India, the largest milk producer in the world, recorded production of 163.7 million tonnes in 2016-17.

It ranked first in milk production, accounting for 18.5 % of world production and achieving an annual output of 146.3 million tonnes during 2014-15 as compared to 137.69 million tonnes during 2013-14 – a growth of 6.26 %.

The Indian dairy industry was divided into the organized and unorganized segments (See Exhibit I). The unorganized segment consisted of milk sold by traditional milkmen and vendors who collected milk individually from farmers and sold it to the consumers. The unorganized segment consisted of traditional milkmen, vendors, and farmers who used the milk for consumption at home. The organized segment, on the other hand, consisted of cooperatives and private dairies. Unlike the unorganized segment, cooperatives and private dairies had a well ordered channel of milk procurement and distribution.

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THE LAUNCH OF RELIANCE DAIRY

As Reliance Retail planned to enter the dairy business, it scrutinized the market for all viable options including acquisitions, buyouts, leasing, and capacity sharing. The company planned to begin its dairy operations in Hyderabad, as the city offered real estate at affordable prices as compared to other metros in India. As per a Neilson Report dated 2012, FMCG sales through modern trade was the highest in Hyderabad ...

SUPPLY CHAIN OF RELIANCE DAIRY

At Reliance Dairy, a Reliance van generally collected the raw milk from villagers every morning. Once the milk was collected, it was sent to the production lab for pasteurization. Reliance outsourced the pasteurization and processing to local players rather than doing it itself. All the investment in infrastructure, labor, machinery, and quality testing lab was undertaken by Reliance Dairy. Reliance adopted a prompt payment method to sustain its brand image in the public eye. It money was immediately transferred to the farmers’ accounts through an efficient information system from the head office after milk was delivered. Unlike other major players, Reliance did not rely on credit business with its suppliers, but used a daily payment to inculcate trust among them...

THE ROAD AHEAD

Reliance Dairy had been procuring 2.25 lakh liters of milk per day from 2,400 villages across 10 Indian states. It generated revenue of Rs 5.5 billion in 2016. However, the intense competition in the Indian dairy sector and managing its supply chain were some of the major challenges it encountered. Reliance Dairy faced tough competition from regional brands. The market was mostly dominated by state cooperatives with high subsidies from the respective state government. Procuring, processing, and packaging the milk required a strong supply chain as well as an efficient procurement and marketing network as milk was a perishable product...

EXHIBITS

Exhibit I:Structure of the Indian Dairy Industry
Exhibit II: Overview on National Dairy Players in Indian Dairy Market*
Exhibit IV: Milk Production in India
Exhibit V: Reliance Dairy - Distribution Channel