Prabhat DairyBoard Presentation by Leadership Team

University of Toronto - Rotman

Agenda

• Background• Analysis• Recommendation• KPIs• Financial Analysis• Implementation

Challenge

What is the best expansion strategy for our company to acquire new customers?

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

A snapshot of Prabhat Dairy

Past• Found footing and

capitalized off the B2B market

• Privately founded• Core competencies in

operations and production

Present• Moving into B2C requires

more brand awareness• Award for “Asia’s Fastest

Growing Marketing Brands”• Fragmented relationships

with dairy farmers

Future• Goal of 50:50 business• Growing dairy consuming

population• Household name with

B2C

Taking a closer look at the Indian dairy market

Politically sensitiveCow slaughter results in seven year prison sentence

India is the 7th largest economy in the world with $180B GDP

Dairy cooperatives have lots of control and powerRapidly growing population resulting in difference in social norms

Payment collection systems are not advanced resulting in increased bad debtAdvancements in breeding technology leading to increased output for farmers

Legally mandated floor prices results in farmers receiving 77% of retail price

P

E

S

T

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Where is the Indian population going?

1.254B people in India17.5% of world population

28% of population in cities nowRapidly growing middle class

40% of population in cities by 2030Especially Tier 2 & Tier 3

The dairy production industry in India in growing

Demand growth of

10%

Supply growth of

7%

3.9B litre opportunity

Dairy production in India is currently 131B litres annually

The Indian dairy market is currently very segmented, with little brand loyalty

The population consumes1/3 L of dairy per day, growing at 16% year over year

Buyers are price-sensitive

due to low incomes

Value-added products are

growing at 20-30% year over

year

There are some key competitors, with Prabhat being one of the more affordable brands

Prabhat Cooperatives (e.g. Amul)

MNCs (e.g. Nestle)

Coverage • Tier 2 + 3• Presence in 10 of 36

states & territories

• All Tiers• Dominant market

share & coverage

• Primarily Tier 1

Products • Liquid milk• Cheese• Paneer

• Liquid milk• Value-add

• Primarily value-add

Price of Milk

65 Rs 70 Rs 75 Rs

Retailing is also very sequestered and difficult to control

Unorganized retail management presents a large growth opportunity as the population ages and technologically advances

$534B (2014) growing to $948B by

2019

Food & Beverage fasting growing retail

category (60% of total retail)

Urban areas are more organized than rural, easier to work

with and deliver refrigerated

products

To expand, we have 3 options:

• Target Tier 2 & 3 customers

1

• Focus on Tier 1 and follow with Tier 2 and 3 later

2

• Focus solely on B2B businesses

3

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

We recommend focusing on Tier 1 as it allows us to build a stronger brand

• Tier 1 is larger and growing rapidly

• Tier 1 has a higher disposable income

• Tier 1 is more consolidated with more established and efficient distribution channels

Upselling customers is cost-effective and helps improve profit margins

Value-added dairy products have a higher profit margin• 30% for value add vs. 6-7%

for milk

Market for value-added products is growing faster than milk• 20-30% growth YoY

Tier 1 market’s demand for value-added products is increasing

They have higher disposable incomes relative Tier 2 & 3

Westerners are more likely to live in Tier 1 cities, and have a higher influence

Tactics for upselling:

Couponing and bundling

Closer positioning in retail stores

Point-of-sale discounts

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

Becoming a household brand has proven to be effective

Builds brand loyalty Establishes a routine

Examples include: Kleenex, Tide, and Cheerios

Hiring an in-house marketing team will establish Prabhat as a household name

Creates one consistent brand image

Streamlines marketing efforts

Creates brand loyalty in a price-sensitive market

Becoming a household brand has proven to be effective

Builds brand loyalty Establishes a routine

Examples include: Kleenex, Tide, and Cheerios

Suggested marketing team structure

1 Senior and 1 Junior Manager

Responsible for branding strategy, execution, and development of creative

pieces

Reports to CEO

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs

We should collaborate with small local farmers

Small farmers account for 80% of production with more cows being less productive than other nations

India: 1.3 tonne yield per cow annually

Compared with…

USA: 9.1 tonne yield per cow annuallyEU 6.2 tonne yield per cow annually

How will farmer collaboration benefit us?

Small farmers are unable to achieve

economies of scale

We have the capabilities and

knowledge to help them increase output to meet growing demand

The potential increase is ~ 500% (EU) - 900% (US)

Smaller farmers with bigger production

2. Help grow and

automate production

3. Improve productivity

(higher output,

lower cost)

4. Reduce procurement

costs

5. Provide farmers with

a better alternative than coops

1. Establish a more

collaborative relationship with farmers

What is the required growth in sales to meet 50:50?

Now

• Sales in 2016: 11.7B• Growth of 13.6B

Assuming

• B2B remains constant• B2C current sales: 3.51B

Goal

• Increase of 3.29B to meet 50:50 goal• By end of 2018

What do we need to make this happen?

Current Average customer

97L of dairy/year

CAGR 10%70L of milk

77L x 60 rupees

20% CAGR30L of value added

36L x 80 rupees

7500 rupees

What do we need to make this happen?

KPIs: What does success look like?

Increase average basket size by 15%

Increase repeat purchases by 25%

Increase productivity yield by 100%

Financial Analysis

2.1-2.5% profit margin

17% sales growth rate

1.16B rupees in cash

*Numbers are in 10 million rupees

Implementation timeline

Budgeting based on implantation plan

500M rupees

400M rupees for feasibility and building

of milking facilities

100M rupees for marketing efforts

Higher ROI because we are selling higher margin goods

Break even before the end of the year

Recommendation: Build Prabhat into a stronger household brand with Tier 1 markets

Increase sales of value-add products

Hire in-house marketing team

Collaborate with local farmers to reduce operational costs