Parle Agro's quest for ₹10 price point in scaling dairy business, milk beverages

In 2021, home-grown beverage manufacturer, Parle Agro (maker of Frooti and Appy Fizz) entered the dairy-based beverage business with the launch of Smoodh, its flavoured milk brand. Not only has the company extended Smoodh to yogurt-based beverages, joint managing director Nadia Chauhan is confident that her portfolio of dairy beverages would contribute 50% of the (close to ₹8,000 crore company) beverage maker’s overall revenue in the next five years. “We have a three-five-year plan on how to sustain our foray into dairy. Within a year of launch we reached 30%-35% (of the ₹800 crore of the flavoured milk market) market share,” says Chauhan.

Her five-year dairy plan would also include foray into the larger value-added dairy products business, which would be beyond beverages. The company is currently sourcing all its milk from the Karnataka Milk Federation but after the business reaches a certain scale, it could consider setting up its own procurement system, says Chauhan.

Be it Frooti or Appy Fizz, the Parle Agro beverages which are distributed across 10 lakh stores have created traction among the masses because of their affordable ₹10 price-point (for a 125 ml pack). Chauhan’s intent has been to offer Smoodh at a ₹10 price-point to be affordable. “In India most dairy beverages are priced at ₹20-40 price-points which are not accessible to the masses. The 200 ml packs of certain brands are also priced upwards of ₹100 therefore, our idea was to scale and target the mass market. We came up with innovations not only on the product front but also technology, size and packaging so that we could launch our brand at ₹10 pricing,” she explains.

One of the innovations to maintain cost efficiency at the product level, has been to make its formulation flexible enough to use both liquid as well as powder milk. “Considering that we wanted to be at the ₹10 price point, we wanted to bring flexibility on the technology side, so that we can sustain the price point.”

However, the dairy business is highly capital intensive and most private dairy companies have not had a high success rate at a national level. The major reason for this is the state dairy cooperatives which on one hand have been doling out huge subsidies to the dairy farmers and on the other hand, they are not increasing the prices of the products. Nadir Godrej, Chairman, Godrej Agrovet in a recent interview called the dairy industry challenging. “Dairy business is challenging because the cooperatives are paying farmers more and more and not increasing the prices of the milk they supply to consumers as much. It seems that the cooperatives are a way for Governments to garner votes. This becomes hugely challenging for the private players unless they have businesses of scale,” remarked Godrej.

In order to build scale would Parle Agro consider diluting stake to a more established dairy company? In fact, Britiannia has recently diluted 49% stake in Britannia Dairy to French cheese-maker (which owns the Laughing Cow brand), Bel. Through this joint-venture, Britannia expects to scale up its ₹250 crore cheese portfolio to ₹1,250 crore in the next five years. Chauhan says that neither stake dilution nor acquisition is on the cards. “We thoroughly enjoy building our own brands,” she says.