Meltdown Of The Ice-Cream Sector

by Smriti Vohra

As COVID-19 continues to spread throughout the globe, the threat to life and its detrimental effect on businesses has become a cause of utmost worry. It has left businesses with a great deal of uncertainty regarding what recovery would look like.


The effect of the pandemic on each sector varies but one sector that has undergone unprecedented disruption due to the outbreak is the ice cream sector



During the recent past, the ice cream industry has proven to be one of the fastest-growing segments of the dairy and food processing by achieving a compound annual growth rate of 14.1% during 2014 – 2019.


With the improvement in cold storage infrastructure coupled with an increase in disposable income and a change in lifestyle, the sector is projected to have enormous growth.


In the past years, March - July accounts for over 40% of their total sales, making them the profitable months of the business. In 2020, COVID-19 has resulted in dwindling sales during this period.


The first and foremost challenge faced by the industry is the dearth of revenue. Although the industry does not depend solely on the sale of ice-creams for its revenue, more than 80% of its revenue is generated from it.


Therefore due to the halting of sales, the major revenue earning source of the industry has suffered a huge setback. 


The next obstacle faced by the industry is increased cost due to the inventory pile up. Even though the demand for ice cream has significantly dropped since the outbreak, the industry is obliged to pay wages, electricity bills, and other fixed expenses. This exacerbates the financial burden on the companies.


In order to clear the unwanted inventory, firms plan to decrease employment and output until the economy is back to equilibrium. This would lead to the problem of unemployment.



The sector employs almost 15 lakh (1.5 million) people and due to the mishap, the industry would be forced to lay-off people associated with the sector as they will not be in a position to pay timely wages. 


The industry has also been facing the problem of distribution and logistics. Lack of drivers, vehicles, and inter-state barriers has posed some serious challenges.


Due to strict lockdown measures being imposed, intrastate dispersal of stock was also a major challenge as the companies were not even allowed to home delivery. Intra and inter-state network and distribution may take some time to return back to normal.  


One advantage that the ice-cream industry may experience post-lockdown is the reduced intermediate cost.


Let’s discover why!


Even though the consumer consumption of milk has gone up, the overall demand for it has significantly fallen due to a decrease in bulk demand by hotels, restaurants, etc. Due to this, a large portion of liquid milk is converted to skimmed milk powder (SMP) which is a major ingredient in ice creams.



Post lockdown period, the SMP industry would almost collapse due to excess production. This would force the industry to reduce the price of the commodity and the ice cream industry could procure the skimmed milk at a significantly lower price. This may prove to be advantageous for the ice-cream industry.


This period has definitely proven to be difficult for the industry however if driven by innovation and quality production, the sector will steadily but surely improve.


In order to capture a large market share, the industry must conform to the stringent safety standards and optimize their production system. This would contribute to the positive growth of the sector.


References


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