Last fortnight, Milky Mist announced it was looking to raise 800 Cr in financing, after reporting close to 1,000 Cr in revenue
Unorganised Means Opportunity
Post-independence, India was left a poor and hungry nation.
We had low production capacity, no technical know-how and were reeling under a political crisis. India needed to rebuild itself.
The biggest challenge was to feed the people of the villages. India went as far as resorting to food crop supplies from the United States in exchange for rupee payments.
This put the nation’s food security in dire straits and its political freedom at risk. Self-sufficiency in the production of basic food staples was not optional.
The government used five-year plans to reform agriculture as a means to feed its citizens, reduce rural poverty and expand exports. India’s dairy industry featured prominently in these development measures.
In 1951, India’s first five-year plan included the initiative to modernise the dairy industry and provide hygienic milk for the country’s growing population.
In the years that followed, the Gujarat Cooperative Milk Marketing Federation (GCMMF) and the National Dairy Development Board (NDDB) were the two most prominent efforts in this direction.
Indian villages consisted of thousands of small, scattered farms and milk production was an additional occupation for marginal farmers with a few milking animals. This setup was a supply chain nightmare, unable to support a perishable cold chain.
Village cooperative societies collected and cooled milk from thousands of farmers. District unions combined the society shipments and ran manufacturing plants.
Marketing and distribution were carried out at the state level. The brand came to be known as Amul and the distribution network the Anand Model.
In the 1960s and 70s, Dr V. Kurien designed and launched Operation Flood to ‘white flood’ the Indian market with milk, supplied using the Anand Model. 70,000 dairy cooperatives with ten million members were set up across 25 states, making Amul India’s largest food brand.
Under operation flood, the Indian dairy industry began developing into a growing, more efficient industry requiring less government support.
Expansion of milk production in India, however, came with unique constraints. Dairy feed for instance is usually a by-product of crop production and does not lead to high milk yield per animal.
While the cooperative model amalgamated milk supply, improving and scaling the dairy management abilities of millions of primarily illiterate farmers is hard. The smallholder model is also seen as a driver of poverty reduction.
Moreover, while Amul began processing surplus milk to produce derivative products such as butter and ghee, other cooperatives and informal systems focused mainly on fluid milk.
The opportunity was there for the taking.
Dreams of Paneer
In the decades after Operation flood’s success and the dairy sector’s rise, private structures sprung up.
They would use similar methods to consolidate milk and maintain a cold chain.
The vast market for milk consumption encouraged many farm owners to start a milk business. One such agricultural family owned 20 acres of land in a village near Erode in Tamil Nadu.
In 1985, two brothers from the family procured milk from vendors, chilled it and sent about 3000 litres a day to Bangalore in cans. However, given the logistical challenges of the model, the venture did not reach the expected scale.
After a few years of struggle, by 1990 one of the brothers decided to quit the business, and it was about to be wound up in 1992.
Enter T Satish, all of 16 years at the time.
While Satish inherited the entrepreneurial genes from his father, he needed his family’s blessing to drop out of school and join the milk business. He was devoted, fearless and dared to dream that he could turn around a business that stood on the brink of closure.
Satish figured that he would have to look beyond milk and do something different to have any hope of developing the business.
While looking for ideas, he noticed that one of their Bangalore customers turned the purchased milk into Paneer and later sold it to hotels.
The margins looked promising.
The problem – how does one make paneer? In the pre-internet era, information was scarce, and it was hard to get a paneer recipe online or find someone who could help.
Out of hearsay, he found that one method of making paneer was to heat milk and add vinegar to it.
Satish tried, iterated and refined the process until he could make a batch of good quality paneer.
Paneer was a novelty product in south India, and he tried the hotel market. In 1993, the first batch of 10 kg paneer was shipped in a carry bag to Bangalore.
They did not have a brand name then and relied on dealers and middlemen to supply paneer to hotels. By 1995, they dispatched 50 – 100 kilograms of paneer a day.
Satish realised that he now had something promising on his hands. He exited the fluid milk business and instead used the procured milk to make paneer.
He had found a promising market. While there were no funding rounds to speak of in these simpler times, the foundation was laid for a business that could scale.
Satish continued his journey.
Misty Brand Foundations
Satish continued to supply paneer to hotels for the next couple of years.
The volumes continued to grow. The B2B model was a great way to test the market for a niche product like paneer.
Sustained growth gave him the confidence to now look for widespread adoption and woo the retail consumer. For this, he needed a brand name.
Given the detail-oriented businessman he was, Satish went to a browsing centre to search for a name. He was careful to choose something universal, easy to remember and pronounce, and would stay relevant decades into the future.
Satish made sure to steer clear of any regional or religious affiliation.
Milky Mist was born.
Satish made a small investment of half a million rupees to fuel his retail ambitions to set up machinery. He knew he was looking at a different scale altogether and his cottage industry setup needed to be revamped.
The company began to stock Milky Mist paneer at a few retail stores in Chennai, Coimbatore and Bangalore. Bulk sales to business establishments still continued to make up 80 per cent of revenue.
In 1998, the company set up a semi-automatic paneer plant with a bank loan of 1 million rupees. Regular upgrades of property, plants and equipment have continued since then.
As Milky Mist was selling Paneer, India became the largest milk-producing country, moving past the U.S.
Satish might seem to be blazing the trail in capturing the Paneer market in the years since he took over the family business. His journey though was not without mistakes.
In the early 2000s, he tested the sale of liquid packet milk again. He even pushed to sell milk with free offers.
Not only did they find it challenging to sell the milk packet, but they also found that it stifled the supply of milk required to keep up with the demand for paneer.
It was not until 2004 that the NDBB developed technologies to recognise the market potential of paneer, dahi and other fermented products. About a third of the milk supply went into the production and informal distribution of milk products.
By 2005, the company stopped the supply of milk and put the focus back on milk products. This time, they started selling khova and ghee in bulk and continued to ‘milk’ the products business.
The inheritance of loss was being scripted into a nationwide success story.
The dairy business is not that easy to operate at scale.
The biggest problem is the constant procurement of milk and convincing farmers to work with the company.
Companies can procure milk directly or through local agents. However, Milky Mist couldn’t rely on agents. The reason is that the agents do not focus on the milk quality because they cannot do so, instead focusing on quantity.
The first requirement was to set up a separate procurement network. It was a difficult decision, but it was necessary. Once the procurement network is established, it acts as a solid moat for the company.
Milky Mist took the plunge.
Milky Mist focused on the supply chain.
The company set up collection centres so farmers could visit and deposit the milk. In addition, for specific regions, the company collected milk from farmers by visiting their farms.
However, that was not enough for farmers to trust the company. In return, Milky Mist supported farmers with cattle feed. Milky Mist set up a cattle feed manufacturing facility in 2006 to gain farmers’ trust and improve milk quality.
This worked in the company’s favour.
The next problem Milky Mist faced was the problem of storage. Dairy products are perishable, so if there is no demand for the products by the end consumers, then retailers are left with stale products.
Milky Mist would suffer then.
In 2004, Milky Mist tackled this by investing further in the business by supplying chillers. This was a bold decision. When Milky Mist executed this, it was the first dairy company in India to do so. This step eliminated any hesitation retailers had against Milky Mist’s products.
Milky Mist tackled the supply chain issues most effectively, which was the statement that they are in the race for the long haul.
Lactose Tolerant Nation
Milky Mist had a massive opportunity in front of them.
India was the largest producer of milk in the world.
Since 2005, India has consistently produced more than 100 million tonnes of milk annually. India produced about 20% of the world’s milk. Milk production in India has grown at approximately a 5% compounded annual growth rate (CAGR) since 1992.
India was changing, and so was the dairy market.
Milky Mist abandoned the liquid milk business in the past, but now they had the same question again. Now that they were significant and efficient, they had the opportunity to enter the liquid milk business again.
Milky Mist evaluated all possible options and decided to continue to focus on value-added products only.
Milky Mist now had a much-needed direction for the future.
Focused Milky Mist aired its first television commercial starring Paneer in 2009.
No one before that had a dedicated commercial focused just on Paneer.
The success of Paneer forced Milky Mist to strengthen the supply chain if they were to enter the other value-added segments.
Maintaining the taste and texture of value-added products was critical. Supplies needed to be stocked and transported in uninterrupted cold chambers during the entire supply chain.
By aggressively investing in the latest technology and expanding the links of distributors with suppliers and retailers through cooling technology-infused transport infrastructure, they had one of the country’s most efficient cold chain management by 2011.
Due to this infrastructure, Milky Mist decided to foray into curd, cheese, yoghurt, and a wide range of other milk products.
But value-added products come with a set of challenges.
Value-added products need much more processing compared to the processing required by milk. Setting up a cheese facility requires enormous investments. Some products like cheese needed curing processes too to add texture and taste.
Curing process can take between three weeks to more than a year. Value-added products have a pan India competition and are primarily from big players. Hence, the messaging, the packaging, and the product itself have to be the best, and only then the market share can be captured.MilyMist focused on all and succeeded.
Customers loved the products so much that they compared it to their grandmothers preparing it.
By 2012, Milky Mist had achieved two key milestones.
First, it was now the major force in South India and had a presence in all South Indian states. Second, Milky Mist reached a turnover of Rs. 50 crores.
It didn’t have any impact on the slowdown or recession which the world faced between 2009 and 2011.
The dreams of a 16-year-old were now shaping into reality.
VAP on the Map
Milky Mist was riding on the success of its other value-added products (VAP)
Utilising the coolers it has supplied to its fullest, it created more range of products, this time, it was desserts and flavoured yoghurt.
This was the start of Milky Mist’s pan-India ambition.
Milky Mist started investing in the future, they wanted to build a fully automated state-of-the-art factory where they could manufacture all of these products.
Satish Kumars’ vision of a technology-enabled and sustainable dairy company was coming to life.
While global giant Danone was beginning to wind down its business in 2015/16, Milky Mist grew fast
It started generating record profits yearly, the same year Danone made over 28bn$ worldwide. Danones’ problem started from procuring milk.
The Indian market is very different from the other markets that Danone functioned in.
India accounted for over 7.5 lakh small farmers having an average of two cows/buffaloes. Over half of this is used by consumed by the farmers themselves which makes the market very fragmented.
After they sourced the milk, they focused on the wrong product. Plain and flavoured yoghurt accounted for nearly 50% of its sales globally, but India was a dahi market.
Instead of understanding the Indian consumer needs, it tried to push its bestseller to the Indian market, which only accounted for less than 7% of the dairy market share in India and failed.
Milky Mist’s innovative strategy to focus on Indian consumers’ needs and milk procurement via a cooperative model made them stand out.
They reached the 500 crore turnover mark in the year 2018. The small town company from the South was expanded all over the country.
Relentless Pandemic, Relentless Growth
In 2019, Milky Mist moved its manufacturing facility to a state-of-the-art plant spread over 55 acres in Perundurai, about 20km from Erode town.
The new plant had a processing capacity of 1 million litres per day, expandable to over 1.5 million litres per day. It had the latest technology to manufacture various value-added product sections, including curd, ghee, butter, and lassi.
Milky Mist produced over 25 different VADPs with over 200 SKUs. The plant was equipped with robotic packaging which ensured hygiene and efficiency.
When the pandemic threatened the world, Milky Mist reinvented itself by investing in digital.
Milky Mist served its customers at their doorstep with its e-commerce initiatives. They even pivoted their marketing strategy from traditional print media heavy to digital.
Digital promotion via ads, influencer marketing, and user-generated content (UGC) aided them in expanding pan India rapidly.
The dairy sector being on the essential list, their business wasn’t seriously affected by the pandemic. They had to face some problems in procuring milk and delivering their products to end users, but they were able to solve both.
As they owned a huge fleet of trucks, they were able to solve the problem of procuring the milk from their massive base of farmers to deliver it to the distributors, keeping their supply chain running.
In response to the digitisation surge triggered by the lockdown, Milky Mist started serving its customers via e-commerce. They started delivering their wide range of products directly to consumers (D2C).
They maintained their healthy growth rate despite the pandemic. Their operating revenue increased over 25% in the pandemic year compared to the previous year.
Milky Mist started expanding to categories other than dairy by acquiring multiple companies like Asal Foods and Briyas. Asal Foods manufactures ready-to-cook everyday consumption goods like chapati, idly and dosa batter.
It not only acquired companies but opened sub-brands for different categories, including Smart Chef, which was a Frozen Pizza brand.
The ready-to-cook market stood at 1900cr in 2019 and was expected to grow at a CAGR of 18% to reach INR 4800cr by 2024.
The pandemic exponentially accelerated the growth of the slowly growing industry with few big players; it reached a size of near 3500 crores by just 2021 and still is expected to grow at a healthy double-digit rate. Start-ups started innovating, big FMCG companies started investing, and soon the market was flooded with options.
MilkyMist continued to invest in technology.
It partnered with Davara e-dairy to provide new-age technology solutions to its over 55,000 dairy farmers.
With the partnership, they aimed to augment the farmers’ milk yield and production capacity and improve their livelihood.
Their technology helped the farmers in digital cattle management, primarily keeping track of cattle health and educating farmers on best practices for preventive care.
As Milky Mist entered 2021, it was flying.
From a turnover of 50cr in 2012, Milky Mist grew to a behemoth in 2021.
With a revenue of over 1300cr in 2021, it grew over 30% YoY.
Milky Mist witnessed a 4 fold jump in profit in the fiscal year (FY) 2021 compared to the preceding fiscal year (FY20), with a 20% increase in operating revenue.
It nearly tripled its operating revenue from less than 500 crores before the pandemic to over 1,300 crores in the last FY.
Dairy businesses in India have stayed from modernisation and primarily relied on traditional supply chains. However, things are changing with the emergence of brands such as Country Delight, leveraging modern techniques and direct-to-consumer (D2C) channels for distribution.
To ramp up new initiatives, Milky Mist which was purely bootstrapped for decades was finally looking to raise its first institutional financing round.
Given the inbound interest, it was looking to raise $100-150M at a valuation multiple akin to FMCG companies.
They have been a profitable company for the last many years. In a market which rewards profitability, the deal was hot.
From a strong presence in Southern India, they were looking not only to expand pan India but also to spread globally. They also have chalked down Rs. 1,000 crore expansion plan to double the plant’s capacity and foray into new products like chocolate and ice cream.
They are also looking to expand their live retail parlour business, which has been a huge success, first opened in Kochi in Feb 2021. It has expanded to 4 cities now.
A couple of decades ago, Paneer was alien to the South Indian diet but has now become a dietary favourite. Thanks to Milky Mist.
What Milky Mist did well from day 1 was engineering. They engineering recipes, then processes, then manufacturing and finally scale. Technology doesn’t need to be digital for it to work necessarily.
Milky Mist is making the right moves with the growing demand for value-added products and the ready-to-cook segment. When you build trust, mainly as a high-frequency grocery brand, you can even sell a fridge if you want.
Milky Mist’s leverage of brand recognition is a move leveraging this. With a vast food market for the taking, Milky Mist can only get bigger.
It now has 60,000 farmers, processing 1.5M litres of milk daily. In many ways, Milky Mist has done for farmers what Amul did.
The company is placed just right to becoming an FMCG behemoth. With more food segments in sight, Milky Mist has milked India’s dairy revolution to become a household brand.
Writing: Armaan, Rajiv, Parth, Tanish and Aviral Design: Shelley and Subidit
What an amazing article AJVC team!
an amazing read…great insights
It is a nice paneer I have consumed. Of all paneer in the market I have tried, I liked Milky Mist brand much. The availablity of this brand in the market is a poor.
A great read 🙂
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