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Thursday, Jun 24, 2004

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The ice-cream punch

Sindhu J. Bhattacharya

WHAT makes multinational brands want to cater to the Indian market, especially in a category like ice-creams, where the market has been stagnant and competition among existing brands intense? Pose this question to Madhu Parikh, CEO of Universal Dairy Products, which is selling the Cream Bell brand of ice-creams in India, and he tries to hide a smile.

"Well, obviously we want to be in India! It has the right climate for ice-cream consumption; the country has a very low per capita consumption, which means large untapped potential; and our ability to maintain competitive pricing - all these reasons make us want to be in India," he says with a shrug.

While it sounds plausible enough, one begins to wonder whether Parikh's optimism is misplaced. Take a look at the state this Rs 750-crore market is in today. Not a single multinational brand has been able to make its presence felt in ice-creams in India as the market continues to be ruled by Indian brands such as Amul, Kwality Walls, Mother Dairy, Vadilal and several regional ones such as Dinshaw in the West and Arun in the South.

The MNCs who tried to brave Indian conditions have all had to scale down their expectations. Swiss brand Movenpick, having parted ways with its local franchisee, Ravi Jaipuria, sometime in 2002, mainly because of steep pricing, is now being distributed through third-party arrangements though the brand visibility appears to be very low. In a global buy-out, the brand was bought by Nestle SA last year but the Indian operations of Nestle still do not handle Movenpick. The brand, industry analysts say, found it difficult to achieve economies of scale.

Again, while Baskin Robbins India CEO Pankaj Chaturvedi says the company has registered 12 per cent growth at Rs 18 crore last fiscal even after making no more price reductions, it is far from being in the reckoning even among the top five ice-cream brands in India.

Other MNC brands, which evinced interest in the country, such as Haagen-Dazs and Blue Bunny, have also not taken the plunge, given the uninspiring response MNC brands in general have got from Indian palates. So what then makes Parikh confident?

Firstly, French major Candia (which owns Cream Bell brand) has taken the joint venture route to enter India, so all investments will be made by the local partner. The joint venture plans to invest Rs 50 crore in the Indian market by 2005 in manufacturing, logistics and brand building. Then, taking lessons from others' debacles, Cream Bell ice-creams have not been premium-priced but are very much in line with competition.

Also, the company is expecting to achieve economies of scale by next year, when it hopes to go national while keeping its Indian stint very low-profile.

But even as Cream Bell is making slow inroads into the Indian ice-cream market, a fierce war is going on within the domestic manufacturers.

Says General Manager Marketing of Gujarat Cooperative Milk Marketing Federation (GCMMF) R. S. Sodhi, "We want to make Amul a Rs 1,000-crore brand by 2010. Which is why we've expanded the market with a host of new launches and created brand new segments within ice-creams."

Amul's strategy to grow in a difficult market this summer has been to offer international variety at prices in tune with the Indian market. Sodhi claims Amul is up to 50 per cent cheaper than other brands such as Kwality Walls. And the company is not pausing for breath but has begun introducing a host of flavours this summer.

Fashioned on the super premium ice-cream range Dreyer TM, Ben & Jerry and Haagen-Dazs, Amul's offering comes in 100 ml packs in several flavours such as Alphonso Mango, Date with Honey, Fig, Cheese with Almonds and even Rajbhog!

Hindustan Lever, which restructured its ice-cream business during the late '90s by merging several brands with Kwality Walls, has decided to concentrate on only six metros in the country, having realised the returns from servicing other smaller markets were inadequate.

So, even as multinational brands such as Candia are working hard at becoming a national brand, Kwality Walls has actually followed the reverse path to survive by confining operations only to the major metros.

And the key to growth in this aggressive market still remains pricing. To make matters worse, prices of milk, milk fats and other raw materials have increased sharply this summer, further squeezing margins. The early monsoons in most parts of the country too have affected ice-cream sales. Points out R. G. Chandramogan, Managing Director, Hatsun Agro, which owns the Arun brand, "It's been a comparatively stagnant market with a growth rate of just 7-8 per cent this summer; shares must have shifted from player to player without the market really growing." It doesn't help too that today there are many more items that are vying for share of pocket of the consumer and ice-creams are just one of them. Excise duty of 16 per cent on ice-creams and sales tax, which varies from 10 to 15 per cent in various States, doesn't help its cause too.

But most players agree passing on the price hike to consumers has not been considered. Says J. H. Mehta, Executive Director (Ice-Creams), HLL, "Yes, both skimmed milk powder and milk/fat prices have increased this summer but the industry has not been able to pass on these cost increases in pricing because of sluggish markets and intense competition."

GCMMF's Sodhi avers that while MRP has not been hiked, many brands have resorted to cutting down the milk/fat content in ice-creams to offset the raw material cost increase. "There is no other way out at present," he says.

Other than keeping a strict watch on pricing, the only way out for domestic brands is to continue innovating. For summer 2004, Kwality Walls has focussed on creating excitement through a range of affordable and different flavours. Hence its `Twister' series of ice-creams in several flavours for kids, lower-priced sundaes under the Viennetta series for the discerning consumers and introduction of Sundae combo offers. Coinciding with the last festive season, HLL had introduced Vanilla Surprise, strongly differentiated from the low-priced commodity vanilla products, and a range of new sundaes in Kool Khubani, Choco Dry Fruit Dhamaka and Kamaal Karamel flavours.

Arch rival Amul has also launched a host of innovative products this summer. These include Santra Mantra in an orange-shaped container, strawberry and mango cones.

Down South, Arun, which holds a 56 per cent share of the TN market, and an overall 33 per cent share in the Southern markets, is now experimenting with what for it is a new format - a company-operated parlour in the upmarket Spencer Plaza in Chennai. Done up in a steel and glass shell, with water running around it, Arun Ice-creams Unlimited, its new format, serves up a range of sundaes at what it describes as affordable prices. If it clicks, Arun plans to extend this concept of exclusive parlours. It now operates through a chain of 1,200 franchised outlets.

However, despite all attempts to heat up the Indian ice-cream market, a lot of ground still remains to be covered. Per capita consumption of ice-cream in India is still a dismal 106 ml per annum against 22 litres in markets like the US. A price hike is out of the question even if input costs rise. An industry observer points to HLL's aggressive takeover trail in the early '90s when it gobbled up Cadbury's Dollops and the Milkfood and Kwality brands. Says he: "HLL promised much but as a potential market leader, it didn't give the market the right inputs and impetus to grow enough." He adds that only players for whom ice-cream is part of a larger portfolio of products can survive. For example, for Hatsun Agro, which has a turnover of Rs 500 crore, Arun ice-creams are only a Rs 35 crore business, or seven per cent of its sales. The rest is in milk. Similarly, for Amul, which has a share of 22-25 per cent of the market, its large milk business sustains its ice-creams business and for HLL its ice-creams business is but a blip on its sales.

It looks like ice-cream makers have a long way to go before they can really set the market on fire.

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