we have increased prices to consumers selectively in our portfolio, while maintaining key price points for value-seeking consumers," a company spokesperson said.

Komal Anand, managing director of Havmor Ice Creamsaid: “The cost is killing us. We are in a business where we cannot pass on all costs to consumers. We cannot afford to sell at low margins as well." The hike in prices may have an adverse impact on demand. Havmor took a “small" round of price hikes in January. Future price hikes will depend on how dairy prices pan out in the second quarter of the current year.

Milk prices have been steadily increasing since last year, driven by a combination of factors such as farmers reducing their herd during the early months of the pandemic, a spike in prices of cattle feed, and a surge in demand for milk and dairy products following the reopening of hotels and restaurants.

As a result, several ice cream makers have been forced to raise prices to offset the rising costs of ingredients. Naturals, a popular ice cream chain with more than 150 outlets in India, recently implemented a 10% price hike in January while also absorbing a part of the increased costs.

“We have increased prices by close to 10% and absorbed another 10%. The entire burden has not been shifted to consumers, but we are balancing it out. There is no other revision that is coming," said Srinivas Kamath, director of Naturals Ice Cream.

Kamath said consumers have been resilient to price hikes, given a strong summer and pent-up demand. The chain last raised prices in April last year. However, multiple rounds of price hikes taken by the milk procurement association that the chain works with have led to the latest round of price hikes.

Commodity prices have remained volatile following the pandemic. The price of skimmed milk powder, commonly used to make ice cream, rose 30% from a year ago in the December quarter. Wholesale milk prices pan-India rose 10.2% in the first half of December, according to a report by ICICI Securities. Dairy companies have also raised milk prices by 8-10% in the past few quarters due to a sustained rise in milk procurement costs.

In February, the country’s largest milk producer, Amul, raised prices of pouch milk following a price hike in October. The dairy cooperative attributed this to an increase in the overall cost of operations and milk production.

Companies are also pinning hopes on a strong and prolonged summer to drive up demand for cold products.

Gujarat-based Vadilal Industries Ltd increased prices of some ice cream variants by 3% in January and February. “We have already taken a price hike in January-February. There may be some rationalization in prices. Except for milk, most prices are under control," said Devanshu Gandhi, managing director of Vadilal Industries Ltd.

Gandhi reckons that milk prices could stabilize. However, prices of milk powder, fat (butter), and solid non-fat have a tendency to go up in May-June, he said. However, the company is not considering price hikes in the coming months.

Those in the business said that while the demand for dairy products has been improving, they are witnessing consistent firming up of raw milk prices, which is putting pressure on consumer prices. “However, as a customer-centric organization, we are making all possible efforts to offer value-for-money produce with desired quality benchmarks to all consumers," said Manish Bandlish, managing director of Mother Dairy.

Some others are yet to react to high commodity inflation. Ice cream chain Baskin Robbins, which operates at the premium end of the market, has refrained from increasing prices this summer season.

“Dairy industry has been grappling with cost inflation that is largely a result of a few intrinsic challenges like changing weather patterns and issues that impacted cattle over the last year. This led to an adverse impact on milk production," said Mohit Khattar, chief executive of Graviss Foods Pvt. Ltd, which operates the ice cream brand Baskin Robbins.

Khattar expects the inflationary situation to improve as the year progresses.

“It appears more of a cyclical issue than a simplistic and sudden surge in prices. At Baskin Robbins, a change in prices is a business decision and not merely a knee-jerk reaction to the ad hoc impact of an increase in raw material cost. For now, we have decided not to alter our end consumer prices for the coming season,“ he said.