The value-added market has taken the dairy industry by storm

By Samarth Setia, CEO & Co-Founder, Mr Milkman

The value-added market has taken the dairy industry by storm. As the spending capacity of Indians is increasing, so is their willingness to buy healthier, superfoods which we like to call as value-added products. Value-added products in the dairy industry are products like cheese, paneer, ghee, yoghurt, probiotic drinks etc. These are products which have been created by alteration, enhancement via additives, segregation etc. of liquid milk. Adaptation of various methods to create a more profitable product out of milk has allowed dairies and FMCG companies to make good revenue out of a mostly loss-making SKU, liquid milk.

Magnitude of production steadily increasing

While packaged liquid milk continues to remain a key driver in the Indian Industry, value-added products are promising growth of 15 percent to 20 percent year on year that has varied products like cheese, UHT milk, curd, baby foods, ice-cream, butter, flavoured milk and dairy whitener.

The Rs 25,000 crore value-added dairy products industry is set to outpace liquid milk sales by 2021, as per a Crisil report.

End consumers, in addition to milk, tend to buy the value-added products of the same brand, which adds to the Dairy’s sales. As the production and consumption of milk is increasing in India, so is the opportunity to sell these value-added products to an existing, loyal customer.

The organized sector is realizing the dire need to pull up its socks with new international firms entering the market to capture the increasing demand from the Indian Consumers, leading to increased competition and more inelastic demand.

The Time Factor

Families today have very different dynamics than 5-10 years ago. People today have very little time in their lives for activities like setting curd at home, make ghee or homemade butter.

As lives are getting faster, people are getting busier. The simplest of items like curd and Lassi which we have seen being made at home, are now purchased from the nearby mom and pop shop to save time and effort.

Healthier Lifestyle

It has been noticed that Indian consumers are increasingly getting health conscious and that the value-added dairy products industry is seeing a marginal growth. A change in consumer mindsets has led to various changes. Lifestyle alterations has led to an increase in the demand for value-added dairy products as compared to just the base product, liquid milk. For Example, Doctors today have started recommending Pro-Biotic drinks to consumers with digestive issues. Such recommendations make a lot of impact on the consumers’ purchase patterns and to the overall industry.

Evolving financial trends

With the rise in personal disposable income, consumers today have the spending power to purchase value-added products which are priced significantly higher in comparison to liquid milk. At the same time, increased income has also given rise to the trend of eating out and a sudden increase in the number of restaurants and café chains which have become one of the largest buyers for cheese, milk, paneer and other such value-added products.

Easy availability of the primary product and strategic pricing

The fact that India is one of the largest producers of milk in the world has proved to work in favour of the Dairy Industry. Large farms have set up across the country to fulfil the ever-rising demand. This has also led to betterment in the quality of these products which is due to an improvement in the quality of milk. Milk is now procured directly and this has acted as a catalyst in the process of reducing prices as now the need for middlemen is eliminated. Also, the traditional mental block, which emphasizes the need for state of the art and expensive technology in order to produce value-added milk products, has been overcome. Funding from major companies in order to set up the divergence from the production of only liquid milk to these value-added products has been of great help in the development of the value-added products sector.

Companies that go along with the recent changes and go on to upgrade themselves have borne the rewards for these. Tailoring in the DNA of a dairy products’ company has vitalized their output and hence, the economy of the firm and the industry at large. Their profit can be increased by allocating a budget for extensive marketing and advertising to keep themselves ahead of their competitors.