India. India is the world's biggest producer and consumer of dairy.

In 2018 alone, India produced 186 million metric tonnes of milk — about

410 billion pounds and 22 percent of the milk produced globally.

Almost all of that is consumed domestically thanks to India's dairy-heavy

diet — think creamy curries, yogurt drinks, and a popular type of butter

called ghee.

A quick note before we proceed: this includes milk from buffaloes, which

are an important source of milk in many developing countries.

the point is that India loves milk.

In 2011, the French dairy company Danone hoped to capitalize on this by

opening a division in India.

Danone opened its own processing plant in Haryana and tried to capture

some of India's 1.2

billion dairy lovers.

But less than a decade later, Danone shuttered their dairy business in

India. That same year, the company made 28 billion dollars worldwide and

was in the top three global dairy companies.

With all this success, elsewhere, why did Danone's dairy business sour in

India?

Let's start with some background on Danone.

Their business is broken down into three categories: specialized

nutrition, like supplements and formula for babies; bottled waters and

seltzers; and dairy and plant-based alternatives.

That one makes up over half of their global sales, but it's also the one

that failed in India.

Danone does still sell specialized nutrition products in the country, but

they don't break out those sales figures separately.

Oh, and yes — this is the same company as Dannon in the U.S.

The company decided to rebrand to make the spelling less confusing for

American consumers.

Anyway, now for some background on India's dairy industry.

There are about 75 million dairy farmers in India.

Most of them are women who own one or two buffaloes or cows to supplement

the family's income.

Nearly half of India's milk is not sold, but consumed by the farmers

household. This makes India's dairy industry far more fractured and

localized than other countries where Danone operates.

Take the company's native France and one of its biggest customers, the

U.S. Each has far fewer dairy farms with herds that dwarf India's one or

two animal average.

This was Danone's first big problem in India: sourcing milk is difficult.

Of the half not consumed by farmers' households, only about 15 percent

goes to big organized companies or government run cooperatives.

The rest goes to hundreds of small, local milk processors.

Even the largest companies like Amul, Mother Dairy, and Nestlé have tiny

percentages of the market, and they've been there for decades.

Market research firms Mintel and Euromonitor declined to release specific

market share numbers to CNBC.

However, a 2016 piece in The Economic Times of India citing Euromonitor

put the figures at about 7 percent for Amul, 3.7

percent for Mother Dairy, and 2.9

percent for Nestlé.

In short, tapping into the existing dairy infrastructure is effective but

time consuming.

Imagine the effort of contacting dozens or hundreds of local and regional

dairies, processors, or individual farmers.

But establishing a separate supply chain altogether is very expensive —

a lesson Danone learned the hard way.

And when Danone did get milk, the company focused on the wrong products.

Danone pushed plain yogurt and flavored yogurt drinks — popular in places

like the U.S.

and France with high profit margins to boot.

But in India around the time when Danone arrived, yogurt comprised only 7

percent of the dairy consumed.

The real money was in ghee, a type of clarified butter, and plain old

fluid milk, a product with razor-thin margins dominated by those hundreds

of local small-scale producers.

Analysts explained to CNBC the simple reason why Indian consumers shunned

Danone's prepackaged yogurt.

And if Indian consumers did want to buy premade yogurt, they had a slew of

cheaper options than Danone.

Dairy never accounted for more than 10 percent of Danone's sales in India,

a far cry from its global 50 percent.

Its specialized nutrition arm picks up the slack, and the company

announced a renewed focus on that division when it shuttered its dairy

operation. Meanwhile, two of their biggest competitors, Amul and Nestlé,

made nearly five billion and 750 million from dairy, respectively.

But not all hope is lost for Danone's dairy in India.

In January 2018, the same time that Danone ended its dairy production

there, the investment arm of the company announced its part in a 26.5

million dollar investment in Epigamia, an Indian yogurt startup.

This could be a sustainable move for Danone in India's dairy industry

because Epigamia offers consumers products that add value onto the plain

yogurt they can make cheaply at home.

But perhaps most importantly is this: while much of the population still

makes yogurt the old-fashioned way, analysts predict that a growing number

of consumers will want to buy premade options as they move into corporate

jobs in developing urban centers.

Very

large numbers indeed.

If only 5 percent of India's 1.35

billion people decides to buy prepackaged yogurt, that's over 67 million

consumers — more than the entire population of Danone's native France.