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BW Businessworld

Corporate: Heart Of A Mother

Milk products major Mother Dairy puts farmers’ interest and consumer benefits above all. Its mission has been accomplished, but profit margins are floundering. Will an expansion spree turn the noble venture around?

Photo Credit : Ritesh Sharma

It functions and competes in the marketplace like any other fast moving consumer goods company, with one difference — Mother Dairy Fruits & Vegetables (MDFVPL) operates on wafer thin margins. Commissioned as a wholly-owned subsidiary of the National Dairy Development Board (NDDB) in 1974, Mother Dairy never did have profit at the core of its business strategy. The NDDB was part of the Operation Flood initiative, the world’s biggest dairy development programme, launched to make India a milk sufficient nation. Protecting farmers’ interests and providing milk and vegetables at reasonable prices have always been part of its social obligation, but now the business of the Delhi-based company is stagnating. Mother Dairy’s milk business, accounting for 65 per cent of its revenue, is shrinking on its home turf – the National Capital Territory. The MDFVPL management is worried. It now wants to take the production and distribution of milk and dairy products, fruits and vegetables, beyond the NCT to the rest of India, hoping that the expansion would spur the next level of growth.

The 2015-16 financial year was perhaps, MDFVPL’s worst year in half a decade. The company is expected to close its books with less than 2 per cent growth over the previous year. In 2012-13, Mother Dairy had clocked nearly 10 per cent growth in turnover, while its average growth rate for the previous three years had been 8.2 per cent. Across an expanded horizon of five years (2010-11 to 2014-15), MDFVPL’s compounded annual growth rate (CAGR) was a healthy 13 per cent. Mother Dairy expects a marginal growth in its 2015-16 turnover over the previous year, when it clocked a turnover of Rs 6,930 crore.

One reason for the stagnation in revenue could be the stagnant retail prices of milk since May 2014, notwithstanding an increase in procurement costs. In April this year, the company increased payouts to farmers by Rs 2 a litre, but ruled out increasing milk prices till June. Mother Dairy has no choices now, but to hike milk prices as milk accounts for 65 per cent of its turnover. “We work on very thin margins,” said S. Nagarajan, managing director, Mother Dairy Fruits and Vegetables. “We are witnessing a decline in customer footfalls in our milk shops primarily because the customers are seeking convenience by having milk delivered at their doorstep among other factors,” he added.

In papers filed with the Registrar of Companies — a mandatory requirement for all companies incorporated in India under the Companies Act — the MDFVPL board of directors indicated why the company was different. The papers stated: “The philosophy of the company is slightly different from other mercantile organisations. The primary objective is to ensure fair price to farmers and at least partial protection to them against the vagaries of the uncertain market conditions. These, while delivering highest quality to consumers at an affordable price and at the same time addressing the nutritional requirements of the country.” Even so, the business needs to grow. The company’s net profit has hovered between Rs 30 crore and Rs 39 crore over the last three financial years, which was significantly lower than that of rivals in the business of dairy-based products.

Milking The Business
Mother Dairy’s milk business comprises Bulk Vended Milk (BVM) and Poly Pack Milk, of which the latter includes variants like standard, toned, double toned, full-cream and skimmed milk. Insiders say the company has been steadily losing sales of BVM in Delhi and the National Capital Region (NCR) over the last couple of years. In 2014-15, milk volumes in the NCR declined by 6 per cent leading to a loss of 5.6 lakh litres per day. “Availability of loose milk at low prices led to many of the bulk buyers shifting to loose milk purchase due to the price advantage,” the company said. Fading customer footfalls at Mother Dairy milk booths has proved to be a real challenge for the company. Company sources blamed factors like the depressed demand for dairy commodities in the domestic and international markets and the resulting abundance of milk, for the low growth in revenues.

“Mother Dairy took a price reduction in liquid milk in select markets of Mumbai and East UP to pass on the benefit to consumers. Similarly for dairy products, a few categories like curd, ice cream, etc., also saw some price reduction to drive volumes resulting in lower sales realisation,” MDFVPL said in a written response. Nagarajan said the current fiscal had also been hit by climatic disturbance during peak summer, which impacted some dairy product categories.
In 2014-15, Mother Dairy achieved a turnover of Rs 6,930 crore and an overall growth of 8.8 per cent, with its milk and value-added dairy products business growing by 16 per cent. The company’s edible oil business grew 2 per cent. Its horticulture business, however, fell 6 per cent.

Counter Strategy
Mother Dairy is now pushing sales of polypack milk in markets like Mumbai, Pune, Hyderabad, Jaipur, Chennai and Tirupati. In the 2014-15 financial year, it recorded a growth of 19 per cent in turnover from sales beyond Delhi and the NCR. Mother Dairy also test launched BVM in Mumbai through automated vending machines. The initial response was very encouraging. Customers appreciated the practically adulteration proof milk, along with the flexibility of being able to buy either by quantity or for a specific amount.

Meghnad Mitra, chief financial officer at Mother Dairy, said the company had a strong balance sheet, high credit rating and strong corporate governance systems. “Our strength is our backend capability and in the coming years we are going to invest in the front end to drive brand salience along with revitalising our retail formats making it more relevant in today’s scenario and at the same time expand our go-to market footprint. We will also look at the possibility of forming alliances with strategic partners to enter into adjacent categories and new markets,” Mitra said.

To drive the growth of its fruits business, Mother Dairy has been focusing on the quality and assortment of fruits. Last year, mangoes were directly sourced from Odisha and introduced in Delhi for the first time. Jharkhand has also been explored as a new source for fresh fruits. “This will be further leveraged in the succeeding years,” Nagarajan said. Mother Dairy’s Safe Fruit Campaign, bearing the tagline, ‘khud pakao, surakshit aam khao’ (eat safe mangoes, ripened at home) is in its fifth year. The campaign strives to strengthen, create and promote chemical-free ripened mangoes. The ‘SAFAL’ brand of pulses, launched in MDFVL’s own stores in the Delhi NCR last year, is now available in general trade as well. In the frozen products category, MDFVPL has launched Aloo Tikki in a new pack and introduced two new products during the last financial year, namely Spinach Block and ‘Aloo Methi’. The company continues to consolidate its leadership in the consumer pack business.

Brand Mother Dairy

The company is going all-out to leverage on brand Mother Dairy. So far, its annual spending on advertising and promotions have hovered around Rs 100 crore – Rs 105 crore. These numbers are going up in the current financial year. Mother Dairy has already joined the Indian Premier League (IPL) bandwagon by becoming the principal sponsor of the Delhi Daredevils — which incidentally, is at its best performance across nine IPL editions. It has new products on offer and has already re-branded its curd. “Our regional delicacy launch of Nolen Gur ice cream is a treat for the Bengali community and their love for the flavour. I am confident that the newly launched ice cream will appeal to consumers just like our Mishti Doi and Aam Doi,” said Subhashis Basu, business head – Dairy Products, Mother Dairy.

In the 2014-15 fiscal, Mother Dairy’s dairy products business comprising ice cream, fresh dairy products and the probiotic range of products, like cheese, butter, ghee and ultra-heat temperature (UHT) pasteurised milk, had grown by 16 per cent to record a turnover of Rs 887 crore. The business crossed the Rs 1,000-crore mark in the 2015-16 fiscal. The pulp business that registered a growth of 11 per cent in turnover and 9 per cent in volumes during 2014-15 is also going strong. The company has already added 24 new customers across geographies. It has been leveraging brand Mother Dairy through its UHT milk, ghee, Dhara edible oil and frozen vegetables through exports to the Middle East and Far East Asian countries for three years. At the back end, Mother Dairy has been developing high-density plantations of Totapuri mangoes, as part of its crop production improvement programme. The Dhara brand of mustard oil variants continue to be a focus area for Mother Dairy. The company is adding two more plants (third party) to its tally of 12 plants (own and third party) to achieve its targeted growth in volumes in this business.

E-commerce is a market-place like any other, be it modern trade or general trade. Mother Dairy is already a part of the e-commerce ecosystem and its products are available on leading platforms, like Big Basket and Groffers. “We are getting encouraging responses from this channel and it will grow as we move ahead; and hence we are in the process of strengthening our presence in the network,” said Basu. He said the company was observing and exploring the e-commerce marketplace and would take a call on a direct presence in it at an appropriate time.

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