How to Start / Open A Milk Distributorship Business in Kenya

Milk Distributorship Business Plan (Kenya)



Milk Supply Chain

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The farm to glass value chain of milk is as below:

AGENT

 

MILK

FARM

DISTRIBUTOR

 

 

PROCESSOR

BROKER E.g Cooperative , Dairy etc

RETAILER

CONSUMER

The above is the basic chain used by milk processors to get the milk to consumers. There might be slight variations depending on the strategies and market reach of the milk processor. For instance some of the processors do not have agents and use distributors only. Brookside Dairies is an example of a processor using agents in some locations and distributors in most parts of the country. An agent, in the company’s structure, is a super exclusive distributor who is not allowed

to stock the products of the competing firms, while a distributor can. In some cases the agent sells to distributors.

Thus a distributor can be an established shop or supermarket who stocks the products of rivals but is involved in getting Brookside’s products to the retail shops in the neighborhood.

Supermarkets which move large volumes can purchase directly from the processing company. This explains why packet milk is often cheaper in sizeable supermarkets than in retail shops.

A distributor or agent for that matter could cover just a small location or a region , for instance coast region or upper Eastern province region and so forth.

This quick overview focuses on distributors.

What Does A Distributor Do?

A distributor is the link between the milk processor and the retailer. Or if considered in the larger context he links the processor with the consumer.

The greatest strength a distributor has and which makes the processor partner with him is his understanding of the local market. The distributor is presumed to know the inside and out of the local market in terms of location of retail outlets, retailer behavior, consumer behavior and size in addition to the ability to keep an eye on local trends that might affect milk consumption such as population growth and preferences. With this information he is supposed to form profitable partnerships with retailers, who in turn push the companies’ products to the consumer.

If as a distributor you are not able to form good working relationships with retailers you cannot succeed as a milk distributor. It does not matter whether the milk brand you are distributing is the strongest in the national market. Success in the business is to a large extent dependent on how you work the retailers.

How Do You Become A Milk Distributor?

There are several ways:

a) Call Out

Occasionally some milk companies advertise in the press seeking milk distributors. (See index for example of such an ad). They state the locations for which they seek the distributor and specific requirements mainly to do with cash deposit, premises and a ‘transport’ network like bicycles. If shortlisted company officials interrogate you on your understanding of the market and the strategies that you are going to use to penetrate the market

b) Headhunted by Company

Some companies establish distributors by approaching a local entrepreneur and proposing to him the distributorship opportunity. Company officials may look at the ability to raise cash, how established the entrepreneur is, and his relationship with other retailers and transport network. Some companies prefer to work with a retailer who is already distributing other related FMCG products presumably because such a business person already understands the market and has relationships with retailers. Other companies however will work with relatively small businesses that will be getting into the distributorship business for the first time through the milk products.

c) Proposing to the Company

You may approach a milk processing company and propose to distribute their products in a given area. Many companies are open to this and will respond favorably if the location is part of their immediate growth plan.

d) Taking Over from an existing distributorship

A distributorship may close for personal reasons. Alternatively the milk processor may terminate a contact of an existing distributor due to poor performance. If you get wind of that you can seize the opportunity either by approaching the company direct or better still seeking introduction through the existing distributor.

Some Things to Think About

Companies want growth, and for low margin Fast Moving Consumer Goods (FMCG) like milk growth comes from increased sales.. However companies don’t grow arbitrarily. They consider factors like their own capacity, behavior of competitors among others. For instance relatively small and low capitalized processors may not wish to grow very fast until they are able to increase their capacity (think machinery) to process more milk and more importantly until they are able to recruit more dairy farmers. They would be hesitant to get into a market only to develop a reputation of unreliable supplies. This is the reason some milk companies only supply milk to a few towns.

So if your location does not have a distributor of a particular brand it’s not necessarily because the company is not interested but it could be because its capacity does not allow. Of course the best way to find out is by approaching the company. It will be of help if you have an idea of the capacity/size of the company and most important you have hard figures on consumers, retailers, competitor behavior in your location. These can be just through observation. The aim is to convince the company of the existence of an opportunity if it hasn’t already seen it. (See market share of some brands below)

Nairobi is the biggest milk consumer, and if in an estate a particular brand does not have a distributor then a company will most likely respond favorably. On the other hand if you are located outside Nairobi say in Kerugoya and the milk company is located in Kiambu town and has not started selling in the region then they are not likely to start selling in the location just because you have proposed and an opportunity exists. They will consider the cost of delivering relatively few crates of milk from their factory to Kerugoya 100 kilometers away. But if they already delivering in Embu 30 kilometers from Kerugoya then it will make business sense to have a distributor in a nearby town.

To establish whether there is opportunity for distributorship look at the milk brands in the area. If one of the bigger brands is missing approach it first. If all the big brands are represented then you can approach the mid tier brands and then the smaller brands. You can start with those within reasonable distance of your location. Or those companies which pass through or near your town on their way to deliver to other possibly bigger towns.

As you will see below companies don’t just give you a distributorship and a freehand, they monitor you to make sure you are keeping to certain standards and meeting set targets. So they would like to have personnel in the region. Smaller companies operating in limited locations sometimes prefer not to have distributors opting to deal with retailers directly. Partially this is so that they can enjoy higher margins but most important is the need to have more control as they introduce their brands. Later when the brand is established they recruit distributors.

How do you approach a company?

The bigger companies have regional area managers. For instance most companies are represented by managers in Nairobi. At times it may be hard to locate the regional managers and in that case you can get in touch directly with the company. (See index for contacts).

Also if you are able to build rapport with a nearby distributor of the same company, and he doesn’t feel threatened then you can ask him for contacts. The area manager is the company’s person on the ground in charge of increasing sales through distribution, activation and other marketing activities. Many companies however will also respond to directly enquiries about distributorship opportunities.

What is required to become a distributor?

Self Assessment

Relationship With Retailers - Even before approaching the company you should ask yourself if you are able to build relationships with retailers or hire employees that can. Attributes needed include being outgoing, convincing, a ‘people’ person and more important understanding the working of a small retailer businesses. The milk processing company does not require you to

always be there physically managing the business. So if you are not available getting trusted employees are important: Trust in terms of money and work ethics.

Long Term View – When introducing a product such milk in the local market it takes some time to catch up. This means you might not break even for up to six months. Meanwhile you have to pay rent for your premises and salaries to your workers. If you have a short term view expecting immediate profits then you will feel frustrated. The break even duration could be sooner but a long term view helps absorb any hitches.

Commissions are also paid at the end of the month. Meaning you will need money for day to day operations.

Milk Processor Company Requirements:

Requirements vary with the company and in some cases the location. That said here are the general guidelines:

a) Security Deposit

Companies require you to deposit an amount of cash in their account which acts as a security in case you disappear after selling milk (This will become clear in the operations section). The deposit remains in the company’s account and you cannot access it until your contract is terminated. The amount varies from company to company and location too. The rule of the thumb is that the security deposit is slightly higher than the expected sales in the location. Thus it could range from Kshs.20, 000 to Kshs. 200,000. For instance a New KCC distributor in Machakos was required to pay a security deposit of Kshs.200, 000. A Tuzo distributor in a section of Kasarani was required to pay a deposit of Kshs.20, 000. (This was before Spin Knit was absorbed by Brookside). Presently Kshs.200, 000 seems to be the ideal amount in urban areas.

b) Market Knowledge

Like mentioned above one of the distributor’s key assets is his knowledge of the local market. Companies require you to demonstrate a good understanding of the local market and conditions. Usually this is verbal or by pinpointing your business and work experience in the area.

c) Distribution Infrastructure

Companies require you to have the ability to effectively distribute milk within the radius you have been allocated. Effective means you deliver on time and in all corners so that competitors cannot take advantage of your inefficiencies. To achieve this you need to have infrastructure like bicycles, motorcycles or a van if need be. You also need to have salespeople to assist you.

d) Premises

You should have premises which act as the point of operation. The size will depend on the possible quantities you will be selling.

Other Requirements

There are some other requirements, relatively minor and which vary with the company. These include:

i)Be an existing business in the location – Some companies insist that you be operating any sort of business in the location. However some start with completely new entrepreneurs who are not presently running any form of businesses in an area as long as they have the other necessary requirements.

ii)Cold Storage – A few of the milk companies will insist that the distributor have a cold storage facility. This is more so if the area covered big and you are distributing the whole range of products from fresh milk to creams and yoghurts. Many small distributors operate without any form of storage facility. Even when this condition is not mandatory it helps to have a freezer to keep the products fresh longer.

iii)KRA (Kenya Revenue Authority) PIN / Certificate of Good Conduct - There are companies that insist on the distributor having a PIN Certificate and a Certificate of Good Conduct from the Criminal Investigation Department. The Certificate of Good Conduct is overlooked by many companies as long as the distributor is able to meet the other conditions.

Capital

From the above requirements it’s possible to estimate the capital that could be required:

Security Deposit – Kshs.200, 000

Two Bicycles – Kshs. 10,000. Bicycle can be upgraded.

Rent – Kshs.5000 to Kshs.30, 000. This will of course depend on the location, but in Kenyan urban centers a room priced at Kshs.30, 000 would be enough to run a milk depot/ distributorship.

Cash at Hand to sustain the business until the break even point – The amount will depend on how much you are paying for rent and how much you are paying your workers. Also it will depend on the brand you are distributing. If it’s a major brand backed by marketing activities say advertising on Television and Billboards then it will be easier to push it in the market. This is as compared to a relatively smaller brand. However, the smaller brand could be an advantage if you are distributing within a reasonable radius of their processing and packaging plant due to a sense of ownership among consumers.

The break even period averages 6 months, but could be shorter for more established brand.

Operations

Once you meet the requirements and a company appoints you a milk distributor you sign a contact stating your obligations including targets, dos and don’ts. Targets are based on the possible volumes within an area. Before we go into more operational details lets look at the day to day workings of the distributor.

Generally milk distributors operate using a common template. But of course some particularities could be different depending on the company. The general timeline is as follows:

a)4 AM – 5 AM - The Company delivers milk to your premises. This is through the company’s truck manned by a driver and a salesman. You will have shown them the premises before. They will only deliver the amount you had ordered the previous day.

After establishing some trust with the van salesman some distributors give him a spare key to their premises. This way the distributor or his workers don’t have to wake up very early in the morning. This however is a matter of trust. As you will see later its important to develop a good relationship with the truck salesman.

b)5 AM – 5.30 AM – The distributor plans how he is going to distribute. E.g. grouping the milk per shop etc

c)5.30 AM to 9AM/ 10 AM – He does the actual distribution, delivering to the shops as need be. The logistics for this will depend on the area, the workers and the transports means he has. Some start with the nearest shops, others the furthest while some start with the retailers taking the most quantity.

d)10 AM to 2PM/ 3PM – This is a relatively slow time. The major deliveries are done. However if the salesperson had given the milk on credit then its time to go round collecting the money. Normally the money from the day’s sales should be deposited in the milk company’s account before the end of the day.

e)2PM – 4PM - Deposit money in the company’s account and make the next day’s order to the company.

Details on Operations

Milk companies require the distributor to deposit the total money from the day’s sales in the companies account’s by the end of the day. For instance if the milk company delivered 100 packets of milk to the distributor in the morning, and the recommended price the distributor sells to the retailers is Kshs.43, then at the end of the day the distributor will be required to deposit Kshs.43 x 100 , which is Kshs. 4300. The distributor is not allowed to deduct his margins. At the end of the month the company gives the distributor a statement showing his total sales and margins attributable to him. He is then issued with a cheque or the money deposited in his account.

What happens if you don’t deposit the whole amount as expected? That will depend on the company and the person within the company in charge of your account. You may request to carry forward the money and deposit the following day especially if the amount is held by retailer who has not paid you for supplies. You could say you haven’t sold all the milk; some had problems like leakages etc (More on this will become clear below)

Ideally a retailer should pay the distributor in cash immediately after delivering the milk. However in reality that is not what happens. Retailers are wary of their cash flow. Thus they prefer to pay after they have made actual sales, the reason they will request you to come for the money later in the day.

When introducing a new product, especially one which is not backed by big branding efforts at the national level, the retailer is skeptical. He doesn’t want to invest money in a product he is not sure will resonate with the consumers. So to cushion himself he says

“See I will take 5 packets of milk, but I will pay you only after I have made sales. And in case I don’t make sales then I will have no option but to give you back your milk”. If you can’t work with those terms then the retailer will opt not to take your products or take those of the competitor offering flexible terms.

As a Milk Distributor you will need to convince the retailer to position and push your product to consumers in the best way possible. This is by building personal relationships with the retailers and offering friendly and flexible terms. That said you need to guard against bending over excessively to please the retailer especially when it comes to payment. A one day credit period is acceptable.

Like mentioned above milk companies give distributors targets. Targets are set based on the location, performance of the competition, income and growth strategy of the processor and related factors. Targets are also meant to make the distributor perform his best. When a distributor is just getting into the market companies tend to be more flexible

in the way they handle targets. But as the distributor remains in business longer so does the milk company become stricter in enforcing the targets.

Targets could be based on daily or monthly volumes. If the distributor does not meet targets consistently then the company may terminate his contract. The area manager is responsible for pushing the distributor to meet his targets. A contract could also be terminated if there are complaints from retailers about the service of the distributor; timing, customer service, adulterer milk etc.

Companies don’t operate in vacuum. They know the market is dynamic. Consumption can change based on factors beyond the distributors control say for instance an increase in tax or insecurity which makes people shift from a place. In such circumstances companies may be more flexible in dealing with targets.

Fresh Milk is a perishable product with a shelf life of two days. So what happens to the milk that is not sold at the end of the day? Shopkeepers are reluctant to take milk which is more than a day old, and if the milk they have is not sold by the end of the second day they return it to the distributor.

Some companies allow the distributor to return unsold stock to them. However this is a habit that is quite discouraged. Distributors are encouraged to sell all their stock or just order what they can sell. There are companies which don’t allow returns at all. And if the distributor has some unsold milk then he has to device ways to deal with it. There are several ways to do this:

a) Form A Good Relationship With The Truck Salesman

The truck salesman/ driver is the person who does the actual delivery of the milk. In case of any returns he is the one who will take back the milk to the factory. Usually the salesman has been given instructions by the company on what to accept back and what not to. The salesman has a better understanding of the company since he deals with them directly. He can ‘sweet talk’ the officials at the company to accept milk. He also knows the ‘loopholes’ at the company that would make the company accept the unsold milk. And since he deals with many distributors he knows the tricks they use and can share that with you.

So from the word go when you become a distributor it’s important to form a great relationship with the truck salespeople. And when possible give them ‘incentives’ of sorts.

b)Mix The ‘Old’ Milk With The ‘New’ Milk

Fresh Milk is usually delivered in crates of 20 packets. So if today the distributor remained with one crate, tomorrow when he receives the new batch say of 18 crates, he will take a packet from the old stock and interchange with the new. Thus he will have 19 crates but each crate will have at least one packet of the previous day’s milk. He will distribute to the larger retailers who take several crates, and who trust him. That way they won’t check whether the milk is fresh or has the previous day’s dates. He will also be hoping that none of the old stock remains again. However some retailers have learnt of this trick and will insist on checking the date on every packet of milk.

c) Adulterate The Milk

Packet milk by its nature and packaging is prone to leakages or even bursting. Leakages are usually the responsibility of the companies, and many have no problem accepting back leaking packets or those deformed in whatever way. So some distributors intentionally make the packets leak for instance by pricking with needles or tearing packets with their mouths. They do this on their own or in collusion with the truck driver. The latter is preferred.

d) Collude With Retailers

Some distributors will convince the retailer to take milk which is about to expire. Some do that by offering slightly lower prices. Others by just getting into an agreement with the retailer. “If the consumer takes the milk, gets to his house and the milk is sour then you will take it back”. Before selling the milk a shopkeeper will gauge the customer and decide whether he is the keen type likely to check a date or not. In case of a supermarket the retailer will hope there will be customers who are not so keen with dates.

e) Absorb Losses

When all options fail the distributor has no option but to absorb the losses. He disposes the milk or gives it away.

Customers like consistency. If they don’t find reliable supplies of a brand they love, they get disappointed. To avoid further disappointment they drop the brand all together and go for a more reliable product.

Revenue

Mark up for fresh milk averages about 5% of the retail price. Presently it’s about Kshs. 2. Essentially this means that you make Kshs.2 for every packet you sell. The retailer margins are the same. For example a distributor gets the milk at Kshs.41 from the company; he sells at Kshs. 2 to the retailer who sells at Kshs.45 to the consumer.

Kshs.2 could seem little, however when you are dealing with volumes it adds up to substantial amount. To illustrate a distributor of one of the major milk brands in the Kasarani region sells an average of 95 crates everyday. That translates to 95 x 20 packets which is 1900. At Kshs.2 per packet then this adds up to Kshs.3, 800 in a day or Kshs.114, 000 per month gross profit. The major expenses are rent and manpower.

As a distributor you are not limited to fresh milk only, there is also long life milk and yoghurts. Although fresh milk is the fastest moving, in urban areas other products also make up for substantial sales.

The mark up for Yoghurt averages about Kshs.5 per cup. The Kasarani distributor averages about 250 cups of yoghurt everyday. It’s important to note that this particular distributor has been in business for about 2 years. And the Kasarani region where he operates has been growing very fast with middle class consumers. The retailer who sells the highest amount of milk averages 18 crates a day.

Another distributor in the same region dealing in a lesser known brand sells an average of 9 crates everyday. He has been in business for 7 months.

Revenue grows steadily with time as the product becomes more established and the distributor learns tricks in the business, develops relationships with the retailers and the milk company.

To insist Revenue and overall success of the distributorship will be influenced by:

-The Relationship the Distributor builds with retailers

-The Strength of the Brand at the national level

-The quality of the product

-The business acumen of the distributor and his staff

By its own strength of a brand is not enough to make a distributor succeed. The relationship he is able to build with a retailer is more important. Retailers can boycott a product because of the behavior of the distributor.

For instance some time ago a distributor in Nairobi’s Zimmerman took over from another whose contract had been terminated. The contract had been ended because he had developed a bad relationship with the retailers. He could prick the milk packets using a needle and collect for his own consumption. He was also rude to retailers and not flexible with his terms. So when the new distributor took over he found it very hard to penetrate the market. This is despite the brand being one of the leading in the country and him saying he was different from the previous distributor. The company through the area manager was piling pressure on him to meet the targets. He also didn’t have enough capital to pay his staff, hire more employees and purchase bicycles.

Eventually his contract was terminated. The present distributor of the same brand is doing well.

The average purchase per a consumer is two packets of milk. Consumers tend to be loyal to particular brands, however if the brand is not available they go for the next best option. There is also the risk that the consumer may end up liking the second best option more.

The average purchase per retailer is 10 packets. Retailers are able to predict consumption and order and as need be. Even if the distributor may commit himself to take back any packets that are not sold retailers are reluctant to overstock.

Most of the milk is purchased in the evening. Mornings are the next big buying time

There is increased consumption of milk when schools are closed and students are on holiday.

Distributors are the company’s representative in a region. Thus you can increase sales by going round, talking to retailers encouraging them to push your product. In supermarkets you can pop in and make sure the products are well displayed as compared to the rivals.

Distributors are required to give retailers a few days notices of any price changes, otherwise in case the retailer sells at the old price the distributor will absorb the losses.

Yoghurt is made to last about two weeks. Thus shopkeepers check their stock and dates and alert the distributor.

The 500ml pouch is the most popular quantity. However near places where people are on the move like bus stages, hospitals, or offices the 200ml moves fast. The reason being that the 500ml may be too much to finish, and thus consumers prefer to buy the smaller quantity. Retailers usually round up the price of the 200ml pouch to the nearest ten or 5, and for this reason it ends up looking more expensive than the 500ml packet.

There are small processing companies which only manufacture Yoghurt. Some have managed to build brands, while others are struggling. When it comes to yoghurt consumers tend to trust the relatively bigger companies or those making niche yoghurts.

Manpower

On average a milk distributorship has 2 employees. The number could be more based on the area covered and the location of a store. An ideal employee should have selling skills and be a ‘people’ person. He deals directly with the retailers and his actions have the power to increase or decrease revenue.

Recruitment is usually by word of mouth. A person in with retail sales experience, able to ride a bicycle and hardworking who can wake up early is preferable.

Staff prefer to be paid a salary or daily wage. Commissions are frowned upon. The staff argue if a product is not moving in the market is not exactly because of them.

Kenya Milk Industry – Quick Facts & Figures

Part of the milk consumed in Kenya, especially Western Kenya, is imported from Uganda. Production costs and taxes are lower in Uganda making it a cheaper source of milk especially when prices in Kenya are on the rise. There are no restrictions on the importation of the milk because Kenya is part of the East Africa common market protocol which allows free movement of goods within the member states.

520 million liters of milk were processed in 2013, this being a 6% increase from 2012

In 2012 total consumption of milk stood at about 1.8 billion liters. Other estimates put the total production of milk at about 4 billion liters with 2.1 billion liters marketed formally and the rest informally.

Tetra Pak, the packaging company, estimates that consumption of flavored milk will increase fivefold by 2015. They predict consumption of flavored milk will increase by a compound rate of 4.1% as compared to 1.7% of white milk. This is despite flavored milk being relatively expensive as it attracts 16% tax. However competition helps keep the prices stable.

Consumption of flavored milk increased from 2.1 million liters in 2011 to 3.4 million liters in 2012. This as driven by the expanding middle class who are increasingly appreciating flavored milk as an alternative beverage.

At farm gate informal marketing channels dominate with most farmers using the channels- hawkers, brokers, self help groups, hotels etc These Controls 60% of the total marketed milk. Dairy cooperatives are buyers of last resort.

In Kenya trade in milk is regulated by the Kenya Dairy Board which licenses the players in the industry; from small neighborhood dairies, cooperative dairies, cooler operators, mini processors and full fledged processors.

Milk Dispensers (or Milk ATMs) are increasingly becoming common in Kenyan urban areas. The dispensers have an internal boiling and pasteurizing mechanism which bridges the gap between raw and processed milk. Since milk sold through dispensers does not require a big investment in packaging or marketing, prices tend to be lower. The dispenser, increased taxes and inflation offer the biggest threat to the growth of processed and packaged white milk.

One independent research claims Brookside is the most efficient of all milk processors; from farm to consumer.

Sometimes there are supply inconsistencies in the milk market. These could be caused by:

-Fluctuation in the demand for milk products. For instance this could be caused by a more than significant increase in tax and inflation, like witnessed in the second half of 2013, when for a period the government introduced VAT on milk, raising the price of milk to above Kshs. 60

-Fluctuation in production of raw milk for instance due to weather changes. Like the glut experienced during the long rains, and shortages during the drought season.

-Operational failures, for example due to machine breakdowns.

-Poor management of inventory

-Pilferage

-Delayed payment of suppliers

-Poor supplier and processor relationship

Market Entry

When entering the market the first time and with a relatively weaker brand then consignment selling is the way to go. You convince the retailers to stock your brand of milk and guarantee them if they don’t sell they are not going to pay you and you will take back the milk. When making purchase a consumer will come say “Give me 2 packets of milk” or “Give me two packets of Fresha”.

The retailer can offer the consumer the new brand and use some sweet words to convince the consumer to take it. So a distributor you need to induce the retailers to market your product to consumers. With time consumers trust the brand.

There are companies which give retailers through distributors a discount of say a shilling. The retailer makes Kshs. 3 per packet instead of Kshs.2. The distributor will earn the usual margin say of Kshs.2 while the company absorbs the cost.

Index

Milk Processing Companies In Kenya

There are about 60 licensed milk processing firms in Kenya. But the total number of firms involved in milk processing is much higher if we take into consideration the number of individuals packaging yoghurt in their houses without the necessary licenses. Also there are increasingly more small scale processors serving a very limited radius. Of the licensed firms only about half are operational, the rest are either in the process of setting up or have been swallowed by other firms or ceased operations.

The milk processors have grouped themselves under the Kenya Dairy Processors Association (KDPA). The association seems more focused on forcing the government to reign on the informal market ( for instance by banning the hawking of milk.) rather than say working together to improve the welfare of the farmer and that of the consumer.

The Kenyan milk processing industry is relatively young but has witnessed rapid growth in the last 10 years due to increased demand for milk. 40% of the milk processing firms in Kenya have been in existence for less than 10 years, while 30% have been operational for 11-20 years. This means that the industry is relatively young and approaching a level of maturity.

New KCC is the oldest with origins which can be traced to the 1920s. Brookside started in 1993 and grew organically before recent acquisitions. Sameer Agriculture who pack the Daima brand got into milk processing in 2011 after acquiring Adarsh Limited. Githunguri Farmers who process and sell the Fresha brand started in 2010.

Buzeki who used to sell the Molo brand was started in 2008. Initially Buzeki Ltd was Spin Knit’s only milk distributor in the coast region. After Spin Knit was acquired by Brookside the owner decided to venture into milk processing with the Kilifi Gold and Molo Milk brands.

The industry is approaching a level of maturity as can be seen by the consolidations in the last few years. It started with Buzeki Limited acquiring Kilifi Plantations, Molo Milk Limited and Limuru Dairies. On its part Buzeki Limited was acquired by Brookside Dairies in For Kshs.1.1 billion. This after Brookside acquired Ilara in 2007, Delamare and Spin Knit Dairies the makers of Tuzo .

Presently the market is dominated by four big companies processing over 100,000 liters daily. These are New KCC, Brookside, Sameer and Githunguri Dairy. Other significant dairies include Kinagop and Meru Dairy Cooperative.

Consolidation is driven by the need to control supplies from the farmer and also competition for shelf space. Although shelf space in supermarkets and kiosk is increasing its limited in a way; a kiosk or supermarket can only hold a certain number of milk packets and brands.

If the trend continues it means that although smaller processors may remain profitable there will be no much room for their growth. They will operate only within limited radius like their home counties or towns unless they have a major injection of capital or join hands with other medium sized processors.

An alternative is rather than go for the mass market where competition is stiff, to focus on a niche market with specialist products. Bio Food, Raka Cheese among others have done this successfully.

Brookside is estimated to control about 44% of the processed milk market in Kenya. New KCC about 20%. Githunguri Dairy Cooperative Society 17% , Sameer 6% and the other smaller dairies the rest.

In 2012 a Consumer research put Molo milk as the most popular among consumers, followed by Tuzo, Ilara and other Brookside products.

Of all the firms only New KCC manufactures powder milk but Brookside is constructing a powder facility at its Ruiru factory. In the milk industry Brookside is deemed to be the most aggressive and efficient. It was the first company to introduce a professional method of collecting milk from the farmers. Its marketing activities have also been aggressive.

Among the major innovations in the last 5 years has been the introduction of milk packaged in a pouch by Githunguri Dairy Farmers society. The pouch was a game changer in the market. Previously all milk was packed in Tetra packs. The pouch was cheaper and consumers responded favorably thereby forcing all other processors to have ‘pouch versions’ of their milk.

Another significant innovation was the introduction of Thick Yoghurt packed in a 500ml reusable cup by Sameer Agriculture Limited. This forced the other companies to follow suit with easy to carry yoghurt cups.

The processed milk market is dominated by white fresh milk as you can see below:

Processed Milk Products by Market Share

Fresh/White Milk - 85%

Youghurt - 3%

Mala - 7%

Powder -3%

Cheese/ Butter -2%

Most of the milk processing companies operate below their full capacity. Some are said to operate at 40% of their full capacity, while Brookside which has been mentioned severally as the most efficient of the companies operates at about 70% of its full capacity.

There are some entrepreneurs who when they want to get into the milk processing business rather than invest in their own machinery hire the facilities of the below par companies. Their role then becomes just delivering milk, branding and marketing.

When considering the price of a packet of processed milk the biggest cost is usually that of the processor purchasing raw milk. This accounts for about 50% of the total cost. Thus fluctuations in prices of raw milk will affect the profits of the companies in a big way.

The cost of processing varies with the efficiency of the company but ranges between Kshs. 12 and Kshs. 18. The cost of a pouch will average Kshs. 1.50 and that of a Tetra Pak between Kshs.9 and Kshs.12 depending on the quality. In the end average margins for a half a liter pouch are 10% of retail price while that of a Tetra Pak will be about 20%. Consumers who opt for the Tetra Pak are willing to pay more for what they believe is superior quality.

Looking at the growth of the milk processors and significant changes in the market in the last 5 years, we can say present and future opportunities for new and even existing processors are to be found in the below areas:

Healthy/Niche/Premium Products

Despite any dull economic outlook the middle class is expanding. These groups of consumers are acquiring sophisticated tastes. Some are very conscious of their health and looks. And even as they seek the richness of milk they are worried about things like fat and cholesterol. Thus the increased popularity of flavored milk , yoghurts, low fat milk, cheese and butter. A processor who innovates in such for instance by new flavors or new formulas will seize a good share of the market.

Cost Effectiveness

As stated above when Githunguri Farmers Dairy introduced milk packed in pouches it changed the whole market. The reason why the pouch was popular was its affordability. A consumer could get quality processed milk at an affordable price. This also explains the increasing popularity of Milk ATMs.

Hence any processor who comes into the market with a guarantee of quality at lower price will find favor with consumers.

Convenience

When Sameer Agriculture Limited introduced yoghurt in a 500ml cup with a lid, consumers welcomed it. The reason being the convenience of purchasing yoghurt, taking it on the go and the ability to pack it for later consumption. Previously yoghurt was served in Tetra Paks and non resealable plastics. So any processor who innovates in packaging or any other way that offers that kind of convenience will be sure to find a market.

Milk Companies in Kenya

 

Adarsh Developers Ltd.

Nairobi

 

 

02215268,0203567023,072

 

 

(Now fully acquired by

 

 

 

2787103,0733212637

 

 

 

Sameer Limited)

 

 

 

 

 

 

 

Brookside

( Nairobi/ Ruiru/ Molo -

 

020 2354677

 

 

 

 

Nationwide)

 

 

 

 

 

Kinyangi Food Processing

Nairobi

 

 

0722397883

 

 

 

 

 

 

 

 

 

Kabianga Dairy

Rift-Valley

 

0720699746/0734777777

 

 

 

 

 

 

 

 

 

Hussein Dairy

Coast

 

 

+2542721687/03786382

 

 

 

 

 

 

13

 

 

 

Farmers Milk Processors

Rift –valley

 

03232156/20589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Githunguri D.F.C.

Nairobi/ Machakos/

 

0202130885-7

 

 

 

 

Kiambu/Parts of Central &

 

 

 

 

 

 

Eastern *

 

 

 

 

 

Eldoville farm

Nairobi

 

0720696837,0203882642

 

 

 

 

 

 

 

 

 

Egerton University

Rift-Valley

 

051-2217639

 

 

 

 

 

 

 

 

 

 

 

Doinyo Lessos Creameries

Eldoret

 

 

032163308/2063896

 

 

 

 

 

 

 

 

 

 

Buzeki Dairy Ltd

Rift-Valley

 

+254412318611

 

 

 

( Now fully acquired by

 

 

 

 

 

 

 

Brookside Dairies)

 

 

 

 

 

 

 

Aberdare Cheese

Naivasha

 

 

 

 

 

 

 

 

 

 

 

 

Solai Mawa Factory

Solai/Nakuru

 

 

 

 

 

 

 

 

 

 

 

 

Teita Estate

Mwatate

 

 

 

 

 

 

 

 

 

 

 

 

Echuka Farm

Kiambu

 

 

 

 

 

 

 

 

 

 

 

 

 

Eldairy Products Ltd

Eldoret

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unigate Dairy

Nairobi

 

 

 

 

 

 

 

 

 

 

 

 

 

Palm House Dairy

Kiambu

 

 

 

 

 

 

 

 

 

 

 

 

 

. Happy Cow

Nairobi

 

 

 

 

 

 

 

 

 

 

 

 

 

Chesumot

Kericho

 

 

 

 

 

 

 

 

 

 

 

 

Sotik Dairy

Kericho

 

 

 

 

 

Ilara Dairy ( Fully acquired by

Rongai/Nakuru

 

 

 

 

 

Brookside)

 

 

 

 

 

 

 

Kenya Milk Poducts

Nakuru

 

 

 

 

 

 

 

 

 

 

 

 

 

Nyota Dairy

Kitale/Trans-Nzoia

 

 

 

 

 

 

 

 

 

 

 

 

Delamere ( Fully acquired by

Naivasha

 

 

 

 

 

Brookside)

 

 

 

 

 

 

 

Aberdare Creameries

North Kinangop

 

 

 

 

 

 

 

 

 

 

 

 

 

Donyo Lessos

Eldoret

 

 

 

 

 

 

 

 

 

 

 

 

 

Lelkina Dairy

Molo/Nakuru

 

 

 

 

 

 

 

 

 

 

 

 

 

Kilifi Plantation

Kilifi

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sun Powder Products

Central

+25406673096/072899965

 

 

 

Stanley & Sons

Nairobi

0722833277

 

 

 

Silent Valley Creameries

06231254/0735435660

Rift-Valley

 

 

 

Raka Milk Processors

Nyeri

 

PamideDairy

Central

0202319873/4,0720529309

 

 

0612032023,0612032025

 

 

 

New Sameer A&L

Nairobi

+254-020-555863/6

 

 

 

New KCC Nairobi

Nairobi

+254-020-55952

 

 

 

Meru Central Dairy

Meru , Nairobi

0164-30081/2

 

 

 

Limuru Milk Processors (

Central

0202010610

Fully acquired by Brookside

 

 

Dairies)

 

 

Lari Dairy Alliance

Central

0710892197/0722777765

Afrodane Industries

Central

0724963788,0721528512

Aberdare Cheese

Naivasha

 

 

 

 

Sunpower Products

Kiambu

 

 

 

 

29. Stanley & Sons Ltd

Machakos

 

 

 

 

Kiambaa Dairy

Kiambu

 

 

 

 

Farmfresh

Nairobi

 

 

 

 

Danoma Ltd

Mombasa

 

 

 

 

Supa Duka

Nakuru

 

 

 

 

Crystal Dairy

Kikuyu

 

 

 

 

Aspendos Dairy

Kangema

0702 76 60 71

Lattana Dairy

Nairobi

0716 376 906 / 0727 369 148

Some Common Milk Brands

Kinagop

Frehsa

Brookside

Tuzo

Molo

Classic

KCC

Winners

Ilara

Daima

Fresha

Zetu

Mount Kenya

Limuru Fresh

Types of Milk Products

Long Life products:

Whole milk

Low Fat milk

Flavoured milk

Fresh Milk

Standard Milk

Whole Milk

Cultured Milk

Youghurt cup - 2weeks and Tetra pak - 3 weeks

Lala 2 weeks

Dried Milk

Milk Powder

Cheese

Cream

Butter

Ghee

Ice Cream

Sample of a Processor’s Number of Distributors Per Locations

Githunguri Dairy Farmers Cooperative – Fresha Distributors in Nairobi

AREA

 

DISTRIBUTOR

 

 

 

 

 

 

 

 

 

ATHI RIVER

 

 

1

 

 

BABA NDOGO

 

 

1

 

 

BAHATI

 

 

1

 

 

BURUBURU

 

 

1

 

 

CALTEX MUWENI

 

 

1

 

 

DAGORETTI

 

 

1

 

 

DANDORA

 

 

5

 

 

DONHOLM

 

 

1

 

 

EASTLEIGH

 

 

3

 

 

EMBAKASI

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GACHIE

1

GITHUNGURI

1

GITHURAI 44

1

GITHURAI 45

2

GITHURAI PROGRESSIVE

1

HARAMBEE

1

HURLIGHAM

1

HURUMA

2

JERICHO

1

JUJA

1

KAHAWA SUKARI

1

KAHAWA WENDANI

1

KAHAWA WEST

1

KALOLENI

1

KANGEMI

1

KAREN

1

KARIOBANGI

3

KASARANI

1

KAWANGWARE

2

KAYOLE

5

KIAMBU

2

KIBERA

4

KIKUYU

1

KINGSTONE

1

KINOO

1

KISERIAN

1

KITENGELA

2

KIWANJA/KU

1

KOMAROCKS

1

LANDMAWE/PRISON

1

LANGATA

2

LUNGALUNGA

1

MACHAKOS

2

MAJENGO/GIKOMBA

1

MAKANDARA

1

MAMLAKA ROAD

1

MARINGO

1

MARURUI

1

MATHARE

1

MATHARE NORTH

2

MBOTELA

1

MIHANGO

1

MLANGO KUBWA

1

MLOLONGO

1

MOMBASA RD

1

MUKURU KAYABA

1

MUKURU NJENGA

1

MUKURU REUBEN

1

MUTHURWA/SHAURI MOYO

1

MWENGENYE

1

MWIHOKO

1

MWIKI

1

NAIROBI WEST

1

NAIVASHA

2

NDUMBO INI/KABETE

1

NGARA/HIGHRIDGE

1

NGOMONGO LUCKY SUMMER

1

NGONG TOWN

1

NGUMBA

1

NJIRU

1

ONGATA RONGAI

3

PANGANI

2

PIPELINE

1

PUMWANI

1

ROYSAMBU/JOGOO

1

RUAI

1

RUIRU

2

RWAKA/BANANA

1

SAIKA ESTATE

1

SATELITE

1

SOUTH C

1

SYKIMAU

1

TALA/KANGUNDO

1

TASSIA

1

TENA

1

THIKA

3

TOWN CENTRE

1

UMOJA I

1

UMOJA II

1

UPPERHILL

1

VALLEY

1

WANGIGE

1

WARUKU

1

WESTLANDS

1

ZIMMERMAN

2

Sample Public Statement on Milk Distributorship by a Processor:

“….Distributorship of Fresha brands is open to all persons who are willing to a bind to the terms and

conditions set out by the society.

The society is currently distributing its products in Nairobi and its environs but will be opening up new outlets outside Nairobi. Persons willing to become distributors of Fresha can contact us through the customer service line number (020-2130885-7).

The terms and conditions and the information required is contained in the distributor application form serial No.00-09…..”

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