ITC Foods says dairy and beverage segment to grow amid inflation relief

ITC Foods, the branded packaged foods business of ITC, anticipates a demand revival for the dairy and beverage sector in six to nine months, driven by a hot summer and a favourable dairy season.

It recently prioritised leveraging digital technology to streamline its supply chain, ensure consistent product quality, comply with food regulations, and enhance food security.

In an interview with Moneycontrol, Sanjay Singal, chief operating officer for the dairy & beverages cluster of ITC Foods, talked about rural demand, premiumisation and the segment’s outlook. Edited excerpts:

How has demand been for milk amid the rural slowdown?

Until six months ago, India faced milk supply constraints, but recent increase of milk production have led to heightened demand. Notably, rural consumers such as those in Bihar are transitioning from loose milk to packaged options for better quality and safety, particularly for their children. Assuring consistent quality through report cards incentivises consumers to pay a premium, acknowledging the costs involved in maintaining high standards.

As consumers move from loose milk to packaged milk, is premiumisation picking up in rural areas?

Premiumisation holds different meanings in the urban and rural contexts. In urban areas, it often involves the introduction of new product categories like smoothies or coconut water at higher price points. However, in rural settings, premiumisation typically refers to a willingness to spend slightly more, perhaps just one or two rupees extra per litre, for enhanced quality or features. While the extent of premiumisation varies between urban and rural households, the sense of premiumisation is surely picking up.

What are some premium products that may drive growth for ITC Foods’s dairy and beverage segment?

Post-COVID, urban consumers are gravitating towards healthier, guilt-free premium products. ITC Foods’ success stories include milk-based smoothies and premium coconut water under the ‘B Natural’ brand. These offerings cater to health-conscious urban consumers seeking nutritious options. Meanwhile, in rural areas, affordable yet tasty lassis in pouches at Rs 10 cater to local tastes and budgets, providing a cooling refreshment during hot summers.

How is ITC Foods implementing digital technology for transparency?

In overseeing dairy and beverage operations, we at ITC emphasise the vital link between agricultural sourcing and consumer trust. Leveraging digital technology, we ensure quality and compliance throughout the supply chain.

In our fresh dairy business, we engage with farmers via an app, offering timely veterinary support and transparent payment systems. Innovations like QR-coded milk packets and organic ghee with traceable origins bolster consumer confidence. By integrating digital solutions into supply chain management, we not only maintain product quality but also foster trust and transparency with consumers, addressing their evolving preferences and concerns post-COVID.

Has inflation impacted the segment’s product offerings?

Inflation, particularly in dairy, has shown signs of cooling after a period of high commodity rates until six months ago. While dairy is cyclical, the current cycle in India appears more favourable, promising a better year ahead for dairy companies. However, predicting market trends remains challenging, with experts suggesting a positive outlook for at least the next six to nine months.

With national elections around the corner, does the segment anticipate increased demand?

We cannot speak about direct benefits, but one initiative we’re undertaking is setting up special stalls during events like elections to distribute our summer products such as lassi and juices actively, providing consumers with a refreshing beverage option amid the hustle and bustle.

What is the segment’s outlook in the coming quarters?

The dairy and beverage segment outlook hinges on a promising summer, vital for beverage and ice-cream industries post-challenges from last year’s unseasonal rains. Consumers increasingly favour natural and healthier products like coconut water and smoothies alongside traditional options. The company’s efforts to enhance rural distribution are also underway.