SHIMLA DAIRY PRODUCTS

PRIVATE LIMITED, INDIA:

POISED FOR GROWTH?
Review

By: Sayantan Das (M18-180, Section-D)

INTRODUCTION
INDIAN MILK INDUSTRY

India ranked first with 78 million tons of milk production in 1999-2000. The milk
industry provides livelihood to 70 million dairy farmers. With 204 million cows and 84
million buffaloes, it has the largest population of cattle in the world. India is the lowest
cost producer per liter of milk in the world.

In India, the milk yield per animal was very low at around 1.5 liters per day. The main
reasons being the lack of use of scientific practices in milking; inadequate availability
of fodder in all seasons; unavailability of veterinary health services.

CHEESE MARKET

In India, the palate is broadly divided into the north and the south. While north is more
exposed to cheese through western food outlets such as Pizza Chains and McDonalds,
the south is still not exposed to cheese as a new food item.

It is mainly consumed in
Pizza Consumption in India.
metropolitan cities, which
accounts for over 60 percent of the
consumption. With Mumbai
Mumbai
consuming about 30 percent,
37% 30% Delhi
primarily by the individual and
Kolkata
household consumption, whereas
Chennai
Delhi consumes about 20 percent, 6%
7% 20%
Rest of India
primarily by large hotel chains.
Calcutta and Chennai consumes
about 7 percent and 6 percent
respectively. Per capita consumption of cheese by household was 2.4 kilograms per
annum as compared to over 20 kilograms in the United States.

International brands such as Dutch Gouda, French Camembert, and Italian Parmesan
have begun to enter the market. Shimla Dairy Products made local versions of all these
cheeses, except for Camembert. For that, Shimla Dairy Products imported the started
culture and other materials from Australia and France.

The branded cheese market was estimated to be 9000 tons per annum which was valued
at 1.8 billion rupees.

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COMPETITION
Dynamix Group - Manufactures for Britania.
It has a processing capacity of 500,00 liters of Cow milk per day. It has certified by
GMP, HACCP, ISO 9002. It boasts world-class quality standards with in-house R&D
department. It is also the current supplier to McDonalds and other Pizza chains.

Gujrat Cooperative Milk MarketingFederation (GCMMF).

Amul had a 70 percent market share for dairy products with a turnover of 25 million
rupees in 2002. It also has a marketing department that produces unique advertising
strategies.

Milkfed - Verka, Punjab.

It was started in 1973. It provides technical inputs to its suppliers for increase in milk
production.

Andhra Pradesh Dairy Development Cooperative Federation (APDDCF).

It was started in1981. Most products had AGMARK, a Government of India quality
certification for milk products.

Shimla Dairy
It is a 30-year-old family business which later turned into a limited company. It has a
capacity of processing 10,000 liters per day.

Storage Capacity of Milk

40
35
35

30

25
20
20
15
15 12
10
10

Britania Amul Verka Vijaya Shimla

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A Study on Shimla Dairy
It started as a 30-year-old family business, which later turned into a limited company.
Mr. Dinesh Khanna is the present Technical Director of the company who has studied
Dairy Technology for two years. The company is licensed under Government of India
as a food manufacturer, and now they are working towards HACCP certification and
ISO certification.

It has two plants which are 120 kilometers from each other. The first is located at an
altitude of 5500 feet, while the other was at a lower elevation. Both the plants had a
total cold storage facility of 12 tons. The Shimla plant had a capacity of 8000 liters
throughput per day, while the Kiarighat plant had a capacity of 2000 liters. There are
30 employees working in two shifts around the clock through the year.

Production

The facility produced 29 varieties of cheese, with the price ranging from 125 rupees per
kilogram to 1000 rupees per kilogram. Peak production season is during the monsoon,
and lean production months occurred when there was relatively lesser rain. The facility
produced 22 tons of cheese per month during the peak season. Out of 22 tons, 17 tons
is sold and the remaining stock is stored in a cold storage which could store up to 20
tons of cheese.

The production margin was 20 percent for low cost cheese and 15 percent for high end
cheese.

Sales Distribution in Kg per month.

8000
6000
4000
2000
0

State of Goa Chennai Mumbai

Delhi Bangalore Kochi

Calcutta Hyderabad Small Towns

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Distribution System

Retailers:

Tamil Nadu & Karnataka - Nilgiris, Food World - 85 %

Kerala - Varkeys Supermarket.

Hyderabad - Q Mart and Giant.

Mumbai - D Mart and F Mart.

Sales per month.

17% 15%

2% Super Markets

Small Shops

5 Star Hotels
20%
Mid-Low End Hotels

Restaurants
41%
5%
Pizza Chains

Finance:

Working Capital: 35 Lakh + Overdraft facility.

Pricing:
o High End Margin - 20 %
o Low End Margin - 15 %

Marketing:

Word of the mouth.

Flyers, Brochures.

Display at shops, small shopkeepers provided with refrigerators.

Give away at Pizza corners.

Experiencing a growth of 15 to 20 percent in sales per annum as opposed to 7 to 8
percent for other cheese manufacturing companies.

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Which area should it focus?
At present the focus should be targeted towards Low End Cheese. As the product is
relatively new and the consumers are not aware and used-to to the food habit, it is
important to penetrate the market and change the food habit.

It can be done by increasing the supply to fast food chains such as McDonalds and
Pizza chains, as they are penetrating the urban and sub-urban areas as well. The cheese
will act as a compliment product to pizza.

Also, region wise, the north is more exposed to the cheese than the south. Marketing
should emphasize on spreading aware in cities other than metropolitan cities.

Was there a way to streamline operations and make the

production process more efficient?
Yes, it can be done by reducing farmer travel, and invest in better supply chain. The
storage capacity can also be improved from 20 tons. Product line consolidation from 29
varieties of cheese.

With the increase in demand, the production facility should be expanded as Dairy sector
is projected to triple its market in next 10 years.

Also, Army is a big institutional customer but that would require Shimla Dairy to scale
up its production substantially. Through this, better pricing can also be achieved.

With the possibility of growing demand, would the

production facilities need to be expanded?
Yes, as the market is expected to increase by three-fold in 10 years. And since the rate
of growth is faster than other with 15-20 percent in sales per annum.

Better Supply Chain Management is also required.

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How could the company market its products better? Can
it create more brand awareness?
Yes, as India is a huge market and most of the sectors are still untapped, it is of the
utmost importance to create more brand awareness. Marketing team should introduce
Ad campaigns like Amul.

They can make the customers more aware of Western Food Habits by marketing
selected cheese types to unaware customers throughout the nation for better product
consolidation and mapping.

By making deals with Pizza Chains to increase the market share.

Product positioning for different market segments?

The company should focus on fast-food chains and restaurants for its least expensive
cheese - Mozzarella, as they contribute 37 percent of the total cheese sale.

Promote and market low-end cheese in rural areas and introduce high end cheese in
metros.

How to position Shimla Dairy to best take advantage of

the growth potential in the industry?
By establishing Brand Equity by implementing new marketing strategies. Also, by
focusing on products which would yield high profitability and narrow down the current
Product line.

And most importantly by increasing the current production capacity.