l Reeta Gupta
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.
>Amuls journey towards becoming the biggest cooperative
>Its foray into value-added products - successes and failures
>Battle with NDDB on ownership of Mother Dairy Brand
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 Amuls 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 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, GCMMFs 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.
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. Its 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
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 Valentines 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.
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 Levers (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 HLLs 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, Indias 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.
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 wasnt much competition for there were not many
companies in India that sold ready-to-use soups.
Sodhi added, Soup is a milk product and thats 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.
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 Ahmedabads 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
FUTURE: THE TUSSLE WITH NDDB
GCMMFs tussle with NDDB was over ownership of the Mother
Dairy trademark. This move would question the raison detre
of NDDBs 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 Patels 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 NDDBs 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 worlds 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.
Amuls predilection to experiment, coupled with competition
and its tussle with NDDB have put the company in a unique position.
The Federations 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.
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