Mother Dairy Fruit & Vegetable Ltd-
Retailing - India-Strategic Analysis Report
Strategic Direction
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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