Strategic Direction
Mother Dairy expects its revenues to grow by over 45% during the next two years, to reach Rs40 billion by 2010. To accomplish this, it will expand into more product markets; offer new products and new categories; and extend its brand presence into more cities and towns across India. The company plans to offer its branded products across India primarily through organised retail chains, such as supermarkets and hypermarkets, as well as small independent grocery retailers, and not necessarily by opening its own outlets. Over the period to 2010, Mother Dairy plans to enter rural markets across the country, prior to which it will establish the necessary logistics infrastructure, such as cold chains.
In parallel, the company will focus on restoring profitability, having recorded a net loss of Rs326 million in the 2006-2007 financial year. The company attributed the losses to its phased price increases, which did not keep pace with sharp rate of increase in prices of fresh milk and milk commodities during the period. It chose to increase prices in phases to reduce the overall economic impact of a sharp one time increase on consumers.
Company Background
Mother Dairy Delhi was set up in 1974, by the National Dairy Development Board (NDDB), under the Operation Flood programme for the development of dairy products in Delhi and North India. This was followed by the establishment of the Fruit & Vegetable Project in 1988, under the brand name Safal, along the lines of the dairy programme. Subsequently, the dairy and fruit and vegetable projects run by NDDB were merged in April 2000, with the new entity being renamed Mother Dairy Fruit & Vegetable Ltd. The holding company was established with two separate divisions, one for marketing – Mother Dairy India Ltd – and one for processing – Mother Dairy Foods Processing Ltd. The processed vegetable products are sold under the brand name Safal, which includes frozen vegetables, jams, juice drinks and frozen snacks.
Mother Dairy is a food specialist, with a chain of stores under the brand name of Mother Dairy Milk Shops, through which the company retails it range of dairy products in Delhi and the National Capital Region (NCR). Some of these outlets also retail the fresh vegetables brand Safal. Mother Dairy’s business operations are organised into six divisions – fresh milk, fresh dairy products, ice cream and frozen vegetables, oil/ghee, modern retail format stores and institutional sales. To achieve growth in profits, it is working on maximising the synergies in its business.
During the last three years, the company has selectively expanded its outlets into major cities across India, thus spreading its focus of coverage beyond North India. According to recent estimates, it has around 800 outlets for milk in Delhi, 400 vegetable and fruit outlets in Delhi, 25 in Jaipur, and 20 in Bengaluru. While it has an extensive retail network in Delhi and NCR, Mother Dairy does not have a comparably significant retail network presence in other parts of the country. However, it has made its brands available in major consuming centres in the country, in Haryana, West Bengal, Punjab, Rajasthan, Uttaranchal, Uttar Pradesh, Maharashtra, Andhra Pradesh and Gujarat. In 2008, it launched three lines in the fresh milk category in the retail market in Pune. It was also scheduled to introduce its fresh milk offering in Nagpur by the end of 2008.
New product introductions in ready-to-eat food, oils and dairy products drove revenue growth during 2007 and 2008. Leveraging its know-how in frozen vegetables, Mother Dairy is currently in the process of expanding the portfolio of its frozen vegetable brand Safal, from peas to mixed vegetables and sweet corn. In 2008, it introduced a Tea Special milk variant, which is expected to provide it with a first mover advantage in the category. In mid-2008, Mother Dairy added more flavours to its ice cream portfolio. It also introduced dairy products in the upper-end segment, such as probiotic foods, comprising plain yoghurt and lassi.
Towards the end of 2008, Mother Dairy reduced the prices of vegetables, in a context of rising prices. It launched a scheme that made a host of vegetables, including cauliflower, cabbage and potato, available in the range of Rs5-10 per kg, in its outlets in the National Capital region. Volume sales of vegetables rose strongly after the price reduction, with average daily sales turnover of over 300,000 kg.
Mother Dairy also exports its range of dairy products, fruit pulp, pastes, purées and concentrates to various markets. To cater to overseas demand, it has established a 100% export oriented unit, with a capacity for processing over 15,000 tonnes of fresh produce annually.
Private Label
Mother Dairy’s brands are private labels, as these are produced by the company under a perpetual licence. However, this is different from the typical concept of private label products in the retail industry, as Mother Dairy’s primary activity is manufacturing its own brands, and it has a dedicated retail network for its own brands.
Competitive Positioning
Through its 1,025 stores, Mother Dairy Milk Shops remained the leading food/drink/tobacco specialist in India, with a value share of 1% in 2008. Mother Dairy outlets are located only in Delhi and the National Capital Region, with fresh milk and other dairy products sold through these outlets. Mother Dairy also retails its various products through other independent outlets, and hence not all sales of Mother Dairy’s products take place through its own outlets.
In 2008, Mother Dairy initiated multi-pronged measures to increase sales revenue and profits. It increased distribution coverage of its brands into major consumption centres across India; focused on becoming more competitive in quality and service; and customised its product portfolio in oil to meet diverse regional requirements. It broadened its range of oils from mustard, groundnut and sunflower to include soya bean and cotton seed oil. It also introduced extra virgin olive oil imported from Spain, packaging and distributing it in 30 markets across India.
Since milk and dairy products are the major products retailed through Mother Dairy’s stores, Mother Dairy Milk Shops are positioned as mass market outlets. Most Mother Dairy outlets are standalone establishments located in residential areas. Given their focus on selling milk, these outlets are often open for long periods, opening early in the day and remaining open until late at night. No credit facilities or loyalty schemes are offered through these stores to customers.
To launch its fresh milk brand successfully across India, Mother Dairy is trying to overcome its lack of a captive source of milk supply. It is in the process of finalising captive sources of milk supply, and establishing exclusive captive third party plants. It has achieved some measure of progress in this, having developed three captive sources of milk across the country – the seven Saurashtra districts in Gujarat, districts in west and central Uttar Pradesh, and the Chittoor district in Andhra Pradesh.