Corporate: Strategy - A white revolution at Tetra Pak

STRATEGY
A White Revolution At Tetra Pak

With the milk market moving from its traditional bottles and plastic packages, time is ripe for CEO Lars Nygren to go for the kill.

By Roop Karnani

Lars Nygren is the man behind a white revolution that started at Tetra Pak (India) a year ago. Three months after Nygren took over as CEO of the Swedish packaging major's Indian subsidiary in April, 1999, Tetra Pak (India) developed a cost-effective pouch that had an aluminium foil, and was tamper-proof as well as aseptic. That development has changed the face of milk marketing in India. It has also changed the fortunes of the yet-to-break-even Tetra Pak (India).

Last year, five milk brands were launched in Tetra Fino, Tetra Pak's new pouch, apart from the ones launched by Nestlé; Gujarat Co-operative Milk Marketing Federation (GCMMF), which owns the Amul brand; and Andhra Pradesh Dairy Development Co-operative Federation (APDDCF), which owns the Vijaya brand. Explains the 59-year-old Nygren: ''In milk, the biggest competition we face is from the plastic pouches, which are cheaper compared to either tetrapack bricks or cartons.''

However, Tetra Fino changed the arithmetic overnight. For, milk packaged in the new pouch was now a mere Rs 1.50 costlier than that in plastic ones. And ever since Nestlé launched its one-litre tetrapack carton priced only Rs 2-4 more than plastic-packaged milk, the demand for Tetra Pak products has shot up. Agrees B.P. Acharya, 40, Managing Director, APDDCF: ''Last year, our sales of milk in Tetrapack bricks and Tetra Fino showed an increase of 85 per cent and 104 per cent, respectively.''

The big break

That will also reflect in the financial performance of Tetra Pak (India). Although the company has not yet succeeded in breaking even, its turnover is expected to double from Rs 86 crore in 1998, to Rs 171 crore in 2000. In volume terms, the sales of packaging products are expected to jump from 361 million packs in 1999 to 812 million packs in 2000. However, sales this year will be below its annual capacity of three billion packs-or the break-even level of 1.25 billion packs-at the two units of Maharashtra and Gujarat.

The good news for Nygren is that the market potential is immense. India produces 50 billion litres a year, of which 9 billion is sold in packages. ''Even if we get 5 per cent of the packaged milk market, we'll be able to sell an additional 450 million packs every year,'' explains Nygren. Adds H. Chennagowda, 54, Managing Director, Karnataka Milk Federation, which launched Nandini Goodlife Milk packed in Tetra Fino: ''We are already selling 15,000 litres a day in Tetra Fino packs.''

Not surprisingly, new players are also waiting to enter the milk arena. For instance, Parle Agro plans to launch plain and flavoured milk in tetrapacks within the next couple of months. Agrees B.L. Venkateshwar, 36, General Manager (Marketing), Parle Agro: ''After the success in fruit-based drinks, we are now looking at tapping the milk market, which, according to our estimates, is as high as Rs 36,000 crore a year. And we have already invested Rs 15 crore in purchasing Tetrapack-filling machines.''

Clearly, the market for milk has moved from the traditional bottles to plastic packages. And now the shift is happening towards tetrapacks as ultra-heat treated (UHT) milk becomes the flavour of the day. At present, milk co-operatives sell only pasteurised milk in plastic pouches. Although pasteurisation kills pathogenic bacteria, UHT- involving flash-heating at high temperatures while the milk is being packed in aseptic Tetrapacks-leads to a longer shelf-life of three months, compared to the mere three days at present for pasteurised milk.

The export thrust

Therefore, UHT milk would lend itself to being packaged in Tetrapacks. The only deterrent factor is higher costs-something that Tetra Fino has solved to an extent. But Nygren is also looking at newer areas to grow. The problem is that, in the domestic market, Nygren does not expect significant growth rates in either fruit-based drinks, where Tetra Pak has a 50 per cent marketshare, or edible oils, which does not lend itself to tetrapacks for quantities over one litre. So, Tetra Pak (India) is looking at exports. Exports from the Takawe factory, near Pune, shot up from 17 million packs in 1998 to 115 million packs in 1999. ''The shipments from Mumbai to Dubai are more cost-effective compared to those from our factory in Rotterdam,'' explains Nygren. That's why countries in the Middle-East source their packaging material from India. In addition, India is also the only source of Tetra Finos, and Nygren expects to export 150 million Tetra Finos to countries like Ecuador and China this year.

However, the factory at Itola in Gujarat-which came into Tetra Pak's fold when it purchased the 80 per cent stake held by its partner, National Dairy Development Board, in Hindustan Packaging Company for Rs 60 crore last August-needs to be revamped. For, the two partners had been engaged in a running battle for eight years and no investments were made in either maintenance or technological upgradation. Post-merger, Nygren, who negotiated the deal, has the chance to make up for the lost time.

To make a success out of Tetra Pak (India), Nygren will need to use his 27 years of experience at Tetra Pak in countries like Taiwan, where he managed a four-fold increase in sales within three years, and Vietnam, where he achieved sales of a whopping 100 million packs within two years. Only then can he achieve his target of reaching break-even levels in India within the next two years or an annual sales target of 2.5 billion packs in the near future. Else, the white revolution at Tetra Pak could easily turn into a red one.

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