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Mother Dairy- “We are ‘all right’ in Delhi”

Ice creams may be the coolest concoction to beat the heat, but the cold war
between ice-cream makers is just coming to a boil.

The ice cream market in India is currently estimated to be 210 mn liters

valued at Rs 450 crores (MRP Rs 9 bn). Delhi currently accounts for around 18
per cent of the country’s estimated Rs 525 crore organized ice cream market of
80.8 million litres. It also boasts of a per capita annual ice cream consumption of
1.45 litres, as against the national average of 0.25 liters.

Market growth historically was stunted by Government policies. Till 1997,

ice cream manufacture was reserved for small-scale sector. The leading players
were unable to invest adequately to develop an infrastructure of cold chain for
storage and distribution. Erratic supply and shortage of power in most parts of the
country have been the major factors limiting growth of a cold chain. As a result
there was a dearth of good quality products in the market and also lack of adequate
infrastructure to distribute the same. Cadbury had entered the market in 1992 with
its Dollops brand, but was unsuccessful in building up a significant franchise and
withdrew two years later. As there was no competition from the MNCs, the local
players were able to build up a strong franchise in respective local areas. Some of
the players built up their market through exclusive parlors but in most cases parlor
network also could not extend beyond local limits.

Talking about the Delhi market, which consists of Kwality Walls, Mother
Dairy, Baskin Robbins, Freakon, Amul, Vadilal, Frolic, Blue Bunny, etc., is
currently dominated by Hindustan Lever Ltd’s (HLL) Kwality Walls and Mother
Dairy, which is a brand of Amul’s sister cooperative concern, National Dairy
Development Board (NDDB). Both Kwality Walls and Mother Dairy now sell 6.5-
7 million litres each of ice creams in Delhi.

The Gujarat Cooperative Milk Marketing Federation (GCMMF or Amul)

has launched its ice creams in Delhi, setting the stage for a three-cornered tussle
with Kwality Walls and Mother Dairy for the country’s largest market for ice
creams.

“As a third entrant, we hope to capture 25 percent of the market in two

years’ time. And this will come not at the expense of Mother Dairy, but Kwality
Walls,” says Mr. Vipul Mittal, Manager (Sales), GCMMF.

Amul has priced its ice cream at Rs 65 for a 1,250 ml Vanilla brick which is
what Kwality Walls and Mother Dairy are charging for a similar pack of 750 ml
and 1,200 ml respectively. Similarly, it is selling a 100 ml Vanilla cup for Rs 10,
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which is the same as Mother Dairy, whereas Kwality Walls is charging the same
for an 80 ml cup. “By ensuring that our prices are more or less the same as that of
Mother Dairy but much lower than that of Kwality Walls, we hope to increase the
market share of the cooperative sector in the Delhi market,” says Mr. Mittal. He
rules out the possibility that Amul’s ‘cooperative competition’ with Mother Dairy
would actually end up in the two cooperatives eating into each other’s rather than
Kwality Walls’ share. Mother Dairy feels otherwise. The competition is intense in
this segment and therefore the marketing department at Mother dairy feels that as a
part of a healthy marketing strategy Amul too should be treated as their
competitor.

Delhi is a market that is expanding by 20 per cent each year. On the other
hand Mother Dairy’s plant here has capacity constraints to cater to this expanding
market. Amul’s presence would ensure that the incremental market does not
accrue to Kwality Walls alone.

Mother Dairy ice creams are available in various forms such as cups, bar
(candy), party pack etc. Candy sticks account for about 25-30% of volumes,
whereas cups and other novelties contribute the rest. As far as market
segmentation goes, ice creams are differentiated mainly by flavors but the market
can also be segmented on the basis of customers as follows: retailers, pushcarts,
home consumption, and institutional purchasers.

Ice cream consumers in India are generally children or young people. To

attract these consumers the company tries hard to make its packaging attractive but
so far it’s only Kwality Walls who seem to be succeeding on this front. They are
the only ones who have tried to bring certain extremely attractive packages. Not
only this, as part of its initiative to grow the market, Kwality Walls has set up
kiosks, exclusive parlors and has tried targeting the wider impulse food markets
like chocolates, biscuits and soft drinks with innovative ice- cream products. HLL
has now completely revamped its ice-cream business with a brand new strategy for
marketing, promotion, distribution and product development.

The ice cream chain typically consists of a distributor/stockist and the

retailer. Most players have regional operations with production facilities located
near the market as adequate cold chain facilities for transportation over long
distances is not available. The retail network for ice cream consists of: exclusive
ice cream parlors which may be company owned, franchise outlets, other retail
outlets like provision stores, hotels and restaurants, and push carts which are
controlled through dealers. Kwality Walls and Mother Dairy both are well
established in their own rights, the former one having a strong retail and pushcart
network and the latter one having a network of booths across the city.
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The retailers have certain expectations from the ice cream manufactures
which each of the player tries to fulfill in their own way.
Profit margins
Kwality Walls gives a margin of 20% and also some schemes that take the
retailer’s profit to 25%. Mother Dairy gives 15% margin but this is compensated
by high volume of sales largely due to its reach and low prices. Almost all the
retailers are dissatisfied with the current profit margins on offer. Their main point
of contention is that the electricity charges are high and their margins are
insufficient to cover these costs. This is accentuated even more in the winter
season when the demand for ice cream goes down. They consequently expect
higher margins from any new player entering the market.
Deep Freezers
All the ice cream companies give their own freezers and the retailers are not
allowed to stock other companies’ products in it. The freezers now being provided
are only by Kwality Walls.
Advertising
This is another factor that affects the retailers a lot. All the major players and
especially HLL takes special care in this respect. Mother Dairy also does the
advertising but not as good as HLL. Amul being a new entrant definitely has a
much longer path to travel before it can be compared with these two on this front.
Schemes
April till mid June is the peak time in the ice cream market. All the companies
fight in this time to maximize sales. Kwality Walls comes up with schemes to reap
the benefits, but, at the product cost of Mother Dairy, no such offers are available.
Replacement Policy
Kwality Walls and Mother Dairy both give replacement for product defects and
for damages due to some other fault. But the response time of the companies is a
major point of dissatisfaction (more so in the case of Mother dairy).

The softy market is really becoming hot as big players have started melting
down their prices. Watching the ‘softy’ machine produce an artistically layered
mass of white substance into a biscuit-colored cone is one of those thrilling
experiences matched only by the joy of licking the hurriedly melting ice cream.

McDonald’s is, in fact, responsible for popularizing the concept of a ‘softy’

or a soft serve cone, which is introduced in’ 97 at a reasonable Rs 7. Not that softy
was an unknown concept. It was available in the city at the Regal complex, where
it has been selling for over a decade. Available in various flavors, a vanilla cone
still sells at Rs 5.

The latest entrant in this limited market (neither Nirulas nor other brands
such as Moven Pick, Blue Bunny or Baskin Robbins serve softy; scoops in waffle
cones may vaguely qualify for a softy) is Kwality Walls. With their softy priced at
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Rs 5, they have threatened Mc Donald’s share. But Vikram Bakshi, MD Mc

Donald’s, doesn’t think so. “It is good to learn that other brands are realizing the
potential of the soft serve market and are stepping in,” he says. For Kwality Walls,
too, it’s not a war of the softies. Says a spokesperson from Kwality Walls: “We
were not driven by existing players. A key driver for the growth of the ice cream
market in India is the availability of hygienic products at affordable prices on a
mass scale. It was to create this market driver that we have launched softies at an
affordable Rs 5.”But Mother Dairy and Amul both have not yet entered this
segment.

In the age of tough competition, HLL embarked on a radically new strategy

to turnaround its ice-cream business. This new strategy was primarily brand focus
on power brand ‘Kwality Walls’, differentiated product innovation, geographical
focus and a re-engineered supply chain. The new strategy has been a real success
for the company. The other players might just have to learn from them, a few
things about the consumers before they go ahead.

The first is the fact that no one buys ice cream because they have to eat it. It
is an impulse purchase and has to be sold like other impulse products such as soft
drinks, chocolates, confectionery, etc. Moreover, since 80 per cent of the ice-
cream consumption is by the people below 25 years, the promotions and
communications should be oriented to the younger generation. The new
communication programs of HLL generated a lot of excitement around the brand.
One very important fact is ice cream industry suffers from seasonal demand
pattern in the country and so far none of the players in the industry have tried to
change the ice-cream eating habit to a year round affair rather than just a summer
offering. HLL plans to break the seasonal pattern in ice cream consumption- by
launching a few products in the off season.

HLL’s new efforts have really warmed up the industry and slowly the
major competitors would start feeling the heat of this competitive stroke. HLL is
the largest seller of ice-creams in India with a market share of over 50 per cent.
However, the market is small, particularly, compared to its potential as the per
capita consumption of ice-cream in India is even lesser than Pakistan and Sri
Lanka. Hence, on the one hand, HLL is playing the role of creating the market
while ensuring it does not happen only in terms of new customers but also
customers upgraded to better quality ice-cream and ice-cream specialties which
add to both topline and bottomline.

There is no doubt that there is a significant amount of competition,

particularly from well-managed Government or cooperative dairies such as Amul
and Mother Dairy. Incidentally, this is the first time that both Amul and the local
dairy are in the same market. This is because, currently, ice-cream consumption is
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limited to the largest markets in the country and Delhi is the very largest. I believe
competition is good as it allows consumers to exercise choice. Hence, for the
Delhi consumers to have the choice between the ice-cream brands from the three
largest ice-cream manufacturers in the country will be excellent and the winner,
without doubt, of this move will be the consumer more than any single brand.
.
What will happen? It is difficult to say. The major problem, as we all know,
is in developing a supply chain for ice-cream across the country. This is time-
consuming and expensive but HLL has already started a pioneering task to market
ice-cream to the next level of towns. In addition, in the larger market they have
developed locally and are also importing ice-cream specialities, which can and do
differentiate the brand from others.The strategy of promoting Kwality Walls as an
umbrella brand for its ice creams, rather than a product-driven promotion, has also
helped. The strategy of lowering prices followed by the companies in the
cooperative sector such as Amul and Mother Dairy have meant that the ice-cream
market has become like a "commodity" market. In the last 6-7 years, the ice-cream
market has not really expanded; it has only shifted shares.

HLL is looking at differentiation in the market through the quality of its

offerings, rather than on price. The FMCG major's ice-cream business eliminated
several stock-keeping units, rationalized manufacturing infrastructure and brought
its focus down to six mainline cities only, where 60 per cent of the ice-cream
market exists.

The Amul ice-cream, with a 24.75 per cent share in the Rs 525 crore Indian
market, which was hitherto falling back on the Mother Dairy share of 8.66 per cent
to stake the claim to pole position ahead of 28.22 per cent HLL's Kwality Walls,
has now set its eyes on enlarging its individual base. Thus, Delhi and the National
Capital Region, which was hitherto deemed to be Mother Dairy domain in the ice-
cream sector, has already seen Amul move in, in only a few weeks
.

Questions for discussion

1.How “right” is Mother Dairy in this changing scenario of ice cream industry?
2.Do you think Mother Dairy is moving in the right direction by considering Amul
to be one of its competitors?
3.Where is the true competition for the ice-cream industry? Which of the players,
you think will survive the ice-cream game? Why?
4.What would you do if you were the marketing manager of
a) Mother Dairy?
b) Amul?
c) Kwality Walls?
5. What are the strategies that Mother Dairy can adopt to take on the competition?