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The Amul Story

<Learning Curve> >Amul’s journey towards becoming the biggest cooperative movement >Its foray into value-added products - successes and failures >Battle with NDDB on ownership of Mother Dairy Brand

Imagine going for a morning walk in the wee hours to a park, making a brief stop-over and coming back home with a belly-full of tasty flavored milk and hot pizza topped with cheese! Defeats the purpose of the walk, but may make you feel on top of the world.
Now, imagine the CEO of a dairy company saying, “Ours is not a food company, it is an IT company in the food business. The most efficient way of building links between milk producers and consumers so as to provide the best returns for both is through IT and innovation.”
Or better still, imagine a cooperative movement that has delivered a Rs. 2746 crore turnover and has been planning actively to take it up to the 10000 crore mark.
Amul India limited, and its team of energetic professionals have planned to take on HLL in ice-creams, Cadbury in chocolates, and NDDB in a verbal duel to uphold the cooperative movement. On top of all this, set up a retailing network that would be the toast of the town. Thankfully, the management flatly denied plans of launching kadhi and raita.
B M Vyas, MD of Gujarat Cooperative Milk Marketing Federation (GCMMF) had estimated in late 2001, that the contribution from value added products like pizza, lassi and flavored milk would double from 15 per cent to 35 per cent. Out of the entire milk procured, approximately 40 per cent is sold as liquid milk and 60 per cent is converted to value added products. Pizzas had been estimated to sell 100,000 pieces a day. Flavored milk and ice-cream continued to be touted as success stories. Plans for a nationwide launch of soups had also been announced. Ahmedabad was reportedly selling 5000 litres of lassi a day. How true were those claims?
It turned out that the initial enthusiasm over value added products was misplaced. The outlets offering the pizzas did not know how to serve them. R S Sodhi, GM Marketing said, “Pizzas by themselves were a small category than even namkeens. All we wanted to do was promote the consumption of mozzarella cheese which we succeeded in doing.” The ice-cream venture was a little more successful, given that Amul could price it really well. However, there were other strong players who could gear up for competition. Mother Dairy Foods, the marketing subsidiary of the National Dairy Development Board (NDDB) had signed agreements with other state cooperative milk marketing federations, to set up joint venture companies and market their produce, including ice-creams, under the mother dairy brand. Right into Amul’s native markets! To top it all, worms were found inside Amulspray baby feed. The Maharashtra FDA ordered immediate withdrawal of the product from Mumbai.
One brand and so many brand extensions…Amul claimed that its extensions had not been costing too much money, as the marketing effort was minimal. The name Amul was good enough to sell whatever it endorsed. But whenever a brand launch is declared unsuccessful, it does not reflect well upon the company. Where is the company headed, and more importantly, should it be headed there?

THE BEGINNINGS
The story of Amul (Anand Milk Union Limited) began way back in 1946 as an offshoot of the freedom movement with an aim to do away with the exploitation of middlemen in milk collection and give the villagers the best returns for milk. Amul began the dairy cooperative movement in India and formed an apex cooperative organization, Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF), which is jointly owned by some 2.2 million milk producers in Gujarat, India. (refer Table 1 for details). Now, not only had the milk collection and the number of co-operative members increased but Amul was also giving a stiff challenge to the multinationals.
Consider this: Amul was a leader in baby food, dairy whiteners, cheese and ice creams. It held an 86 per cent market share in butter. Exports of milk and milk products were Rs. 80 crore per annum. This was certainly a giant leap when one considered that in 1946 when it began, it had only two village societies and a collection of 247 liters of milk daily. The primary goal of Dr. V. Kurien, Chairman GCMMF, the “Milkman of India”, had been to build a strong Indian society through an innovative cooperative network, to provide quality service and products to end-consumers and good returns to the farmer members. Kurien averred, “We have traversed a path that few have dared to. We are continuing on a path that still fewer have the courage to follow. We must pursue a path that even fewer can dream of pursuing. Yet, we must. We hold in trust the aims and aspirations of millions of our countrymen.”
During 2001-02, GCMMF’s member unions put together procured 45.87 lakh litres of milk per day (LLPD), with the leading contributor being Mehsana (11.15 LLPD). Kaira at (6.88 LLPD), followed by Banaskantha (6.86 LLPD), Sabarkantha (6.18 LLPD), Surat (5.29 LLPD), Baroda (2.44 LLPD), Panchmahal (2.01 LLPD), Valsad (1.83 LLPD), Ahmedabad (1.15 LLPD), Gandhinagar (1.05 LLPD), Rajkot (0.81 LLPD) and Bharuch (0.24 LLPD).
In addition to the well-thought out cooperative movement, information technology (IT) had played a significant role in developing the Amul brand. The logistics behind coordinating the collection of some 6 million liters of milk per day from 10,755 separate Village Cooperative Societies throughout Gujarat and then storing, processing and producing milk products at the respective 12 District Dairy Unions, were awesome. The installation of 3000 Automatic Milk Collection System Units (AMCUS) at Village Societies to capture member information, milk fat content, the volume collected and amount payable to each member proved invaluable in ensuring fairness and transparency throughout the whole Amul organization.
VALUE-ADDED PRODUCTS
Amul had humble, yet solid beginnings. From milk alone, the portfolio had expanded to include some very marketing-intensive products. Amul commissioned IMRB to do a study on what products the customers expected from its stable. Butter and ghee were the old success stories. Flavored mild under the brand name ‘Kool’ has also been accepted as a success story. Over time, Amul expects to collect sufficient data to validate the same. Says R S Sodhi, “We have been trying to figure out how we can dispose of the milk procured. It’s 52 lakh liters a day, so how does one maximize returns on it? Hence the foray into value-added products.” Amul outlined its advantages as follows:
1. Cost-effective production, including primarily, procurement of milk from over two million dairy farmers, which in turn, assures poor farmers reasonable prices.
2. Climbing up in the value-chain by diversifying in value-added products, such as milk sweets, ice creams, pizzas, confectioneries, truly as a food company, rather than merely selling milk, to be known only as an organized milk-vendor.
3. Sustained building of loyalty of customers, not by promoting individual products, but all products under the umbrella of its premium brand, Amul, by investing a good 40 per cent of its ad budget towards brand promotion.
4. Facilitating reach to customers throughout the country by a strong chain of distribution outlets (Amul reached out to five lakh retail outlets and had 2,600 distributors under its fold, and a well-established cold chain). The investment in relationship with business partners: both farmer-based co-operatives and distribution networks for purchasing and selling functions respectively, enables Amul enter into any food category without much time or investment.
The key categories were chocolates, ice creams, soups and retail initiatives.
1. CHOCOLATES
GCMMF, which had been lying low for a while with its generic chocolate variants such as Fruit & Nut and Milk, intended segmenting its chocolates, catering to different age groups and categories that were likely to consume its brand. Sanjay K. Panigrahi, General Manager, GCMMF, said, “We intended to take advantage of our already existing cold chain to get more active in the growing market of molded chocolates and confectionery.” Having launched an occasion-related sub-brand of Nuts ‘bout U on the eve of Valentine’s Day and Kite Bite for the kite flying festival in Ahmedabad, Amul decided to segment the market with brands catering to the `impulse’ and `teen’ segments, as well as having brands catering to different occasions.

2. ICE-CREAMS
For its ice-cream and milk business, GCMMF had invested in increasing its milk capacity. It firmed up plans to invest Rs 100-120 crore to expand this from 1.1 million liters a day to 1.8 million liter a day at its Gandhinagar factory. The cooperative also planned to expand its production facilities beyond Gujarat to service other regions in India. GCMMF bought an ice-cream manufacturing unit in Nagpur and installed a dairy unit alongside. Through this unit, Amul extended its milk supply to over 10 cities spread over Rajasthan, Madhya Pradesh and Maharashtra.
Amul also focused on its supply system. Efforts were on to ensure greater availability of Amul ice-cream at pushcarts and small outlets. The company felt that availability was the most important factor in ice cream sales. Thus, Amul ice-cream could be found in ‘just around the corner shops,’ local STD booths, local kirana shops, chemists and bakers, who stocked the ice-cream in deep freezers.
Both Amul and Hindustan Lever’s (HLL) Kwality Walls claimed to be the largest selling ice-cream brands in India. While HLL quoted a market research study by AC Nielson, which put Kwality Walls at the No 1 spot, an independent study by Ahmedabad-based Consumer Education and Research Society (CERS) ranked Amul as No 1, followed by Kwality Walls (among four brands including Vadilal and four loose samples) on various parameters of taste, melting quality, weight, fat and sugar content.
Amul ice-cream was positioned as ‘real ice-cream’ made from real milk cream, while HLL’s Kwality Walls was made from vegetable oil and its items were dubbed Frozen Deserts. There was also stiff competition from the other cooperative, NDDB in the form of Mother Dairy Ice Creams. Amul sold its Ice Cream in New Delhi, India’s biggest Ice Cream market, where its anti-compete agreement with Mother Dairy had expired. Amul had been sourcing its entire Ice Cream requirement for the northern market (including Delhi) from its Gandhinagar plant.

3. SOUPS
Amul introduced ready-to-use (just pour and heat) soups branded ‘Masti’ in tetra packs of one liter. To begin with they were introduced in two flavors - Hot ‘n’ Sour and Tomato. Said Sodhi, “It was a test marketing drive in Gujarat and in a month or two it would be introduced all over India.” And there wasn’t much competition for there were not many companies in India that sold ready-to-use soups.
Sodhi added, “Soup is a milk product and that’s a secret. You will come to know only when you consume it.” Keeping the ingredients a closely guarded secret, the company stated that one of the reasons to launch soups was to utilize the already installed equipment for tetra packaging.

4. RETAILING
The retailing initiative included not only milk booths, but also restaurants. Amul had also taken the initiative to set up 100 of its own brand retail parlors under the name ‘Utterly Delicious’, an initiative which would give it a retail edge, compared to its competitors such as HLL and Cadbury. Panigrahi estimated Rs. 100 crore in turnover in the three years after launching the `Utterly Delicious’ parlors. As an extension of this retail initiative, Amul also test-launched a restaurant chain under the Utterly Delicious brand at Vashi in Navi Mumbai. Amul wanted to open more of such eateries in Mumbai soon, which would dish out ready-to-eat stuff like parathas, lassi, buttermilk, sandwiches and pizzas, using ingredients from Amul and also vending the products already available under the Amul franchise like soups, butter, ghee etc;
GCMMF also inaugurated an Amul Shoppe inside Ahmedabad Urban Development Authority (AUDA) garden premises at Vishramnagar, a short distance from Memnagar. Not leaving any stone unturned for a successful launch of the milk booths, GCMMF got experts of the National Institute of Design (NID), to specially-design these eye-catching shops. The Amul project had another unique side to it too - the shops would work to improve Ahmedabad’s ecology and health. Said Vyas, “Amul products seek to maintain a high standard. We have done production, processing and marketing. We have dealers but not many retailers. We would want Amul products to come face to face with the masses. Probably dearth of adequate retailers was one of the reasons for not so good performance of its frozen pizzas.”

THE FUTURE: THE TUSSLE WITH NDDB
GCMMF’s tussle with NDDB was over ownership of the Mother Dairy trademark. This move would question the raison d’etre of NDDB’s thrust into the realm of marketing, as it is under the Mother Dairy brand that it had routed various businesses and achieved volumes close to Rs 1,000 crore. According to available information, GCMMF had applied for the ownership of the Mother Dairy brand on August 1, 2000 with the Registrar of Trade Marks, Government of India. Against this, the NDDB application made for the same was put up only on August 14, 2000. And the 13-day lapse of time would prove to be a debilitating one in this war of nerves between two of the premier names in dairy business in the country.
The high-voltage spat between the heads of the two organizations - Dr. Amrita Patel and Dr Verghese Kurien - had not been constructive at all. In Patel’s view, marketing of milk, and not so much its production, would be the biggest challenge for co-operatives in the future and that the JVs with other state cooperatives were a step in the right direction. She felt that such efforts were necessary as there had been a growing gap between milk production and its marketing. Dr Kurien questioned the NDDB’s expertise in marketing merely on the strength of hiring a couple of hands from MNCs at senior levels even as the entity, per se, remains unaltered. He is apprehensive that the marketing functions of the State federations would eventually find their way into the hands of MNCs such as Cadbury and Nestle. He felt that this amounted to back-door privatization at a time when similar efforts with PSUs were attracting much deliberation by the policy-makers and the elected representatives. Vyas also reiterated that the Mother Dairy brand should belong to the farmers and not to the NDDB, which is a body set up by the Government of India, adding that just as the farmers’ control on procurement and processing of milk is sacrosanct, so it should be in the case of marketing. How could the Mother Dairy come and take away only marketing, the most lucrative part of the milk chain. Likewise, the powers that be at the National Dairy Development Board (NDDB), the apex body set up in 1965 and declared an institution of national importance by an Act of Parliament in 1987 for replicating the Amul success across the country, were convinced that it was only by strengthening the marketing strength of these co-operative federations that they would survive the onslaught of the private sector, and had taken upon themselves the onus to do so. As this turf war of the co-operative brands continued to rage, it could turn out that the MNC brands, which were otherwise being priced out of the market, walk away with the Indian cream.
Kurien averred, “It is one thing for the multinationals to want in when the country has emerged as the world’s leading milk producer, but quite another if they are allowed to walk away with the hard-earned prize of the Indian farmer under the pretext of profitable marketing of milk and milk products.”
SUMMING UP
Amul’s predilection to experiment, coupled with competition and its tussle with NDDB have put the company in a unique position. The Federation’s focus right from the inception has been to give best quality with latest technology, value-for-money and work on economy-of-scales. Little wonder then that officials claimed that only one percent of the total expenditure was spent on advertisements. Revenue growth has been steady. (Refer table 2) The latest feather in the cap was doubling of the capacity of the Mother Dairy plant - one of the largest in Asia - in Gandhinagar. The state-of-the-art project with an initial investment of Rs. 110 crore was upped to Rs. 150 crore with the inclusion of ice cream and long life milk processing to its product range.
However, the hitch is that production of raw material is never the same as converting it into a value added product and then marketing it. The corporate machinery needed to do both is very different from each other.

Questions
1. Is there a problem of absurd assumption of competencies that is being faced by the company? (We know the raw material, so we know the market!)
2. Is the right kind brand building emerging through these efforts? How far can you stretch a brand across categories?
3. In the case of ready-to-eat pizza in particular, is it the execution that failed the company or the plan to enter value-added services in a big way that caused its failure?

For more look into the latest issue of GMR