ICREAM OF THE CROP
Action is heating
up in the domestic ice cream sector and family-run brands are breaking the ice
with the coolest of strategies
Even during the Ice Cream Congress and Expo this
September, industry peers didn’t realise the Chona family was literally
freezing terms of their sale to South Korean giant Lotte Confectionary at
eye-popping valuations. But within two months came that announcement, sending
the entire trade into a tizzy.
Late November, Lotte scooped up Havmor, India’s
seventh largest ice cream brand, for ₹1,020 crore in an all-cash deal, more importantly paying a
multiple in excess of 2.5 times its 2016-17 turnover of ₹400 crore.
Lotte’s foray, say officials in the know, is part of
a bigger ice cream play across south Asia via strategic acquisitions. Their
seriousness can be easily gauged from their yearlong negotiations with the
Chonas of Ahmedabad and the aggressive offer that trumped deep-pocketed peers
Hindustan Unilever (HUL) and possibly even Nestle.
In ice creams, it takes just one transaction to give
the entire industry a sugar rush. “Should I help you count your money,” RG
Chandramogan, founder of Chennai-based Arun Icecreams, joked with Ankit Chona,
MD, Havmor Ice Cream. His jest was not far off the mark as the $1.5-billion
domestic ice cream industry is now serious business, with popular homegrown
brands that are still largely family-led showing up on the big boys’ radar.
“At these valuations, the lure of selling out is a no
brainer,” quips Anuvrat Pabrai, first generation ice cream maker based in
Kolkata. The brain behind the eponymous premium brand had, in the 1980s,
launched Tulika before closing it down in 2008 due to labour problems and hyper
competition. “Suddenly, with Lotte, the attention is back. I do expect more
such trades in the days to come.”
Simon John concurs. “We are not averse to selling
part or majority stake to an investor who can take the brand to greater
heights,” says the Kochi-based second generation entrepreneur at JSF Holdings
that retails the bestselling Uncle John, Skei and Lazza (Arabic for ‘all good
things in life’) brands and enjoys a 75%-plus share of the Kerala market.
“We are looking at consolidating factories and
additional funds would help expand our network and open larger manufacturing
facilities. In a way, we are also cashing out the work done over four decades,”
adds his brother Francis, who candidly admits their next generation is not as
committed to run the 45-year-old family enterprise.
In Ahmedabad, just like the Chonas, the Gandhis of
Vadilal Industries are also on verge of exit, with a sale process underway.
City old-timers rue the two family-run businesses — integral to both the
Gujarati entrepreneurial spirit and sweet tooth — that thrived since pre-Independence
will soon change hands, albeit for different reasons.
Things aren’t that different in the financial capital
either. “For years, we had taken a stand of not diluting our stake. But now, we
are private equity-ready,” says Srinivas Kamath, second-generation
entrepreneur. Kamath Ourtimes daily sells about 2 lakh scoops of Natural’s in
half a dozen states, with annual sales topping ₹140 last fiscal. “It’s not just for funds but for strategic
value.” Interestingly, his father RS Kamath opened the first store at Juhu in
1984 on Valentine’s Day more as an afterthought to selling paav-bhaji.
The elder Kamath is responsible for introducing new
fruit flavours. He’s planted various saplings on the grounds of the company
office in Kandivali, Mumbai, which he treats as a sort of personal laboratory.
MONEY OR MELTDOWN?
But as the spotlight returns to them after over a
decade, many ice cream families are taking a hard look at prospects in the
backdrop of consumer habit flux, before any meltdown.
The market has evolved since HUL took over Kwality in
phases after buying the trademark in 1994, or even after Malaysian PE firm
Navis lapped up Nirula’s in 2006 for ₹90 crore. Today a handful of players with big marketing and
distribution muscle — Amul, Mother Dairy, Vadilal’s, Walls or even Havmor —
jostle for retail space nationally while smaller regional players, who still
collectively control half the market, cling on to their turfs.
For industry insiders such as Dalip Sehgal, who was
with HUL during the Kwality takeover, smaller players are still on top of the
pecking order because the ice cream business is local in its flavour. “There is
headroom for double digit growth in the Indian ice cream market. Hence, it is
attracting significant interest from investors,” says Anand Vermani, partner,
deal advisory, KPMG, advisors to the Chonas.
In 2015, Nestle-owned premium brand Mövenpick and
Arizona-based Cold Stone Creamery both announced an India entry to tap a market
expected to grow at a value CAGR of 20% for the next five years. In 2013,
Unilever brought its top grosser from Europe — the premium Magnum ice cream
bars.
But as Shiva Mudgil, senior dairy analyst at
Rabobank, puts it, the market is largely skewed, with few large players and
many smaller ones making consolidation an inevitability.
“That is how its journey has to end (here),” says RS
Sodhi, MD, Gujarat Cooperative Milk Marketing Federation that owns and markets
Amul. “Beyond a point, the promoters must have been finding it difficult to
make profits as expected from the business, in the presence of MNCs and
national brands like Amul.” A confidante of the Gandhi family also recommended
that it’s the perfect time for the Vadilal owners to “hang up their boots.”
Even then, it’s a tough choice for people like
Havmor’s Pradeep Chona, who grew the business his father started in Karachi in
1944 before his son Ankit joined him a decade ago. Chona Senior immersed
himself in new flavours and regional delicacies — Havmor served paan-flavoured
ice cream at Bollywood actor Shilpa Shetty’s wedding and flexed muscle with
in-film promotions in Krrish-3 GeNext, meanwhile, focused on
premium Huber & Holly range or expanding the 1944 brand of high-end
restaurants. To be fair, the core business was rock solid, dominant in Gujarat
while successfully expanding north. The range crossed the 150 mark, sold
through a parlour network across 14 states, clocking a CAGR of 23-25%.
Yet, the family knew cashing out at the peak is
better. “This was the end of road,” feels management consultant Harminder Sahni
of Wazir Advisors. “They knew their limitations (of funds). Profit-centric
business entities can’t afford distractions. Once they focused on restaurants
and eateries — more profitable than ice cream — they knew it was time to exit.”
The Chonas, who are currently in the process of
handing over, refused to participate in this ET story. Ankit stays
on as CEO-advisor for at least a year to manage the transition even as his
family expands restaurants.
FAMILY PACK
Often, it’s not that smooth. A major handicap most
family businesses face as they grow are warring shareholders with conflicting
outlooks, as with Kwality and Nirulas franchise.
A few years ago, differences sprung up between
principal shareholders of Nagpur-based Dinshaw’s Dairy Foods — the Rana and
Bapuna families.
This led to collapse of discussions with strategic
and financial investors for a large stake sale in the 84-yearold venture, say
people in the know. “Difference of opinion either in terms of bringing
investors to cash out or having a certain vision for a company is a common
trait in many family owned businesses,” agrees Sehgal, now part of Graviss
Hospitality, manufacturer of Baskin Robbins in India.
The various factions of the Gandhi family that worked
together for three generations to create India’s oldest ice cream brand
Vadilal, a business that’s now eight decades old, are also in the middle of a
bitter ownership feud at the NCLT. The three factions may divide territories,
demerge business, or decide to sell the company altogether. “In any case, the
three brothers will not stay together in business,” says a source close to the
family, making the company ripe for a takeover.
LOCAL PALETTE
But many families are chosing to fight back or tweak
their business models.
“I didn’t set up Creambell to sell it. We have big
ambitions. Besides working on a complete dairy portfolio — which may include
butter, cheese and yoghurt — we could look at diversifying into other foods,”
says serial entreprenuer Ravi Jaipuria, also PepsiCo’s biggest bottler in south
Asia.
Jaipuria, who took over the brand originally started
by his brother CK some nine years ago, can make it grow from its current sixth
slot to $1 billion in sales in five years. “This is a fivefold increase from
current numbers. We are very bullish on dairy,” he says.
Creambell sells dairy products in parts of Africa and
select Indian cities. In the next few years, Jaipuria flagship RJ Corp plans to
infuse ₹500 crore in
distribution and capacity expansion across the dairy value chain, while ₹1,000 crore has already gone in.
Down south, the sentiment is not different. “We are
not on sale. We are not even concerned about growing competition, especially
from MNCs, as our product quality is far better,” says 69-year-old
Chandramogan, who started Hatsun Agro nearly 50 years ago and initially sold
Arun Icecreams on a pushcart. “We have a natural advantage of backward
integration that helps control quality, sourcing and more importantly, price
better.”
The BSE-listed firm procures milk directly from 3.2
lakh farmers for its 10,000-plus Hatsun Milk banks. The ice cream division
accounts for nearly 9% of ₹4,200-crore
revenues. On the bourses, Hatsun is valued at $2 billion. Its brand controls
over 30% market in the south with 500 parlours and nearly two-thirds in home
state Tamil Nadu.
For Pabrai, who started out as an F&B executive
at Taj Mumbai, tweaking the business model is the best combat strategy. “Our
USP is our unique flavours and premium positioning. We have developed
cuisine-based ice creams. Offerings like South Indian filter coffee or Nolen
Gur (date palm jaggery) have huge demand both in institutional sales and
retail,” he says.
Pabrais uses mulethi and 17 other ingredients
for paan ice cream. Jackfruits are sourced from a farm 200 km
from Chennai and lichis come from Muzzafarpur. Such artisanal pursuits have
helped the brand expand to 13 cities and notch up ₹22 crore in topline. It commands
double the price tag of its mass market competitors for all its 60-plus
flavours.
This labour of love manifests in different ways. For
the Kamaths, repositioning Natural’s was becoming a necessity to woo
millennials. They convinced their father to go for a pictorial mnemonic like an
inverted ‘A’ with an ice cream scoop on top to increase brand recall. The green
coloured font also went with their ‘natural’ philosophy. With the widest range
of fruits ice cream in the world, the brand has gone international.
After all, if food is familial, why can’t ice creams
be too?
Shramana Ganguly, Sagar Malviya
& Ratna Bhushan
ET 12DEC17
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