More than just bread and butterPresenting to Vivek Nirmal
Project team:Pascal LangeChristoph KirchnerMarie-Sophie KilianTimo Suellwold
University of MuensterSchool of Business and Economics
2
Agenda
Management Summary
Analysis
Recommendation
Implementation
Wrap-up
3
Mandate
Management Summary
Key Challenges
Low profitability Increasing purchasing prices for milk
“The bread and butter has to be milk, else, the business model will not work”d
Poor working capital situation
4
B2C and strong cooperation with farmers are the way to success
Management Summary
Key challenges
Actions
Result
• Low profitability• Increasing purchasing prices for milk• Poor working capital management
• Increase portion of B2C because of higher margins and better working capital• Advise farmers with experts to increase efficiency• Umbrella agreements with large B2B customer for better working capital
• Profitability and working capital management are strongly improved
5
External: Low efficiency in milk production – Health and convenience trend
Analysis
Key Success Factors
Use demographic shift and low labor
costs
• India: huge population + demographic shift lots of young people and a growing
share of people who care about health and sustainability
• Price sensitive customers
• 80 % of milk production is done by small farmers
Low mechanization
Low quality of fodder
• High competition in tier 1 areas: expanding domestic players and multinational
players
Increase milk yielded per cow
Use consumer trends and price
sensitivity
6
Internal: High margins in B2C and esp. with value added products
Analysis
Key Success Factors
Use high margins of value added products and
HORECA business
• B2B business ensures high utilization and economies of scale
• B2B customers lead to distressed working capital situation
• Distribution costs increase the more rural an area is
• Value added products have higher margins than milk
• HORECA with high margins
• Milk is a omnipresent product in everyone's life and is a multiplier for brand
awareness
Milk as key driver for growth and
brand awareness
7
Key takeaways from analysis
Analysis
!Use demographic shift and low labor costs
Increase milk yielded per cow
Use consumer trends and price sensitivity
Use high margins of value added products and HORECA business
Milk as key driver for growth and brand awareness
8
Decision 1: Achieve equal share of B2B and B2C
Recommendation
B2B vs. B2C 80 : 20 50 : 50 20 : 80
profitability
Impacts on WC
Feasibility
Focus on B2C not feasible and negative impacts of B2B are too strong
9
Decision 2: Tier 2 and 3 areas fit best to your business for expansion of B2C
Recommendation
Focus on tier 1 areas Focus on tier 2 and 3 areas Focus on rural areas
Degree of competition
Distribution cost
Feasibility
Degree of competition as knock out criterion for tier 1 areas and distribution to rural areas not possible yet
10
Strategy is build on three pillars
Implementation
• Transfer know how to the farmers to optimize efficiency
• Reduce inventory and receivable days
• Expansion of product portfolio
• Focus on the trends
Future strategy
Incrase B2C Supply Side Working Capital
11
B2C business can be increased with a strong marketing concept
Implementation
Promotion
Price
Product
Placement
12Implementation
Product Promotion
• Milk products & value added products Ghee, flavored milk, curd, paneer, ice cream…
• Small package sizes
• Special products with additives such as protein or
calcium and vitamins
• Strengthen the brand awareness esp. through
focus on promotion of milk
• Local promotion through specific retailers
(“Prabhat Mini Stockists”)
• Focus on healthy, young, light & convenient image
Value added products with higher margins
Use consumer trends: health & convenience
Healthy image is stressed to expand in B2C with local marketing
13Implementation
Placement Price
• Focus on Tier 2 & 3
• Supermarkets, Hotels, Restaurants & Catering
• Region Maharashtra 2nd step: expansion to other regions
• Positioning next to fruits & vegetables
• Nice shelves design
• Distribution through mopeds (“Project Raftaar”)
• 15% under multinationals
• 5% under cooperation's
• Selling prices stay constant
HoReCa with higher margins
Low labor costs for distribution
Pricing applies to high price sensitivity – Placement in retail stores and kiosks
Use high price sensitivity
14
To pass on know how is key to succeed in decrease purchasing prices
Implementation
Supply side
• Increasing milk purchasing prices are tackled by efficiency improvements
• Farmers are supported by Prabhat Dairy with experts for milk agriculture
• Experts visit farmers and advise them concerning feeding and proper farming
• Milk yielded per cow can be increased significantly
• Lower purchasing prices due to higher efficiency lead to higher margins
Increase milk yielded per cow
15
Inventory and receivable days can be decreased until 2018
Implementation
Analysis ResultMethods
• Inventory days have increased from 17 days to 23 days
• Receivable days have increased from 35 to 76 days
• Inventory days can be decreased from 23 days back to 18 days
• Receivable days can be decreased from 76 to 40 days
• Shift to more B2C products decreases inventory days and receivable days
• Enter “Umbrella contracts” with large institutional customers
• Improve market demand forecast through hiring a specialist in market research and using proper software tools0
20
40
60
80
2012 2015
Inventory days Receivable days
0
20
40
60
80
2015 2018
Inventory days Receivable days
16
Road map for the implementation
Implementation
Actions 2017 2018 2019 2020
Development of added-value products
Roll-out in supermarket & HORECA
Possible expansion to other regions
Expert advisory
Negotiations of umbrella agreements with B2B
17
Investments per year around 66 million Rbs
Implementation
Investments Costs in million Rbs
Marketing 20
R&D (20 employees a’ 500.000 Rbs per year) per year 10
Experts for farmer (30 experts a’ 500.000 Rbs per year) per year
15
Expanding distribution network (100 drivers a’ 200.000 Rbsper year) per year
20
Specialist for demand forecast a’ 1 million Rbs 1
Total 66
$
18
Revenue share of B2C Business reaches 50% until 2019
Implementation
Reasons for higher profit margin
• Higher Share of B2C business and HORECA with higher margins
• Lower procurement prices
• Increasing retail prices in the market
Revenue and Profit Margin can be increased in the next 3 years analysts are satisfied
in ten million Rbs 2016 2017 2018 2019 CommentRevenue B2C 352 475 641 865 Growth rate approx. 25%Share B2C 30% 36% 43% 50%Revenue B2B 820 830 840 850 StagnatingShare B2B 70% 64% 57% 50%Total Revenue 1,172 1,305 1,481 1,715Profit 25 39 59 69Profit Margin 2.10% 3% 4% 4%
19
Potential risks are manageable
Implementation
Risk Mitigation
A Farmer refuse to be advised by your experts
Show them the results of farmers that participated in the program
BDomestic player and multinationals enter the Tier 2 and Tier 3 cities
Use first mover advantage with high brand awareness and stress lower price level
Probability
Impa
ct
A
B
20
Key challenges are addressed by the strategy
Wrap-up
• Low profitability• Increasing purchasing prices for milk• Poor working capital management
Key Challenges
Increase B2B / B2C share to 50:50
Expert advise for farmers
Monday morning actions
• Start with setting up expert network for farmers
• Set up R&D team for value added milk
21
Thank you for your attention
