Heritage Foods CEO Discusses Subdued Growth in Dairy Industry Amid Price Stability
Source: DairyNews.today
Srideep N Kesavan, Chief Executive Officer of Heritage Foods, has shed light on the current state of India’s dairy sector, highlighting the challenges of subdued growth due to the absence of price increases over the last 18 months. Despite stable consumer prices, rising operational costs and inflation are pressuring the industry to adjust pricing, Kesavan noted in a recent discussion about Heritage Foods’ performance and strategies for expansion.
State of the Dairy Industry
“The dairy industry is performing well overall and is expected to surpass ₹211 lakh crore in revenue this year, with at least 50% of the market organized,” Kesavan stated. However, he emphasized that industry growth has slowed because revenue is being driven solely by volume expansion, with no price hikes to align with inflationary trends.
“For growth, two axes are needed: volume growth and price per litre. While consumption is increasing, there hasn’t been a price increase in southern markets for nearly 18 months, an unusually long period,” Kesavan explained.
Why Prices Haven’t Increased
Kesavan pointed to a steep price correction in 2022 and early 2023, triggered by an 11% surge in raw milk prices. The industry eventually passed these costs onto consumers, with price hikes of up to 9% implemented by mid-2023. Since then, prices have stabilized.
With rising operational costs—including employee wages, electricity, and transport—Kesavan believes a price adjustment is inevitable. “We’re already seeing price increases of 4-6% in the FMCG sector. It’s only a matter of time before similar corrections occur in the dairy sector,” he noted.
Heritage Foods’ Performance
In the first half of the fiscal year, Heritage Foods experienced significant margin expansion, attributed to cooling raw milk prices and volume growth. Products like paneer and curd drove revenue growth, while sales of value-added products like buttermilk and flavored milk faced challenges due to early rains during summer.
Kesavan highlighted the company’s focus on boosting bottom-line performance, stating, “The cooling of raw milk prices since April and efficient operations have contributed to improved profitability. Volume growth has also been encouraging, despite some seasonal challenges.”
Strategies for Expansion and De-risking
To mitigate risks and expand operations, Heritage Foods is pursuing several strategies:
1. Geographic Diversification
- Southern states currently account for 90% of business, with Telugu states contributing 70%. However, non-southern states, which presently make up 10%, are growing at high teen rates, presenting opportunities for further growth.
2. Product Portfolio Expansion
- The company is expanding the use of curd and paneer through regional marketing campaigns in Telugu, Tamil, and Kannada, encouraging consumers to incorporate these products into diverse recipes.
3. Tapping Premium Segments
- Heritage Foods is targeting urban markets with premium offerings like probiotic buttermilk and probiotic curd. The company also launched “Sam Poorna” milk, positioned just below the premium category, in Mumbai, with plans for phased rollouts in other cities.
Kesavan noted that the premium segment, while growing, currently contributes less than ₹100 crore to overall revenues.
Future Outlook
As the dairy industry contemplates price adjustments to balance rising costs, Heritage Foods is poised for growth through strategic expansion and innovation. By leveraging geographic diversity, enhancing product offerings, and tapping into premium urban markets, the company is positioning itself to navigate current challenges and capitalize on emerging opportunities.
With inflationary pressures and operational costs mounting, the industry’s next steps will likely include price corrections to sustain long-term growth while continuing to meet consumer expectations for quality and value.
“The dairy industry is performing well overall and is expected to surpass ₹211 lakh crore in revenue this year, with at least 50% of the market organized,” Kesavan stated. However, he emphasized that industry growth has slowed because revenue is being driven solely by volume expansion, with no price hikes to align with inflationary trends.
“For growth, two axes are needed: volume growth and price per litre. While consumption is increasing, there hasn’t been a price increase in southern markets for nearly 18 months, an unusually long period,” Kesavan explained.
Why Prices Haven’t Increased
Kesavan pointed to a steep price correction in 2022 and early 2023, triggered by an 11% surge in raw milk prices. The industry eventually passed these costs onto consumers, with price hikes of up to 9% implemented by mid-2023. Since then, prices have stabilized.
With rising operational costs—including employee wages, electricity, and transport—Kesavan believes a price adjustment is inevitable. “We’re already seeing price increases of 4-6% in the FMCG sector. It’s only a matter of time before similar corrections occur in the dairy sector,” he noted.
Heritage Foods’ Performance
In the first half of the fiscal year, Heritage Foods experienced significant margin expansion, attributed to cooling raw milk prices and volume growth. Products like paneer and curd drove revenue growth, while sales of value-added products like buttermilk and flavored milk faced challenges due to early rains during summer.
Kesavan highlighted the company’s focus on boosting bottom-line performance, stating, “The cooling of raw milk prices since April and efficient operations have contributed to improved profitability. Volume growth has also been encouraging, despite some seasonal challenges.”
Strategies for Expansion and De-risking
To mitigate risks and expand operations, Heritage Foods is pursuing several strategies:
1. Geographic Diversification
- Southern states currently account for 90% of business, with Telugu states contributing 70%. However, non-southern states, which presently make up 10%, are growing at high teen rates, presenting opportunities for further growth.
2. Product Portfolio Expansion
- The company is expanding the use of curd and paneer through regional marketing campaigns in Telugu, Tamil, and Kannada, encouraging consumers to incorporate these products into diverse recipes.
3. Tapping Premium Segments
- Heritage Foods is targeting urban markets with premium offerings like probiotic buttermilk and probiotic curd. The company also launched “Sam Poorna” milk, positioned just below the premium category, in Mumbai, with plans for phased rollouts in other cities.
Kesavan noted that the premium segment, while growing, currently contributes less than ₹100 crore to overall revenues.
Future Outlook
As the dairy industry contemplates price adjustments to balance rising costs, Heritage Foods is poised for growth through strategic expansion and innovation. By leveraging geographic diversity, enhancing product offerings, and tapping into premium urban markets, the company is positioning itself to navigate current challenges and capitalize on emerging opportunities.
With inflationary pressures and operational costs mounting, the industry’s next steps will likely include price corrections to sustain long-term growth while continuing to meet consumer expectations for quality and value.
