Why big dairy companies struggle in india

You know who’s got milk?

India. India is the world’s biggest
producer and consumer of dairy.

In 2018 alone, India produced 186 million
metric tonnes of milk — about

410 billion pounds and 22 percent
of the milk produced globally.

Almost all of that is consumed
domestically thanks to India’s dairy-heavy

diet — think creamy curries, yogurt drinks,
and a popular type of butter

called ghee.

A quick note before we proceed:
this includes milk from buffaloes, which

are an important source of
milk in many developing countries.

the point is that India loves milk.

In 2011, the French dairy company Danone
hoped to capitalize on this by

opening a division in India.

Danone opened its own processing plant
in Haryana and tried to capture

some of India’s 1.2

billion dairy lovers.

But less than a decade later,
Danone shuttered their dairy business in

India. That same year, the company
made 28 billion dollars worldwide and

was in the top
three global dairy companies.

With all this success, elsewhere, why
did Danone’s dairy business sour in

India?

Let’s start with some
background on Danone.

Their business is broken down
into three categories: specialized

nutrition, like supplements and formula
for babies; bottled waters and

seltzers; and dairy
and plant-based alternatives.

That one makes up over half of their
global sales, but it’s also the one

that failed in India.

Danone does still sell specialized nutrition
products in the country, but

they don’t break out
those sales figures separately.

Oh, and yes — this is the
same company as Dannon in the U.S.

The company decided to rebrand to
make the spelling less confusing for

American consumers.

Anyway, now for some background
on India’s dairy industry.

There are about 75 million
dairy farmers in India.

Most of them are women who own one
or two buffaloes or cows to supplement

the family’s income.

Nearly half of India’s milk is not
sold, but consumed by the farmers

household. This makes India’s dairy
industry far more fractured and

localized than other countries
where Danone operates.

Take the company’s native France and
one of its biggest customers, the

U.S. Each has far fewer dairy farms
with herds that dwarf India’s one or

two animal average.

This was Danone’s first big problem
in India: sourcing milk is difficult.

Of the half not consumed by
farmers’ households, only about 15 percent

goes to big organized companies
or government run cooperatives.

The rest goes to hundreds
of small, local milk processors.

Even the largest companies like Amul,
Mother Dairy, and Nestlé have tiny

percentages of the market, and
they’ve been there for decades.

Market research firms Mintel and
Euromonitor declined to release specific

market share numbers to CNBC.

However, a 2016 piece in The
Economic Times of India citing Euromonitor

put the figures at about
7 percent for Amul, 3.7

percent for Mother Dairy, and 2.9

percent for Nestlé.

In short, tapping into the existing
dairy infrastructure is effective but

time consuming.

Imagine the effort of contacting dozens
or hundreds of local and regional

dairies, processors, or
individual farmers.

But establishing a separate supply chain
altogether is very expensive —

a lesson Danone learned the hard way.

And when Danone did get milk, the
company focused on the wrong products.

Danone pushed plain yogurt and flavored
yogurt drinks — popular in places

like the U.S.

and France with high
profit margins to boot.

But in India around the time when
Danone arrived, yogurt comprised only 7

percent of the dairy consumed.

The real money was in ghee, a
type of clarified butter, and plain old

fluid milk, a product with razor-thin
margins dominated by those hundreds

of local small-scale producers.

Analysts explained to CNBC the simple
reason why Indian consumers shunned

Danone’s prepackaged yogurt.

And if Indian consumers did want to buy
premade yogurt, they had a slew of

cheaper options than Danone.

Dairy never accounted for more than 10
percent of Danone’s sales in India,

a far cry from its global 50 percent.

Its specialized nutrition arm picks up
the slack, and the company

announced a renewed focus on that
division when it shuttered its dairy

operation. Meanwhile, two of their
biggest competitors, Amul and Nestlé,

made nearly five billion and
750 million from dairy, respectively.

But not all hope is lost
for Danone’s dairy in India.

In January 2018, the same time
that Danone ended its dairy production

there, the investment arm of the company
announced its part in a 26.5

million dollar investment in Epigamia,
an Indian yogurt startup.

This could be a sustainable move
for Danone in India’s dairy industry

because Epigamia offers consumers products that
add value onto the plain

yogurt they can make cheaply at home.

But perhaps most importantly is this:
while much of the population still

makes yogurt the old-fashioned way, analysts
predict that a growing number

of consumers will want to buy premade
options as they move into corporate

jobs in developing urban centers.

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