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Nestle India goes the 'milky' way - Views on News from Equitymaster
 
 
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  • Nov 4, 1999

    Nestle India goes the 'milky' way

    Nestle India has decided to enter the packaged milk and mineral water segment. It has earmarked Rs 1 bn for investing in new businesses.

    Nestle is India's third largest food company after HLL and Amul. It is a market leader in infant foods, instant coffee and culinary products (noodles and ketchup) and has the second largest market share in chocolates. It has the widest portfolio of products in the food and beverage industry with some of the best known brands in the world such as Kit-Kat, Milo, Polo, and Maggi. It enjoys high market shares in most product categories; Cerelac (72%), Milkmaid (100%), coffee (60%), noodles (70%) and ketchup (48%).

    The company is as yet undecided whether the foray will be in fresh milk or processed milk segment. On the processed front Aarey and Britannia are major players. Britannia has just come into the picture. It launched its flavored milk range 'Zip Sip' only recently and is toying with the idea of entering the fresh milk segment soon. The branded milk market is still in a nascent stage growing at a nominal 10% per annum.

    The move to enter branded milk and mineral water segment makes sense for the company, as globally Nestle is the market leader in both these categories. But the going will be far from easy for the company.

    For one, the foray in mineral water looks like a late decision. Too many brands already operate in this Rs 5 bn market. Parley's 'Bisleri' and 'Bailley' and more recently launched Pepsi's 'Aquafina' dominate the segment. This is a very small segment where margins are very thin. This foray certainly doesn't look positive, at least for the present.

    On the milk foray, a major entry barrier for the company is that Indians tradationally consume fresh milk and resist packet milk. Also, easy availability of milk from local dairies at affordable prices will not be easy for the company to match. Packaged milk will possibly be priced higher than local dairies owing to higher packaging and distribution overheads. Another major concern for the company is Britannia's future focus is also on milk-associated businesses and mineral water. It should be noted that global dairy major Group Danone is a promoter in Britannia and will back the company to the hilt in all its dairy operations.

     

     

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