Dairy Industry in Pakistan Case Study

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Introduction

Mr. Teli sipped his tea and looked far into the distance from his office window in Karachi, Pakistan, contemplating his decision to enter the UHT Milk market. It was the first quarter of 2018, about one and a half years since the launch of the product, the sales figures of the Pakola Pure Milk were dipping, and consumer awareness was negligible. As the CEO of Pakistan Beverages Limited, Mr Teli had single handedly made the decision of entering this segment of Ultra High Temperature Processing (UHT) Milk, after previous ventures into the flavored milk category had proved to be successful for the company. Why was this product unsuccessful, when a similar product category of the same company had emerged as the market leader?

The sales team had presented their findings on the milk category a while back, they did not seem optimistic about the product’s future in the industry. The local shopkeepers were not willing to stock the product due to low consumer preference, competitor’s sales were continuously increasing, and employees were directly questioning the decision of stepping into this category. With all these negative signs coming to light, it seemed as if this ‘Seth’ company was diving into a troublesome situation.

Dairy Industry in Pakistan

Pakistan produces an estimated 42 billion liters of milk per annum and is the 5th largest producer of milk in the world. The livestock sector alone contributes 11% of Pakistan's GDP, Survey of Pakistan 2009 asserts that Pakistan has a herd size of around 63 million animals – the 3rd largest in the world.

Milk constitutes an important part in the diet of adults and children in Pakistan. Even though a large chunk of our population consumes fresh milk, the urban population was not entirely satisfied with the milk quality and hygiene conditions.

History

In the late 1970s Packages Limited and Tetra Pak Pakistan contributed to the introduction of the Ultra-Heat Treatment (UHT) in Pakistan with their packaging material. Multiple UHT plants were set up in 1980s and two brands Milkpak (joint venture of Tetra Pak’s local partner, Packages Ltd) and Haleeb were introduced.

UHT milk was being promoted as a safe, healthy and hygienic alternative to the fresh milk which most of the rural and urban population was consuming. This market had huge potential and in the late 2000s there were new entrants in the market such as Engro foods with their UHT milk brand Olpers.

Industry Analysis

From Exhibit 1 we can see that compared to the other milk categories the share of packaged milk in Pakistan is still very low. 47% of consumers of milk in Pakistan use Fresh milk exclusively (63% of this is the rural population) -( Nielsen Pakistan, 2016A). Leading manufacturers are trying their best to create a positive consumer perception about UHT milk. They aim to create awareness about the unhygienic conditions of loose milk and promote the safe and healthy UHT milk. Since it’s a growing industry (as can be seen in Exhibit 2) and with consumer awareness the manufacturers of UHT will benefit especially if they use marketing initiatives to educate the consumers of loose milk.

Competitive Landscape

The packaged milk industry comprises of eight prominent players followed by other small companies. The major market players are Nestle Pakistan, Engro Foods and Millac Foods. It can be seen in exhibit 3 that Nestle Pakistan leads the milk product sector with a market share of 40.6% with Engro Foods behind them having a share of 26.1%. Pakola products have a share of 5.1% which has been forecasted to increase in the upcoming years.

Pakola is on the fifth position based on the brand share percentages with Milkpak and Olpers leading with a close percentage. See exhibit 4 for the brand share of Drinking milk products.

The major reason behind the greater market share of Nestle MilkPak is the brand loyalty and legacy it has earned over the years. It also has the first movers’ advantage into this segment and its diverse product line in the Milk category adds to the advantage.

Currently the market leader Milkpak is priced the highest per liter (see exhibit 6). Pakola UHT milk is priced at Rs. 107 with Good milk falling in the samw bracket. Their pricing strategy is very attractive for consumers using loose milk and wanting to shift to hygienic and safe milk option.

Consumer Profile

According to research by Nielsen only 3% people use UHT milk exclusively and 11% use a combination of UHT, loose milk and tea whiteners. Also, loose milk is used exclusively in rural areas. So, milk consumption of UHT is more in urban area. The consumption of milk is also dependent on age group. People between 15-35 years use UHT processed milk exclusively or combination of both. The consumption is also based on the usage of milk. If ranked in order milk is used making tea followed by drinking and then for making desserts. UHT is the second preference of consumers for drinking. In case of tea it’s the third preference as tea whiteners and loose milk are preferred more for making tea. The research shows that milk consumption is based on multiple factors but for processed milk specifically it depends mostly on the brand awareness and the inclination of consumers towards the brand. Processed milk brands should focus more on building their brand image.

Consumer Perception

A recent survey conducted by the marketing department revealed that the consumers were more inclined towards packaged milk in urban areas and that they were using packaged milk but they were using another brand (Exhibit 5). When asked about the Pakola UHT milk upto 90% were unaware about it and always relate the Pakola name in milk catagory to flavored milk. When asked how they perceived the flavored milk of pakola, 76% rated it as one of the best products, providing quality in the market and 62% even supported the idea of buying the UHT milk of Pakola as they have perceived the Pakola brand as a quality provider in Pakistan. 24%rejected the idea of using the Pakola milk because either they were not aware of their milk or could only use the milk that has credibility in market as milk is a product consumed by the entire family and has high quality considerations.