RISING BEYOND BORDERS: PELWATTE DAIRY'S GLOBAL EXPANSION JOURNEY

Amid a foreign exchange crisis, Pelwatte Dairy Industries sought to generate revenue through international markets, despite a challenging local market. Driven by the need for foreign currency to sustain business operations, Pelwatte Dairy strategized to allocate a portion of sales to exports and improved operational efficiencies to counter rising production costs and competition, and capitalized on their high-quality products and unique range to gain a foothold and expand in the domestic and global market. In this interview, Akmal Wickramanayake, Managing Director at Pelwatte Dairy, shares insights into the decision-making process, the challenges faced, and the strategies used to penetrate both local and international markets.

What factors influenced Pelwatte Dairy’s decision to enter international markets? What was the thought process behind this decision while devoting resources to grow in a challenging local market?

We ventured into international markets due to several factors. Firstly, the country was facing a foreign exchange crisis, necessitating the generation of foreign exchange in various forms. As a business, Pelwatte Dairy required foreign currency to purchase machinery, packaging materials, and other necessary goods and services. To sustainably afford these purchases, we had to explore sales in the export market. By allocating a portion of sales to exports, we could continue procuring products and services from overseas, as the banks were struggling with foreign exchange availability. This decision required sacrificing some market share in the local market in favour of exports, but it was a decision that paid off.

Pelwatte Dairy holds an average household volume share of 10% across all product categories in the local market, and we aim to consistently grow this to around 20% within the next 12 to 18 months. We now produce approximately 8,000 to 9,000 metric tons of milk powder annually and 800 to 1,000 metric tons of other products like butter and ghee oil. We will further expand our product portfolio and offerings venturing into unique flavoured ice creams, fresh cream, yoghurts, and curd, albeit in smaller volumes due to the shorter shelf life of these products..

What challenges did you face when entering international markets, and how were they overcome?

One of the main challenges we encountered was price competitiveness. Dairy products and commodities are globally traded at relatively low prices, while Sri Lanka’s production costs and economies of scale are not conducive to growth. When entering export markets, such as the Maldives, we found that their products sold at similar prices. Although we gained a foothold and generated foreign currency through exports, there was no significant improvement in our bottom line due to higher production costs. To address this challenge, we strove to improve operational efficiencies by deploying technology and automation and optimizing costs throughout the supply chain and manufacturing processes to enhance competitiveness in global markets.

What competitive advantages does Pelwatte Dairy possess that contributed to its success in international markets?

As a new entrant in some export markets, we had to maintain high global manufacturing standards in production. Our dairy products are on par with other international brands in terms of quality. Additionally, many customers or clients in new markets appreciated the opportunity to try something different or diversify their vendors. We leveraged this by offering a unique product range, allowing for market penetration and gradual growth. Moreover, the proximity and preference for Sri Lankan products in neighbouring countries like the Maldives contributed to Pelwatte Dairy’s success.

Furthermore, our value proposition revolves around building Pelwatte Dairy into a lifestyle brand that resonates with discerning consumers worldwide. We’re integrating traceability into our operations, empowering our customers to track the origin of our fresh milk and understand how Pelwatte Dairy contributes to rural community development. Our training farm equips rural dairy farmers with the necessary skills, knowledge, and support, helping them to modernize their farming practices, increase yields, and expand their farms. We additionally distribute young dairy cows to farmers, compensating for Sri Lanka’s lack of a marketplace for these animals and aiding farmers to scale.

Our research indicates that our unique flavours, derived from local ingredients, will offer us a competitive edge in targeted export markets. For instance, we are diversifying our dairy portfolio with new cheese variants. We are also proactively seeking collaboration opportunities to fortify our relationship with our farmer network. By addressing their supply chain issues and exploring potential joint ventures and mergers, we intend to scale production and possibly expand into other food sectors to carve out a distinctive edge in international markets.

How did Pelwatte Dairy penetrate the local market despite competition from established brands?

Our key to success in the local market has been its consistent availability and uninterrupted production over the past three to four years. While the country faced various challenges, including import restrictions and disruptions caused by the Covid-19 pandemic, we generated a steady supply chain and uninterrupted operations. This reliability allowed us to establish loyalty among consumers who could consistently rely on the availability of Pelwatte Dairy products, even when competitors faced supply issues.

How did Pelwatte Dairy adapt its products and marketing strategies to meet the preferences and demands of international consumers?

We emphasized proactive product development with extensive innovation and research. Through regular benchmarking and engaging focus groups and sensory panels, both internally and externally, we gathered feedback and insights from various socioeconomic sectors. This approach helped identify taste patterns, lifestyle changes, and customer expectations across different product categories, enabling us to focus on innovations and continuously improve existing products, incorporating new flavours or ingredients when appropriate. By aligning our products with consumer expectations, we aim to provide unique offerings that stand out in the market here and globally.

What consumer behaviour patterns have Pelwatte Dairy observed in international markets, and how have you tailored your strategies accordingly?

In the Maldives, where Pelwatte Dairy operates in the hotel and resort segment and supermarkets, feedback indicates that customers are receptive to our unique products. Customers are generally open to alternatives and willing to try something new when there is an established preference for a limited number of brands. Positive feedback and an improving reordering pattern demonstrate the initial success of Pelwatte Dairy in these markets. As we expand into new markets, we intend to understand and cater to specific preferences, potentially developping product variants tailored to different tastes.

Apart from the Maldives, what other international markets have Pelwatte Dairy entered, and what strategies have you employed to establish a strong presence?

Currently, our active market presence is limited to the Maldives. However, we have plans to expand into the UAE and the Gulf region. To support this expansion, we are conducting various promotional activities to raise awareness about our products and operations in Sri Lanka. We collaborate with a distributor in the Maldives, providing them with collateral and marketing materials for their campaigns. We have allocated budgets to support these activities.

As for the UAE, we recognize that there is significant work to do. We will execute packaging changes to align with Gulf standards, such as incorporating Arabic lettering and other cosmetic adjustments, while maintaining the same product quality. Although we have not yet entered the retail market in the UAE, we are exploring opportunities and participating in food and beverage expos in both the Maldives and the Gulf region.

Through these initiatives, we aim to understand market needs, including the potential for contract manufacturing. Our goal is to increase sales and expand our presence in the UAE. Additionally, we are considering bundling our products with popular tea brands in the Middle East, catering to the Asian communities residing and working in the Gulf region. We are currently strategizing and working with potential tea brand partners to introduce bundled products. We are diligently planning and preparing for this exciting opportunity

What are your plans and aspirations for international expansion, and what strategies are in place for continued success in these markets?

Our goal is to expand the reach of our products, whether under the brand name Pelwatte or as separate brands tailored to specific markets. This proactive approach extends beyond the Gulf and Maldives; we are also exploring opportunities in Asia, such as Indonesia, and Malaysia, in East Africa such as Mauritius and Seychelles, and other parts of Far East Asia.

Our primary focus is establishing a presence in these countries by introducing our products and developing new brands that resonate with local consumers. Looking ahead, we are strategically planning for potential manufacturing operations overseas. This approach would allow us to start with a smaller-scale brand presence in the initial years and leverage that foundation to initiate manufacturing operations.

By already having an established brand in a particular market when we move into manufacturing operations, we can build on that existing brand recognition and take our operations to the next level, aligning with our expansion plans in Far East Asia, the Gulf, and the African continent. Our business model goes beyond just a model – it encompasses our brand purpose and the scope of our business.

I would say we have a grander vision. It involves establishing a supply chain and manufacturing capabilities within those communities. As we take this model overseas, it goes beyond mere exportation to building self-reliant communities in each market comprising manufacturing, supply chain, distribution and retail operations within each country, and ensuring consistency in our ethos, brand purpose, and overall business values. While exports will remain a portion of our business, our long-term vision is to create sustainable models overseas that align with our core values and enable us to build self-reliant communities in every market we enter