Ice Cream Market India Analysis

ICE-CREAM MARKET INDIA December 2008

Executive Summary Market

Drivers & Challenges

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Estimated worth USD 209 mn in 2008, expected to grow to USD 240 mn in 2009 North and west account for 70% of total sales High profit margins ranging between 30-50%

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Drivers: Opportunity to capitalize on low consumption levels; growing institutional sales Challenges: Competition with the unorganised sector on price and quality, and lack of well-developed cold chain facilities

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Trends

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Large investments in advertising Diversification of product portfolio targeting specific consumer segments Partnerships and franchises pursued to boost distribution Falling costs of raw materials offsetting rising milk and sugar prices

Competition

– – –

GCMMF’s Amul brand is the market leader Mother Diary and Hindustan Unilever’s Kwality brand are other strong players The premium segment is dominated by Baskin Robbins

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Market Overview Advertising Trends Competition Factors – External & Internal Key Developments

The industry is growing steadily with the northern and western regions accounting for the largest consumption Overview •

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Size and Growth – Worth USD 209 mn in 2008 – Growing at 12% p.a. in 2005-2008 – Forecast to increase by 15% to reach USD 240 mn in 2009 Characteristics – Northern and western regions together account for 70% of total market consumption – Profit margins range from 30% to 50% depending on the product segment – 60% of ice cream sales occur during the summer months of April-June – 80% of sales is through street vendors – Vanilla is the highest selling flavour and together with strawberry and chocolate it accounts for 70% of the market

Size and Growth USD mn 250 200 150 100

148

+12% 155

240

209

182

50 0

2005

2006

2007

2008 e

2009 f

Geographic Distribution North 30% West 40% 10%

East

20% South Source: The Economic Times “Showers upset regional sales targets of marketers”, May 2007; IBEF “FMCG companies target consumers in summer”, March 2008; India Environment Portal “Is our ice cream natural or synthetic?, August 2007; The Financial Express “Fire & Ice”, June 2008; 51Rainbow company website

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Market Overview Advertising Trends Competition Factors – External & Internal Key Developments

Ice Cream Industry

Key Competitors in Ice Cream Category • Mother Dairy – Key Strengths • Popular ( Delhi) • Ideal in milk ice creams • Popular for variety of product offerings : Milk, Curd, Butter • Trust and reputation

Offerings in Ice Formats • Lic Lollies • Priced @ 5 • Targeted to kids • Flavors  Lemon, Orange, Mango and raspberry and cola. • New Launched are shararat and chulbuli • Benefit  Enriched with Vit C

Key Competitors • Kwality Walls – Key Strengths

• Premium Imagery

• • • • •

Popular TV ads Trust and reputation Varieties in chocolate ice creams Attractive packaging

– Offerings in Ice Formats • Black grape jelly : In black current • Twister Zing : Raspberry and Mango • Benefit  Beat the heat • Others in milk base are : Litchi Zap and Mango Zap priced @ 25

Key Competitors Vadilal •

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Key Strengths Low pricing • Easy availability •

Offerings in Ice Formats • Juice Candies • Flavors Kachi kerri, Black Current , Mango, Orange, Kala khatta, Jaljeera and Tiranga ice candy • Price @ 10 • Benefit  Quenches thirst and offers refreshment

Key Competitors • Amul – Key Strengths • Popular • TV ads • Trust and reputation • Varieties in milk ice creams

Offerings in Ice Formats • Stamina Candies • Flavors : Orange , Lemon and Mango • Priced @ 8 • Positioned as India’s first fitness candy

Key Competitors • Creambell – Key Strengths • For masses • Availability • Economical

Offerings in Ice Formats • Joosticks • Flavors : Nimboo Paani, pineapple and strawberry • Priced @ 10 • Benefit  Real frozen juice on stick

Key Trends Large scale advertising

Product diversification to target specific segments

Trend Benefits derived from falling sFranchises and strategic costs partnerships to enhance distribution

Large-scale advertising geared towards brand building and sales promotion Advertising on Television: Jan-Apr 2008 • • •

Grew by 15% rise in 2008 compared to 2007 Average number of ads per day increased by 45% The top 3 ice cream brands advertised – Kwality Walls Almond Praline – Kwality Walls Paddle Pop – Arun Ice Cream

Advertising in Print: Jan-Apr 2008 • • •

Grew by 58% rise since 2005 Gujarat accounted for 25% of the total advertising Maximum advertising in non-metros in the newspaper medium indicates organized sector’s targeting of rural areas and unorganized sector – Non-metros: 57% – Metros: 26% – Mini –metros: 16%

Share of TV advertising

Kwality Walls

•(HUL)

78%

9%

Hatsun Agro

2% 7%

4% Metro Daily Ltd Karnataka Milk

•Federation

Others

Share of Print advertising GCMMF 14% Vadilal 52%

Havmor 9% 3% Dinshaws 22% Others

Advertising is the primary method to increase consumption and penetration levels Source: exchange4media.com “Snapshot of advertising by Ice Cream category in Print during Jan-Apr’ 08”; Indiatelevision.com “Snapshot of advertising by Ice Cream category in January-April 2008”, June 2008

Product diversification to target specific segments • Producers have launched flavoured “kulfi” – the traditional Indian dessert – ice cream which is the favoured dessert in the non-metros • Naturally flavoured ice cream i.e. without any artificial or synthetic flavour has been introduced for the premium segment

Capitalizing on demand from a niche markets

• Players are capitalizing on the market which has become extremely health conscious Company

Product

Health Benefits

Hindustan Unilever (HUL)

Moo

High calcium content, low calorie and fat

Probiotic range – Amul Prolife

Increases immunity, help in digestion, prevents diarrhoea and growth of colon cancer

Diet

Low sugar and fat content

GCMMF

Mother Dairy

Source:

Financial Express “Ice cream war begins as HUL, Amul oil plans”, February 2008

Enhancing network through franchises and strategic partnerships Strengthens marketing, sales and distribution.

Franchising

Company

Projects

HUL

Kiosks - Swirls

GCMMF

Increase Amul Parlours from 1,800 to 3,000 in 2008 and 10,000 by 2009, Cyber stores in 100 cities, Cyber clubs in 125 cities

Hatsun Agro

Premium ice cream outlet – Arun Ice Cream Unlimited

Milkway Express 1000 outlets in southern and central India by 2009, counters at corporate campuses Baskin Robbins

Outlets in malls and multiplexes

Company

Partnerships

HUL GCMMF

Affiliation

Purpose

Indian Oil Corporation (IOC)

Retail stores at petrol stations

Oxicash

Marketing via scratch and win contests

Bharat Petroleum Corporation Ltd (BPCL)

Mobile kiosks at petrol stations

Baskin Robbins Lifestyle, Coca-Cola, ICICI credit cards and Cox Exclusive retailing & Kings Milkway Express Spencer Retail Ltd and Foodworld

Targeting the southern market

Movenpick

Re-launch brand in Mumbai, Delhi, Bangalore, Hyderabad, Kolkata and Chennai

Rhapsody Foods & Beverages

Source: FnBnews “Coops, the mainstay of India's dairy model”, October 2008; Business Standard “Ice-cream makers add healthy flavours”, April 2008; FoodIndustryIndia “Gelato ice creams is a hit at AAHAR”, March 2008

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Market Overview Advertising Trends Competition Factors – External & Internal Key Developments

16%

Market Major Players •

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• •

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Market share

Fiercely competitive due to attractive economics with profit margins ranging between 30-50% Organized sector comprises GCMMF’s Amul, HUL’s Kwality Walls, Mother Diary, Baskin Robbins and a number of regional brands Amul is the market leader and is at the forefront of targeting the rural market For most national players viz. GCMMF, HUL and Mother Diary, revenue from ice cream accounts for a small portion of their total revenues Premium segment: – Baskin Robbins is the single largest premium ice cream brand – New entrants include Amul, Movenpick, Haagen Dazs and Snowberry

55%

Unorganized

Organized

45%

Vadilal GCMMF

15%

37%

14% Mother Diary

16% Others

13% 5%

HUL Baskin Robbins

A well established unorganized sector creates a fiercely competitive environment for the larger players Source: Business Line “Bringing in the creamy layer”, August 2008; magindia.com “Amul to launch new ice cream range”, October 2008

• • • • •

Market Overview Advertising Trends Competition Factors – External & Internal Key Developments

Drivers & Challenges

Challenges

Drivers

Low quality products and competitive pricing from unorganized sector

Low consumption levels

Lack of cold chain facilities

Developing institutional channel

External Factors ECONOMIC FACTOR - Low consumption ml levels •

Per capita consumption levels are very low at 200250 ml while penetration rate is estimated at 15%

300

250

250

200

•

•

Significant scope for market growth by increasing either consumption levels or market penetration, or both

100

106

0

2000

2004

2008

National players are focusing on increasing per capita consumption or penetration to grow the market

Source: Economic Times “Vanilla prices shoot up on short supply”, October 2008; Business Today “The Branded Ice-Cream Tango Begins”, July 2000; Rediff “The ice-cream war hots up”, March 2004; Vadilal Annual Reports; Hindu “The Ice-cream Punch”, June 2004

External Factors SOCIETAL FACTOR - Low quality products and competitive pricing in the unorganized sector

• The market faces a threat from low-quality products • Price difference between large and small players • Large players are at a competitive disadvantage compared to the unorganized players due to the low quality and pricing of the unorganized sector

External Factors TECHNOLOGICAL FACTOR - Lack of cold chain facilities

• The lack of good cold chain facilities for transportation and storage is an impediment towards increasing market access and penetration • Cold chain also constitutes the most to the total cost • Developing cold chain infrastructure is extremely crucial to increase market penetration and the challenge is shared by many other industries in the food & beverage sector

Internal Factors - SWOT