 "Dairy major Kwality set to enter FMCG sector")
A strong institutional player since its inception in 1992, the North India-focused firm will soon have new product categories, such as packaged food, juices, water, food products for health-conscious people, and energy & protein drinks, over the next few years.
"The company will change drastically over the next three years. While exact product categories are yet to be finalised, we are working on many possibilities," said Director Sidhant Gupta.
Over the next few months, the firm will introduce smaller packs (below 500g), besides bulk family packs, for direct consumer retailing across its existing portfolio, which predominantly has dairy products.
"In the first year, we will be focusing on ghee, butter, liquid milk (both pouch and tetra packs), cheese, flavoured milk and such products. We have five variants of flavoured milk ready for launch, and we are working on about 12 variants," said Gupta.
The flavoured milk market in India is estimated to be worth about Rs 500 crore. It is expected to grow at more than 20 per cent annually, according to a study by an independent market research agency.
Besides domestic dairy companies like Amrit Foods, Umang Dairies, Vadilal Industries, Amul, Mother Dairy and Param Dairy, multinationals too are testing the waters in this sector.
In 2010, Paris-based Danone had a text launch of its product Choco Plus, priced at Rs 15 for each 200-ml pack. At that time, it was operating in India under a joint venture with Britannia Industries.
Nestle, too, had entered the flavoured milk segment in 2007 by extending its Milkmaid brand to milkshakes — Milkmaid Funshakes, initially launched in the South Indian markets.
Britannia had entered the flavoured milk space in 2009 with the launch of Actimind.
However, there is no immediate plan for Kwality to go national.
"The focus will always remain in the northern region. Over a period of time, some products will naturally spread across the country. There's a lot untapped market here," said Gupta.
According to Dhingra, 75 per cent of Kwality's revenue now comes from institutional sales, while the remaining 25 per cent comes from consumer sales.
"In three years, consumer sales will contribute 60 per cent to the total as we continue to grow at around 25 per cent on a year-on-year basis," he added.
In the 2013-14, Kwality reported a net profit of Rs 126.63 crore on a revenue of Rs 4,578.04 crore.
Kwality products, sold under the Dairy Best brand, are currently available across 12,500 retail outlets in Delhi and about 36,000 shops across North India.
"Our target is to cover at least 100,000 retail outlets in the northern region in the next two to three years, of which about 20,000 will be in Delhi alone," said Gupta.
The company might also look to tap the railway catering and retailing at stations in the immediate future, he added.
Over the next three years, the firm will spend Rs 300-500 crore for expansion and retail presence. Of this, about Rs 100 crore will be on marketing activities.
Procurement is the biggest hurdle as the shelf life of milk is very limited. The company at present procures about three million litres of milk every day. It hoped to double this in the next three to five years, said the director.
"About 85 per cent of procurement is now dominated by contractors, but this should change. In three years, we target to self -procure about 50 per cent," he added.
Pricing will be competitive and Kwality will compete with companies like Amul and Mother Dairy, and will not target the premium segment. About Rs 400 crore of its business comes from exports to about 28 countries.
"We are also talking to Russia for products like butter and skimmed milk powder," said Dhingra.
In the past couple of years, Kwality has acquired two companies in the northern region — Pashupati Dairies and Varshney Bandhu Foods. It is looking for more opportunities. These could be smaller companies in the northern region worth about Rs 30-50 crore.
"But there are no active talks at the moment. We will be looking for assets and factories, including land, that could be useful for Kwality in the future," said Dhingra.
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