Reliance Retail’s dairy business strategy might not be easy

Reliance Retail’s mega plans for its dairy business might not as smooth as they would want it to be. So far, the company has acquired milk processing units in Punjab and other close by areas and has a capacity to procure 400,000 litres of fresh milk on a daily basis, which will be increased to 700,000 litres per day.The company has also started talks with some of the leading dairy companies in India, such as Mother Dairy, Gujarat Cooperative Milk marketing Federation (GCMMF) and Nestle to form a partnership to supply fresh milk to them. The problem lies in the fact that these companies are not likely to want to deal with a middleman and would rather deal with the farmers directly. In this regard, R S. Sodhi, general manager (Marketing) for GCMMF said that, “We have no plans to contract manufacture dairy products for anyone.”

Reliance Retail negotiating with Nestle for a possible tie up
Reliance Retail is said to be negotiating with Nestle for a possible tie up in the dairy business. According to sources, Reliance Retail is likely to use its expertise in logistics, procurement and processing the company’s dairy products. In return, Nestle would become a bulk supplier to Reliance, cutting costs of dairy products.

A buyout is also possible in the long run. In Malaysia and Thailand, Nestle has recently divested its dairy business to Fraser & Neave and could repeat it in India. If these talks go through, then the Punjab will likely become Reliance’s hub for dairy business, as Nestlé’s plant is located in Moga where 85,000 farmers supply milk.

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