Future Group in tow, Fonterra wants to do what Danone couldn't

In 2018, French dairy major Danone exited the Indian dairy market by selling its yoghurt facility. A year later, another foreign dairy major—New Zealand’s Fonterra—thinks it can do what Danone wasn't able to

Fonterra, the world’s fifth largest dairy company, launched three products in India in June

This comes less than a year after global dairy major Danone had exited from Indian dairy market

Fonterra’s strategy is poles apart from Danone. It has a tie-up with FMCG company Future Consumer and has outsourced manufacturing

Will Fonterra go one better than Danone or suffer a similar fate?

The parallels between French food multinational Danone S.A. and New Zealand-based dairy cooperative Fonterra are striking. Both are leading players globally in dairy—Danone is the world’s third largest dairy company, while Fonterra is the fifth largest.

Both companies also entered the Indian dairy market in the same way. Danone made its debut in the Indian dairy market with chocolate-flavoured milk in 2013. Six years later, Fonterra, in a joint venture with Indian FMCG company Future Consumer, entered with chocolate- and strawberry-flavoured milk. These, as well as two other products, were launched last month.

But while Fonterra’s Indian dream is just budding, Danone’s Indian dairy dream lies cold in the grave. Danone, which clocked global revenues of $27.7 billion in 2018, left the Indian dairy market within five years, but Fonterra plans to not just survive a market Danone did not find worthwhile but thrive. Dreamy-eyed Fonterra, which earned $20.4 billion in the year ending March 2018, says it is targeting an annual turnover of Rs 5,000-6,000 crore ($727-872.4 million) and a market share of 5% in the value-added Indian dairy product space within the next seven years.

Entries and Exits

Danone first entered India in the 1990s through a JV with the Wadia Group (which owns Britannia) and then exited. It made its second attempt in the early 2000s in a JV with the Rahul Narang Group, which ended in 2015. Similarly, Fonterra had entered the Indian market through a JV with Britannia two decades ago and then left

Fonterra is unfazed by Danone’s Indian misadventures. Its struggles competing with milk cooperatives Amul and Mother Dairy to procure milk; the difficulty of building pan-India distribution channels; and its fight to keep prices low and maintain a portfolio that comprises both basic milk as well as value-added dairy products like flavoured yoghurts and milk.

Even at a time when large Indian private dairies like Parag—which bought Danone’s Indian yoghurt plant—and FMCG majors ITC and Britannia are launching more value-added dairy products, Fonterra is still keen. It wants in on the Indian market—already worth $78.5 billion—which is growing at 15% and is poised to emerge as the largest dairy producer by next year.

It’s confident that the market it is entering has evolved from the one Danone struggled in and is primed for the entry of an MNC like itself.

Coming of age

Indian milk has changed a lot since Danone’s entry in 2013.

AUTHOR

Ruhi Kandhari

Ruhi writes on the impact of healthcare policies, trends in the healthcare sector and developments on the implementation of Electronic Health Records in India. She has an M. Sc. in Development Studies from the London School of Economics.

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