Although the milk price is on a constant rise, the demand for ice cream remains undaunted in spite of increasing milk prices, why? Because the brands are taking the price hit.
The sale remains strong, driven by the growing shift among consumers towards indulgence products and further fuelled by the many innovations seen from the brands all across.
Milk prices have seen a significant rise in the last six months, and it is expected that the prices may rise further considering the rising input costs, the disruption caused by the pandemic, and international prices.
But the ice cream brands are desisting from increasing the prices of their products and are taking the hit themselves.
A report by Emkay Global Financial Services states that milk and milk products have seen an average YoY inflation of 6.5 per cent over the last 12 months, while this increases to 8.1 per cent if we look at just the last five months. Monthly momentum has been at 0.8 per cent over the last year, more than double the pre-pandemic five-year average of 0.3 per cent, while its contribution to overall headline inflation has ticked up to 6 per cent post-pandemic.
“Raw milk prices have gone up nearly 15 per cent on average across various regions. This has put tremendous pressure on all dairy products, including ice cream. As milk contributes to 80 per cent of the raw material cost for ice cream, therefore, rising prices impact the overall cost structure. “At Heritage Foods, we have absorbed part of the cost increase and have passed on about 10 per cent of the price increase to the consumers in terms of price increase,” said Brahmani Nara, executive director, of Heritage Foods Ltd.
However, brands like Naturals Ice Cream and Baskin-Robbins, which increased their prices in early April and last year, respectively, plan to keep the price change constant as much as possible.
So if the milk prices do not stabilize in the next 6 months, then maybe the ice cream companies may be forced to increase the prices, and how much we will increase depends on the prices of the milk at that point in time. If the prices of milk are at a marginally higher level, then they will accept the 1 per cent price increase.
At present, Baskin-Robbins is taking a hit of 2.5–3 per cent and is trying to make up for that by selling additional volumes. Impact on demand: The industry is witnessing revenge spending from consumers in the ice cream category post-pandemic. Last year probably saw the highest growth the industry has witnessed in over a decade, and most brands have reported growth upwards of 50 per cent in volume terms. The demand continues to remain robust, driven by the growing shift among consumers towards indulgence products and further fuelled by the many innovations we are seeing from the brands all across. “
Regardless of the rising milk prices, the brands are not shying away from introducing new products. Recently, Mother Dairy introduced ready-to-consume custard, two cold coffees, and over 10 ice cream variants. Likewise, Baskin-Robbins has introduced 17 new products like ice cream rocks, ice cream pizzas, ice cream floats, and sundaes, to name a few.
Keeping hopes high, the ice cream industry, in spite of the price rise, is growing at 15–18 per cent, and similarly, the brands are also experiencing considerable growth. It is looking at a growth rate of 25 to 30 per cent.