Analysis Of Growth In Packaged Milk Industry Marketing Essay

Analysis Of Growth In Packaged Milk Industry Marketing Essay According to Dairy Index 2012, Pakistan is the third largest milk producing and consuming country in the world with 64 percent of the countrys population classified as Deeper in the Pyramid (DIP), which represents 60 percent of LDP consumption. The livestock sector alone contributes 11% of the countrys GDP,  with an estimated 42 billion litres of milk produced per annum. The total revenue from these dairy products is estimated as US$ 26 billion per annum. As per the Economic Survey of Pakistan 2009, Pakistan has a herd size of around 63 million animals, which is the 3rd largest in the world. About 35 million people are involved in dairy farming, deriving more than 40% of their total income from livestock. For these farmers, dairy animals provide milk for domestic consumption as well as meagre income through the sale of milk. In rural Pakistani culture livestock is a storer of wealth. It is viewed as important social capital and offers insurance to the owner in times of financial distress. Pakistan lacks the essential infrastructure that is needed for safe storage and transportation of farm produce. According to the Livestock and Dairy Development Board, 20 percent of the current milk production is lost due to poor infrastructure. Poor research facilities, technological backwardness and lack of processing facilities have resulted in generating fewer jobs and adding virtually no value to its agriculture produce. Of all the milk produced in the country, only 3 percent is processed. Rest of it is consumed as fresh milk which is not treated and is mostly supplied by gawalas. These Gawalas account for around 80-85% of total milk supply in the country. Due to this informal sector most of the milk in Pakistan is of low quality and is untreated. The handling of milk is miserable and no precautions are taken. People involved in this process are mostly uneducated and have low preference to health issues. They do not understand the importance of treatment procedures. Due to this lack of education, the productivity of milk is also low. The methods used for milking are old and no machinery is used. Everything is done purely by hand. In addition the live stock are not properly fed and taken care off. People do not understand the ways through which productivity can be enhanced. The lack of equipment also causes 20% of the milk to be lost during carriage which also lowers the yield and revenue produced by selling the milk. The packaged milk industry comes into picture here. This industry is the opposite of the unprocessed milk dairy industry which is the major chunk. The packaged milk companies have tried to introduce new techniques, use of machinery for milking and setting of health standards. These companies have state of the art plants installed and try to provide the best quality milk. The companies mostly buy milk from these local milk men but a few also have their own farms. The local unprocessed milk is bought by these companies and processed and treated at the standards which meet international quality. So with the increase of such companies and awareness among consumers, the packaged milk industry has started to take effect and gain share of the total dairy industry. Industry background The packaged milk category was originated in 1981 by company named Milk Pak, which  pioneered tetra pack milk in Pakistan. The supply chain involved collecting milk from rural areas across Punjab, processing the milk through UHT (Ultra-High Temperature Processing) treatment, and selling it to consumers in uniquely coloured triangular and rectangular packs designed to prolong the milks quality. Milk Paks Milk Packs were very well-received and the brand soon became synonymous with quality milk. Its first real competition came in the form of Haleeb, which introduced distinctively blue tetra  packs to the market in 1986. Milk Pak later merged with Nestle and continued its growth and leading the new high potential industry. By 2006, the dairy milk category was growing at 20 percent annually, and Milk Pak and Haleeb were well-entrenched brands with distinctive colours and brand  promises of providing high quality, natural and healthy milk. Milk Pak was identified by its green and white packaging-the colours of the country-and offered a brand backed with the strong equity of Nestle, coupled with its own traditional heritage. Haleeb was recognized as the blue brand, and professed to have the naturally thickest milk which was also claimed to give tea the best taste. At that time, market was dominated by these two strong and widely respected brands. The industry looked completely impenetrable for the new comers. But still milk industry in Pakistan had great prospects for growth. However Olpers, new milk brand backed by a powerful company engro, emerged to the scene and with its heavy promotional activities it soon started making its presence felt. The company gained share in the market quite rapidly and in couple of years time accounted for 13% of the market share. Other big companies saw this as the sign of potential profitable market and starting entering the packaged milk business. Good Milk was another brand backed by Shakargunj also launched onto the scene and started making impact. Local companies like Nirala sweets also took the opportunity and launched their milk products. In this growing market some old products such as Nurpur started reviving their brand and started making tetra pack milk. Numerous small brands like Halla, Gourmet and P rime launched their plastic packaged milk too which was cheaper than tetra pack. The industry took real boost in years 2008 and onwards. Countless brands started emerging, many on small scale. People started importing cows from Australia and other countries and marketed their milk. Educated people also stepped into this business. They brought in new techniques, live stocks and feeds to enhance the productivity and sell quality healthy milk. Various brands like Fresh milk, Farm fresh, Anhaar, White gold followed this trend. The industry particularly looks profitable as Pakistan is one of the largest milk producing and consuming country in the world. Milk is one of the main components of Pakistani people diets. Increase in urbanization during these years also helped the industry to boom. People came from rural areas started adopting to new trends. Mass media created an impact as companies used vigorous advertising to influence consumer choices and make them believe that the packaged milk is better, safe and healthy. The fresh milk suppliers also helped the industry as the fresh milk they supplied was constantly lacking quality, rumours of mixing of water into milk, unhygienic treatment of milk and medications given to animals to enhance milk produce led people to give-up fresh milk consumption and avert to packaged milk. Research objectives Identify how many new packaged milk companies have become functional in last five years. What is the growth of milk production in last five years What are the reasons behind the growth What is the projected growth for coming years Why is demand for packaged milk increasing What are potential new markets for packaged milk How many consumers are willing to substitute fresh milk with packaged milk Is the non packaged milk industry slowly transforming into packaged milk industry? What impact does increasing population has on milk demand Is large youth population a driver for growth in packaged milk? Research Question Analysing the growth of packaged milk sector in Pakistan over the last five years. Research Methodology This section will explain what type of research would be conducted and by which means. It covers the details of the research design, methodology for collecting the data, population, questionnaire development and data analysis. Data Type The type of data can be either primary or secondary. In this particular paper both primary and secondary data would be used. The primary data set will be gathered via questionnaire whereas the source of secondary data are published articles from Jstor journal and other credible sources. Further the data can be qualitative and quantitative in nature. Qualitative data refers to data that may categorize items in terms of certain characteristics and / or quality. This type of data can be observed and recorded however, it cannot be measured. Quantitative data refers to data that is numerical and can be measured using various statistical techniques .The majority of the data regarding this paper is quantitative in nature. This is due to the fact that quantitative data is easier to measure and analyze and reduces biasness that can occur in qualitative data. Information with regards to the demographics of the research subjects would be termed as qualitative data; this includes information abo ut the respondents gender, age, etc. Sampling Procedure Convenience, non-probability sampling will be used, based on the ease of access for the researcher. Sampling Frame For the purpose of this research, the list of elements upon which the sample is selected from the population include the fact that they should be easily accessible to the researcher (as convenience sampling is used). The other element of is that atleast 50% of the sample should fall into the SEC B income bracket. This is because research shows this class to be the most frequent users of these products. Time Frame The time frame for this research project is 5 months, starting from August and ending in December. Research Proposal Submission (August 2012) Revisions to Proposal (1st September 2012) Literature Review (8th September 2012) Hypothesis Generation (8th September 2012) Theoretical Framework (8th September 2012) Methodology (8th September 2012) Data Collection (22nd September 2012) Data Compilation (6th October 2012) Data Analysis (13th October 2012) Results and Findings (20th October 2012) Final Submission (3rd November 30th 2012) Literature Review The prospering dairy industry of Pakistan The author of the article talks about the increasing trend of consumption of branded or packaged dairy products in urban areas. According to the author the transition of dairy industry from unprocessed loose products to formally treated hygienic packaged products has took a long time. The packaged milk industry initiated in 1981 but till the early 2000s the growth was very slow. People did not adapt to the idea and kept on consuming fresh products. Milk from Gawalas and yogurt from local milk shops were widely preferred. In the last decade the consumers became more aware of the benefits of the packaged milk. People also started knowing about the improper treatment of dairy products by the local milkmen. Germs, mixing of water, poor handling techniques and medications to enhance milk yield from cows contributed to consumers dismay. People suddenly started looking at packaged milk as more healthy, nutritious and safe. According to the figure given in the paper, the packaged milk indust ry is growing at 20% annually. Marketing of dairy (fresh) milk vs. packaged milk The article researches the reasons behind success of packaged milk in recent times. The industry has boomed in last five years. Many new companies have come and impacted the industry. The fresh milk is being substituted for the packaged milk. According to the author the impact can be seen by studying the marketing strategies of fresh milk producers vs. Packaged milk producers. The author sees advertising as a key factor that has contributed to this boom in packaged milk industry. The marketing strategies and advertising has changed consumers perception. Consumers are made aware of the advantages of packaged milk. The hygienic values, purity and freshness have been promoted massively. The marketing has also shown the dark side of fresh milk. The improper handling, unhygienic and old methods and contamination in the milk have led to change in people preference. Moreover the companies have targeted changing people lifestyles. The convenience of packaged milk, hassle free handling and easy storage has also caused positive attitude towards packaged milk. The packaged milk makers have also successfully promoted milk as essential product for as well as main ingredient for various items. Like the best tea, best desserts and best drinks are made from packaged milk. On the other hand the fresh milk industry being largely unaccounted and informal has failed in this aspect. They are lacking innovation as well as modern techniques. The uneducated milkmen have failed o understand the significance of marketing. They are still surviving on massive demand, price and staunch users who do not want packaged milk. Changing lifestyles and consumer attitudes The ever increasing concerns of contamination, germs, bacteria and improper handling of dairy products specially milk has led many consumers to opt for packaged milk consumption. The perception and understanding of packaged milk being more safe and healthy is fast catching the minds of consumers. People are more informed about the hazards of consuming unhygienic loose milk. This change is the a key indicator of huge potential and enormous untapped market that has great potential for growth in packaged milk industry. Keeping in mind this huge potential and changing lifestyles of consumers, the packaged milk companies have come up with different varieties of milk. Consumers now have more choices than they could have imagined previously. Companies like Milkpak and Olpers offer normal pasteurized milk with full fat content as well as low fat, high calcium milk better known as skimmed milk. Consumers specially the ladies are targeted with the skimmed milk categories whereas men and children are promoted the normal brand of milk. Talking about choices and innovation, companies have even made milk a specialized item. For example olpers markets it milk Tarang specially for making tea. It says that Tarang is the best milk for tea. Similarly nestle has done this for many years with its dry milk brand called every day. So with changing consumers need and evolving lifestyles, companies have come up with new and innovative products and have successfully specialized their options. Drinking milk products in Pakistan In the dairy sector, milk continues to be the largest consumed commodity. In this category of drinking milk, Khula doodh continues to be the preferred choice of consumers as high percentage of population consumes it. Share of packaged milk is still very low in the dairy industry. The main reason behind this is that still majority of people consider the loose milk to be more fresh, nutritious and affordable. Drinking milk products is expected to see a constant value CAGR of 8% over the forecast period, departing from the high annual growth of 21% seen in 2011 as well as similar high double-digit growth seen in the past few years which had been mainly led by hikes in unit prices. During the forecast period, prices are expected to see only modest growth since companies are concerned about the inability of consumers to cope with soaring food inflation. In this high growth industry, packaged milk has also seen tremendous growth. The competition has increased and new companies have started making impact in the market. In 2010, Engro foods a young company was tied with Nestle Milkpak a pioneering company in packaged milk for the share value of sales which stood at 33%. Haleeb closely followed these companies with 20% value share. The white revolution (Dhoodh darya) The basic objective undertaken in this paper is to activate the resource potential of rural Pakistan and serve as a key engine of economic growth, thus radically changing the landscape of Pakistans agriculture economy through dairy development! the revolution aims at empowering small farmers and providing them with mechanized farms. The revolution is trying to improve the overall infrastructure of the dairy sector so that its full potential can be exploited. By introducing modern techniques, white revolution will influence the lives of millions and enhance urbanization through innovation and quality. The white revolution aims to satisfy consumers by providing quality milk, affordable, wide product range and high nutritional value. To meet the needs of the farmers, white revolution will train, empower, provide resource, improve yield, link to formal markets and provide a thriving pathway to growth. This way the supply chain will become better off, local milk production will adapt to n ew techniques and foreign investors would also be attracted. Overall a standardized industry would take shape. Some stats shared in the paper give us brief of the industry. These stats are as follows: Capture.PNG Capture2.PNG Through these statistics we can clearly see that the dairy industry has great potential for growth. The packaged milk industry is also contributing more and more every year. The growth trend is strong and may lead the industry in near future. All this would be made possible by achieving the objectives as mentioned in the paper. Pakistans transforming dairy industry The Gawala system is one of the long standing traditions of Pakistan milk industry. The result of this tradition can be seen by dominance of unprocessed milk which accounts for 93% of all liquid dairy products. From 2006-2009 consumption of LDP has increased with increase in the population, With a CAGR of 2.4% (according to Tetra Pak data). In 2009, LDP consumption reached 18.9bn litres, maintaining its position as the fourth largest LDP consumer after India, China and the US. In the same period, the rate of growth of packaged LDP was at CAGR of 8.4% compared with unpackaged products, which grew at a CAGR of 2.1%. according to tetra pack this trend is going to continue in near future. Tetra Pak expects packaged LDP to continue growing, with a CAGR of 10.4% from 2009-12. The changing demographics of the country are contributing to this change. Emerging middle class, increasing young population and education has caused people to demand safer and healthier products. In the alst decade the urban population of apkistan has increased by 3 percentage points. In 2009, 35.5% (59.9m) more people were living in urban areas. This change or urbanization has limited the supply of good healthy fresh milk as people have moved away from rural areas. Their access to good quality loose milk has been limited due to the lack of a cold supply chain. This has provided packaged milk companies with the opportunity to provide good quality, safe milk in an alternative form. Increasing educational class and sophisticated consumers have demanded more and more packaged products as they perceive it to be healthier and more convenient. From 1999-2009, packaged LDP grew by 19%. VAT to hamper growth of dairy industry In 2010 the article published in tribune raised concerns of dairy industry as government considered applying VAT on packaged milk. According to Pakistan dairy association (PDA) the VAT would seriously hamper the growth of the industry. According to Muzammil Aslam, economist at JS global capital ltd. Government will face difficulty in applying VAT on food industry. The government will face problems in imposing VAT especially in the food sector because this area has been mostly unregulated, If government applied VAT on packaged milk which is around 15%, the prices of milk packs would sharply rise. The difference between loose milk and packaged milk would become extraordinary. Consumers will shift to loose milk and packaged milk which has been growing year to year will suddenly default. Already the packaged milk sector has only 13% share in the dairy market. The industry wont survive and eventually Pakistan would have to import packaged dairy products. The loose milk industry is currently not in tax bracket so it would be unfair to have taxes on packaged dairy products. Emerging markets will drive growth of dairy industry According to a study conducted by tetra pack in 2012, emerging new markets in the world including Pakistan, India, Brazil, Russia and china will drive the growth of LDP industry. The LDP market is set for accelerated demand in years 2011-2014. Pakistan is currently the third largest milk producing country and has third largest herd size. Most of the population of Pakistan is deeper in the pyramid (60%). This provides great opportunity for companies and local farmers to cash in. Pakistani food producers have made many new innovative products which are affordable and good. One such product is the tea whitener. 32% of milk is used for making tea so it is a very important market. Products like tarang which are cheap and good for tea are ideal to penetrate into DIP segment of the society. Once the packaged foods enter this segment the growth will be enormous. Todays low-income consumers are tomorrows middle class, said Azhar Ali Syed, Managing Director Tetra Pak Pakistan, noting that this is a golden opportunity for dairy processors to cultivate consumer loyalty among a new generation of dairy consumers in developing countries such as Pakistan. The consumption is to incease from 70 billion litres to 80 billion in the year 2014. Many of the loose milk consumers are expected to shift during this period to packaged milk. Low-income consumers represent one of the biggest growth opportunities for the dairy industry. The key to tomorrows success is reaching these consumers today, said Tetra Pak President and CEO Dennis Jonson. They make up almost 40 percent of the worlds population and live in economies driving our industrys growth and they are growing more affluent. Tetra pack also announced that LDP demand worldwide is going to grow at 2.9% CAGR from 2011-2014. The biggest potential markets will be Asia, Africa and Latin America. Competitor analysis The packaged milk industry of Pakistan initially faced slow growth. People did not adapt to the idea of packaged milk and avoided consuming it. In the last decade this trend has changed. People now have become more aware of the packaged products and its nutritional values. The awareness led to consumer testing and liking the packaged milk. Thus the milk consumption started to transform. There are two types of packaged milk available, the tetra pack and the pouch packed milk. In the past five years the growth has been rapid. The industry has prospered in this time period. The boom in packaged milk industry has seen many new competitors enter the market. The competition has increased and suddenly the industry has become fiercely competitive. In the early days, the packaged milk market was dominated by nestle milk pak. Milk pak was like a monopoly. Now with new companies entering, the market share has dropped but still milk pak leads the market. Olpers now has second highest market share, was launched during this period of time by engro foods. The competition within the industry itself has become intense. There are many brands available offering virtually the same product at almost the same price. The taste and nutritional value of the milk brands are also same. Consumers have endless choices. The prominent brands competing in the market include: milk pak, olpers, haleeb, halla, good milk, gourmet, prema, anahar, nurpur, omung, and white gold. The combined percentage share of tetra pack and pouch pack milk brands of the dairy industry is 29% (22% tetra pack, 7%pouch pack). All these brands are fighting to gain maximum of this 29% share of the dairy market that makes the packaged milk industry. Of the 29% share of packaged milk in dairy industry, 22% is tetra pack milk. Currently milk pack has around 40% share of this pie whereas olpers is second at 27%. Other significant competitors in this category are haleeb and good milk. These tetra packed milk brands offer pasteurized milk. It is a little expensive too when compared with other categories. In the other category, Gourmet milk dominates the pouched milk category as it has more than 70% share of the 7% pouched milk market. The main competition in this category is halla and dairy queen. These brands offer UHT milk which come in pouches and are considered economical. Apart from this inside competition faced by packaged milk industry, immense competition is present outside the industry. This competition is given by the fresh milk or unprocessed milk category. This category is by far the most popular and most consumed one. It accounts for 71% of the total dairy market share. The fresh milk has this huge market share due to various factors. Among these factors price, taste, availability and nutritional value are key. The fresh milk is readily available and supplied to households on daily basis. Local milk men who have their own cows supply fresh milk on daily basis. The milk is delivered to consumers doorstep fresh every morning. This ease is also one of the main reasons for its success. The fresh milk also is cheaper to get. As compared to the packaged milk it almost costs Rs. 10/litre less. Another factor that has lead to this huge market share is lack of awareness regarding packaged milk. People still believe that fresh milk is more nutritious wh ereas to them packaged and processed milk is artificial. One key thing to note is that the fresh milk has a 70% share in rural market while in urban its only 30%. Industry analysis According to a study on Milk marketing conducted by FAO in Pakistan in 2003, out of 33.6billion litres of production of milk, 80% of the milk in the country are collectively produced by rural commercial and rural subsistence producers. The semi urban producers account for 15% of the milk production, whereas urban producers contribute 5% to the total milk production in the country. Only 5% of the milk is processed and is marketed through formal distribution channels whereas the other 95% is being distributed by the middlemen in the urban and rural areas. This accounts to be 0.43% contribution of the formal sector to the real GDP of Pakistan in the year 2004-2005. The formal sector (UHT) market are the milk producers in Pakistan which totals to be only 3%, which is only a small percentage, are growing at a stable rate of 20% a year. Initially the dairy sector did not receive much attention. As mentioned before, the packaged milk industry began in Pakistan in 1981. Milk pak became the pioneer by introducing its packaged milk. Later Haleeb and dairy queen and Halla followed Milk pak footsteps. The industry at the beginning never looked promising and was hardly seen replacing the fresh milk. In fact, the concern of adulteration, germs, obsolete and old methods of improper handling of dairy products, particularly loose milk and curd by milkmen and shopkeepers, are forcing a large number of consumers in the country to change their old buying patterns and move away for traditional milkmen delivered fresh milk. Consumer preferences have changed in the favour of packaged dairy products (Austin and Kohn, 1990), which offers better hygiene, nutritional value and good value for money. In the early 90s Tetra pack started their campaign of hygiene bacteria free milk; moreover their main aim was to educate the masses about th e health hazards of loose milk which is supplied by the local milkmen. Also they wanted to build awareness about the quality, purity, freshness of the packaged milk which is free from preservatives. Till the mid of 90s milk production was the least commercialized enterprise in the agricultural economy. It was during the early years of the 21stcentury that the dairy sector became slightly more commercialized with the emergence of two new companies in the sector: Olpers and Goodmilk. The former enterprise emerged as an aggressive player with attractive new ad campaigns emerging after almost every six months and managed to gain second highest market share as a UHT milk producer in Pakistan after Nestle Milkpak. The dairy sector now stands at its turning point. The advertisement campaigns and the competition between the oligopolies of milk enterprises have benefited its consumers the most (Pakistan Dairy Development Company, 2006). A demand shift can be viewed from that of loose milk to packaged milk. Milk consumers now have a variety of brands of milk to choose from which would suit their needs. The majority of national livestock herd is distributed in small units throughout Pakistan. About 55 million landless or small land holding farmers are responsible for the bulk of milk production produced in the country. Buffalos being the major milk producing animals produce most of the milk in Pakistan whereas only small amount of milk is produced by cows as Pakistans consumers prefer buffalo milk over cows milk. UHT producers of milk have made collection points in rural areas from where they collect milk from small scale farmers. It develops into a hassle for the collectors as they have to face problems due to poor infrastructure, quality assurance of the milk produced by farmers, inexpert manpower and seasonality issues. Low productivity and uneven farm base makes it inefficient for collectors to collect milk from farmers as collection becomes ineffective due to this. These difficulties create serious threats to the dairy industry of Pakistan which can only be eliminated by providing subsidies by government to the farmers. To make Pakistans dairy industry competitive against worlds dairy sector Pakistans dairy industry needs to be developed with respect to international standards. Primary research For this research project most of the data has been gathered from secondary sources. due to limitations and small time span only small scale primary research has been done. The primary research done for this study is has been limited to Lahore area only. The respondents were mostly students belonging to few universities of Lahore. the sample size chosen for this research was 100. These hundred people represent the whole population for this research only. This sampling has been done just to get an idea of how much our research claim is valid. The primary research data gathering has been done through questionnaires. A fourteen close ended questions questionnaire was floated in our sample. The questionnaires were filled under the supervision of the researcher and all precautions had been taken to avoid any bias. Survey analysis When the respondents were asked which type of milk they consume 30 said fresh milk, 60 tetra pack, 9 plastic pouch and 1 went with others. The next questions addressed the frequency factor. 30 respondents said they consume milk twice a day, 50 used it once a day, 15 said few times a week and 5 only used once a week. The third question asked the purpose behind consuming milk. Most respondents said they consume for tea, coffee and drinking. Out of the sample of 100 respondents, when asked 70 said that they use tetra pack milk while only 30 said no they dont. The most popular kind of packaged milk according to our respondents is the UHT milk as 60 respondents went with the option. When asked about the packaged milk brands most people consumed milk pack 49, olpers being second and good milk third. In pouched milk category gourmet was the preferred choice along with halla. The next question was perhaps the most critical one. We asked respondents that have they ever consumed loose milk or are its past users. 97 out of 100 said yes. Almost everyone has been a past consumer of loose milk. In one of the questions we noted that 70 out of 100 p

Evaluation of Business Code of Ethics

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