For a product that largely thrives on impulse buying, the ice cream business in India has some really cool numbers to show. At Rs.10,000 crore, the ice cream (including frozen desserts) market has been growing at 15-20% every year over the past five years. While Amul by far remains the market leader with 14% share, regional brands, too, have managed to come into their own. The fact that the ice cream market was getting lucrative enough was evident when after a hiatus of 21 years South Korea’s Lotte Confectionery lapped up Gujarat-based Havmor for Rs.1,020 crore, a valuation more than 2.5x its sales. The last time the ice cream market had seen an M&A deal was in 1996 when HUL (then HLL) purchased Kwality. The bullishness is not without reason: rising mercury levels and increasing demand along with new product launches are fuelling growth in this sector. Also, India’s per person consumption of just 0.26 kg compared with the Asia-Pacific average of 1.66 kg shows that there is enough headroom for growth.
While the ice cream market has largely been a regional play, brands such as the Ahmedabad-based Havmor began testing waters outside its home market in 2010. Ankit Chona, managing director, Havmor, says, “The danger of being an incumbent is that your market share can be taken away by new entrants.” The expansion paid off given that half of Havmor’s revenue now flows from outside Gujarat. Unfortunately, for other regional players, going national continues to be the Holy Grail.
Transitioning change
It was in the mid ’90s when Vadilal Enterprises decided to look beyond Gujarat, following the acquisition of Kwality by HUL. The company finally set up its second plant in Bareilly in Uttar Pradesh in the late ’90s.
Rajesh Gandhi, managing director of the Rs.600 crore Vadilal, has learnt a lot from the experience of going national and today his brand is available in 19 states. “The ice cream business is largely from February to June in many parts of India. That is the only window for any player,” he says. To his mind, it takes four-five years for a brand to adapt to the nuances of a new market. “It involves creating a sales team, understanding the local culture and putting the clearing and forwarding structure in place.”
According to Gandhi, this is the period when retailers will not play ball with the company, forcing it to spend large sums of money on marketing. “You could be strong in one market but in a new one, your brand has to start from scratch,” he says. One way to do it is to build a strong impulse purchase business [cones, sticks and bars]. Gandhi learnt this over the years with impulse accounting for 30-40% of sales a decade ago and about 70% now. “Every regional player is strong on impulse today and that makes it very difficult for a new entrant to differentiate itself,” he points out.
John Simon, director of the Rs.300-crore Kochi-based JSF Holdings, which owns Lazza, Skei and Uncle John brands, says apart from cultural differences, what often holds back a regional brand is its inability to achieve scale. With Kerala being JSF’s home market, it has a plant in every district of the state. “Having multiple factories close to the customer ensures that our cold chain troubles are not as bad as that of the national players.”
That the ice cream business is fundamentally local in its flavour explains why players move slowly when it comes to expansion. Arun Ramani, managing director of the Bhopal-based Ramani Ice Cream Company, which launched the Top ‘N Town brand in 1988 in Madhya Pradesh, took 12 years to venture into the neighbouring state of Chhattisgarh. Over time, Top ‘N Town moved to other parts of central and western India. “Expansion must take place only after a brand has completely utilised its muscle power in its existing geography. A huge investment is necessary but challenging in the presence of MNCs,” says Ramani. But that’s not the only thing to contend with though. According to Ramani, issues related to consistent power supply and poor infrastructure at the retailer’s level can be difficult to tackle as well.
In the case of Havmor, in early 2016, the management put together a blueprint to enter the National Capital Region (NCR). “We invested heavily in the launch and hired a team of 40 people,” says Chona. The market was not easy with competitors such as Creambell, Mother Dairy, Wall’s and Amul. It was apparent that Havmor would not make money in the first year, with revenue at an unimpressive Rs.10 crore. “We had a high staff count and were bleeding. It was a difficult scenario but we knew a 10-year approach was required in a new market,” explains Chona. This year, Havmor will clock Rs.50 crore in NCR and pocket a tiny profit as well. It expects to close FY18 with sales over Rs.500 crore and has invested Rs.100 crore to set up a new facility in Faridabad.
Creating the network
Infrastructure or the lack of it can easily make or break an ice cream brand. To begin with, sourcing of raw material is critical. The Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns Amul, dominates the dairy market with its direct access to over 3.5 million farmers who directly supply milk to Amul’s collection centres. The other important aspect in the business is logistics. “It comes down to getting it right with the cold chain at the distributors’ end and deep freezers at the retail outlets,” points out RS Sodhi, managing director, GCMMF. While investment at the distributor level is made by the company, what poses a challenge to an ice cream maker is the last mile investment at the retailer’s outlet. The average cost of a deep freezer is Rs.25,000, with little assurance that the retailer won’t use it for other brands. The other big problem for the retailer or a manufacturer is power cuts. Melted product is a common problem since ice cream and other frozen products need deep freezing at temperatures ranging from -10°F to -150°F. This, in turn, entails higher power bills, and also the capital cost would be prohibitive as most of the machinery would remain unutilised during the lean season. The thumb rule is that an investment of at least Rs.100 crore is needed to churn out 1 lakh litre of ice cream daily. JSF Holdings has adopted a strategy of opening mid-sized factories closer to the market. “We did not want to invest a huge sum to set up manufacturing plants and this strategy served us well because we were never choked for cash flows,” adds Simon.
Even for an established dairy player such as Amul, the journey to becoming a national brand was anything but easy. It forayed into the ice cream business in 1996, when it launched the brand in its home turf. From there, it slowly moved into markets such as Maharashtra, Rajasthan and Madhya Pradesh. It was not until the summer of 2002 that Amul entered Delhi. “We had to adapt our strategy at each stage. Markets such as Madhya Pradesh and Kerala were extremely difficult because of many local players,” adds Sodhi, who maintains that Amul’s real milk positioning was a key factor that worked well.
In line with its DNA, keeping it affordable was also critical to address a larger base of consumers. Amul, as is the case historically, played the volume game and that meant a greater focus on family packs and less on the impulse category comprising cones, sticks and bars. Consequently, production was decentralised. Amul has 14 plants, of which five are in Gujarat, which is India’s largest ice cream market with an estimated turnover of around Rs.800 crore. “The plan is to have three more plants, which will be in Pune, Kolkata and one in the south,” says Sodhi. By contrast, Mother Dairy has eight plants. Nitin Arora, CEO, Devyani Food Industries, swhich owns the Rs.650-crore Creambell brand, chips in: “Ice cream is a “-18°C business with a 360° supply chain issue. It is very capital intensive with no let-up when it comes to spending on advertising (at least 4% being the ad to sales proportion for any player), imagery, delivery and supply chain.” The company is investing Rs.250 crore in FY18 to ramp up operations. It has ice cream plants in Himachal Pradesh, Goa and Uttar Pradesh with a cumulative capacity of 75,000 litre per annum.
Similarly, the Bengaluru-based Rs.150-crore Dairy Classic, which sells ice creams and desserts under the Dairy Day brand, is looking to ramp up capacity to expand in Tamil Nadu and Karnataka. “With our capacity utilisation quite healthy we felt it was time to scale up,” says MN Jaganath, director, Dairy Classic, who along with his partner, A Balaraju, spent several years at HUL’s ice cream business. Motilal Oswal Private Equity has invested Rs.110 crore in the company to fund the expansion.
Improving logistics is also helping ice cream makers. “Today, refrigerated trucks help in covering greater distances unlike earlier when logistics was a real nightmare,” says RG Chandramogan, chairman of Chennai-based Hatsun Agro, which launched its Arun ice cream brand in Mumbai in 2017. Both Arun and its parlour brand, Ibaco, account for 9% of Hatsun’s revenue. Just like Amul, Hatsun too leverages on its farmer network and has over 9,500 milk collection centres in villages across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka and Maharashtra.
In addition to selling the entire range of Arun Icecreams, Hatsun’s outlets are also selling other products such as flavoured milk, ghee, butter, skimmed milk powder and dairy whitener. The outlets will also supply products to retail stores within the vicinity. Before entering Mumbai, Hatsun set up shop in Andhra Pradesh, Telangana, Karnataka, Odisha, Maharashtra and Goa.
According to a research report by Foodmarket, convenience stores account for a leading share in the distribution of ice cream products in India at 41% (in terms of value share), followed by food & drinks specialists with 30% share and hyper- and super-markets making up for the balance. Chandramogan recalls how, initially, he got his expansion strategy wrong. “We tried to replicate our ice cream parlour concept, which worked well in Tamil Nadu but didn’t have the desired results in other states. Now, we are focusing on outlets, including departmental stores.”
While a large part of the ice cream business (70%) comes from the west and north, with the south bringing in 20%, east is the smallest market at about 10%. The Kolkata-based Pabrai’s Fresh & Naturelle Ice Creams, which began in 2008, operates only with one plant but sells its gourmet ice cream brand across 28 outlets in 13 cities. “The ice creams are transported by train twice or thrice a week depending on the location,” says CEO Anuvrat Pabrai.
The right flavor
While getting the logistics and infra right is one part of the story, customising flavours to meet local tastes is another critical aspect that ice cream players are focusing on. Arora of Devyani Food explains that his company’s expansion in western India was driven by consumer insights that exotic flavours were necessary. “That led us to launch cappuccino, Irish cream, smoothies and frozen yoghurt since the region is more cosmopolitan. Just going for shahi kheer or raj bhog, which worked in the north, would have been difficult here,” he says.
For Havmor, Chona mentions that its modak flavour in Maharashtra worked well, similar to the way sugar-free kulfis took off in Punjab and dry fruits in Rajasthan. For a regional player, often with a conservative marketing budget, this could really change the story. Simon of JSF Holdings mentions that the tender coconut flavour is a hit in Kerala and Tamil Nadu. The brand’s jigarthanda flavour too clicked in Tamil Nadu, a state that brings in 25% of revenue, whereas payasam flavour is a big draw in Kerala, which accounts for 60% of JSF’s revenue. Dairy classic has over 150 SKUs with 30 flavours. “Within our existing portfolio we create different combinations. While differentiators in terms of flavours may not be much, our key proposition is the strength of ingredients, taste, quality, packaging, and value for money,” says Jaganath.
Known to be a market that can’t have enough of sweets, Pabrai’s’ decision to introduce nolen gur in Kolkata has paid off well. The ice cream is now served at the Mainland China restaurant chain, while its other flavours are picked up by hotel chains such as Taj and Marriott. Pabrai’s is also customising its offering such as black sesame for the Chennai market, chandan for Delhi, jackfruit for Bengaluru and rabri for Delhi. In fact, Pabrai’s brand is 10-15% costlier than Baskin-Robbins and competes directly with London Dairy.
A cool future
The 2017 annual Nielsen Global Brand-Origin survey states that even as there is a growing preference for global brands, the only categories where local brands are ruling the roost are dairy and fresh foods. While Chona may have bid adieu to the ice cream business, there are newer entrants looking to make their mark.
Prabhat Dairy, which has been manufacturing ice creams for Mother Dairy for the past three years, has soft launched its own ice cream brand, Volup, in 10 cities across Maharashtra. While the popular range of ice creams will be sold under the Volup brand, Volup Sinsane will be the premium brand. The company is not incurring high capex for the foray since it will roll out its brand from the same plant that manufactures ice creams for Mother Dairy. Vivek Nirmal, joint MD, Prabhat Dairy, says, “Maharashtra will be our focus for now and we will continue with the soft launch in the upcoming fiscal before going big. In next five years, we want to be among the top players in the state.” Creambell also plans to open its high-end parlours under the brand Scoopers, while Hatsun plans to take Ibaco to Maharashtra and other western markets over the next two years. “We believe we have a product which will be accepted in any market in India. Competition won’t act as a deterrent in new territories,” says Chandramogan. Players such as JSF Holdings are open to selling a stake to raise funds for setting up new plants in Karnataka and Andhra Pradesh. Simon explains: “We are not averse to selling part or majority stake to an investor who can take the brand to greater heights.” Similarly, Pabrai’s, which clocks a business of just Rs.22 crore every year, is looking beyond Kolkata. “There is an appetite for ice cream but Kolkata is filled with smaller players. We own only two parlours, with the rest being franchised. At some point, we will have a plant outside West Bengal.”
While it’s still early days to comment on whether regional players can scoop out a meaningful share of the national market, consumers for sure are going to be spoilt for choice.
