Saturday, October 15, 2011: 08:33:33 PM

Food Processing Guest Column

Major challenges facing the Indian ice cream industry - Rajesh Gandhi, Vadilal

The ice cream market in India is broadly divided between the organised and unorganised sectors, with the former having the major share

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India’s hot and humid climate makes it perfect for ice cream, but at the moment the per capita consumption of ice cream in the country is just one scoop or about 300 ml per annum, whereas it is 700 ml in Pakistan, 3 litres in China, and 22 litres in the US, Japan, Germany and other developed nations. On the other hand, this Rs 2500-crore industry has seen a growth rate of 15-20% yearly.

 
Figures from the last 5 years indicate an upward trend when it comes to the consumption of ice cream. A noticeably emerging trend has been that ice cream is slowly becoming an all season product as opposed to just being a summer treat. Rapid urbanisation and globalisation, rising incomes and changing lifestyles have added to this industry’s growth. Indian consumers today are more aware of international trends and have multiple choices whether it comes to national or global brands. The decrease in the rural-urban divide has helped increasing consumption as well.
 
Market Segmentation: Organised Vs Unorganised
 
The ice cream market in India is broadly divided between the organised and unorganised sectors, with the organised sector holding about 65% and the unorganised sector having the remaining 35% of the market share.
 
Vadilal, being the second largest ice cream player in India, holds about 22% of the organised sector and also boasts of having the largest range of ice creams in the country. Kwality Wall’s and Amul are others amongst the major organised players, whereas there are many more regional players such as Havmor in Gujarat, Nirulas in Delhi, Juhu Natural (Naturals) in Mumbai. Many multi-national companies such as Baskin-Robbins and Haagen-Dazs have also entered the Indian ice cream market.
 
Manufacturers in the organised segment have to invest heavily since they have a lot of parameters to consider. In order to ensure that optimum quality standards are followed, organised players need to obtain accreditations such as ISO and HACCP certifications. Manufacturers also need to invest substantially in a large retail distribution network, cold chain supply logistics, regular and quality milk supplies, as well as packaging, advertising, and branding, which creates and establishes strong customer recall. The cost of investing in technologically advanced machinery is quite extensive as well. Organised manufacturers have to increase their manufacturing capacity in line with increasing demand and competition.
 
While an organised player in the industry like Vadilal has installed world-class extrusion technology to provide an international ice cream experience in India and set up India’s largest cone filling machine, the unorganised segment of the ice cream industry does not really bother with such details which in turn make their investments smaller, but that results into products that are cheaper and sub-standard.
 
Major Challenges and Issues
 
The main factors that hamper the growth of this industry include the lack of cold storage chains, irregular supplies of electricity, and poor infrastructure for storage and transportation.
 
Ice cream is considered a luxury food by the Indian government and taxed accordingly. Apart from the 12.5% VAT on ice cream manufacturers in India (15% VAT in Gujarat), the centre has recently introduced a 1% excise tax on ice cream makers as well. Many other countries do not even have a tax on ice cream. This creates a burden on ice cream players since a significant amount of the revenues from ice creams go into taxes or discounts, which reduces profit margins drastically.
 
Furthermore, another issue that manufacturers have to deal with is the large number of unorganised players who offer cheaper products of very low quality. The rising price of milk and allied products is a hindrance as manufacturers need to constantly raise their prices to combat this.
 
Rajesh Gandhi is the managing director of Vadilal Industries Ltd.

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