It was nearly six years ago that CavinKare made its first foray into the dairy business with the launch of Cavin’s milk. The personal care products company’s move into dairy in January 2009 was more by accident than by design, though. “A friend told me about a sick dairy plant that was up for sale in Kanchipuram and it made sense for me to take a look at it, if only for its real estate value,” says CK Ranganathan, chairman, CavinKare.
The astute businessman that he is, Ranganathan snapped up the plant immediately. He believes that his dairy foray — almost an afterthought — now has the potential of overtaking CavinKare’s flagship personal care business over the next 4-5 years, riding on the company’s plans to take its dairy business national. But this is a tough ask even for the man now famous for his decision to introduce sachets in the FMCG business and for successfully taking on multinationals with his home-grown brands, as even biggies have faltered in the dairy business. But Ranganathan is confident of a repeat performance of the stupendous success of his personal care business.
The Cavin’s dairy brand kicked off production with the launch of liquid milk in 2009. Since then, the company has gone on to launch an array of products, including milkshakes, curd, sweet lassi, ghee and paneer, across Tamil Nadu and Kerala. It has two manufacturing facilities in Tamil Nadu, with a total capacity of 500,000 litres. “The sourcing and distribution remain close to the production facilities since time is of essence in this business,” says Ranganathan. “We are present in all the 35 districts in Tamil Nadu and have also made inroads into neighbouring Kerala in terms of our cold storage products.”
The company kicked off its advertising campaign by educating consumers in both cities and small towns about the benefits of drinking milk. While Cavin’s has the advantage of understanding the local market well, it is not going to be easy for it to build on this leverage because not only is the dairy business tough as nails, the dynamics are completely different from other consumer businesses. “CavinKare is a company that understands rural marketing really well, given that it revolutionised the use of shampoos in rural areas by introducing sachets but creating a successful brand in the dairy business is very difficult. That is why even the likes of HUL and ITC have stayed away from the business,” says Ankur Bisen, senior VP, Technopak.
Soon after its launch in 1983, CavinKare’s brand Chik became synonymous with sachet shampoos. And this was no mean task, given that it took on multinationals such as HUL and P&G and beat them at their own game with lesser marketing muscle. The company isn’t a one-product wonder either; it has managed to build a solid fairness cream brand, Fairever, which is taking on HUL’s Fair & Lovely and gaining market share at HUL’s expense. While this may not guarantee success in its dairy business, the company is confident that its ability to observe local habits and create products around them will help it find a winner or two in dairy as well.
For instance, it has come up with its own packaging innovation so that it doesn’t have to use Tetra Pak for ultra high temperature (UHT) milk; its invention doesn’t need cold storage either, bringing down overall costs. So, in comparison with brands like Nestle that charge ₹70 per litre for UHT milk, Cavin’s brought the cost down to ₹55 per litre, which is just 20% higher than the price for a litre of liquid milk. Cavin’s’ milk is available in smaller packs of 200 ml and 250 ml and sachets in rural areas, which generally have poor cold chain infrastructure, making the product more accessible to rural buyers. Similarly, by offering a thicker version of curd, Cavin’s has grabbed the leadership position in the Chennai market.
Instead of taking on a larger player like Amul, which has built a significant advantage in butter and cheese, Cavin’s decided to focus on its milkshakes, a niche category that was wide open for the brand. The company positioned its milkshakes as fun but healthy drinks in different flavours that could help parents in their age-old quest to get kids to drink milk. “Compared to flavoured milk, which needs refrigeration, the milkshakes have a longer shelf life of 120 days and are available in smaller packs. This makes distribution easier in smaller towns, where we don’t have cold chain storage facilities, and helps us go deeper into a market where we already have a considerable brand advantage,” says Ranganathan.
To promote the brand, the company holds an annual science fair in every district in Tamil Nadu, with the finalists being taken to Chennai for the winner to be declared. By holding these events, the company gets visibility for its brand and comes in direct contact with children and their parents, who make the actual purchasing decisions.
This not only helps it promote its products but also gives it a chance to gather valuable feedback. And this experiment has paid off — the milkshake was launched in 2011 and has already captured a market share of 28% in the south in this category, leaving Amul behind. Ranganathan is now looking to take this product national, along with his UHT milk and ghee. “We want to seed the market with these products and create brand awareness till we develop the cold chain infrastructure. We want to be a national player with an aggressive presence across categories,” he says.
The company is also working on improving its consumer reach by opening Cavin’s parlours across south India, catering not just to consumers but also acting as stockists for smaller retailers. While 50 parlours are on the cards by March this year, Ranganathan says nearly 1,000 outlets will come up over the next one year, both company-owned and franchises. With an investment of around ₹5 lakh-7 lakh each, these parlours will be set up in residential areas in tier 2 and tier 3 towns and will stock not just dairy products but also the company’s idli and dosa batter brands Hema’s and Chinni’s, respectively, snacks brand Garden, food products brand Ruchi and beverage range Maa.
The company has earmarked ₹250 crore for its brand-building exercise and has roped in cricketer Ravichandran Ashwin as its brand ambassador. “In the dairy business, more than advertisements, the spend on on-ground promotions and tastings is much more. Because we want a wider footprint, we have to create brand awareness,” Ranganathan explains. He will invest around ₹500 crore over the next 2-3 years to build cold storage and logistical infrastructure in the southern market and double its production capacity.
“We source from over 20,000 farmers in Tamil Nadu and sourcing will be crucial to expand operations,” he adds. At ₹300 crore, the dairy business now contributes one-fifth of overall group revenue (₹1,200 crore), with food and beverages contributing around 15% and the rest coming from the company’s flagship personal care business.
One of the challenges in the diary business is the fact that supply is highly fragmented and regionalised and it takes time to build relationships with farmers outside the region the players operate in. “We started sourcing from outside Gujarat 4-5 years ago and are only able to source 15-20% of our requirement. Most people think that in the dairy business, once you put up a plant, you have arrived but setting up a plant is only the first step. Building relationships with farmers takes time,” says Rupinder Singh Sodhi, MD, Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the Amul brand.
Most private players end up competing with state co-operatives for sourcing and that is not easy. “Going from being a regional player to a national player will be very challenging. Any new player planning to compete with us has to offer farmers a better price. And if they do, they will have to sell at a price higher than ours, which will be difficult given how competitive the market is. Their margins will be under pressure,” explains Sodhi. Amul, which clocked around ₹18,000 crore in FY14, is looking to touch ₹30,000 crore by FY18. In this business, it is the value-added products that gather the cream; liquid milk is more or less commoditised and margins are 3-4%. With fatter margins of 12-15%, value-added products account for one-third of the ₹20,000-crore market and are getting attention from private players.
“The Indian consumer story is just beginning to unfold. As income levels increase and consumer tastes evolve, the demand for value-added products will soar in the next few years,” says Devendra Shah, chairman, Parag Foods. He was one of the first few to identify the opportunity in value-added products and now 80% of his company’s revenue comes from cheese, flavoured yoghurt and ghee. With the segment set to grow at 30-35%, he expects his revenue — currently at ₹1,500 crore — to grow at the same clip. In the case of CavinKare, nearly half of its diary revenue comes from value-added products.
Setting the stage
Ranganathan believes that his investment in R&D, which is currently around 2-3% of revenue, will help him launch innovative and differentiated products. “In a competitive market, it is important to have differentiated products that have longer shelf lives,” he says. Both Cavin’s’ milkshakes and UHT milk don’t need cold chain facilities for storage. Ranganathan is banking on these products to drive the company’s footprint outside Tamil Nadu as he gets his cold chain and logistics infrastructure in place. The plan is to develop the infrastructure in the south and then go national.
“Developing the cold chain and logistics infrastructure is the most challenging part as it not only involves substantial investment but is also time-consuming,” says Shah, whose products are UHT-compliant.
In the dairy business, CavinKare will have to not only take on national and international players such as Amul, Danone and Nestlé in the milk and curd segments but also beat south-based players such as Heritage and Hatsun, which have a head start in local markets and have a significant presence with their products.
Even as some regional players struggle to go beyond ₹500 crore, Heritage and Hatsun have achieved considerable scale with revenue of ₹1,328 crore and ₹2,493 crore, respectively, in FY14, making them formidable competitors as well.
Unlike other FMCG businesses, in the dairy business, the size of the market or its growth potential does not guarantee success. Even biggies such as Reliance, which has an in-house dairy brand in its retail stores, and biscuit major Britannia, whose dairy business constitutes 5% of its ₹6,348 crore turnover, have found the going tough. Glaxo Consumer, which launched a milkshake called Chill Dood in 2010, has also put the product on the backburner because it did not quite take off.
Building a successful brand in the dairy business takes a lot more time and effort compared with other consumer businesses because changing people’s preferences in dairy is a lot tougher. But Ranganathan remains hopeful. “2015 will be a defining year for all of CavinKare’s businesses, especially dairy. I strongly believe that the dairy business will overtake the flagship personal care business in the next of couple of years,” says Ranganathan. One of the company’s strengths is its ability to build successful brands that connect with the local audience and to offer products at reasonable prices, making them accessible to a larger audience. That and the strong brand recall it has in the south should help the company scale its business in the next couple of years, even if the national rollout takes time. For the man who beat larger FMCG players and multinationals at their own game, an encore in the dairy business is going to be a challenge. But given his track record, the odds are in Ranganathan’s favour.