We are seeing price increases of 4-6% happening in the FMCG sector. It’s a matter of time before something like that happens in dairy also: Heritage Foods CEO
Heritage Foods Chief Executive Officer Srideep N Kesavan discusses the current state of the dairy industry in the country and how the company is faring. He notes that while the industry is doing well overall, growth has been subdued due to a lack of price increases. Kesavan also discusses Heritage Foods’ performance and strategies for expansion.
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How is the dairy sector doing now overall?
The dairy industry is doing really well right now. Estimates suggest that it will cross the 211lakh crore mark in revenue this year. At least 50 per cent of it is organized. But this year’s industry growth is subdued. For the growth to happen, you need two axes – one is the volume growth which is consumption growing and the second is the price per litre. In line with the inflation, there is a 45 per cent price increase that happens usually. It’s been almost 18 months since we have had any price increase, at least in the southern markets. This has been unusually a long period. From the consumer point of view, it is very good because there is price stability. But the industry is working with a single axis which is only volume expansion. That’s the reason why the revenue growth this year is slightly lower than previous years.
Why isn’t there any price increase in the last 18 months?
We saw a very steep hike in prices a year before that. We had a price increase up to 9 per cent… That was a structural correction after a surge in the raw milk prices in 2022 and early 2023. They went up by up to 11 per cent. This affected the industry’s profitability. There was a delay in passing on the price increases to the consumer and eventually it ended with all the prices being passed on to the consumer by mid2023. After that rice’s remained stable.
When can we expect a price increase?
The FMCG companies have started increasing prices because of rise in raw milk price. There are other costs such as employee costs, electricity, operating cost, and transport all those are increasing. So, eventually this price has to be corrected. We are seeing price increases of four to six per cent happening in the FMCG sector. It’s a matter of time before something like that happens in dairy also.
How has Heritage Foods performed?
In the first half of the year, the biggest performance improvement is in the bottom-line and one of the primary reasons is that the raw milk prices have been cooling off. We are seeing price increases of 4-6% happening in the FMCG sector. It’s a matter of time before something like that happens in dairy also.
Till last March or April, the raw milk prices were increasing and from then onwards, it started cooling off. We had increased the prices also by about 99.5 per cent by June of last year. This naturally resulted in the expansion of mar- gins. The volume growth has also been very and encouraging in the first half. This was despite a good part of the summer was washed out by early rains, which impacted sales of value added product such as buttermilk and flavored milk. We see a considerable growth in revenues from products such as paneer and curd.
What are the strategies that you are working on to de- risk or expand operations?
In terms of business contribution, non south states contribute about 10 per cent, while the southern states contribute 90 per cent. Of this, Telugu states contribute 70 per cent and Karnataka and Tamil Nadu about 20 per cent. Non- Telugu states are growing in the high teens.
Derisking is happening on many fronts – one is geographical and other is expansion of the product bouquet. We are also looking at expanding the scope of consumption opportunities of certain products such as curd and paneer. We are doing marketing campaigns in regional languages such as Telugu, Tamil and Kannada to tell consumers on how they can use curd and paneer in other recipes. This is showing results.
The premium milk segment is growing in some urban markets. What is your strategy to tap this opportunity?
Besides premium milk, we are launching other products such as probiotic buttermilk and probiotic curd. We have just launched Sam Poorna milk, a product which is a notch below the premium milk, in Mumbai, and we will roll it out in other markets in phases.
All of the premium variants put together would still be under ₹100 crore for us.
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