Parag gets ready for pan-Indian dairy play after acquiring Danone facility

Managing two sets of supply chains - for milk and for milk-based value-added products - over a wider market will be a big challenge

With the acquisition of Danone’s manufacturing facility in Sonipat, Haryana, Maharashtra-based Parag Milk Foods Ltd has moved a step closer to realising its dream of becoming a pan-India dairy player. The acquisition gives it a foothold in the north and north-east India. Prior to the Danone deal, Parag Milk Foods was supplying its dairy products to the north from the company’s Manchar plant in Maharashtra. After getting access to the processing plant in Sonipat, it has started realigning its sourcing, supply and cold chain network in the north. 

“With the acquisition of a manufacturing facility in the north, it will now become easier for the company to not only cater to the Delhi-NCR region, but also the rest of the north and north-east India. It will also help us expand into new markets. The shorter distances will optimise logistics costs and reduce wastage,” says Akshali Shah, senior vice-president, strategy, sales and marketing, Parag Milk Foods. 

Apart from the Sonipat facility, the company has two plants that are strategically located in the west and south of India — in Manchar, Maharashtra, and Palamaner, Andhra Pradesh. Between the two plants, the total raw milk processing capacity of Parag is 2 million litres per day. Besides milk, which it markets under the Parag brand, the company manufactures dairy products like ghee, dahi, paneer, cheese, UHT milk, chaas, lassi, flavored beverages, whey protein at these two plants. Gowardhan, Go, Topp UP, Pride of Cows, Slurp, Avvatar and Milkrich are popular brands owned by Parag. The company’s integrated supply chain network comprises 17 cold-storage depots across the country, 3,000 plus distributors and 140 plus super stockists. Currently, Parag services the Delhi and nearby markets through 9,000 multi-retail stores. 

The company uses a third party logistics firm to transport its dairy products in refrigerated temperature-controlled vans to the northern markets. Shah says it is too early to estimate the exact cost savings the company will get from supplying directly to the north region, but adds the savings on supply and logistics chain will be significant going forward. The scale of operation can be gauged from the fact that in Delhi-NCR region alone, the company will have to deploy 70 to 80 refrigerated vans to move products from its Sonipat facility to neighbouring markets. 

The challenge will be to manage two sets of supply chains over a much wider market now. According to Anil V.Pillai, director, Terragni Consulting, “Setting-up supply chain for distribution of milk is relatively easy. India’s milk market has a well-established distribution set-up comprising master distributors and retailers who have easy access to kirana owners. Making milk available at the point of sale is thus easy. Here, instant availability of product (milk) is a must to gain market share and consumer trust.” He adds, “So, from this perspective Parag Milk Foods acquisition of Danone’s processing facility makes sense. The move will allow it to avoid building a long supply chain. It can directly supply milk to northern markets from Sonipat plant,” says Pillai. 

On the other hand, the distribution of value-added products is a combination of functions such as availability of product, brand recall and forward integration. “The supply chain for cheese, butter etc involves providing for cold storage facilities right up to kirana store owners. And this is a complex, time consuming and expensive exercise. Additionally, there is this challenge of parking company assets (cold-storage coolers etc) at shop owners’ end with expensive and limited real estate space,” he says. 

There are other challenges. Parag’s portfolio is based on cow’s milk, while in the north, consumers prefer buffalo milk. This means the company will have to rework its sourcing by tapping into a network of farmers that will supply cow’s milk. To begin with, it aims to get on board 3,000 to 5,000 suppliers to procure cow’s milk. The company has already kick started its outreach and educating farmers in and around Sonipat about the advantages of joining its supply chain. 

Over the next six months, Parag plans to expand the Sonipat manufacturing facility by installing processing units for pouch milk, flavored milk, pouch butter milk, cup curd, mishti dahi and upgrade the existing yogurt facility. The company is expected to roll out more value added products from the Sonipat facility in the next two to three months. Till the network is in place, it will continue to supply products in the north from its Manchar plant in Maharashtra.