Ice cream majors have aggressive plans to gain bigger market shares. Here’s how Hindustan Unilever hopes to stay ahead with Kwality Walls.
Unilever is the undisputed world leader in ice creams. Its Heartbrand ice creams — Cornetto, Magnum, Ben & Jerry’s, Solero, Carte d’Or and Breyers — recorded sales of $11.08 billion in 2008. Annually, the Anglo-Dutch company spends around $70 million on ice cream research. To strengthen its global position, it last year acquired Inmarko in Russia.
In India, the story is slightly different. Hindustan Unilever, which is owned 51 per cent by Unilever, has a 14 per cent share of the 100-million litres and Rs 1,200-crore per annum ice cream market, which makes it the second largest player after Amul (38 per cent market share). The gap is no less than 24 percentage points.
But this perhaps is not the full picture. Hindustan Unilever executives claim the company’s ice cream business is growing at almost 25 per cent per annum. (Last quarter, sales hit Rs 90 crore). Volumes have almost doubled in the last three years. And the company has taken strategic initiatives to outwit its rivals, most of them homespun players.
Homespun they might be, but the rivals are no rabbits. Market leader Amul has a huge emotional connection with Indian consumers as it was the nerve centre of the White Revolution in India. Its ice cream is available in no less than 70,000 stores across the country — a number it plans to raise to 100,000 in the next one year. Its growth target for the year is 20 per cent. (The market has grown at 15 per cent per annum in the last five years.)
Vadilal, the third largest player in the ice cream market with a share of 12 per cent and a strong player in western India (Maharashtra, Goa and Gujarat), has drawn up aggressive growth plans. It will raise Rs 50 crore to expand its capacity by 40 per cent and spread out to new geographies. “New launches, better availability, accessible prices and better awareness as we doubled our advertising spends on television have helped us grow 40 per cent this summer,” says Vadilal Managing Director Rajesh Gandhi.
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Mother Dairy (market share: eight per cent) has fanned out from its stronghold of North India to the eastern and western parts of the country in the last few years. Its strength is the 4,000 pushcarts out on the streets of the country at all times. As a large category of consumers buy ice cream on impulse, this fleet has helped Mother Dairy grow 35 per cent this summer. Mother Dairy Chief Executive Officer Paul Thachil makes no bones that this is a strength he plans to leverage in the days to come. “We will grow our pushcarts 25 per cent and increase our distribution reach,” says he.
Tough fight
Where does this leave Hindustan Unilever? Ice cream volumes have grown at a much faster pace than the rest of its FMCG business. While overall FMCG volumes were up a paltry two per cent in the quarter ended June 30, ice cream surged 24 per cent. But this could be because of the low base of the ice cream business.
IDFC SSKI Managing Director Nikhil Vora says the ice cream category is underinvested and is likely to remain so for the next three or four years because the profit margins are low — less than ten per cent. In comparison, FMCG margins are known to be in excess of 15 per cent. “National players and multinational corporations have yet not made known any sure-shot plan to invest in this category,” says he. It is worth noting that Nestle, another large player in the global ice cream market, has not entered the category in India.
So far, there has been no evidence of down-trading on ice cream (consumers buying cheaper brands or smaller scoops), unlike other FMCG categories like personal care, fabric care and oral care. In spite of the economic slowdown, this is an indulgence consumers are reluctant to cut. In this scenario, the low margins can best be explained by the high cost of logistics.
Ice cream, according to Vora, cannot ride piggyback on FMCG. The business requires not just a separate supply chain but also an entirely different cold storage and dealer network, communication and price points. Sector analysts point out that Hindustan Unilever has not invested enough to grow the market.
Different approach
That it’s an altogether different ball game, Hindustan Unilever seems to have been aware from day one. That’s why, instead of starting from scratch, it entered the market through acquisitions worth, industry sources say, Rs 150 crore. In 1993, it acquired Dollops ice cream from Cadbury’s. Two years later, in 1995, it bought Kwality from Ravi Ghai and Milkfood from Jagatjit Industries to become the market leader with an over 75 per cent market share — a position it has since lost to Amul which entered the market place in 1996.
To regain the lost glory, it decided to focus on the top six metros of the country and has over the years expanded to the top 30 cities. At play here, says Hindustan Unilever General Manager (sales and marketing) for Kwality Walls Punit Mishra, is the 30:70 principle — 30 cities account for 70 per cent of the ice cream consumption in the country. “We are interested in increasing the consumption of ice cream in the markets that we are present in first,” says he.
Given the cold storage infrastructure in the country, it is perhaps easier to manage the supply chain in just 30 cities. But this leaves the rest of the market open to rivals including local brands. Both Vadilal and Mother Dairy with its battery of pushcarts have an eye on the non-metro markets. It could give them the first mover’s advantage in the cities and towns where Kwality Walls is not yet present.
Mother Dairy, by the way, has developed a strong portfolio of local flavours which could work well in the upcountry markets. On its part, Hindustan Unilever too has come out with ice cream in litchi and coconut flavours at different price points.
Meanwhile, Hindustan Unilever has segmented the market in to three categories: Kids, teenagers and families. So, there is the Paddle Pop range for kids, Cornetto for teenagers and Red Tub for families. “A way to build scale is through focus,” says Mishra. “The segmentation has allowed us to create more consumption opportunities focused on segments like family weekend for the Red Tub selection, teenage hangouts for promotion of Cornetto and fun and adventure for kids with Paddle Pop.”
With this segmentation, the Kwality Walls range now plays at the sensitive price points of Rs 5 and Rs 10 with Paddle Pop. The Cornetto range targeted at the youth is priced between Rs 20 and Rs 30. The take-home category is priced between Rs 160 and Rs 210. Thus, it has products at all price points of the spectrum.
But rivals have caught on to the segmentation. Amul, for instance, launched its 2-litre takeaway home offer last year and has now become the market leader in the category. “The offer accelerated our growth pace to over 20 per cent as against the compounded annual growth rate of 10 to 12 per cent for the last five years,” says RS Sodhi, chief general manager of Gujarat Cooperative Milk Marketing Federation which owns the Amul brand. To press home the advantage, Amul has come up with 1-litre packs of its Exotica range this summer that has Binge Roasted Almond, Choco Bliss, Choco Chips and Fruit Salsa Santra Mantra flavours priced between Rs 120 and Rs 140.
New segments
Between kids and youth on the streets and adults at home, a large chunk of ice cream sales gets taken care of. Impulse purchase from youth and kids accounts for 50 per cent of the market. Family consumption adds another 35 per cent. Fifteen per cent of the market is in-parlour sale — a new segment that has showed up in the last few years. This is dominated by niche regional players like Naturals in the West, Nirula’s in the North and premium players like Baskin Robbins and the homegrown Italiano Gelato.
Hindustan Unilever wants to have a play across the entire ice creams pyramid and has its Swirl parlours at the upper-end to take on competition in the artisanal ice cream segment. The Swirl chain was started in 2004-05. The parlours do not sell the Kwality Walls range but create mixes like Cornetto Swirl which tie in with the mother brand. A single serve of 250 ml here is priced at Rs 60. “Retail is a big part of our strategy. Here the focus is experience, visibility and the power of the brand. It is the theatre of ice cream,” says Mishra. He plans to grow the retail footprint of the Swirl parlours from 68 to 500 in high footfall areas like malls over the next three to four years.
But competition is in no mood to give up without a fight. With the advent of modern trade, Baskin Robbins now covers 500 modern retail stores along with its retail foot print of 370 outlets. “We will add 100 retail outlets during the year and also grow our modern trade footprint. Modern Trade now contributes to 15 per cent of our overall revenues and we see this growing to 20 per cent in the next couple of years” says Ashutosh Goyal, general manager (marketing), Baskin Robbins which has established its leadership in the premium ice cream category in the modern trade channel.
Amul too entered the segment this year with its Scooping parlours where it serves sundaes, thick shakes and an exclusive range of ice cream. “We will have 1,000 franchises by the end of the financial year, up from the current 250, and thereon add 1,000 every year for the next five years,” says Sodhi who expects retail to contribute to 20 per cent of Amul’s ice cream revenue in the next three to five years.
Across the world, consumers have turned health-conscious. They want to cut down calorie intake because of the alarming spread of lifestyle ailments. And India is no different — it has the largest population of diabetics anywhere in the world. Consumers have begun to look for health and goodness in whatever they consume and ice cream is no exception.
Here, the lead has been taken by Amul. It has developed a portfolio on the health and wellness platform with its probiotic and sugar-free category last year. Its sugar-free probiotic Frozen Food contains 50 per cent less fat and half the calories than normal ice cream. “We expect this category to account for ten per cent of the ice cream market in the next three years,” says Sodhi.
Hindustan Unilever too has got in to the act this year with the launch of its Selection range which comes with just 99 calories in 80 ml. This, in fact, is a segment where the company can draw on the expertise of its parent, Unilever. With growing health consciousness, Heartbrand is developing products that are lower in fat, sugar-free, lactose-free, as well as low-carb options and those with more nutritional goodies like calcium and fruit. It has come out with new pack sizes which allow lower consumption. About 40 per cent of the research budget goes to enhance properties of health and wellness. Clearly, there is nothing better than a well-stocked parent.