BUSINESS SPECIAL....................... AMUL Full Circle

AMUL ...Full Circle 

How Amul is taking the taste of India to Bharat

    The regional offices of Amul in Mumbai are small and plain, hardly becoming, some might say, of a 17,500 crore brand that bestrides the Indian dairy industry like a colossus. But then again, the offices are located in the Kala Ghoda art district, surrounded by galleries and some of the city’s best eateries. RS Sodhi, managing director of Gujarat Co-operative Milk Marketing Federation (GCMMF), which owns the Amul brand, is happy enough with the humble little office he occupies when he visits from Anand: “There is such a choice of good restaurants here,” he says.
    Amul’s on a roll these days, with the Indian dairy industry going through what Sodhi calls a “golden phase.” The brand has seen a compounded annual growth rate of 20% over the last five years and the supply of milk has been rising to meet demand, albeit with a steady increase in procurement prices, which suits GCMMF, since it is owned by producer co-operatives. “Our strategy can be summarized in three words – expand, expand, expand,” says Sodhi. “We have set a turnover target of 30,000 crore for 2018, which is very achievable. But first we need  to invest in increasing milk procurement, processing capacities  and distribution.”
    Amul’s milk producer unions are putting their money where the milk is, with capital investments of 3,000 crore. The Kheda district union recently inaugurated a new plant in Virar, near Mumbai, and is setting up another processing facility in Kolkata. The Sabarkantha district union has invested in Rohtak, while the Banaskantha union is investing in creating capacities in Faridabad and Kanpur.
    As these new dairies are commissioned, it will be up to Amul to see they run at capacity and their products find a market (see Box: Political Dairy). Liquid milk constitutes more than half of Amul’s turnover, but it is a low margin business. The success of the dairies will depend on their value-added products. “The challenge is to create the right product mix,” says Sanjesh Thakur, parent, advisorory services, EY. “To get better returns on their investment, the new dairies need to make higher margin products like ghee, butter milk, dahi and ice cream.”
    While butter will continue to be made in Gujarat, Amul is decentralizing capacities for other value-added products. To market the increased volume, it is expanding the reach of Amul’s distribution network, which has traditionally tended to be focused on the larger cities. “We want to be able to reach towns with a population of less than 20,000. After all, the same TV ads are seen there as in the cities. Disposable incomes are rising and people there can afford to buy an Amul ice cream cone or a bottle of Kool,” says Sodhi.
    After the big success of Masti buttermilk, Kool milk shakes – recently repackaged in coffee, as well as traditional flavours like elaichi, kesar, rose and thandai – are Amul’s next big thing. Sodhi believes that it will be value added products like Kool, rather than plain milk, which will lead the way in rural markets. But dairy products require refrigeration and the biggest challenge to distribution in the hinterlands is extending the cold chain. Devendra Shah, chairman of Parag Milk Foods, which owns the Go brand, has been wrestling with this problem for some time and says: “There is demand, but the impediment is the high freight cost to this large geography, fractured cold chain and large number of retailers to be serviced in the chain.”
    As the market leader, Amul is set to lead the way. For one, it is investing in setting up new company-owned depots in smaller towns. For example, Kharagpur, which was earlier under Asansol, now has a depot of its own and so does Aurangabad, which was fed from Pune. Second, it has introduced a new layer in the distribution channel called a ‘super distributor’, who operates at district level and supplies to sub-distributors at the taluka level. “We have already appointed 250 super distributors, each with 50 subdistributors. Business from these areas has increased by 15% already,” Sodhi.
    On the procurement side, Sodhi believes an increase in profit margins for the dairy farmers is crucial to keeping up supply, especially in an industrialized state like Gujarat. “Dairy farming is still a back-of-the-house enterprise in our country, so the costs are not high. But the young generation of farmers needs to be motivated with adequate profits if they are to continue with this activity. They have many options, including industrial jobs. I think that will a challenge as we go forward,” he says.
    Amul has come full circle. From selling village-procured milk to the cities, it is now selling value added dairy products back to the villages. It’s a symbol of how rural India has changed and developed. Bharat, it seems, is getting a taste of India.^CD  

Political Dairy
    Co-operatives are political by their very nature and the producer unions that own the Gujarat Co-operative Milk Marketing Federation (GCMMF) are no exception. When founder Verghese Kurien was chairman, GCMMF remained fairly insulated from politics, but things changed after his passing, when the chairmanship passed to the elected heads of the milk producers unions. Former managing director BM Vyas was ousted three years ago, after a run-in with the then GCMMF chairman Parthi Bhatol. This year, managing director RS Sodhi has had several run-ins with chairman Vipul Chaudhary, who is from the BJP and the head of the Mehsana Milk Producers Union.
    One of Chaudhary’s peeves is that GCMMF has failed to utilize the capacity of the new dairy commissioned by the Mehsana Union in Dharuhera, near Delhi. A serious allegation indeed, given that marketing the milk produced by its member unions is Amul’s raison d' être. Sodhi concedes that the dairy has not been working to capacity but says it’s not GCMMF’s fault. “Member unions are supposed to consult with GCMMF when they expand processing capacity. The Mehsana Union did not do so,” he says.
    Despite the occasional clashes and war-of-words at the boardlevel, GCMMF remains a fairly professional organization down the line. More importantly, politics hasn’t been allowed to affect GCMMF’s business decisions. For example, the Gujarat government has never interfered with the federation’s procurement pricing, which has been the undoing of co-operatives elsewhere. “That’s Gujarati culture,” says Sodhi. “They may fight politically, but when it comes to a business decision, they will always go by merit.”

 Dibeyendu Ganguly CDET131206