 "Shorter summers slows ice cream sales growth")
While the good monsoons have given a reason to cheer for several industries, for some, however, it has played dampener. Ice cream players, for example, have seen lower sales growth during the summer months which account for nearly 40 per cent of the annual sales. Sales grew in the range of 10-12 per cent this summer on a year-on-year basis compared to the usual 20-25 per cent growth in other years.
Moreover, while the recent hike in milk prices have increased cost pressures for ice cream makers, the industry feels that there is hardly any scope for price increase at the moment with the winter months approaching.
Prices, however, are likely to go up around January 2014. Usually, players raise prices during March-April, just before the onset of the summer months, however, this fiscal price rise is likely to come in early in order to offset the rising raw material prices.
"This year while the winter chill extended right up to March, the monsoons too have been prolonged. This has definitely impacted sales during the summer months or the peak season. There has been a decline in the growth rate. Earlier, summer months would see a sales growth of around 20-25 per cent on a year-on-year basis. However, this year the industry growth rate has almost halved to 10-15 per cent compared to the summer of 2012," said Rajesh Gandhi, managing director of Vadilal Industries which enjoys a 14 per cent market share nationally.
From a peak in May and early June, sales dropped by 60 per cent during end June and early July with overcast skies and an early onset of monsoons.
Nearly 40 per cent of the annual sales of ice creams happen during the summer months, claimed industry players. Bad summers can pull down the overall growth rates for the full year. With the winter months approaching most ice cream players are operating at only 50 per cent capacity utilisation. Vadilal's revenues from ice cream sales are around Rs 400 crore, while the market leader Amul (owned by Gujarat Co-operative Milk Marketing Federation) clocks revenues in the range of Rs 500 crore. Vadilal is looking at ending the fiscal at around Rs 450 crore, as the growth rate has been muted.
GCMMF managing director R S Sodhi too admitted that there has been some impact in terms of growth rate during summer months. "We have, however, managed to grow around 20 per cent during the first half of the year," Sodhi claimed.
Some ice cream players like Ahmedabad-based Havmor Ice Creams has tried to expand its territory and crack new markets like Punjab and Goa in order to offset the effect of a shorter summer. "Sales in established markets,however, has been less than expected and sales targets have not been met,"admitted Pradeep Chona, chairman, Havmor Ice Cream.
Expansion, however, also means additional costs. "New retailers, new deep freezers etc also add to cost," Chona said adding that as it is ice cream makers are operating on wafer thin margins. Margins in the ice cream category hovers around 4 per cent, he said, and with rise in prices of raw materials margins are under further stress.
In the last one year, milk and milk products (skimmed milk powder, cream etc) prices have gone up by 20-22 per cent, Chona claimed. Earlier this month Amul and Parag Milk Foods raised milk prices by 5 per cent. On the whole, milk prices constitute around 18-20 per cent of cost of raw material for ice creams, sugar around 2-3 per cent, dairy fat around 18 per cent, and the remaining are ingredients like vanila, chocolates, fruits and nuts.
"With winter months approaching, there is hardly any chance of a price increase at the moment. It is a price sensitive market. Prices are likely to go up in January-February," said Chona.
Even Vadilal's Shah feels that while players usually raise prices just before the onset of summer (around March-April), this fiscal the price rise can come in early to offset the rising raw material costs. The quantum of the rise is yet to be decided, said players.