amul article - business today

8/8/2019 Amul Article - Business Today

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FMCG-AMUL

BUlllRGIRL GETS

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Never before has Amul beenbuffeted by as much competitionas it is today. But India's largestdairy foods player has an edge:Its unique "cow-to-customer"model T.V. MAHALINGAM

A a dairy farmin Manchar onthe outskirts ofPune. a four-hour drive fromMumbai, about 200 cows awaittheir tum to be milked. They wait

like shoppers in the billing queueof a supermarket. quiet and orderly.

One by one. the cows step onto a 20-feetrotating circular platform and rubber hosesare attached to their udders. Once milked.the cows themselves kick away the hoses."Minimal human effort. maximummilk produce." gushes Devendra Shah. Chairman.Parag Milk: Foods. which started its operationsin Mancharin 1993.


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The company has spent over Rs 4 crore on its rotarymilking parlour, the first in India. The 3,000-plus Holsteincows, purchased at Rs 40,000 apiece. are treated to a special diet of calcium-rich feed and mellifluous bhajans intheir sheds. "'the music increases their milk produce."claims Shah. citing that each cow produces 2 5 litres ofmllk a day. "It's total cow comfort technology. These are thestandards we need to adopt if we need to compete withinternational players in products like cheese." he adds.And cheese is where Shah's immediate ambitions lie.With a turnover ofabout Rs 550crore, Parag Milk Foods hasbeen selling milk and ghee in Pune and Mumbai since themid-90s. But in the last one year, the company's focus hasshifted to products like cheese and flavoured yogurt. It hasinvested Rs 110 crore to build what it claims is Asia'slargest cheese plant (with a capacity to process40 tonnes of raw cheddar daily). "Cheese from this plant sright now being sold in South Korea. Within a few monthsof our launch. we have cornered a 30 per cent marketshare of cheese sales at modern retail outlets inMumbai. Ourcompetitors are the Krafts and Laughing Cows of the world.With our superior product quality. we are not even competing with the Indian dairy players," says Shah.Some 450 km away. lounging in his spartan office inAnand in Gujarat, the mecca of the Indian cooperativemovement, B.M. Vyas would be tempted to disagree withShah's claims. After all, as MD of India's largest and only bilIion-dollar cooperative dairy player, the Gujarat CooperativeMilk Marketing Federation (GCMMF). Vyas has seen competitors make more audacious claims in his 16-yeartenure as MD. GCMMF sounds like a mouthful, but the brandname under which the cooperative sells its products,Amul. is. perhaps, the most recognised and revered dairybrand across the country.This despite the fact that. unlike Parag Milk Foods'state-of-the-art dairy farm, Amul's milk is collected bydairy farmers every morning largely by hand. "The fact that2.7million fanners wake upearly each morning tomllk theircows and then give it tous is ourbiggest strength," says Vyas.

He is no stranger to pretenders challenging Amul'sdominance. "Amul has seen competition in the past. Itreally does not worry us," he says matter-of-factly. Amildmannered, portly man of 59 years, Vyas has managed thecooperative since 1994. When he took over Amul. GCMMF'Sturnover was a Iiitle over Rs 1,000crore. Today, that has increased over six tUnes to Rs 6,700 cron.l. Back then, Amul wasviewed as a brand that would not survive the pressures ofcompetition in the post-llberalisation era. Vyas and Amulhave not just mnvived theonslaught ofcompetition. but haveoften taken the fight to their territory (as it did in ice creamsa decade ago. when it dethroned Hindustan Unilever Ltd(HUL}-then Hindustan Lever Ltd-from pole position).Taking on competitors in a category or two at

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The Challe.rs. ..Parag Milk Foods (Go and Gowardhan brand). AREA OF COMPETITION: Cheese and ghee. PERFORMANCE: Targeting the high-end cheese segment. Claims a30% share in MUmbai modem retail outlets for packaged cheese.Britannia_l:!;hjiilt1 AREA OF COMPETITION: Cheese, mainly... - PERFORMANCE: A24% market share in the Rs 300-crore

cheese market and can chip away at Amul's dominant 65% share.Kraft-CadburyAREA OF COMPETITION: Plans to launch its range of cheeseusing the Cadbury distribution network.

. ;.i Mother DairyAREA OF COMPETITION: In milk and has big plans forcheese. ice cream and butter.PERFORMANCE: Amul continues to dominate pouched milk markets likeKolkata and Mumbai.Groupe DanoneAREA OF COMPETITION: Flavoured milk.PERFORMANCE: Just started test marketing its chocolateflavoured milk in Hyderabad.U HULAREA OF COMPETITION: Ice cream.. PERFORMANCE: Amul is the market leader with over35% share in the Rs 1.300-crorese9ment. HUL has ashare in sin91edi9its and focusses on the upper end of the market.

Zydus Zydus Wellness" / ~ AREA OF COMPETITION: Butter.PERFORMANCE: Amul dominates the Rs 80o-crore butter market withan 80% share. Zydus. with its product Nutralite. claims to have9t1rnered a75% share of the "butter alternative" market.

Amrit GroupAREA OF COMPETITION: Plans to launch value-addedmilk products like cheese, paneerand ice cream inEastern India.MR

... AndAmu/'s CountersMore procurement: Amul will procure milk from morecatchment areas. For instance, it recently started procuring milkfrom the Kutch-Saurashtra area.Product diversmcatlon: Take clieese, for instance. Arnul isinvesting In capacities to build more varieties of cheese. It's alsofocussing on more fresh products like dahl. flavoured milk, etc.Focus: Arnul is focussing on its core strengths-dairy products.Segments like pizza are no longer afocus area.Invest In the future: Arnul is looking not just ayear or twoahead_It hasaplan in place, which includes Investments to thetune of Rs 2.600 crore to tap market opportunitesby 2020.

April 18 2010 BUSI"IESS TODAY 73

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http:///reader/full/Challe.rshttp:///reader/full/Challe.rs


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FMCG-AMUL

,Amul Growing Up with CompetitionDec. 1946., 1950., 1952., 1955., 1956., 1962., 1965., 1967.,TribhuvandasPatel, Founder,

!1 GCMMF, orr,anisesdairy farmersto register inthe !laira DistrictCooperative MilkProducers UnionIn revolt againstthe monopolisticpracticesofPolson, aMumbai- DrVerghese "could not The Amut "Butterbased dairy Kurien joins leave to the Girt" is born insanctioned by the natives toKDCMPUl response to theBritish to collect NDDD registered as asocietymake".mNk from Gujarat. asGM. under Kur1en's leadership. Polson butter girl.

"You cannot procure milk from somebtvl\l, slap alabel, carved a niche for itself in butterUUJ I altemati ves--that are opening upadvertise itand hope to succeed" new markets.

R.S. Sodhi. Chief General ManalJer (MarketlnlJ), Amul The biggest threat to Amul.the same time is something Amul has done before. Butthe threat today is dilIerent. and huge. That's becausenever before has Amul been buffeted by as much competition as it is today. across every category it operates in-rightfrom pouched milk and butter to cheese and ice creams.Other than HUL and Nestle, multinational giants like Kraft(which recently acquired Cadbury globally, thereby gettinga passage into India) and Groupe Danone are beginning toflex their muscle. "We hope to bring some ofour big brandslike Kraft Cheese and Oreo cookies to India With Cadbury'sdistribution strengths, we can push some of these brands inIndia." Sanjay Khosla. President (Developing Markets).Kraft. recently told BT. Groupe Danone is lookingat tapping into the small. but fast-growing flavoured milkmarket. It's currently testing a chocolate-flavouredfortifiedmilk in Hyderabad.

Regional players, too, are upping the tempo. Otherthan Parag, there's Amrit Group in Kolkata,

l\."\''\,\\i~ " , ' ( to1:..~ ~ , which plans to launch value- about the game of oneadded milk products. Says upmanship.Harish Bagla. MD. Amrit Incidentally,Group: "We are coming upwith various value-addedproducts like flavoured milk.da/li. lassi. cheese, butter.paneer and ice cream." Bagla'salso exploring tie-ups with internat ional companies. Finally.don't forget Johnnies-come-latelylike Zydus Wellness--which has

Under Kurien's Butter IauncIIed, Amulstarts Amullaunchesleadership, the first brand makincJ cheese to takeKDCMPUL's of AmuI. Kurien condensed mHk onforeiqnmHk capacity starts with an after Nestle's imports inreaches advertising brass SIIIIbs urban markets.ZO,OOOlitres budQet of Rs Z KurIen. contendingperday, up IakII to take on that condensedfrom ZOO litres competition milk manuin 1948. fromMNCs. fadurilllJ wassomething It

though, could well come from itsone-time friend but now a bitter rival. Mother Dairy, asubsidiary of the National Dairy Development Board (NDDB).In mid-February, Amul made a bold claimwhen it declareditselfas the #1 player in the branded packaged milk segment.with sales of 1,45 million lUres daily. in the Delhi market.a traditional stronghold of Mother Dairy. Within a day. theNew Delhi-headquartered Mother Dairy shot back. "MotherDairy sells apprOximately 29lakh litres ofmilk per day inDelhi NCR, which is about twice as much as that of thenearest competitor; ' says Paul Thachil. coo (Dairy& Foods).Mother Dairy Fruit& Vegetable.

Amul's counter: "We do no t operate in the loosemilk segment and our figures are only for the pouchedmilk category." says R.s. Sodhi, Chief General Manager

(Marketing). Amul. Mother Dairy is theleader in the loose milk segment.

"These little things happen inmarketing," chuckles Sodhi

Mother Dairywas set up by Dr

Verghese Kurien.the man who

transformed GCMMFfrom a struggling

dairy in Anand intoIndia's largest foods

producer. "We will


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1970. 1m . 1996. 199h 200Z. 2003. 200h 2008.HUl'sll\illlletantflan, a Alnullaunches AlnullaunchesAmul~ i o n share is belowovie madeby icecreams In retail parloursrevenues 10%as COI'IIpiII1!dPhase I and produced top entering the to consumersShyam IleneQaI Mumbai after to reacII out to almost 30%launched. ~ M M F Rs 1,500 seqmeniin and avoid il1991 iI heI the 1996.Claims "vettillCJ icecream Uooperative crore. #1 spot squeezed" seQment.movement In byZOO3. by retailers.Anand,wIns Today,overthe national 5.000parlours award It is, Qenerate 2010.perhaps, the RsZOOcrore only "corporate worth of AmuI daims #1film" to win SIEh revenues. spot iI he DelhiI prestIGious founded by pouched milkprize. NDDB. IIIiDet.

the Delhi NCR market. Ourdistripete." says Vyas. "Amul andgrow the market when we com bution network is very strong andMother Dairy are both different we further plan to expand it bysides of the same coin." he adds 15 per cent in milk and 25 perrather diplomatically. Quiz him cent in the two categories inabout why then did Amul choose . the coming year. We also haveto drop the "milk drop" symbol 1.100 own outlets in Delhi NCR."(which is owned by NDDB bu t says Thachil. who expects thewhich both cooperatives willingly dairy to touch a turnover ofshared for years) from all its Rs 4,000 crore this fiscal. Motherpouchedmilkpackets and the ans Dairy. he says. has been growingwer is a wry: "Amul is Amul. We at 25 per cent year-on-year and iswere born"before every other likely to do so in the near future.droplet." Incidentally, both NDDB . Other competitors. too. areand GCMMF have boon battlingeach lining up for a slice of the fastother formilkprocurement in the . growing Rs 2.30.000 crore IndianSauraShtra-Kutch region after dairy market. the bulk of which is

. GCMMF startOO procuringmilk there g unorganised. Just the organisedearlier this year. The dairy fanners ::; branded milk distribution marin the region are not complain- ;::> ket is estimated to be closeing as milk prices have gone up.

Make no mistake: With their "The fact that 2.7 million fanners wake up early to milkcommon cooperative roots andprocurement strengths. Amul ver their cows and then give it to us is our biggest strength" .sus Mother Dairy is going to be B.M. YYIS. Manaalna Director. GCMMFthe big battle ahead. "I t may takesome time for Amul to dislodge Mother Dairy in the North, Rs 30.000 crore. "More importantly. value-added productswhere the latter has a great distribution network. But like cheese are growing at the fastest rates globally. Ourperthink about ~ A m u l entered the pouched milk seg capita consumption of cheese. for example. has tripledment in Delhi only in 2005 and today it's giving Mother since 1995. The market is growing at 25 per cent perDairy a run for its money." says an analyst with a foreign annum at least." says an analyst with a foreign brokerage.broking finn who covers the PMCG sector. Another factor that has contributed to the renewed

Mother Dairy has over 14,000 retail outlets and 845 interest in the dairy sector has been the growth of modexclusive outlets. mostly in the northern region. "We are em retail. "The cold chain is very crucial to the dairy busipresent in milk, ice cream and fresh dairy categories in ness." explains Anand Ramanathan. Manager. KPMG

Amullaunchespouched milkilDeUtastrOIIQhoId ofMotherDairy;

Alnul becomes theCOII1try's first andonly blllIon-dolIarcooperative. Also, tilefirst cooperative toiltroduce SI.ICJ8I"free.probIotic Icecreams.

i:;1,!J

. I 'I,April 18 2010 BUSINE..


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Advisory Services. "With modem retail coming of age inthe last 3-4 years. the cold chain fell into place. For thedairy players themselves, to set up a cold chain was notpossible earlier as it is a very capital intensive affair." headds. Market watchers believe that Mukesh Ambani'sReliance Retail. which is readying to sell milk to generaldistributors under the brand name llie. is a great exampleof a company attempting to utilise its cold chain better byentering the dairy business.

A cold chain s just one of he important pieces that hasto be in place. Anothe r is the product itself and how different it is from those ofthe established players. A companyselling plain cheese slices is unlikely to loosen Amul'sor Britannia's grip on the cheese segment. The new players seem to be aware of this. Amrit Group's Bagla, forinstance, is targeting milk products ror different consumer segments. including kids, senior citizens and pregnant women. Parag will also launch chilli, Spanishtomato and pepper-flavoured cheese, all under the Gobrand and customised for the Indian palate.

Parag splurged another Rs 6 crore on an advertisingblitz. between January and March this year. to push itproducts under the brand name Go. "We will differenti

76 HllSI'.;ESS TOO/\ Y April 18 1010

ate ourselves by offering in ternational quality productsand a bouquet of variants like pizza cheese. cheddar,mozzarella, wedges, slices," says Rahul Akkara. VP(Marketing). Parag Milk Foods. InCidentally, the Gocheese mascot. a rather lascivious looking cow, looks likea not-so-distant cousin of French cheese makerFromageries Bel's Laughing Cow.

Another key parameter for success in the dairy businessis backward integration. "In the fresh foods business, procurement is everything. The farmer is the backbone ofthis business." says Vyas. That would explain why bignames like Nestle and Britannia couldn't make a dent in thebutter and pouched milk markets, respectively. "Withoutbackward integration, you are bound to fail. You have to bea C-to-C (cow to consumer) company to succeed. Youcannot procure milk from somebody. slap a label, advertiseit and hope to succeed. That's been the failing of the MNCS inIndia .. it's a long-term game of patience." explains Sodhi.

It's a game Vyas is very good at playing. And he hashad a lot of practice. "Vyas is a person who never losesheart if something does not work out," says a rormerAmul employee. "He just moves on and attributes thelosses to learning," he adds, citing examples of Amul's not


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FMCG-AMUL

Amul'sSheerSpread,Size andDepth_Members: 13 district cooperative milk producers' unions .. . u .. " ......... u .......... u .... Producer Members: 2.79 millionVillage Societies:13.328.......... ,.. . . . . . . . . . . . . . u . . . . . . . . . . . . . . . . . . . . . .Total Milk Handling Capacity: 11.22 million libes per day Total Milk Collection: 105billion libes ('08-()9)Daily A v e r ~ e Milk Collection: 8.4 million libes ('OS-09)

___ asWell as its UniqueCompetitive Advantages_ Procurement Alnul's Iow-cost, high-qualily milkprocurement network allows it to price its productscompetitively. . AbIlity to catch up: Alnul got into ice creamslate. It got into the pouched milk markets like Delhidespite the presence ofestablished players. Now,it's on top in these markets and categories. AmuI has over5,000 parlours in the country: Itplans to take that number to 10,000within ayear:. Not afraid to fail: Amul has Iatl1Ched more than50 products in less than adecade. Some like pizzas,chocolates. Alnul card have not done well That hasnotdeterred it from trying new things.__ Help it Lord Over theIndian MarketButter: 80% of the Rs aOQ-crore organisedmarketCheese: Controls 650/0 of the Rs 30o-crorebranded market

brand in IndiaPouch Milk: The 11 pouched milkUHT Milk: 60%Milk Beverages: 70%Ice Cream: About 35%Ultra-high temperature processed milkFigures are market shares provided bythe companySource: Industry; Amul

78 BUSINESS TODA Y /\pril 18 2010

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so-successful outings with pizzas, chocolates and an Amul card(a kind of a debit card for Amul customers), Every evening.Vyas gets an Excel sheet on his e-mail. something called aaj kascorecard (today's scorecard). It details sales data acrossproduct categories. from paneer to pouched milk. from gulabjamun to Ice creams.

More crucially. Vyas is already looking at the future. On hisdesk lies a ISO-page tome called Vision 2020 (an internalbusiness plan). It's something Vyas is reluctant to talk about. indetaiL But here's a teaser. "By 2020. at the current growth rate(of 28 per cent). we expect to be generating revenues of aroundRs 30.000crore, ffwe go byour 2008 growth rate (23 per cent).we should be about Rs 28.000 crore." says Vyas. "That meansthat everything we have built in tenns of capacity. marketsize since 1947 will have to be doubled in the next 12 years."Amul has already ordered equipment to build plants to addressmarket opportunities in 2015. Insiders reveal that prelimiruny groundwork, including site identification, for a massive milkpowder plant at Ahmedabad (to be commissioned five yearshence) is under way. In his annual address in June 2009.P. Bhatol. Chainnan. GCMMF, had suggested that to create suchinfrastructure, investments to the tune of Rs 2,600 crorewould have to be made by 2020.

Another focus area lOrAmul isretailing. Back in 2002. Vyashad been invited by Future Group boss Kishore Biyani for asocial function. "At the function. Biyani had suggested that webecome strategic sourcing partners of the Future Group."recalls Vyas. "Around the same time, I read in the newspapersthat dairy fanners in Germany and France had gone on strike,asking for better prices from large retail groups. The big retailgroups relented quickly and I realised that they had big margins and were exploiting the fanners." he adds. To avoid a sim-ilar situation, Amul experimented with a small store format.starting with a store inside a park whose upkeep Amul hadtaken up, Now, Amul opens almost three stores a day and hasover 5,000 retail outlets. Vyas expects to have to 10,000Amul outlets by 2011. Revenues from the stores have crossedthe Rs 2oo-crore mark.

Brand AInul is also, perhaps, changing in subtle ways.During the past year, the Amul Butter Girl the Peter Pan-esquemascot which has graced Indian hoardings since 1966. startedappearing on Amul milk packets. "The Butter Girl has come tosymbolise the goodness of Amul's products." says RahulDaCunha, whose agency DaCunha Communications hasbeen handling the Amul Butter Girl for over four decades."It's come to symbolise the whole brand, in some ways. AInulis the last of the great Indian brands from that era that's stillrelevant," he adds, citing that his agency has churned over2,600 campaigns.

Vyas. though, does not dwell in nostalgia. "What we aretoday is because of the homework we did 10 years ago. I am laying the groundwork for 2020 now." he sums up, The competition will be watching. 0

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