Back to the Future: Fonterra returns to India’s consumer market with modern retail partnership

In August last year, the New Zealand dairy cooperative announced a joint-venture with Future Consumer, one of India’s biggest consumer companies and part of Kishore Biyani’s Future Group. Together, the businesses set out to produce and market a range of consumer and foodservice dairy items.

Fonterra’s former global head of consumer and foodservice operations, Lukas Paravicini, said at the time the arrangement would allow the companies to “prepare the groundwork​” for entering the market.

Predicted to grow by over 80 billion liters by 2025–at more than seven times the pace of China’s—India’s consumer dairy market is one the world’s biggest producer would dearly love to enter.

“The partnership will be driven by growth through profitability,​” said Paravicini, who has since left Fonterra, and hinted that the Fonterra Future Dairy Partners joint-venture was seen by the company as much more than just an investment.

The plan was to focus initially on product development and marketing before launching the first products, as it has just done. Fonterra would supply the milk and dairy, while Future would distribute the items through its new cold chain and sell them at its fast-opening retail empire. It currently has more than 2,000 stores and 5,000 public distribution outlets, as well as a nationwide cold-chain and distribution network.

“We will also use this time to settle in the partnership infrastructure, learn the market and prioritize geographies​,” said Paravicini, adding that the joint venture had come at a time when the Indian dairy industry was transforming.

Future, for its part, would stand to gain by adding dairy to its food and FMCG portfolio. The company, which under Biyani is credited for bringing modern retail to India in earnest, first opened clothing chains before branching out into food. It had also been spying the way dairy was being sold there.

India has been witnessing a considerable move away from more traditional, locally based dairy businesses that struggle to differentiate their brands while also offering a limited range of products. In this new era, more value-added and innovative dairy products are growing in demand throughout the country.

Radical retail

Once an impulsive risk-taker who was shunned by his competitors, Biyani has taken a radical approach to retail by ignoring the prevailing philosophy that westernized modern retail would never suit India’s traditional approach to shopping at markets, in mom and pop stores and across endless varieties of unorganized outlets.

His best-known Food Bazaar supermarket chain caters for the low end of the mostly middle-class market and is often compared with Walmart. The conglomerate operates a number of other store brands including Food Hub, a speciality grocery chain.

Fonterra’s local managing director, Sunil Sethi, has acknowledged Future Consumer’s approach to retail, saying it had a deep understanding of the Indian consumer, along with experience in working with international partners and possession of a nationwide supply chain and retail network.

“These dynamics have created an opportunity for this partnership, where we will focus on leveraging our global dairy innovation, manufacturing and nutrition expertise​,” said Sethi.

The joint-venture’s first four product lines, under the Dreamery brand, includes UHT milk, dahi​ (a traditional Indian yogurt) and milkshakes and has been developed “to bring a more indulgent taste​” to staple dairy products, according to the marketing wonks.

The milk for Dreamery will be supplied from Indian dairy farmers that meet Kiwi standards, while Anchor's foodservice products will be shipped to India by August for the hotel and restaurant sector.

The range was established with young consumers in mind. In a country where 70% of the population is under 45, this fast-growing demographic is becoming extremely important. And with the middle-class getting wealthier, younger Indians increasingly demand better-quality and more nutritious products.

Expanding nation-wide

The first Dreamery products will be available on shelves in tier 1 and 2 cities in western and southern India, including Mumbai, Pune, Bangalore, Ahmedabad, Hyderabad and Surat. They will be sold at Food Hub and India's version of The Warehouse, Big Bazaar.

After the initial launch, Fonterra Future Dairy intends to expand across India before releasing a full portfolio of value-added dairy lines. The first ones are based on staples, though the product focus will change over time, said Ishmeet Singh, the joint-venture’s chief executive.

“As we move forward, we’re going to provide more innovative products that will deliver superior quality, taste and nutrition across the Dreamery product range​,” he said, adding the long term goal would be to then share Fonterra's expertise with local farms. This would give the joint-venture more control over the dairy supply chain and improve food safety, sustainability and efficiency.

Though the partnership and now the launch have been covered by a veneer of optimism, it is worth noting that, like other foreign dairy majors, Fonterra has forayed into India previously and then departed. In 2009, it left a joint-venture of eight years in consumer dairy there and passed on its stake to Britannia New Zealand Foods.

It complained at the time that India’s domestic milk supply had become fragmented and developing an efficient milk supply chain there would require too much investment.

But with a decade in Indian dairy development equaling what would be more like an eternity of change in other markets, the partnership looks like it will be able to pull together Fonterra’s production and development strength with Future’s shiny cold chain. In this way, the partners appear to be on sure footing.