Dairy Beverages in India: A Lip-smacking

Billion Dollar Opportunity

Dairy beverages are one of the fastest growing beverage segments in India, on the path to
reach a billion dollars in size in the next five years. The growth in these categories can be
accelerated further by tapping new consumption occasions, product and packaging
innovations. These levers can be exercised differentially in the urban and rural geographies,
addressing the distinct consumer needs. Such innovations will help both brands and suppliers
to leverage the benefits of category explosion, say Pankaj Gupta and Seshadri Narasimhan

Consumer and Retail


Context
Dairy beverages have been traditionally a part of Indian
palate, either made-at-home or consumed out-of-home.
Only 22% of the milk and dairy products consumed in India
are in branded form, which presents a huge opportunity
waiting to be tapped. Branded dairy based beverages form
a market size of Rs 1280 Cr growing at 30% annually. It is
one of the fastest growing beverage segments in the Indian
market today and is likely to become a billion-dollar (Rs
6000+ Cr) market by FY21, with the current pace of growth.
The market consists of three major categories – Flavoured
milk, Chaas & Lassi and Functional Yogurt drinks. Flavoured
milk dominates the segment contributing 60% (in value) to
the branded dairy beverages consumed .
Growth in this category is driven by underlying
demographic trends as well as consumer need states and
category construct. The key drivers are:
Consumer Needs
Need for convenience: Led by the savings in time and
effort for preparing beverages like Chaas & Lassi at
home
Unbranded to branded: Preference for a hygienic and
standardized product for on-the-go consumption
Indulgence: Liking towards newer and richer flavours
Shift towards Natural: Milk is inherently considered a
‘healthy’ beverage and milk beverages are likely to
have a higher share of throat with an increasing shift
towards natural products
Competition and Product development
Entry of newer players: While traditionally the
category has been dominated by co-operative players,
there have been recent entries by both MNCs (Danone,
Coca Cola) and smaller regional players (Parag Milk
Foods – Topp Up, CavinKare – Cavins). This has led to
an increase in availability as well as media spends.
Introduction of subcategories: Products like smoothies
and probiotic drinks have been launched addressing
niches in the category
Introduction of Packaging formats: Traditionally
present in glass and tetrapak formats, players have
also introduced more convenient PET bottles in the
category
Opportunities for Dairy Players
Dairy beverages are set for a significant amount of activity
with innovations and new player entry. While it is growing
at a healthy rate of 30% p.a., certain players & segments
could see accelerated growth in the future. Their next
phase of growth would witness market expansion driven by
newer consumption occasions or recruiting newer
consumers through products & packaging. These levers will
play out differently in the urban and rural markets, as they
differ on category maturity and affordability expectations.
Urban Geographies: Market Expansion
New Consumption Occasions
Currently, the category’s interaction with consumers is
dominated by on-the-go consumption, with in-home
consumption limited to Chaas & Lassi in the 1 Ltr Tetrapak.
The larger pie of the in-home beverages is served by
Carbonated Soft Drinks (CSD) and Juices. In fact, larger pack
sizes of Juices and Juice drinks are gaining from the
consumer shift away from CSD beverages. Players can
position flavoured milk too to target this occasion, whether
it is for serving guests or regular household consumption.
This would need them to launch larger pack sizes (500ml –
1 litre) and convenient packaging (Eg Tetrapak/ PET).
New Products
Health and wellness dairy drinks are currently limited to the
probiotic form targeting the digestive health. Globally the
young adult consumer segment is targeted with products
on the benefit plank of nutrition & strength, vitality, etc.
Whey-based beverages have started gaining popularity in
the global markets with its high protein content. In fact,
powdered whey protein brands are now widely available in
India, and an integral part of workout and muscle building
regimen. Similarly milk-based sports and energy drinks are
being launched globally in the past few years. If launched in
India, such products could aim for a share of the ~ Rs 900 Cr
energy and sports drink market dominated by Red Bull.
Global launches have also seen emergence of more focussed
benefit segments like heart health, blood pressure
management, anti-oxidant defence, immunity, etc. Similar
propositions can be developed by Indian players, with
appropriate investments in product development and
consumer awareness.
Another untapped segment for flavoured milk is the kids
demographic. To succeed with this target group, building the
product’s engagement with the kid is critical to create the
brand pull. For example, flavoured straws bring excitement
to consuming plain milk (Australian brand Sipahh). Similarly,
the product can engage kids to mix flavour chunks (Eg Choco
chips, Oreo crumbs, cereal) along with the beverage .
New Packaging
The dominant packaging for the category is the 200ml
Tetrapak/ Glass/ PET bottle. The pack size of 1 Ltr Tetrapak is
targeted for in-home use and is not amenable for on-the-go
consumption. Introduction of an intermediate pack size (500-
750ml) in formats like PET can target consumption by groups
& families on-the-go. Beverages like Chaas, if available in
these pack sizes widely at transit locations like rail & bus
terminals, would see consumer traction as an alternative to
CSD & Juice drinks. This would also drive increase in per
capita consumption for the category.
Rural Geographies: Market Expansion
New Consumption Occasions
The on-the-go consumption is yet not tapped fully in the
rural markets by the dairy players. With national brands
focusing on these beverages (including CSD companies), it is
likely to expand distribution and leverage this occasion.
New products
Affordability is a key lever to bring in newer rural consumers
into the category. At Rs 20-22 per bottle, flavoured milk is
out of reach of a significant set of rural consumers. This price
includes the cost of milk and transportation in liquid form,
which can be slashed by simply transporting the ‘flavour’ in a
powdered form. Thus, a significant opportunity of powdered
flavoured milk (similar to the powdered juice beverages
currently) can be unlocked by creating a product in sachet
format at a price point of ~Rs 5-7 per consumption.
New packaging
Even cheaper packaging options can drive cost downwards
thus providing the ability to price it lower for the rural
markets. Unlike the prevalent Tetrapak or bottle formats,
which add significant cost of packaging, pouch packaging can
be explored for these beverages. While a pouch reduces the
shelf life of the product, a player can still reduce expiries/
damages by limiting distribution to markets nearer to the
plant (shrinking time-to-market) and restricting distribution
to high throughput outlets (thus ensuring stable demand Eg
Transit locations).
Opportunities for Suppliers
Flavours & Ingredients
Each of the new product ideas mentioned earlier provides
tremendous opportunities for flavour and ingredient
providers. Eg Developing new flavours like Rose milk, Mocha,
Black Currant, etc for flavoured milk manufacturers.
Similarly, providers of whey ingredients (WPC80, WPH, WPI,
etc.) will have to jointly develop the right balance of
fortification and taste profile with the dairy companies.
Other ingredients like Beta-carotene, Flavanols, Zinc, and
Potassium will find applications in functional fortified drinks
targeting specific benefit propositions
Packaging Material & Machinery
Development of newer pack options for consumers will
directly result in opportunities for packaging providers, Eg
LDPE/ LLDPE film suppliers for the pouch packs, and PET
suppliers for bottle packs. Suppliers can also look at
enhancing PET packaging with coatings having barrier
properties for improving shelf life. With product launches
from existing dairy brands & new entrants, additional
investments are likely to come into the sector, thus giving a
fillip to the machinery providers for Form-fill-and-seal
machines, Aseptic PET bottling, etc.
Conclusion
Milk and yogurt based beverages, being inherently part of
our palette, presents a billion dollar opportunity to existing
and new players. There are multiple routes to create a
successful product - innovation in product, recipes,
packaging technology and delivery formats. The role of
ingredient, flavors, packaging equipment and material is
critical during these product development exercises. In fact,
suppliers should proactively explore these opportunities with
the dairy manufacturers, which will make them integral to
the innovation, differentiate their offering and hence
improve their relationship beyond a transactional sourcing
role. An innovative product aligned with the appropriate
distribution and branding will drive multifold category
growth, in turn, helping brands and suppliers reap the
benefits of the category explosion.
____________________________________________________________________________________________________________________________
© Tata Strategic Management Group, 2016. No part of it may be
circulated or reproduced for distribution without prior written
approval from Tata Strategic Management Group
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Consumer and Retail

Tata Strategic’s Consumer & Retail Practice partners companies in the FMCG, Durables and Organized Retail sectors to
formulate and implement distinctive end to end solutions. We have assisted several global and Indian clients in areas
such as India entry, new business entry, business alliances, channel management, cost competitiveness across the value
chain and commercial due diligence.

Authors
Pankaj Gupta is a Sr. Practice Head of the Consumer & Retail Practice at Tata Strategic, with over 20 years of expe-
rience in Sales, Marketing and Consulting spanning FMCG, Retail and Durable sectors

Seshadri Narasimhan is an Engagement Manager with the Consumer & Retail Practice at Tata Strategic, with over
8 years of experience in Industry and Consulting spanning FMCG and Retail sectors

For further interaction please email at: seshadri.narasimhan@tsmg.com

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