Ranjana Sundaresan
Ranjana is Mintel’s Senior Research Analyst based in Mumbai. She specialises in analysing global consumer trends—with an Indian focus—and global trend observations.

Danone announced in January 2018 that it was exiting the Indian dairy industry after having entered the space less than a decade ago. The company’s dairy portfolio in India includes yoghurt, UHT (ultra-high temperature processing) milk and value-added dairy drink. Danone even had its own milk collection infrastructure in Punjab, as well as a cold supply chain. As part of its exit, Danone will shut down operations at its plant in Haryana that was set up in 2011 to produce dairy products.

This decision is due, in part, to the limited success of its dairy business in India which accounted for just a tenth of its revenues in the country, with the remaining coming from its nutrition arm. Globally, dairy accounts for nearly half of Danone’s sales. The company will now focus on its nutrition business with the aim to double sales by 2020.

While Danone produced milk and dairy drinks, its strategy in India has always revolved around yoghurt. Further, the company positioned itself not as a dairy company, but as a ‘dahi’ (yoghurt) company. In fact, Mintel estimates show that Danone was a top global brand (despite a small share) in India’s highly fragmented yoghurt market in 2016, which is dominated by domestic national and region players.

It was perhaps this sole focus that ultimately led to the shutting own of Danone’s dairy division in India. Packaged yoghurt is niche in India and most households make their own yoghurt from leftover milk since it is cheaper to do so. In addition, milk is far more accessible than yoghurt.

As such, most players in India deal primarily with fresh milk, and see higher margin, value-added products like dahi, dairy drinks, paneer, cheese and ice cream as supplementary to their core offering. Other global businesses in the Indian market have a stronghold in other segments and economies of scale to help cushion the risk of entering the dairy sector. This highlights the need for investment in a wide range of offerings in India to further presence in the dairy space.

What we think

India’s dairy industry has many challenges for global players but there is undoubtedly significant potential as well, given how much consumers love dairy. At the same time, it is important for global dairy brands to be cognisant of the challenges they face in a market like India. Regional players have a strong presences and brand recognition built on decades-long operations, which makes competition tough.

Global dairy players looking to enter well-established and fragmented markets like India will need to focus on long-term benefits rather than expect immediate results, despite the potential of such markets. This opens up opportunities for them to invest in local players with established operations, and use their knowledge of the local consumer to introduce product innovations from the global portfolio.