Reliance Retail (Reliance Dairy Foods) to sell own milk to other retailers

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Reliance Dairy Foods, a subsidiary of Reliance Retail, is muscling into the country’s branded milk product market with a new brand that will take on established players such as Amul, Mother Dairy, Nestle and Gowardhan by offering higher margins to retailers and 10% extra milk to customers.

The Mukesh Ambani-controlled company will sell its new milk brand, Life, through general milk distributors, while its existing Dairy Pure brand is sold only through Reliance Retail stores.

The Life brand milk will be available in Haryana, Punjab, Andhra Pradesh, Tamil Nadu, Rajasthan, National Capital Region (NCR) and Himachal Pradesh, a Reliance Retail spokesperson told ET.

“We see this business growing further with the extension of our product portfolio.” Reliance’s aggressive move doesn’t come as a surprise as, according to industry sources, the dairy foods space offers high margins on limited initial investment.

In fact, existing companies such as Nestle India and Parag Milk Foods too have drawn up big investment plans to expand their reach in the Rs 40,000-crore branded milk distribution business that’s growing 10-12% a year.

Analysts say the sector sees high margins of 10-12% that keeps growing. In terms of investment, companies need to make one-time investment for setting up processing units and supply chain units with cold storage facilities.

Pune-based Parag Milk Foods, owner of the Gowardhan brand of dairy products, is investing nearly Rs 160 crore this year to expand capacities for processing 20 lakh liters of milk daily. “We are witnessing 15% growth every year in our annual milk retailing business in Maharashtra and now with new investments, we’ll further expand it to states such as Tamil Nadu, Andhra Pradesh and Karnataka,” said chairman Devendra Shah.

India is the world’s largest milk producer and, according to a study jointly published by the Central Ministry of Food Processing Industries and Federation of Indian Chambers of Commerce and Industry, about 35% of total milk produced in the country is processed.

The organised sector process about 1.3 crore tonnes annually while the unorganised sector processes about 2.2 crore tonnes. This study, prepared by consulting firm Ernst & Young, says there are currently 676 dairy plants in the organised sector that combines cooperative, private and government sector units. India’s total milk production totals 10.28 crore tonnes.

Demand for milk and milk products has increased in urban areas despite recent price hikes. Govardhan increased price of its milk products by 5% over the past two months due to increased prices of cattle food and below-average rainfall.

Gujarat Cooperative Milk Marketing Federation, India’s largest food products marketing organisation and owner of Amul brand, hiked prices of brands such as ‘Taaza’ and ‘Slim and Trim’ by Re 1 per litre and by Rs 2 per litre for brands such as ‘Gold’ and ‘Shakti’ in Gujarat.

The National Dairy Development Board, a nodal agency for the country’s dairy programmes, says that feed accounts for about 70% of the cost of milk production.

“Prices of cattle feed increased by 20% compared to last year due to insufficient monsoon,” says Maharashtra Rajya Sahakari Dudh Mahasang (Maryadit) chairman Vinayak Patil. His organisation owns the brand ‘Mahananda’ and is planning to expand its network in Gujarat and Karnataka.

Nestle India has also major plans to increase its marketshare in the organised milk segment. However, with products such as Nestle Milk, Pro-Heart milk and Slim Milk, it mainly caters to niche segment and to the aspirant class. When contacted, Amul managing director Bharat Vyas declined to comment on the investment and on future plans.

Analysts say the move by companies is a reflection of the growing interest. “This time, players are more calibrated in their expansion plans and doing cost analysis while committing expansion plans, compared to 2007,” says Sangeeta Tripathi, a retail analyst with Sharekhan Securities.

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