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Prabhat DairyTo the Board of Prabhat Dairy

From Nanyang Consulting

Nanyang Business SchoolDeeksha Bajaj

Bohao ZouZeeshan AshrafWendell Shirley

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Agenda• Problem Statement• Analysis• Recommendation• Evaluation of Alternatives• Implementation for

oPortfolio expansion and brand buildingoMultichannel regional distribution strategyoFarmer support program

• Balanced Scorecard• Financial Management• Implementation Timeline• Risk Mitigation• Key Takeaways

2

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Problem Statement

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Rising milk procurement prices

Whether Prabhat change the balance between B2B and B2C? How can it successfully expand its footprint in Indian B2C market?

Lack of branding and marketing experience Selection of value-added dairy product Selection of target market and distribution channels Intense competition in the market (e.g. Amul)

Overall

B2C business

B2B business Increase in inventory days (17 to 23 days) Declining working capital

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Analysis – Current Portfolio

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Value-added products constitute the majority share of Prabhat’s product portfolio

Prabhat Parag Kwality Hatsun Agro

Milk 28% 43% 49% 18%

Value-added milk 1% 25% 51% 74%

Value-added milk products 71% 32% 0% 8%

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Analysis – Market

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The target customer segments and retail channels vary by cities in India

Tier 1 Tier 2 Tier 3 Villages

Kirana Stores

Chain Retail Stores X X

Female members of the family

Young people

RETAIL CHANNELS

TARGET SEGMENTS

X X

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Recommendations

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B2C – Expand product portfolio and build umbrella brands

B2C – Use multichannel regional distribution strategy

B2B and B2C – Launch a farmer support program – microfinance and trainings

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2

3

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Evaluation of Alternatives

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ProfitabilityIncrease in customer

base

Relationship management

Working capital Overall

Expand B2B business

Expand in B2C market –Launch new products and build brand

Expand internationally - -

Launch farmer support programChanging the distribution strategy

UnfavorableFavorable

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B2C - Expand product portfolio and build umbrella brands

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Portfolio expansion and brand building

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Launch new value-added milk product categories – Flavored Milk and Yogurt

CATEGORY SELECTION

Size Potential Growth

Profitability Competition Overall

Milk

Ghee -

Curd

FlavoredMilk

Yogurt

UnfavorableFavorable

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Portfolio expansion and brand building

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Build umbrella brands to increase market reach

LAUNCH PLAN

Marketing• Build umbrella brands (Prabhat – choka, Prabhat – yogurt)• Example: Patanjali (range of products including skin care and pulses)

Price• Lower compared to MNCs• Example – 250ml for INR 20-30

Product Format• Smaller packages to test the market• Example – shampoo sachet

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Portfolio expansion and brand building

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Launch products with local marketing campaigns

MARKETING

Bollywood star brand ambassadors (e.g. Amir Khan and Salman Khan)

Traditional advertising – out-of-home (e.g. banners) and TV advertisements

Special packaging for kids and teenagers (e.g. Kinder Joy)

Social media campaigning – Facebook (12 M users)

1

2

3

4

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Multichannel regional distribution strategy

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Multichannel regional distribution strategy

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Expand in Tier 1 cities using online retail channels

DISTRIBUTION IN TIER 1 CITIES

Online retailing• Potential partners – big basket and flipkart• Example: T-supermarket of Alibaba

Delivery• Free delivery for more than CAD 10

Location• Wave 1 – Mumbai • Wave 2 – Delhi and Bangalore

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Multichannel regional distribution strategy

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Launch multi-channel distribution in Tier 1 cities

DISTRIBUTION IN TIER 1 CITIES

Traditional Stores• Keep the same pace of expanding in Tier 1 market

Benefits• Low Investment, existing infrastructure• Huge market potential• Avoid direct offline competition

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Multichannel regional distribution strategy

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Penetrate Tier 2 and Tier 3 cities

DISTRIBUTION IN TIER 2 and TIER 3 CITIES

Partner with regional distributors

• Go against the local cooperatives

• Be the first mover in tier 2 and Tier 3 cities

• Grow Prabhat to a national brand

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Launch farmer support program

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Launch farmer support program

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Increase supply to satisfy the pent-up demand

Dairy Farmers Consumers / Businesses

STAKEHOLDERS

Prabhat

Supply Demand

• Largest cow population

• 80% small farmers

Challenges• Lack of scale to offset capital costs• Lack of Indian fodder• Increasing price of fodder

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Launch farmer support program

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Strengthen the base of dairy farmers

MICROFINANCE FOR FARMERS

Microfinance partners such as Mahindra

Prabhat FarmersBuy milk at lower prices

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Launch farmer support program

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Support program will help to strengthen B2B and B2C businesses

LAUNCH PLAN

Set up manufacturing plants and collection points in Haryana (to cater to expansion plans in northern india)

Build relationships with farmers around the plants for micro-finance and trainings

Utilize new and old collection points for promoting the support program

Set up a team in Mumbai to work with micro-financers and manage the program

1

2

3

4

Purchase milk at lower prices and share profits with micro-financers 5

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Balanced Scorecard

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Balanced Scorecard

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Learning and Development

How long does it take to develop new products?

How long for microfinance project?

Customer

What is the market share of the value-added milk product market? (B2C)

How many farmers are taking microfinancing?

Internal

How long and how much does it take to incorporate the new production lines?

How many partners for microfinancing?

Financial

What is the payback period for new production times?

What is the default rate of microfinancing?

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Finance, Implementation and Risk Mitigation

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Financial Management

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The grocery industry has razor-thin margins due to high operating costs

2%

90%

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Financial Management

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Assumptions

CAD $.42 retail price per liter for milkCAD $2.28 retail price per liter for flavored milkCAD $7.50 retail price per liter for yogurt1% market share growth in first 3 years, 2% in 4th year onward16% CAGR in milk, 32% CAGR in milk, 28% CAGR in milk20% target market out of Indian market based on tier-city focus

Use short-term debt financing and free cash

flow from IPO equity

25% Permanent Reduction in D/E Ratio20% Year-over-year increase in Operating Case flow

15% First year Top-line revenue growth

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Financial Management

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Prabhat can increase its market share through targeted market offerings by 132% by 2021

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Implementation Timeline

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Strengthen internal competencies and diversify products to penetrate Indian market

Long-term Strategy

a) New product development and investment in manufacturing capabilityb) Servicing international B2B customers

Expand into international B2C market in SE Asia for Indians abroad

Q1 Q2 Q3 Q4 H1 H2 H1 H2 H1 H2 H1 H2Expand product portfolio and build brandUndertake market research for consumer preferenceR&D for new value-added dairy productsSet up new production linesTraditional AdvertisingCelebrity/Entertainment EndorsementOnline marketing campaignMultichannel distributionRefine warehousing capabilitiesPartner with online retailing platformsPartner with T2 and T3 regional distributorsFarmer support programPartner with microfinancing institutions (Mahindra)Establish Haryana manufacturing facilityAcquire farmers in new regions

2017 2018-2019 2020-2021

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Risk Mitigation

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Combat headaches of product and market diversification by expanding internal competencies

Increasing competition in value-added milk products from international players

Leverage on increased yield for farmers through micro-financing benefit to gain supplier loyalty

Initial lack of consumer awareness for new product lines

Partner with market research firm to validate advertising of product launch

High defragmentation of competitor presence in multichannel market

Offer bundled dairy product promotions to gain marketing advantage

Identified Risk Proposed Mitigation

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Key Takeaways

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Whether Prabhat change the balance between B2B and B2C? How can it successfully expand its footprint in Indian B2C market?

B2C – Expand product portfolio and build umbrella brands

B2C – Use multichannel regional distribution strategy

Launch a farmer support program – microfinance and trainings

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Questions?