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Exactly a year before, we wrote ‘Andra tutto bene’ (everything is going to be alright!) in which we analysed the likely changes to consumption, industry structures etc. We revisit the thoughts, we looked beyond the noise, and present potential changes in operating environment and likely beneficiaries – Va tutto bene (everything’s fine!). A root-cause-analysis of every trend indicates that it’s a consumer / customer behaviour change. “Andra tutto bene #8” is here - link.

Top long-term trends in dairy sector: The sector was largely unaffected in FY21 as milk & milk products are essential commodities. However, we note the following trends emerged in FY21 and are likely to continue even in FY22: (1) Organised dairies will continue to (structurally) gain market share, (2) reduction in consumption of impulse products such as ice cream, butter milk, flavoured milk, (3) decline in market potential of new categories like whey protein powder, custards and premium cheese variants as consumers focus on essentials, (4) direct distribution to large societies using own logistics / app developed by dairy companies, (5) higher support to trade (e.g. reimbursement of electricity bills by ice cream companies) to grab market share, and (6) milk packaging in tetra packs and dairy whitener will continue to grow at healthy rates

Beneficiaries: Hatsun, Heritage

Potentially negatively impacted companies: Parag

See our previous reports in the series – Consumer, Agriculture, Pharma, Real Estate, Telecom, Power

* Market share gains for organised dairies:

The supply chain network (procurement as well as distribution) of unorganised sector is still impacted due to lockdown and localised lockdowns. The unorganised / smaller dairies are also impacted due to liquidity issues and weaker balance sheet. We note organised dairy companies will continue to gain market share from unorganised sector even in FY22.

* Support to trade has increased:

Due to multiple lockdowns and restrictions, dairy dealers are impacted sometimes and also generate higher-than-normal loss in dairy business. We note organised dairies have increased the support to the trade. Some dairies are reimbursing electricity bills of distributors. Dairies are also offering higher schemes and/or credit period to trade. We believe this will strengthen moat as trade may prefer to stock up products of only those dairy companies that are reimbursing costs.

* Increase in usage of tetra packs and dairy whitener:

Consumers were seen hoarding tetra packs as well as dairy whiteners in FY21 as they wish to avoid daily visits of milk delivery boys. Some consumers are likely to continue with these habits. We also expect some consumers to buy dairy whitener on a regular basis.

* Smaller SKUs remain impacted:

Consumption via small SKUs remains more impacted than larger SKUs. Reduction in frequency to visit retail outlets and lower out-of-home consumption has impacted the off-take of small SKUs. Consumption of products like ghee, which is purchased once a month, has not yet been impacted. We expect this trend to continue even in FY22.

* Decline in growth prospects of some dairy segments:

Consumption of new dairy segments such as whey protein powder, custards and premium cheese variants was significantly impacted as consumers were focusing on essentials

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