It’s again about money, honey

Amrita Nair Ghaswalla Mumbai | Updated on January 19, 2018

Varied tastes Food products that are popular in the West, such as flavoured yoghurt, find few takers in India

Like other MNCs that quit the country, pricing was mostly behind Danone’s exit from Indian dairy sector

Exactly a year after Swedish company SCA decided to pull the plug on its hygiene business in India, citing lack of profitability in the market, French multinational food products corporation Danone has announced its intention to exit the dairy business in India.

“This is the third exit in the recent past, with Libero, the Swedish hygiene company, and GM, the global auto giant, having stopped their operations in India in 2017. For a foreign brand, India is not an easy market to penetrate,” said N Chandramouli, CEO, TRA, a brand data insights company.

Just five days before its exit announcement, Danone had roped in upcoming cricketing sensation Prithvi Shaw as the brand ambassador for its Protinex brand.

Strong categories

Danone will continue to remain invested in India through well established brands like Protinex, Aptamil, Farex, Dexolac and Neocate.

It started its dairy business in the country in 2010.

In 2012, it entered the nutrition market here by acquiring a portfolio from Wockhardt.

As recently as in March 2017, Danone had said it was looking to expand its Indian dairy business extensively by 2020, with plans to launch a Greek yoghurt product.

Danone’s exit also comes amidst growing consumption in the India market, with a report by Edelweiss Securities noting that the nation’s dairy industry is set to leapfrog from ₹5.4 lakh crore by value in 2016 to ₹9.4 lakh crore by 2020. So what exactly went wrong? Brand experts insist that commodities that are taken for granted in the West (like flavoured yoghurt) might not have the same kind of penetration in India, and that pricing is always a major issue here.

Premium end

The French dairy giant has always targeted the premium end of the market. For instance, its 150 gram curds costs ₹25, while leader Amul’s is at ₹22, and Nestle India and Mother Dairy retail at ₹25 for 200 gram.

Incidentally, in 2002, Britannia ended its decade-long association with Groupe Danone, even as it formed a joint venture with New Zealand-based Fonterra Dairy. However, by 2009, after recording losses, Fonterra exited and sold its 49 per cent stake to Britannia.

“Take a look at what Britannia is doing,” said an official at Motilal Oswal Securities, commenting on how pricing is key to grabbing market share and branding.

“While Britannia has launched lower unit packs for its cream biscuits, offering value for money and also catering to customer aspirations, one of the key highlights of its Q2 FY18 conference call was how its breads and dairy businesses posted double digit growth with improved profitability,” he said.

Danone said its decision was based on the fact that its dairy and related units were making minimal contributions to the company’s annual revenue.

For GM too, its decision to exit India hinged heavily on the profitability factor, say brand experts. GM decided to pull the plug off domestic sales in India and concentrate only on exports in a move that was in line with the automaker’s retreat from parts of the world where its profits were lagging.

Experts maintain that brands also need to pay closer attention to the needs of Indian consumers by “offering the customisation the local market requires.”

Customisation matters

“To garner the trust of Indians, a brand needs to have an intimate understanding of the frequent contradictions in cultures that different parts of India exudes,” said TRA’s Chandramouli.

“A Keralite is closer to a Bengali in eating and political cultures, but has no connection of language or geography,” he added.

Similarly, a “Maharashtrian and Gujarati are proximal by geography, at one time under the same statehood, but do not share the language, food or other habits. Only a few International brands, notably the Korean brands like Samsung and LG, have absorbed the unique Indian flavour well, and thereby have become leaders in India.”

Published on January 19, 2018

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