Amul Case Study
| Amul-GCMMF | “The Taste of India” to “Taste of World” | | Project Case International Business SECTION D – GROUP Ashutosh Singh Khushwaha (GL) | 269 Sachin Maan | 175 Frana James | 219 Paran Gupta| 240 Parth Shah | 249 Pratik Upadhyay| Amul: “The Taste of India” to “The Taste of World” With a presence in over 40 countries in 2012, Amul has done more than testing its products in the overseas markets. Since its venture into the International markets in late 80s, it has steadily grown in sales and today it has more than Rs. 00 crores revenues from exports. Though the world dairy product prices are increasing constantly and the Government of India has banned the export of Milk Powder since February 2011, Mr. R. S. Sodhi, the Managing Director of GCMMF expects exports to increase by 20% on the back of surging demand. Mr. Sodhi, along with the top management of the cooperative now faces several questions which will define Amul’s International strategy for the coming years.
With the increasing demand and successful venture in overseas markets, should Amul restrict to export and distribution or partner with/acquire other firms in these countries or should it go further towards becoming a global brand by setting up manufacturing and processing plants across the globe? If so, what products should it manufacture and what should be the degree of localization in order to succeed? Should it stick to dairy products or should it look towards the non-dairy food products as well? How will it source milk and other raw materials in these countries with diverse forms of established dairy networks?
These are important decisions that need to be made because they will help Amul realize the goal of becoming world’s leading food brand. Major food brands such as Britannia and Nestle are already eating into Amul’s domestic share. The top management has to decide a strategy that will help Amul compete against world class dairy and food brands in Indian market and in the overseas markets. Profile Amul is the world’s 18th largest dairy firm with a 0. 5% share in global milk production, according to the International Farm Comparison Network 2011 list.
The brand Amul is managed by Gujarat Cooperative Milk Marketing Federation, GCMMF which has several cooperative dairies operating across the country. During the financial year 2010-11, GCMMF registered a top line growth of 22. 1%, achieving turnover of Rs 9774 crore. Amul is the largest food brand in India and world’s largest pouched milk brand with an annual turnover of US$2. 2 billion (2010-11). Currently Unions making up GCMMF have 3. 1 million producer members with milk collection average of 9. 10 million liters per day.
AMUL is also the largest exporter of dairy products in the country. AMUL is available today in over 40 countries of the world. AMUL is exporting a wide variety of products which include Whole and Skimmed Milk Powder, Cottage Cheese (Paneer), UHT Milk, Clarified Butter (Ghee), Indigenous Sweets, Amul butter, Amul butter milk, Amul pizza cheese, Amul shrikhand, Amulya dairy whitener, Amul fresh cream, Amul fat milk, Amul cheese spread, Sagar Tea and Coffee whitener, Amul ice creams like cassata , cool candy and frostik, Amul milk chocolate and Amul Eclairs.
It has also started preparing and selling pizza slices which feature generous portions of Amul cheese. These pizza slices reach the customers through super markets and large departmental stores that have snack counters. It has tied up with Walmart to sell its dairy products, in its shelves, under the brand name of Amul itself. It also has tie-ups with Glaxo, for the production of baby foods. The major overseas markets for Amul are USA, West Indies, and countries in Africa, the Gulf Region, and SAARC neighbors, Singapore, Hong Kong, The Philippines, Thailand, Japan and China.
Its growth is more than 20% in these markets. Market presence has also gone up by 25 to 30 per cent in some markets such as Singapore, Hong Kong, UAE, the US and Bangladesh. Global Dairy Industry at a Glance: The growth story of the dairy industry in India is centered on the inception of Operation Flood of the 1970s, recognizing the power of cooperative farming giving rise to the GCMMF and the engine behind the whole revolution was the brand Amul (Anand Milk Union Limited). This model helped the dairy farmers to direct their own development by placing control of their resources in their own hands.
This cooperative model resulted in making India one of the largest producers of milk and milk products. In terms of the growth of the dairy market projected over the years 2011-2016, India ranks fourth, behind the other BRIC nations, i. e. Brazil, China and Russia. [Exhibit 1] The scenario of the important dairy industries in other countries was not on the similar lines. To think of the expansion plan in terms of geographic location as well as the strategy that Amul would employ would be dependent on the past and the current nature of the industry in those countries.
Dairy Industry in European Union: The European Union, inclusive of 27 countries, is the largest milk producer in the world with Germany and France being the largest within the EU. However, within the EU, dairy production is not uniform due to various government regulations and production quotas in some countries. In Germany, the drinking milk product category is still driven by health and wellness. The drinking milk product category which saw a decline in 2010 by 1% observed a growth in the value sales by the same amount in 2011.
In the Eastern European dairy market, Lactalis, becoming the fourth largest player in the region in 2008 with a 3. 3 % value share targeting countries like Croatia, Ukaraine and Czech Republic. Lactalis followed the expansion through acquisition strategy and it is through these intense acquisition activities that Lactalis planned its move into the Western European countries where it had to make much heavier investments. The Western European dairy market is quite mature as the expected CAGR for these countries is only about 0. % over the span of five years from 2011-16. This market is different from the other markets since they are not driven by milk consumption but the key driving opportunities lie in milk products like cheese, yoghurt and sour milk drinks and thus making these markets more value growth rather than volume growth. Muller Dairy, already competing in the yoghurt and chilled/shelf-stable desserts market in UK is seeking to expand into other fast-growing dairy categories using its existing distribution network and leveraging on the brand amongst the British consumers. Exhibit 2] To gain market share in this mature market, some companies like Kraft Foods used unique marketing strategy of positioning its Philadelphia Cream Cheese both as a spreadable cheese and as a cooking ingredient. This move reignited the growth in the otherwise mature spreadable processed cheese category. Dairy Industry in Japan: In the year 2004, with 28800 domestic dairy farms, 8. 3 million tons of cow’s milk used to be produced. 60% of this was processed into milk for drinking purposes and the rest was used for consumption as dairy products.
The Japanese believed that processing plants must be located close to the source of production since milk, being a perishable good, must be processed and sold when fresh. In 2004, there were 692 processing facilities throughout Japan. Expecting a growth in the consumption of milk products, maintaining a stable supply of safe, fresh milk was viewed as a challenge since it was important to Japanese consumers. To answer this demand for fresher products, a solution was to develop stronger cooperation between dairy producers and processors.
However, by 2005, Japan’s aging population had essentially stabilized and the nation was being termed as a “mature economy”. As a result of this, the total milk production remained unchanged approximately at 8. 4 million tons. Amul failed to enter the market once in 1994 but succeeded in 2005 when it grabbed a major exports order. GCMMF managing director B M Vyas then said , “We have had a distributor in Japan since 1994 but no major presence in that country.
But a few days ago a delegation from Japan, under the aegis of Agriculture and Livestock Industry Corp (ALIC), visited our facilities at Anand (Gujarat) and were pleasantly surprised with the sheer scale of our dairy operations”. It exports Ghee and Paneer to the country currently with a single major importer. Dairy Industry in Australia: Australia’s third largest rural industry is the dairy industry which is also a major regional employer, not only on-farm but also through processing, manufacturing and distribution of a range of high quality products.
With about 7950 dairy farms located across Australia, the industry produced 9. 2 billion liters of milk during 2007-08. The Australian dairy manufacturing sector is diverse and includes farmer-owned co-operatives, public, private and multinational companies. The Farmer owned co-operatives is no longer the dominant players in the industry as they now account for less than 35% of the entire market share. In 2011, the Australian Dairy market faced another challenge of being considered to be one of the most competitive in terms of retailing the milk products in supermarkets.
In January 2011, Coles and Woolworths, two supermarket companies, entered into a price war during which the prices of house brand staples like milk, bread and meat were pushed down. This trend continued for the entire year and as a result the Dairy lobby groups demanded for a mandatory Australian Drinking Milk Code of Conduct to look into such matters. Despite the aggressive marketing efforts, fresh/pasteurized milk registered a growth of only 3%.
However, niche products in fresh milk category have either retained or have shown significant growth. Around 60% of manufactured milk-products are exported and the remaining 40% is sold on the Australian market. In drinking milk, some 97% is consumed in the domestic market. Cheese products, utilizing around one third of Australia’s milk production in 2010-11, have retained that spot for a few years now. Dairy Industry in Sri Lanka: As a country, Sri Lanka is self-sufficient in terms of all types of animal products except milk products.
Their self-sufficiency in dairy products is about 15–20% though that level has been achieved mostly with imported milk powder. Sri Lankan government adopted the open economic policies in the 1970s and since then the consumption of the daily products has increased. Apart from the Northern conflict regions of the country, milk is produced in all the districts. The marketing of milk in Sri Lanka is done through various channels and so becomes very complex. There are individual farmers who sell directly to processors, consumers, hotels, cafeterias and canteens * Cooperatives are organized primarily for the purpose of collecting and selling milk to either hotels or processors * The formal, or processed dairy, market consists of small dairy cooperatives, larger local cooperatives, district dairy cooperatives, dairy cooperative unions and networks of collection points and milk chilling centers operated by cooperatives or the main dairy processors Apart from the above mentioned ways, some farmers do not see the need to become members of the farmer societies or cooperatives.
There are a few large-scale processors who have organized such farmers to sell their milk directly to them. Amul set up a milk processing plant in Sri Lanka in 2005 producing several products such as sterilized milk, milk powder, yoghurt,etc. It was a 51-49 Joint venture between the GCMMF and the Sri-Lankan government. It handed over the operations completely to the Sri-Lankan government after an year of successful running. Before planning the project, Mr. Verghese Kurien, often called “the Milkman of India” said, ”We are located right in the middle of this milk-deficient region.
So, we are planning to take advantage of this. Even China is a potential market in the future”. International Ventures: GCMMF is India’s largest exporter of Dairy Products. It has been accorded a “Trading House” status. GCMMF has received the APEDA Award from Government of India for Excellence in Dairy Product Exports for the last 13 years. The decision of going International: Reasons that lead to the foray of Amul into International Markets * Reduced subsidies on milk products as per WTO guidelines made Indian milk products competitive in international markets. Significant demand for its products amongst Indian families in foreign markets * Local facility would enable better control over logistics and cut 45 days of shipping time * Tie up with retail chains like Wal-Mart, use established distribution channel * Non-availability of single products like ghee in other markets presented a good opportunity * Long term vision to become a global food brand The problems and issues faced are: * Non-tariff barriers in European countries * Competition with global players Absence of proper distribution channel Export: Main exports products are Amul UHT Milk (Long Life) ,Amul Gold Extra Cream Milk,Amul Taaza Full Cream Milk,Amul Slim and Trim Milk,Amul Pure Ghee,Amul Mithaee Gulabjamun,Nutramul Brown Beverage,Amul Fresh Cream,Amul Kool Beverages,Flavoured Milk,Butter Milk,Lassee,Amulspray,Amul Butter,Amul Shrikhand,Amul Cheese,Amul Malai Paneer,Amul Ice Cream,etc. Despite unfavorable conditions in international dairy market, their export business reached Rs. 133 crores against Rs. 125 crore in 2011.
They have further consolidated their growth in consumer products including Paneer, Butter, Cheese, UHT Milk etc. This is extremely encouraging and indicates the high trust that the customers place in Amul Brand. They have not been able to export Milk Powder in bulk packing in larger quantity due to fall of world market prices by nearly 50% as compared to previous year. Distribution: Amul’s strategy when it first entered international markets was to use the existing distributors and partner with local companies to market its products.
Amul has been in the US since 1998 through Kanan Dairy, which markets Amul processed cheese, pure ghee, Shrikhand, Nutramul, Amul’s Mithaee Gulab Jamuns to more than 1,000 ethnic Indian grocery stores in the US through a network of seven distributors. Then Amul identified major supermarket and chain stores as the vehicles overseas to promote Amul dairy products ranging from milk powder, butter, ghee, cheese, butter, ice creams and tinned Indian sweets. As growth through bulk exports was variable, GCMMF opted for sustained growth through retail sales that ensure brand recall and customer loyalty.
It still did not decide on setting up manufacturing and processing plants as it was quiet successful with its marketing and distribution plan for overseas markets. Then Amul identified major supermarket and chain stores as the vehicles overseas to promote Amul Amul sells products through Wal-Mart’s extensive distribution system, having a separate counter for stocking and selling their products. It also has an arrangement with Mustafa supermarket chain in Singapore, Lanka Milk Foods (CWE) Ltd and John Keels chain in Sri Lanka, as also Choithram, Carrefour and Lulu chains in the UAE. Marketing:
In India Amul caters to Intelligent marketing. It spends only 1% of Sales turnover on advertising and it is famous to come up with innovative adds. Will it be able to sustain the same strategy in international markets is a very important decision from the marketing point of view for GCMMF. Amul will have to customize its products and look outside the ethnic box to suit the American and other ethnic palates. It simply cannot use its home-ground strategies in the US and expect to make a mark, even if Wal-Mart plans to push the brand only in stores and only in states like New York and New Jersey, where the Indian community is very strong.
Competition: While Amul has substantial grip over the Indian market due to its robust supply chain and cooperative business model; the international arena challenges it like never before. In the overseas markets it faces stiffer competition in matching the stringent quality standards of several local and international brands that have well established markets in different countries; in addition to fundamentally understanding these new markets, cultures and their needs. As a brand, Amul faces stiff competition from two major players: Britannia and Nestle.
Both these brands have international presence and each seeks to expand its business horizons. Apart from these international brands, it also has to compete with local dairies in different countries that sell products at very competitive prices. Nestle: Nestle is one of the world’s leading nutrition, health and wellness company. The company was founded in 1866 by Henri Nestle in Vevey, Switzerland, where the headquarters are still located today. It employs around 2,80,000 people and have factories or operations in almost every country in the world. Nestle sales for 2009 were CHF 108 bn.
Nestle’s relationship with India dates back to 1912, when it began trading as The Nestle Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. The Company continuously focuses its efforts to better understand the changing lifestyles of various countries and anticipate consumer needs. The culture of innovation and renovation within the Company and access to the Nestle Group’s proprietary technology gives it a distinct advantage in these efforts. It helps the Company to create value that can be sustained over long term by offering consumers a wide variety of high quality products.
A description of the competitive advantages growth drivers and operational pillars is given in Exhibit 1. Nestle is in a strategic international position because of its presence in many countries and long tradition of innovation. An analysis of sales trading and operating profit by both geography and product line is given in Exhibit 4 and Exhibit 5. Britannia: It is not globally as big as Nestle but it is expanding at a threatening pace and this can be a major concern for Amul. This fact is validated by the following statistics. The company is growing at a steady rate.
The company’s sales grew at a compound annual rate of 16% against the market, and operating profits reached 18%, between 1998 and 2001. More recently, the company has been growing at 27% a year, compared to the industry’s growth rate of 20%. Dairy products contribute close to 10 per cent of Britannia’s revenue. Britannia trades and markets dairy products, and its dairy portfolio grew to 47% in 2000-01 and by 30% in 2001-02. Britannia holds an equity stake in Dynamix Dairy and outsources the bulk of its dairy products from its associate.
On 27 October 2001, Britannia announced a joint venture with Fonterra Co-operative Group of New Zealand. It is an integrated dairy company involved in many activities from procurement of milk to making value-added products such as cheese and buttermilk. Britannia planned to source most of the products from New Zealand, which they would market in India. The joint venture also allowed technology transfer to Britannia. In March 2007, Britannia Industries Limited formed a Joint Venture with the Khimji Ramdas Group, one of the largest and the most respected business conglomerates in the Middle East.
Britannia and its Associates have acquired a significant stake in Dubai based Strategic Food International Co. LLC and Oman based Al Sallan Food Industries Co SAOG. The two companies are key regional players in the biscuits, wafers and cookies segment in the GCC markets and export their products across the world. Strategic Food International Co. LLC (SFIC) is one of the largest biscuit and wafer manufacturing companies in the Middle East. An ISO and HACCP certified company, SFIC is also a proud winner of the Dubai Quality Appreciation Certificate.
It offers a wide spectrum of products under the brand Nutro, which is a leading biscuit brand in the Middle East. Al Sallan Food Industries Co is one of the foremost companies for the production of cookies, rolls and chocolates. The products are well known under the brand name of Baker’s Pride. Though not directly in the dairy market, Britannia is constantly increasing its presence worldwide. Key statistics about the company performance are given in Exhibit 6. Future Plans: Amul is now all set to consider the decision to setup a manufacturing plant in the United States to specifically cater to the demand for its products in the US and Europe.
And then expand to other countries with similar plants so as to decrease its costs. The company intends to start with manufacturing of ghee and paneer and then gradually start manufacturing other products. Amul will have to customize its products and look outside the ethnic box to suit the American and other ethnic palates. It simply cannot use its home-ground strategies in the US and expect to make a mark, even if Wal-Mart plans to push the brand only in stores and only in states like New York and New Jersey, where the Indian community is very strong.
Amul has come a long way from 1946 – when it collected only 247 litres of milk a day – to the six million liters of milk per day it now collects from about 10,675 separate village co-operative societies throughout Gujarat. With access to low cost milk, an innovative and almost ‘just-in-time’ supply chain, a ready market among the Indian community and 50 years of understanding milk, Amul can definitely build the ‘taste of India’ in the US and other countries. Chairman Mr. PG Bhatol says, “When we plan to improve productivity as well as production, we also need to keep in mind the markets where such huge quantity of milk will be consumed.
We need to explore new opportunities and markets. India has graduated from milk deficit country to largest milk producer in world. However, our exports of milk and milk products still remain insignificant in comparison to the existing players. We have been following the policy of not exporting milk powders to foreign countries so that availability in our country does not get hampered. Opening of export markets would not only serve as outlet for excess of milk produced over the domestic requirements but also will keep the domestic prices stable. We strongly feel that branded milk powders in consumer packs should never be banned.
Thus, now when we plan to produce such large quantity of milk, it is imperative to relook at our export policies. ” Amul has come a long way from 1946 – when it collected only 247 litres of milk a day – to the six million liters of milk per day it now collects from about 10,675 separate village co-operative societies throughout Gujarat. With access to low cost milk, an innovative and almost ‘just-in-time’ supply chain, a ready market among the Indian community and 50 years of understanding milk, Amul can definitely build the ‘taste of India’ in the US and other countries and then the Taste of the World.
Exhibit 1: Top 10 Fastest Growing Dairy Markets 2011-2016 *Passport – Tracking Growth Opportunities In The Global Dairy Market Exhibit 2: Top Five Western European Dairy Market By Absolute Market Value Growth 2011-2016 *Passport – Tracking Growth Opportunities In The Global Dairy Market Table 2: Milk production zones in Sri Lanka Zone features| Dry zone| Coconut triangle| Mid-country| Upcountry & estate| Wet zone & urban|
Location | Dry zone districts in the NC, Northern and Eastern Provinces and parts of Central, Southern and NW Provinces| Intermediate and wet zone areas of the NW Province, and Gampaha district of the Western Province| Wet zone areas in the Central Province –Kandy and Matale districts| Nuwaraeliya district in the Central Province and Badulla district in the Uva Province| Districts in the Western, Southern and Sabaragamuwa Provinces and cities| Animal types| Indigenous cattle, Zebu cattle and crosses, buffalo| Crosses of exotic breeds, Zebu types, crosses of indigenous animals and buffalo| Pure exotic animals and crosses, and Zebu crosses| Pure exotic animals and crosses| Crosses of exotic breeds and Zebu type and indigenous animals and buffalo| Husbandry| Free gazing, or nomadic-type Large herds or sedentary small/medium-sized herds | Medium-sized herds, limited grazing tethered under coconut palms| Small herds, some tethering, stall feeding| Small herds, zero grazing| Limited grazing, medium-sized herds or small herds, zero grazing| Herd size | Few: 25 | 5 cows | 2–3 cows| 1–2 cows| 2–3 cows| Average yield| 2. 1 litres/cow/dayTotal 300–400 litres/cow over 180–200-day lactation| 3–4 litres/cow/dayTotal 500–800 litres/cow over 200-day lactation| 2–4 litres/cow/dayTotal 1 300 litre/cow| 6 or more litres/cow/dayTotal 1 700 litres/cow| 3 litres/cow/dayTotal 1 500–1 600 litres/cow| Source: Ranaweera and Attapattu 2006| Exhibit 3 Exhibit 4 Exhibit 5
Exhibit 6 Performance of Britannia Exhibit 7 Amul overseas presence References: I. Primary data in the form of Interviews of employees involved with International projects II. Dairy Food Industry Overview in India to 2014-market research report,www. reportlinker. com III. GCMMF Annual Report, Financial Years 2007-2011 IV. Nestle Annual Report,2011 V. http://www. amul. com/m/organisation, 24-Feb-2012 VI. http://articles. timesofindia. indiatimes. com/2011-03-30/india-business/29361638_1_cheese-amul-britannia-industries VII. Utterly-Butterly amul’s new raod map-CNBC-TV18. html, 26-Feb-2012 VIII. http://www. dairy. co. jp/eng/eng12. html