By James Jose

What started 33 years ago under the aegis of the National Dairy Development Board's (NDDB) Operation Flood - one of the world's largest rural development programmes - has grown into a Rs.3.3-billion (about $70-million) corporate entity with business interests in milk and dairy products, apart from fruits, vegetables and edible oil.

For Mother Dairy, which primarily caters to the national capital New Delhi and its suburbs, it all started with milk. It supplies 2.3 million litres of milk a day to the region.

"Our mandate is simple - source milk from farmers, give them the best prices possible and make it available to the public," said Paul Thatchil, chief executive of Mother Dairy's dairy and foods division. "The aim is to strike a balance between helping the farmer and serving customers; while we want to give back as much as 75 percent of the revenues to the farmers, we would also not want to tax our customers," added Thatchil.

According to him, an increase in milk price by as little as Re.1 a litre would fetch Mother Dairy an extra Rs.2 billion ($42.5 million). "But we don't want to do that, milk is a sensitive commodity."

In 1974, when urban centres were hit by an acute milk shortage, the company came up with the system of milk tokens to counter the problem; all one needed was to purchase a token and queue up at a Mother Dairy milk booth. The system not only made milk affordable but also kept black marketeers at bay. "At that time we didn't have access to polypack technology, which was anyway expensive, so we started making milk available through dispensing machines. This milk was Rs.2 cheaper than packed milk. Next we arranged specialised containers to deliver the milk to all booths," said Thatchil.

In early 1987, Mother Dairy, which was already procuring milk through associations in and around Delhi, was asked to do a pilot project on similar lines for fruit and vegetables. The mandate was the same: minimise exploitation of farmers by middlemen and help consumers get fresh supplies of fruit and vegetables at a fair price from neighbourhood retail outlets. Thus was born Safal, India's oldest food and vegetable retail chain. Since then, Safal's turnover has grown from Rs.27 million ($577,000) to over Rs.3 billion ($64 million), with almost 85 percent of its revenues coming from the sale of fresh fruit and vegetables, while the rest was accounted for by processed foodstuff.

"One of our key strengths, for both the core dairy business and fruit and vegetable retail is the strength of our supply chain," said Sunil Bansal, chief executive of Mother Dairy's fruit and vegetables division. "We procure fruit and vegetables from 16 states and deliver straight to our outlets. This calls for superior supply chain management skills and delivery mechanisms, which we have developed over 20 years," Bansal added.

Safal made news recently when it slashed prices of a host of vegetables to make them available in the range of Rs.5-10 per kg in and around the national capital. This resulted in a 20 percent jump in sales. "We will expand into at least 15 more cities in the next two to three years," Bansal said.

Another key business under the Mother Dairy brand is edible oil. It launched Dhara, one of the first edible oil brands, in 1988 under the Operation Golden Flow programme of NDDB. Today, Dhara accounts for around Rs.4 billion ($85.6 million) or about 15 percent of Mother Dairy's total revenues. Dhara's launch was again an attempt to help farmers get fair prices and make edible oil available in tamperproof packs at affordable prices, though over the years it has lost its leadership position. Mother Dairy is now planning a complete brand makeover and a fresh marketing campaign.

Mother Dairy is also a significant player in the ice cream segment. It entered the sector in 1995 and today boasts of approximately 62 percent market share in Delhi and its outlying areas.

One key diversification the company made was venturing into the probiotic milk segment last in 2007. Probiotic milk is more of a health drink, and this segment contributes about one percent of the total dairy revenues.

While exports are still not a major focus area, though it exports bulk powdered milk products and packaged fruit under the Safal brand. "We have plans to get into exports in a big way but there is so much left to do in India. Our first priority will always be serving our Indian customers and not profitability," said Thatchil.

And that probably best reflects the Mother Dairy ethos.