Dubai: For the UAE’s dairy brands, their already thin margins on fresh milk retail prices are getting skimmed off further. And it is the deep discounts that some producers — local and regional — offer that are the root cause of the problem, according to market sources.
Retail prices on fresh milk and some other food staples are kept under a strict price control by authorities in the UAE and other Gulf states. These checks are to ensure that currency fluctuations do not lead to price volatility on such staples, as was the case earlier in the decade when the dollar’s value took some deep hits.
“The price controls by themselves are not the problem – all the Gulf states have it on dairy products,” said an industry source. “The problem comes when the producers start discounting over and above the recommended price.” (A standard two-litre fresh milk packaging would have a standard retail price of Dh10.) “Some of the discounting does not make sense… sometimes people even go below their costs,” the source added. “That’s where the problem is — just to upset the market. There are a lot of new entrants in the market.
“With yoghurt, there is not much of a pricing issue. I think the biggest issue that people are facing is in the fresh milk category.”
And it is not just some dairy producers/distributors alone that are skimming margins on fresh dairy. “There are the supermarkets and there is a lot of competition, so there are different people with different agendas (acting on the milk prices).” (Fresh dairy products come with a limited shelf life, which also intensifies the margin pressures when some brands start offering discounts over and above the norm. The way they do it is through bundled offers, a tactic in which supermarket chains also lend support as it offers them further traction on their daily promotions.) There have been stray efforts among members of an industry grouping to take up the matter of pricing with the authorities, but nothing has flowed out from this. The current prices have been place for two years now. “We meet… but we cannot force people to abide by what is discussed or agreed there,” the source said.
Such uncertainty on pricing is what is feeding leading dairy manufacturers in the UAE to expand their categories, and especially in long-life products which are outside of price control requirements.
Unikai, one of the original dairy brands in the UAE, is nearly through with a complete overhaul of its product and packaging portfolio. “This started in September 2015 and its 70-80 per cent done,” said Neeraj Vohra, CEO, Unikai. “We will not stop… our aim is to become a lifestyle foods/F&B company over the next three years.
“We did a research, compared our products and where we stand against what is available, and found gaps. We’ve not really spent time and money in updating our products in the last many years.”
Unikai currently all of its production at its plant in Dubai, which serves the local market as well as meets the distribution requirements for the other Gulf markets, except Saudi Arabia and Kuwait. (It did buy a plant in Oman, but so far has not launched production at the facility.) Interestingly, fresh milk sales make up less than 10 per cent of Unikai’s topline whereas for its competition the share would be closer to 20-30 per cent, even higher. With Unikai, long-life milk represents around 25 per cent of sales, ice-creams (both under Unikai and the premium Royal Treat range) serve up another 25 per cent, and the rest is derived from rice and other trading products. The juice portfolio adds 15 per cent to the mix. (The company is also considering the possibility of launching a bottled water range under the “Unikai” brand.) “[Focus on] fresh milk makes sense if you have your own dairy, cattle and farm — We don’t have that at this point,” said Vohra. “And it’s capital intensive and it needs a completely different focus; our focus is more on distribution and more on packaged products, which we can easily manufacture. Those are the kind of products we are focusing on.”
“We’ve consulted a lot of marketing experts who told us to keep the Unikai brand as value-for-money and then launch new brands under the Unikai corporate umbrella. Currently we have around six brands.
“We have a brand called Delite for cakes and margarine… soon we will be launching cashew nuts, peanuts. This is the business we are getting into — all these food products will come under the Delite brand.”
On the operational side, the company plans to budget between Dh60 million to Dh100 million on plant and equipment upgrades. Next year could also see it take a decision on what to do with the Oman plant.
“At the Dubai plant, we now have 60-70 per cent utilisation… we still have spare capacity,” said Vohra. “And we have a huge land [for any expansion].”