“We will learn more from India than India will learn from Danone” March 2018 issue

Danone distributes its products only through its own refrigerated trucks directly to the retailer

“We will learn more from India than India will learn from Danone”

One of the most prominent names in the global dairy products industry, Danone is working round the clock to capitalise on the massive opportunities in India. In an exclusive interaction with The Dollar Business, Jochen Ebert, MD, Danone Food & Beverages India talks about the uphill task, his company’s experience in India so far, and its strategy to conquer this market

Interview by Vanita Peter D’souza | The Dollar Business

“We will learn more from India than India will learn from Danone”
Jochen Ebert, Managing Director, Danone Food & Beverages India Pvt. Ltd.

TDB: Tell us what has been Danone’s experience in the Indian market. Also, tell us your market share in the segments you are present and your plans to scale up.

Jochen Ebert (JE): Our experience in India, until now, has been absolutely excellent. It is a market where we are trying a (business) model that we don’t have in any other country since we are starting from scratch in India. We are selling fresh products such as flavoured yogurt, mishti doi, lassi and a few more products on one side, while products with a little longer shelf life like a Choco Smoothie on the other. Honestly, I don’t know about our market share. I have never looked at it and I am not interested in it. Our core business is what you call dahi and we call yogurt, i.e., fermented products. This is where, historically, Danone comes from. We are not a regular dairy company like others. We are a company that comes from yogurt. We were born in 1919 in Barcelona (Spain) by selling yogurt to pharmacies because of their positive health impact on the intestinal flora. This is how the company was born and this is the DNA of the company. In India, the yogurt’s importance is relatively high. You have a good tradition of fermented products. Unlike other Asian countries, like Indonesia, yogurt is not unknown to Indians. India is a market where the per capita consumption of fresh dairy products is just three kg, as compared to 25-30 kg in Europe. Of this, almost two kg is consumed in the form of home-made yogurt. The business we are in, which is doing the same thing in an industrialised form, is of 0.2 kg per capita. Hopefully, in 10 years, the market is not three kg per capita but 10 kg per capita. And we would benefit from this development. The new generation of Indian women is busy pursuing their careers. They do not have time. Instead of fermenting yogurt back home, they will buy it from supermarkets.

TDB: For the last one-and-a-half decade, more than 60% of Danone’s sales has been coming from outside Europe. In this context, how important is the Indian market for you?

JE: It is very important. 25 years ago, when I joined Danone, we were just a European company with a very strong foothold in France, Spain and Germany. After the fall of the Berlin Wall, we conquered Eastern Europe. Then we went to Russia, then South America, Latin America and US. The latest addition to the list is Africa and the Middle East. And now we are stepping into Asia. Among our top three priorities – Japan is already an acquired developed business, in China we are entering via joint ventures, and India is next on the map. I think, India is improving in terms of all thinkable macro-economic factors. India has a great dairy tradition and we have found a way to manage this very specific market. It represents our most significant opportunity for the next 10 years.

"I don’t know about our market share in India. I have never looked at it nor am interested in it"

TDB: Indian consumer market is largely divided into two segments – there is a mass market, where the margins are low, but volumes are high and then there is a niche market for lifestyle products, where volumes are low but margins are much higher. Which segment is your primary target?

JE: The Indian market is completely different from the rest of the world in two regards. The first significant difference is that the Indian market has a huge unorganised sector – almost 90% of sales is done through lose milk. This phenomenon does not exist in any other major country. The second unique thing about India is the trade structure. People love to compare China with India, which is quite nonsensical. China, as South Korea, Japan, Australia, Europe and United States, has huge supermarket chains. This phenomenon simply does not exist in India. Here it’s the exact opposite – you have kirana shops. You have to conquer these kirana shops and that’s a completely different podium. On how are we tackling this issue, the answer is that we are doing this through our supply chain and the agenda is to secure quality. This costs us a little bit more and that is why our fruit yogurt is more expensive then pouch milk.

TDB: How do you view competition? How has the market reacted to your latest launches?

JE: I don’t see any competition in the fruit yogurt segment. Every now and then I see some company selling fruit yogurt, but I would believe we have close to 100% market share in the segment. In case of dahi, it is different. It’s a commodity that is offered by many different players (both international and domestic) and here my views are in sync with my views on milk. I think the yogurt that arrives at a supermarket, on which you have the Danone logo, is superior in quality compared to any other product in the market. This why we are in the premium segment. We are also the only one with a direct distribution system. Basically, our approach to the market is different from that of our competitors.

TDB: As compared to your global portfolio, your product list in India is quite lean. Why have you been cautious about rolling out new products in India?

JE: My boss tells me the opposite (laughs). We have 25 products in total. If Danone has one thousand products that does not mean every country should have one thousand products. Morocco is one of our biggest markets. They have 40 products and we have 25 here. It’s about what the consumer is asking. We believe fruit yogurt is something that is very unique, very healthy, can be made only with natural ingredients, and can be integrated very nicely in an Indian diet.  

"We believe fruit yogurt can integrate very nicely in a traditional Indian diet"

TDB: In India, many MNCs launch products that suit local taste buds, products that they don’t offer elsewhere. With the launch of mishti doi and lassi, is Danone heading towards the same?

JE: We are fully aware of the majority and the majority in India is very keen on having a very high quality dahi. That’s the fact. We also believe there is a sizeable chunk that are interested in fruit yogurt products. We have a research and development (R&D) centre in Gurgaon. We also invite young females, older mothers and sometimes even teenagers to our consumer engagement centre, where we confront them with hundreds of Danone’s product every year. We try to find which product should be launched next and estimate the potential. In fact, I will just say that we will learn more from India than India will learn from Danone.

TDB: Reports suggest India needs to increase its milk production by 6 MTPA to meet growing demand. Else, the country has to resort to imports. What’s your take on this?

JE: Domestic milk production in India has to grow continuously. But my personal opinion is that Indians are fantastic free-market people. If there is a shortage somewhere, prices go up and you will have a lot of young entrepreneurs investing in farming. So, the guy who has two cows will have four, while the guy with no cows will have two. This model, in my view, is a good model. But, as I said, quality is a problem, particularly since you don’t have significant amounts of milk produced in bigger farms. To conclude, milk production will go up if prices go up. In general, the demand for milk will grow and the supply for milk will also grow. In India, the dairy industry will continue to bloom over the next 50 years.