Serenading the Indian ‘cash cow’!
The Indian dairy sector is bracing itself for an ‘organised’ upheaval

(column by Angshuman Paul)

Tired of haggling with your milkman every morning over petty issues? Well, he deserves your sympathy rather than your scorn, for your neighbourhood milkman may soon be a thing of the past, thanks to ‘organised’ intervention in the sector both from India and overseas. With Wal-Mart CEO Lee and his team hunching out massive plans to ‘milk’ super colossal profits from the dairy sector in India, you could well imagine events getting quite nasty for the largely unorganised players. In the same league, Yakult Danone India, a joint venture between Japan based Yakult Honsha & Group Danone of France, is also gearing up to roll out their manufacturing unit for dairy products near the capital. With India being the largest producer of milk in the world & Rabo India Finance extrapolating Indian dairy market to reach an exorbitant Rs.4.4 trillion, players across the globe have lined up to mint money from the Indian cash cow. The world’s largest retailer – Wal-Mart will soon start sourcing milk directly from farmers in northern Indian states. To rope in as many farmers as possible and also to grab some from rivals, Wal-Mart is offering prices phenomenally higher than existing players. The Bentonville beast has set up an extensive target of sourcing 1.5 million litres of milk per day and once the complete sourcing mechanism is in place, it will start working on setting up a dairy processing unit.

Clearly, Wal-Mart is trying to milk out every possible opportunity from Indian soil. Companies entering this sector are avid for alliances with local part ners. And with Indian dairy farms being still dominated by small-scale unorganised sectors, which are loaded with poor infrastructure and a plethora of other issues, local players have all reasons to tie-up with global players. Cashing in on this inherent symbiosis, Nestlé India has tied-up with Andhra Pradesh based Heritage Foods India Ltd, Bengal’s Nester & Maharashtra’s Dynamix Dairy. With definite conviction, Nestlé is strengthening its sourcing hub across India and hence it’s palpable that the FMCG giant has put a stymie to the much hyped market buzz of exiting the dairy business. The FMCG giant is upbeat on this oyster segment and has already created Moga in Punjab into a procurement haven. So it’s no surprise that the Moga unit contributes an extensive amount of one million litres of milk per day to keep Nestlé’s milky affair a non-stop one. What Wal-Mart and Nestlé are trying to do now, two of the country’s leading co-operative majors have been doing for the past three decades. And the MNCs will have to outperform these indigenous players – Amul and Mother Dairy. Through a formidable build up of logistics capabilities over the years, these players have proliferated the dairy business from a mere milk business to several milk based product businesses. “I think that becomes necessary in food business, so even if you are a co-operative company, you need to add value to your products. Constant value addition has enabled us to enrich our dairy portfolio,” feels Paul Thachil, CEO, Mother Dairy India Ltd..

Value addition with massive expansion strategies has enabled Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF), Amul and National Dairy Development Board & Mother Dairy to corner global giants like HUL. Sources from Amul reveal us this success mantra. As a dairy firm, they have an edge of having their own procurement hub; what became necessary was spreading their network faster than HUL could. However, unlike Nestlé, HUL never paid heed to having a full fledged dairy unit. Being a company with diversified interests, HUL has not been able to do justice to its dairy division. Affirms, P.L. Kaul, President, All India Food Processors’ Association, “The dairy business is growing at more than 40% and more and more MNCs will sustain to dairy as a driver of their food venture. Soon this sector will create many new products, which Indian consumers could hardly think about.” Such innovation has already begun with Nestlé & Amul recently venturing into the probiotic market. But such innovations are not only limited to product launches. With the non-stop organized retail revolution happening in India, dairy is going to evince many structural reforms. With the entry of Indian retail giants like Reliance, the dairy business is going to evince a sea change in the traditional marketing prevailing in the Rs.3.6 trillion Indian foods & beverages market.

Reliance is looking to procure seven lakh tonnes of milk every day by 2008 end, through its 1,000 direct collection network in Punjab & is planning to expand such procurement hubs in Rajasthan & Andhra Pradesh. “This milk will be utilized for our milk outlets in our marts & we will also be offering fresh milk based products produced then & there. On one hand, this is linking up farmers by providing them a market; on the other hand, it’s offering high quality products to consumers,” Raghu Pillai, President & CEO, Operations & Strategy, Reliance Retail Ltd.. Not to be left out, even Bharti and the cola majors Coca-Cola and PepsiCo have spelt out their plans. So on one hand, it means more organized dairy business with small-scale dairy owners benefited, but at the same time, it also means gradual undermining of unorganised players. Of course, the eventual long term winners in this dairy game will be the ones who can effectively address the concerns on both the demand & supply side. But for customers, it’s a virtual bonanza, as it means that they can have their milk & drink it too!

(End of Angshuman Paul column)

‘Playing safe’ is in...
...or is it Indian pharma’s new mantra?

(column by Manish K. Pandey)

Small is passé! Who says?! In an era of mega real estate property sale, wide-body aircraft launches and of course, colossal deals being closed globally, how can one lay a wager on anything minuscule?! But somehow, Indian pharma honchos seem to bet on ‘small being beautiful’, and have started looking at small acquisitions; so much unlike big ticket targets they were eyeing just a year back! Yes, out of the 21 coup d’états by Indian drug makers during the past year, a thumping 85% were valued between just $25–$100 million – puny when compared to gargantuan acquisitions like betapharm, Terapia and Taro made by Dr.Reddy’s, Ranbaxy and Sun Pharma respectively in the pre-2007 days! So, have Indian pharmas lost their appetite? Or is it their small size (when compared with global behemoths) that’s forcing them to? As a resopnse, Anindya Acharya, Deputy Director, Drugs and Pharmaceuticals, CII snaps, “No! It’s a well planned strategic move by the Indian pharma companies, targeted towards bettering their portfolios by entering certain niche segments rather than gobbling the entire portfolio of the prey.” Sounds convincing... until you look at a recent study by PwC. “Capital constraints can be a significant brake on growth for domestic pharma companies. About half of all the companies surveyed might be looking for deals if funding obstacles could be overcome,” the report stated. Whatever be the reason for softening of India Inc.’s motives, things look well in control at the moment. At least, the madness of going global for the sake of doing so appears to be over... or atleast we hope!

(End of Manish K. Pandey column)

The Empire Strikes Back
Scooters gear up for the next round!

After remaining close to Indian hearts for decades, the domestic scooter industry finally gave way to bikes. And even as their obituary was being penned, good old scooters are back in action. With sales crossing 340,000 units in 2006, (a whopping 17% increase over last year), scooters seems to be the flavour of the season. Small wonder that every player has big plans for the segment up its sleeve and the zing is back. Be it Bajaj, Hero Honda, TVS et al, almost all are planning to venture aggressively in the scooter mart, coupled with landmark innovations in both design & technology. For starters, Bajaj recently launched the Kristal, hence unveiling DTSI in the scooter space. The sick company LML too has relaunched its popular NV and Select series scooters in the domestic market, priced in the range of Rs.35,000. The company hopes to sell 500 units at best in the next few months, but is nevertheless confident about the future of its products. Not only this, inspired by the rapid growth, new players like Yamaha and Hero Motors are also planning to share the space with existing players, who also plan to roll out new products to increase their dominance. Considering the new-found excitement in this space, can one really call it the comeback of the scooter? Says auto analyst Urmil Negandhi, “Two wheelers industry will grow at a CAGR of 15-18% in the coming years. The major growth will come from motorcycles, while gearless scooters will also create a niche market especially among girls/women & students.” But, is that kind of growth enough to satiate the burgeoning appetites of all those gung ho two wheeler majors in India? Agreed that it would be quite a while before scooters can even begin to challenge the dominance of motorcycles, for now, the segment just seems to be gearing up for a piece of the pie.

Variety is the spice of life
In case of apparels, retailers must showcase multiple brands

(column by Angshuman Paul)

As mythological creatures once believed to rule Egypt, Sphinxes have fascinated mankind for ages. A combination of a lion’s body with the head of a human or a falcon, they were looked upon as guardians of the Egyptian statutory. Sounds great, but perhaps only in the mythological realm. Certainly, some mix & match combinations would be quite counterproductive in the real world! But when it comes to retailing giants, they are in fact thriving on this formula of having as many diverse offerings as possible under one roof. Trying his hands with one such Sphinx, Mukesh Ambani recently unleashed the company’s first hypermart in Ahmedabad. Doing activities on a gigantic scale has always been Mukesh’s penchant and this latest initiative is no exception. But what’s noticeable is that a majority of the store space is dedicated to apparels & dress materials. Apart from rolling out many in-house labels, he is also trying to ramp up his act with yesteryear’s brand Vimal. “We will be offering many of our apparel brands in this mart and will soon introduce Vimal too,” affirms Parimal Nathwani, Group President - Corporate Affairs, Reliance Industries. And he is not alone.

With the domestic haute couture market, spicing up at an extensive 10% per annum, along with a growth of 20% in the prêt-à-porter segment (according to Confederation of Indian Textile Industry), players like Ambanis, Tatas and Bhartis are giving tremendous importance to apparels in their retail plans. While, Ambanis have blended suiting material with many new in-house brands of apparels, Tatas are embracing their in-house brands with Westside. Even the obvious market leader in dress materials, Arvind Brands (of S.Kumars fame), which recently forayed into retailing, has always maintained a very clear positioning for its branded retail outlets. “Success does not come by retailing apparels in big marts. This might happen in small towns where the market is still dominated by dress materials, but not in metros. Here the success lies in retailing as many brands as one can through a single outlet,” feels Tarun Joshi, CEO, Brand House Retail of S.Kumars. Well, Joshi might be right, butthen the million dollar question arises, how Tatas or Biyanis succeeded by retailing their in-house labels? Whether it’s Pantaloon or Westside, both of these retail stores are primarily positioned as apparels retailers and lesser heed has been given to accessories. Affirms Pavas Bhatia, Analyst, Technopak, “In metros, apparels retailing has the highest margins and these players, while offering their own apparel brandshave focused more into exclusively retailing apparels. But, if you are retailing other products with apparels, then act as pure retailers. Don’t create you own labels.” So, it seems that while branding in the retailing world, the mix & match approach works best. After all, Indian customers are sticklers for freedom of choice!

(End of Angshuman Paul column)