Caramel, Nuts and Cream

One by one, the spiral machine lays down milk bars on a conveyor belt. As tempting as it is to lift one of these milky goodness off the belt and dig in, they aren’t ready yet. The rites of passage, we are told, involves a dark chamber, where the milky delights will be given a cool chocolate bath. And indeed, when they emerge a few seconds later, at the other end of the long tunnel, they are plumper, but with a chocolate glaze that even Roald Dahl would approve. 

A look around, and there are frozen desserts everywhere, suspended from wide conveyor belts in shades of yellow, purple, pink and green. They all have different consistencies — some, in semi-liquid form are getting scooped out of larger tubs into plastic containers, others shaped like seasonal fruits and into popular cartoon characters. 

Whipping it up
Around 70 flavours are whipped up everyday at the Adityaa Milk Ice Cream factory. Spread across 12.5 acres in the Belagavi district of Karnataka, the factory was set up in 2006 by husband-wife duo, Shivkant and Deepa Sidnal. The 41-year-old software engineer says he was working with IT firm Majoris Systems in Bengaluru then, but the urge to start something of his own was so strong that he invested Rs.3 crore from his personal savings to start the factory, under the name Vijaykant Dairy and Food Products. The remaining Rs.9 crore was taken as a loan. 

“We were eyeing a few other options and then zeroed in on dairy. It seemed like a great way to connect with our roots by working directly with the farmers. Also, since my wife belonged to a business family (she is the daughter of VRL Logistics’ Vijay Sankeshwar), she had a fair understanding of starting a venture,” shares Shivkant Sidnal, managing director, Adityaa Milk Ice Cream. 

Today, the factory processes 1.5 lakh litres of milk. While part of it is sold directly, rest is used to churn out 60,000 litres of ice cream daily except during the off-season when capacity utilisation drops to 60%. Apart from milk and ice cream, the company also manufactures shrikhand, Indian sweets, yoghurt, buttermilk, clarified butter, etc. Milk makes up for 50% of sales, ice cream 30-35% and milk-based products the remainder. 

But the brand’s mainstay is ice creams, especially unique flavours that Sidnal keeps scouting for across the world. Some of its offerings include flavours such as banana caramel, salted peanuts, Aamras, American dry nuts, Mello Jello and Belgian chocolate, which are also its bestsellers. Besides, the brand’s own version of HUL’s premium ice cream brand Magnum, is called Magnus. A little too close for comfort, but Sidnal says he isn’t afraid of naming this premium offering on similar lines as he wants to highlight the USP of his own. “Magnus is better than Magnum because they make it with vegetable oil while we use pure milk.”  

To make these unique products, Adityaa Milk sources flavours from Denmark and Italy. The products are available as candies, sundaes and cups, starting from Rs.5. Premium products such as banana caramel cost though as much as Rs.1,000 for a 4-litre pack. This is because a kilo of any of the unique flavours costs Rs.2,000-7,000 and the factory sources at least 100-200 kilos of each. Of its huge list, different flavours work in different cities, says Sidnal, adding, “In Maharashtra, chocolate sells well, strawberry and other fruity flavours do well in Bengaluru and in Kerala, we sell more of our nut-based ice creams.”  

Churning Quality
The other cornerstone of the brand is quality. To ensure, it is never compromised, the company houses a microbial and chemical lab within the factory. As it sources 1.2 lakh litres of milk daily from 1,500 villages across the district, the milk is subjected to several rounds of quality checks before it is passed over for production. Besides, the company has invested in high-quality freezers and machines. “I visited Germany a few years ago. It has a flourishing dairy industry, which is why we have sourced some our machinery from there and countries such as Sweden and Italy,” says Sidnal. 

Some of these machines help convert milk into powder, and are useful in tackling the frequent fluctuation in milk prices. Sidnal says, “With milk being the main ingredient and prices always fluctuating, this stored milk powder comes in handy when there’s a supply problem.” 

But sourcing milk from farmers is an issue in itself. Sidnal says farmers, who are part of the co-operatives receive a Rs.4 subsidy for every litre handed over, but not individual farmers. As Adityaa Milk sources majority of its milk from individual farmers, they are forced to hand out a similar subsidy, which means a daily expenditure of around Rs.4 lakh, which eats into the company’s margins.

But the founder adds, where earlier, it was difficult to price products higher, with the years the brand has grown in repute. “Since we were a new brand, we couldn’t just start quoting a higher price to make up for these (sourcing) costs, but now we can. People know about the quality difference now and are ready to pay for it.” 

Its thrust on quality is also why till date the company continues to distribute products from it Karnataka factory. Adityaa Milk owns a fleet of 60 trucks. Besides, it rents 20-25 vehicles to ensure an uninterrupted supply of its products. “We have equipped ourselves to be able to dispatch products anytime,” Sidnal says. The approach though is cost-heavy. As of now, transportation accounts for 20% of Adityaa Milk’s costs. This is also the reason why the brand has a low operating margin of 3-5%. 

Ice cream station
The transportation costs though are unavoidable, with Adityaa Milk ice creams being sold at over 20,000 outlets in Goa, Karnataka, Maharashtra, Kerala and Gujarat. Of these, 100 are kiosks at petrol pumps while 200 are own parlours. Explaining the high proportion of petrol pump kiosks, Sidnal says, “We started by setting up kiosks at petrol pumps. One has to go to a petrol pump at least once a week. With products starting as low as Rs.5, we knew it would work. And, it has. It gives us great visibility. Setting up such a kiosk costs Rs.3 lakh-Rs.5 lakh and it breaks even in two years.” Sales at such kiosks contribute 18-20% to total sales. 

But after clocking sales of Rs.245 crore, with Rs.93 crore coming from the ice cream segment in FY16, the brand is thinking of growing the station bigger, especially in the western and northern parts of the country. It plans to set up two factories, in Mumbai and Bengaluru by the end of 2016. For its Mumbai foray, it has already tied up with Maharashtra Dairy Development’s Aarey milk brand. “This is part of our market penetration strategy in Mumbai. Aarey boasts of 800 booths across the city,” says Sidnal. 

Apart from the standalone kiosk at petrol pumps, it wants to set up niche parlours that the founder says will cost Rs.15 lakh each, and should break-even in two-three years. He also plans to come up with what he calls ‘A-class’ parlours, slightly more premium outlets in the metros over the next two years. Besides, Sidnal hopes to increase his reach to 100,000 retail outlets this year. 

The brand, which has never advertised till date, is also going to initiate a marketing campaigns using public transport and auto rickshaws in the cities it is currently present in. Sidnal is hoping to raise Rs.100-150 crore to fuel this expansion and is considering selling 30-35% stake to a PE firm. 

More cream
The Adityaa Milk founder though is not alone when it comes to expansion plans. The ice cream market in India is exploding with flavours as brands are expanding their nationwide presence rapidly. Homegrown and foreign brands such as Havmor, Naturals, Mother Dairy, London Dairy, Haagen Dazs, Gelato Vinto are pushing ahead into newer markets. Why the sudden rush? According to an April 2015 Euromonitor International report, the domestic ice cream market is set to grow to Rs.6,198 crore in 2019 from Rs.4,160 crore in 2014. As of now, the Gujarat Co-operative Milk Marketing Federation’s brand Amul occupies 32% of the market. 

Sidnal is confident that they can capture a significant amount of this growing market, with the right mix of flavours and by maintaining quality standards. More than national brands though, he counts local players such as Lazza, Uncle John, Merriboy, Dairy Day and Frostee as competitors, given the markets it is currently present in. 

While he accepts that it will be a challenge initially, Sidnal believes that with products starting at Rs.5, Adityaa Milk can capture any space. “We want to be able to command the price we want and given our quality we will get there,” he says. How far Adityaa Milk's ice cream truck spreads joy remains to be seen.