The new cold wars

FM channels this summer were full of ads eulogising the virtues of ‘real’ milk ice creams over frozen desserts, which are made primarily from vegetable oil. The message from India’s largest ice cream player was loud and clear: Go for Amul and not frozen desserts, offered by the likes of Hindustan Unilever (Kwality Walls) and Vadilal.

It is for the first time since Amul entered the ice cream business 17 years ago that the dairy giant is going all out to defend its milk-based ice creams from the onslaught of frozen desserts over a mass medium. And it is not without reason: Frozen desserts have grabbed nearly 50 per cent share of the Rs 1,500-crore organised ice cream-plus-frozen desserts market in India. In fact, Amul and HUL sparred over the category last year and it was upon Amul’s complaint to the Advertising Standards Council of India that Hindustan Unilever was forced to begin referring to its wares as frozen dessert and not ice cream.

Even in terms of value (revenue) market share, frozen desserts are giving milk-based ice cream makers such as Amul and Mother Dairy a tough fight. While Gujarat Co-operative Milk Marketing Federation (GCMMF, which owns the Amul brand) is expected to lead value sales in ice cream with a share of 31 per cent in 2012, Kwality Walls has strengthened its position with a 20 per cent share in 2012, according to research firm Euromonitor International. Other major players are Mother Dairy and Gujarat-based Vadilal Industries.

The cost advantage

The reasons behind frozen desserts marching ahead are not tough to fathom. The economics of the business is tilted in their favour. While a litre of vegetable oil costs Rs 60, milk fat costs Rs 300. This means costs are lower for frozen desserts and the benefits can be passed on to consumers, at marginally lower selling prices.

Players in the frozen desserts segment are also able to divert the savings in costs to advertising, sales promotion and increased channel commissions, says an industry veteran on condition of anonymity. While Amul is offering margins of 15 per cent to its retailers, those offered by Vadilal are in the range of 18 per cent and 20 per cent. Vadilal offers both frozen desserts and milk-based ice creams.

Kwality Walls, with the backing of its parent, fast moving consumer goods (FMCG) giant Hindustan Unilever (HUL), is able to spend aggressively on advertising. It is also providing, free of cost, the freezers used in grocery shops and restaurants. In contrast, Amul charges Rs 15,000 to Rs 25,000 depending on the size of the freezer. HUL’s revenues from the frozen desserts business grew 30 per cent to Rs 355 crore during FY12. This is higher than the industry growth rate of 15 per cent.

Mother Dairy Managing Director S. Nagarajan said while milk-based ice creams are more popular at the upper end of the consumer segment, frozen desserts are gaining rapid share in the catering segment and quick service restaurants. “The concern (for milk-based ice cream makers) is from the volume segment of caterers and restaurant chains, as prices play a big role here and frozen desserts are priced marginally lower than milk-based ones,” he told Business Line.

Rajesh Gandhi, managing director of Vadilal Industries, added that in terms of taste and nutrition value, frozen desserts are close to ice creams, making them a hit with consumers. That also explains why their market share is growing rapidly.

Know the difference?

However, R. S. Sodhi, managing director of GCMMF, said consumers are buying frozen dessert thinking it's ice cream. “Frozen desserts are masquerading as ice creams. With the low cost of ingredients, they must be priced at 30 per cent less, but that is not the case. We are trying to make consumers aware of the difference,” he said, referring to Amul’s anti-frozen dessert campaign.

As per The Prevention of Food Adulteration (PFA) Act & Rules, ice cream is defined as a “product obtained by freezing a pasteurised mix prepared from milk and/or other products derived from milk.” Frozen desserts are “products obtained by freezing a pasteurised mix prepared with milk fat and/or edible vegetable oils and fats in combination with milk protein and/or vegetable protein products.” They typically use palm oil or coconut oil.

Amul’s campaign is similar to the one by Canadian dairy farmers where a barrage of advertisements and a special logo are being used to distinguish products made with milk from oil-based desserts. Sodhi draws a parallel with margarine and butter, saying that while the former looks like butter, it actually is not, and is not even priced at the same level. Margarine comes at almost a third of butter’s price and the same should be the case with frozen desserts, he adds.

While milk-based ice cream makers are going all out to establish their products as the real thing, consumers are not likely to give up on frozen desserts anytime soon.

With the backing of big brands, the growth of frozen desserts is unlikely to slow down. And as Mother Dairy’s Nagarajan said, “The only way for ice cream makers to stay ahead is through product innovation and introduction of newer flavours.”

Ice Cream fast facts:

1) Total Market size (organised+unorganised) – Rs 3,000 crore

2) Annual per capita consumption in India: 350 ml

3) Annual per capita consumption in the US: 23 litres

4) Vanilla, strawberry, butterscotch and chocolate flavours constitute around 80 per cent of the total market

5) Average fat content in ice creams: Premium – 16%, Regular – 12%, Medium – 9%, Low – 6%

Source: Ernst & Young