Will Ice Cream startups in India grow profitably ?
India's ice cream market, currently valued at approximately USD 3 billion as of 2023, is projected to experience a compounded annual growth rate of 13.49% from 2024 to 2030, reaching a potential value of USD 6.5 billion. The growth in this industry is largely attributed to rising temperatures, extended summers, and the widespread adoption of western lifestyles. The booming e-commerce and quick commerce sectors have also facilitated the convenient delivery of ice cream directly to consumers, making it a staple in many households.
The quick commerce revolution, with its promise of ultra-fast delivery, has significantly contributed to the growth of the at-home consumption market. As a result, ice cream has become a regular item on many consumer shopping lists. This sector's growth has also opened up opportunities for startups to innovate and cater to niche markets, such as vegan ice cream, health-oriented variants and exotic flavors.
However, a recent discussion in a social media platform highlighted the challenges of establishing a profitable ice cream business in India, especially without owning the milk supply chain. A user pointed out that companies like Amul, Arun, HUL, and MotherDiary source their milk from co-operatives or milk unions. He stressed that ice cream is not their primary product and that profitability might be impacted by factors beyond the control of the milk supply chain.
Another user countered this argument by mentioning brands like Naturals, Baskin Robbins, Havmor, and Campbell, which do not sell milk and have ice cream as their primary product, yet still manage to be profitable. He believes the key to profitability lies in distinguishing one's offering and maintaining product quality. Furthermore, another user suggested that profitability is low due to fixed and marketing costs, not raw material costs, underscoring the complexity of the ice cream market in India.
The discussion concluded that establishing a profitable ice cream business in India involves various challenges and considerations, such as controlling the supply chain, managing costs, distinguishing product offerings, and maintaining quality.
In light of these insights, startups in the Indian ice cream market need to strategically navigate these challenges. By focusing on innovation, product quality, and leveraging quick commerce platforms, startups can carve out a space in this dynamic and growing market. The potential for profitability exists, but it requires careful planning, strategic investment, and a deep understanding of the market and consumer behavior.
Investors need to understand that Ice Cream startups in India will require deep funding and will need at least 7-10 years of sustained growth in market share in order to get profitable . They should be looking at a total investment of Rs. 35 crores to Rs. 50 crores over a five year period in order to get to a brand sales of Rs. 100 cr to 150 cr ARR and growing at a 10% YOY . I was involved in assisting a top ice brand to find strategic buyers for their Rs. 230 crore annual business , where they are market leaders in one region of India. I found the valuation multiples to be in the range of 2 - 3 time of sales for a EBIDTA neutral company ( post covid). Most Startups will find it extremely difficult to get to a reasonable size , until they are backed up by investors who have deep pockets and have patience (10 - 12 years ) .
Exits for investors will most likely happen in the form of a strategic sale to larger brands or IPO in the SME exchange . This is my personal opinion and is based on my experience and interactions with various players and brands in the eco system.
Exits for investors will most likely happen in the form of a strategic sale to larger brands or IPO in the SME exchange . This is my personal opinion and is based on my experience and interactions with various players and brands in the eco system.
In conclusion, the Indian ice cream market presents significant growth opportunities for both established players and startups. By effectively catering to evolving consumer preferences, leveraging technological advancements, building a brand in a cost effective way , and implementing sustainable practices, these companies stand to make a significant impact in this dynamic market. Startups, in particular, have the potential to revolutionise the industry by bringing innovative offerings to the market and leveraging quick commerce for their growth and profitability.