India’s Biggest Dairy Is Betting On Eating-Out Boom

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More Indians are eating out as a growing economy boosts incomes. That’s what the No. 1 dairy in the world’s biggest milk-producing nation is betting on to extend its dominance.

Amul expects its next wave of growth from institutional sales—supplying everything from milk and curds to butter and cheese to hotels, restaurants and caterers. The target is to increase the share of so-called HoReCa in its sales from 7-8 percent to 25-30 percent in five years. Nearly 80 percent of its revenue comes from retail consumers now.

As incomes increase, people have started eating out more and that will boost demand for dairy products, RS Sodhi, managing director at Gujarat Co-operative Milk Marketing Federation Ltd., the maker of Amul-branded products, told BloombergQuint at its headquarters in Anand, Gujarat. “In any celebration, you see a lot of value-added dairy products. It’s a growing market.”

Increasing urbanisation, changing consumer lifestyles and half the population below 24 years in a country of $1.2-billion people is driving the expansion of the restaurant and catering industry. It’s expected to hit Rs 5.5 lakh crore by 2022, growing at an annualised rate of 10 percent from Rs 3 lakh crore in 2016, according to a National Restaurant Association of India-Technopak report.

Global fast-food chains like McDonald’s, Pizza Hut, Domino’s and Baskin-Robbins have already expanded across the country, opening outlets in smaller cities and towns. Restaurant chains like Barbeque Nation and Pind Balluchi are now present even in cities like Bhopal, Kolhapur and Raipur. That’s encouraged a new crop of owner-entrepreneurs to start cafes and restaurants. They will all need milk, cheese, butter and more, boosting the country’s Rs 5.5-lakh-crore dairy market. Amul, which sources milk from what is the country’s largest network of cooperatives, has been at the forefront of India’s white revolution that started in the 1970s and turned the nation into the world’s largest producer and consumer of milk. The company collects 25.5 million liters of milk a day—30 percent of the organised market. Revenue stood at Rs 27,000 crore in the year ended March 2017.

The focus so far was retail, unlike in the developed markets where institutional sales contribute around 50 percent of the revenue for dairy products makers, Sodhi said. The company already supplies to clients like the Taj Group of Hotels, The Marriott and ITC Hotels, he said.

What Amul’s trying is not new. Its smaller peers like Parag Milk Foods Ltd. and Prabhat Dairy Ltd. get a bulk of their revenues from HoReCa, according to company filings. That’s because the two relied on supplies to restaurants and cafes to drive volumes before turning their focus to retail.

Amul is looking to increase its dominance by growing its market share and revenue, said Dhanraj Bhagat, consumer and retail partner at consultancy Grant Thornton India LLP. That’s logical with institutional sales growing at a strong pace as the number of food outlets is rising, he said.

Amul dairy plant in Anand, Gujarat. (Photograph: BloombergQuint)
Amul dairy plant in Anand, Gujarat. (Photograph: BloombergQuint)

Yet, most Indian households don’t have the financial means to eat out, Nielsen said in a report quoting data from the National Sample Survey Organisation which captures consumption patterns of more than 400 items across India. One in every third Indian, World Bank’s 2016 report said, survives on less than $1.9 a day—that’s the highest number of people living below the poverty line in any country.

Urban Indians spend an average Rs 6,500 a year on eating out, with a wide gap in expenditure between different income groups. And it’s mostly driven by the affluent —a cohort that earns Rs 10 lakh or more a year and falls in the highest tax-paying category. Only 3 percent of the middle-income households earning Rs 3-10 lakh a year eat out, the Nielsen said, compared to 10 percent for the affluent.

Amul dairy plant in Anand, Gujarat. (Photograph: BloombergQuint)
Amul dairy plant in Anand, Gujarat. (Photograph: BloombergQuint)

That’s still a big market in a country of 1.2-billion people. Moreover, the focus on institutional sales will not come at the cost of Amul’s retail market. It’s increasing the capacity of value-added products like curds, processed milk and cheese.
The country’s largest dairy products maker spends $200 million (about Rs 1,300 crore) a year to increase capacity. Indians are consuming more, making the nation the fastest growing market.

While India is the largest producer and consumer of dairy products, its per capital consumption is lower than the global average. As Indians consume more protein, demand will grow, Sodhi said. “That’s what makes the market attractive to even international dairy companies.”

Source: Bloomberg Quint

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