Private dairies adopt small format parlours model, eyeing better margins

HYDERABAD: Private Indian dairies, backed by private equity and public funds of late, are increasingly looking at aggressively expanding the network of their small format parlours to push sales of value added products that ensure better profit margins through modern retail trade as mom-and-pop stores seemed less appealing.

Some of these private dairies include listed entities such as Andhra Pradesh Chief Minister Chandrababu Naidu’s Heritage Foods, Chennai headquartered Hatsun Agro Products BSE 1.14 % and Mumbai-based Prabhat Dairy. Heritage Foods BSE 1.28 % has been increasing its milk parlours across markets over last several months, while Hatsun Agro is looking to triple its small format network to around 3,000 parlours by 2017-end from 1,000 parlours now.

Others firming up plans for expansion of small format parlours include Prabhat Dairy, which raised funds from capital market, Godrej Agrovet-backed Creamline Dairy and Tirumala Milk Products that was acquired by French dairy giant Lactalis.

“This exercise is mainly to make available an array of dairy products to customers as there are some constraints with modern retail trade and mom-and-pop stores with respect to penetration and availability of products. It makes sense to make available all products at one place,” said Hatsun Agro’s chairman and managing director RG Chandramogan.

“Supplying milk products directly to the franchise stores helps in improving margins as the distributor margins are completely done away with in this model,” said Anand Rajan, senior analyst with market research firm IMARC.

“This is becoming important in some South Indian states with increasing competition between different brands to tap retail consumers. This also increases the focus in developing the overall category as compared to modern stores with various competing food/non-food categories,” Shiva Mudgil, senior analyst with Rabobank.

Heritage Foods, which currently has around 1,600 milk parlours, is currently reporting sales of about Rs 7,000 a day per parlour. This company’s dairy division head J. Samba Murthy said this translates to a growth of over 12% in revenues and nearly 8% in volumes a year. Heritage Foods has added around 170 parlours a year over the last three fiscals, according to an investor presentation

Prabhat Dairy, which is currently focussed on supplying its value added products through B2B route, plans to “venture out into the retail segment when we have a broader portfolio of products to offer as currently 70% of our business is B2B,” said its group chief financial officer Raviraj Vahadane.

Not to lag behind the private dairies and to counter competition, some of the large government cooperatives like Mother Dairy are also looking to expand parlour networks to sell wide range of value added dairy products.

“We currently have 800 self-owned milk booths and 400 franchise booths, which contribute 30% to our overall sales. We are adding an average 50 stores every year,” said Sandeep Ghosh, business head (milk) at Mother Dairy.

India is world’s largest producer of milk, accounting for nearly a fifth of global production. Investor Relations Society of India (IRSI) estimates the Indian dairy industry to be worth Rs 3 lakh crore with the organised sector accounting for around Rs 76,000 crore.

“Majority of dairy players moved into value added products owing to change of lifestyle of consumers. Value added products command gross profit (earnings before interest, taxation, depreciation and amortisation) margins of nearly 20%,” a IRSI report said.

Comments

comments