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Ice cream industry – Waiting to take a leap!
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Sunday, 16 October, 2011, 08 : 00 AM [IST]
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Rajesh Gandhi
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The Indian ice cream industry today is worth about `2,500 crore registering a growth of 15-20% annually. The per capita consumption of ice cream in India is just about 300 ml or one scoop, which is much less in comparison to the 700 ml in Pakistan, 3 litres in China and 22 litres in countries such as USA, Japan and Germany. Though, figures from the last five years indicate an upward trend when it comes to the consumption of ice cream, rapid urbanisation, increase in incomes and change in lifestyles have made the Indian consumer much more aware of international trends.
The ice cream industry offers customers, an abundance of flavours. Consumers today are quite spoilt for choice! They can experience an international variety of taste and quality through domestic brands since the gap that used to exist previously between international and domestic brands is non-existent nowadays.
Ice cream on a summer day is the perfect respite from our hot and humid weather. Ice cream is something enjoyed by all, regardless of age, sex, income or education. The fact that the rural and urban divide is slowly narrowing has caused a rise in consumption in semi-urban and rural areas too.
Organised vs. unorganised
The ice cream market in India is broadly divided between the organised and unorganised sectors. The organised sector holds about 65% of the market share while the unorganised sector has the remaining 35% market share of this industry.
Vadilal, being the second-largest ice cream player in India, holds about 22% of the organised sector and also boasts of having the largest range of ice creams in the country.
Kwality Wall’s and Amul are others amongst the major organised players in the Indian ice cream industry, whereas there are much more regional players such as Havmor in Gujarat, Nerula in Delhi, Juhu Natural (Naturals) in Mumbai and so on. Many multi-national companies such as Baskin-Robbins and Haagen-Dazs have also entered the Indian ice cream market.
Manufacturers in the organised segment have to invest heavily since they have a lot of parameters to consider. In order to ensure that optimum quality standards are followed, organised players need to obtain accreditations such as ISO and HACCP certifications.
Manufacturers also need to invest quite heavily in a large retail distribution network, cold chain supply logistics, regular and quality milk supplies, as well as packaging, advertising, and branding, which create and establish strong customer recall.
The cost of investing in updated and hi-tech machinery is quite extensive as well. Organised manufacturers have to increase their manufacturing capacity in line with increasing demand and competition. Recently, Vadilal has installed world-class extrusion technology at its Pundhra (Gujarat) plant that has helped the company to increase its production capacity. Additionally, Vadilal has also set up India’s largest cone filling machine, which can make 18,000 cones per hour. Meanwhile, the unorganised segment of the ice cream industry does not really bother with such details, which in turn makes their investments smaller, but that results into products that are cheaper and sub-standard.
Major challenges
The main factors that hamper the growth of this industry include the lack of cold storage chains, irregular supply of electricity, and poor infrastructure for storage and transportation. Another major challenge that manufacturers face is the fact that ice cream is perceived as a luxury food product by the Indian government and taxed accordingly, whereas many countries do not even have a tax on ice cream and consider it as a normal food item. State governments have imposed a high VAT (Value-Added Tax) on ice creams, additionally; a one% excise duty was also added in the last Union Budget; which makes it extremely difficult for an industry that survives on wafer thin margins. The Indian cold storage logistics chain is very poor, which is an issue since ice cream is a highly perishable product. Erratic and poor electricity supply in most regions of India poses a threat too.
Another issue that manufacturers have to deal with is the large number of unorganised players who offer cheaper products of very low quality. The rising price of milk and allied products is a hindrance as manufacturers need to constantly raise their prices to combat this. Vadilal, in the past year, has increased prices twice; there is a probability of another increase in the next few months.
Opportunities
Looking at the massive consumer market in India as well as the projected strong economic growth over the next few years, one can say that the ice cream industry has a lot of potential.
The future of the Indian ice cream industry is going to be shaped by the organised retail sectors. Based upon approval from the Indian government, if the provision of FDIs in the retail sector will be implemented, it may give a good growth opportunity to the Indian ice cream market.
Following the probable FDI trend in the retail industry, the next few decades should see global ice cream majors wanting to tap into this potential, and possibly a few new domestic entrants as well. Also, improvements in electricity supply and better cold storage logistics will go a long way in boosting this industry.
Diversification
Many organised players today are using their own set-up and resources and diversifying from just ice creams to other markets such as dairy and fruit-based products, and frozen foods. This is another opportunity for growth that is being slowly explored.
(The author is managing director, Vadilal Industries Ltd)
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