129 HERITAGE FOODS LTD | 32ND ANNUAL REPORT 2023-24 MDA STRATEGIC REVIEW STATUTORY REPORT FINANCIAL STATEMENTS Growth drivers for the Indian dairy industry Escalating consumption to spur growth • The primary catalyst for the expansion of India’s dairy sector is expected to be the surge in consumption and consumer base, driven by population increase and rising income • Increased disposable money has allowed more people to purchase nutritious foods, notably dairy products, which is a key component of traditional Indian diet. • Demographic growth and increased buying power have driven dairy producers to expand and modernize their operations, securing a growing share of the market • Growth in the dairy market from the consumers’ side is primarily homogenous, thus prompting players to expand their operations beyond their home state Growing health awareness to spur demand • Rising demand for nutrient-rich dairy products, including proteins, vitamins and minerals, is anticipated to propel market expansion • Dairy companies are responding by offering a variety of enhanced products such as flavoured yogurts, fortified milk and probiotic drinks that cater to health-conscious consumers. Changing distribution channels and emergence of B2C startups Dairy startups leverage e-commerce trends for subscription services and doorstep deliveries, prioritizing freshness and convenience. Harvesting data analytics, especially q-commerce firms, they customize offerings, thus reshaping consumer habits and prompting industry-wide distribution model revisions. Technological advancements in dairy processing Technological advancements in the Indian dairy sector, including automation, IoT and AI, enhance farm management, processing and logistics for increased efficiency, quality and safety. Cold chain technology preserves product freshness and nutritional integrity during transit and storage, supporting sustainability and productivity improvements, even elongating shelf life. Shift towards value-added dairy products In a notable trend observed in recent years, the Indian dairy market is shifting towards value-added products like curd, cheese, yogurt, flavoured milk and probiotic drinks to meet growing consumer demand for health, convenience and diversity, coinciding with growth in discretionary spending power. This trend is driven by health consciousness, a growing middle-class and changing dietary habits, prompting dairy companies to innovate and expand their product range beyond traditional milk offerings. This trend also builds on established milk distribution/supply chains which ensures throughput for other products as well. Rising income India’s per capita income has surged by 80% over the past decade to $2.6K in 2023, with the IMF forecasting a rise to $4K by 2028. This economic growth is poised to create 140 million more middle-income and 21 million high-income households by 2030, increasing the middle-income share from 54% to 78%. Higher incomes are expected to boost demand for premium, nutritious foods, including dairy products. In India, 46% of milk is consumed or sold locally in rural areas, with the rest 54% being sold through a combination of organized and unorganized players. Organized entities ensure consistent milk quality, while unorganized players, such as local milkmen, exhibit potential adulteration risks. Growing health and quality consciousness is also driving the shift from loose, unpackaged to packaged milk products. Regional players dominate the Indian dairy market. This is mainly due to preference for fresh liquid milk and perishable dairy products. Transport limitations and the importance of a trusted farmer network also contribute to this regional focus. Many companies prioritize establishing a strong local presence before expanding further. However, having built a strong brand in their home markets, dairy companies are encouraged to explore other regions and territories as well as they take their strong operational knowhow to build other regions in their pursuit for growth and value creation. Structure of the Indian dairy industry Struct Shiftin The In recent ghee, c consum respon array o quality. ure of the ng consum ndian dairy trends rev cheese, an mers are o nse to this of products . 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