AMUL MILKCase on a Milk Company MIP Case Submitted By: Shalabh Srivastava Roll No.: 10334
AMUL MILKThe Manager of Kanpur branch of the AMUL dairy, Mr. Alok Gupta, had a worried look in hisface. AMUL milk, the market leader in Kanpur district over the years, had lost the market shareof AMUL milk drastically. With the introduction of a competitor brand “Namaste India” milk inthe market a few months before, a lot of people have moved on to that brand and have leftAMUL. Alok Gupta did not know what should be the strategy of AMUL: whether they shouldchange their action plan or should continue with what they are doing. He had scheduled ameeting with the sales in-charge of Kanpur and Lucknow district and made a point to discussthis issue with them.The Company The AMUL Dairy was established in the year 1955 when the small milk producers fromGujarat came together to collect and process milk and then sell them. The company is anexample of how to develop a network of firms in order to overcome the complexities of a largeyet fragmented market like those in emerging economies by creating value for suppliers as wellas the customers. Indigenous R&D and technology development had led to the successfulproduction of skimmed milk powder from buffalo milk – the first time on a commercial scaleanywhere in the world. Starting with a single shared plant at Anand and two village cooperative societies formilk procurement, the dairy cooperative movement in the State of Gujarat had evolved into anetwork of more than 2.9 million milk producers (called farmers) who are organized in around14000 milk collection independent cooperatives (called Village Societies). These VillageSocieties supply milk to thirteen independent dairy cooperatives (called Unions). AMUL is onesuch Union. Milk and milk products from these Unions are marketed by a common marketingorganization (called Federation). The hierarchical structure of this extensive network of co-operatives is given in Exhibit-1. In 1973, Amul was managed by Gujarat Co-operative MilkMarketing Federation or GCMMF. The Mission of the Federation is to satisfy the taste andnutrition requirements of the customers, of the world through excellence in marketing by theircommitted team. Through cooperative networking, they are committed to offer qualityproducts that provide best value for money. Every day AMUL collects approximately 10 million liters of milk from more than 2.9million farmers (many illiterate), converts the milk into branded, packaged products, anddelivers goods to over 500,000 retail outlets across the country. AMUL milk goes throughvarious stages of processing before it reaches the customers. The main emphasis of theprocessing is to maintain the quality and taste of the milk without adding any chemicals andpreservatives that could affect the customers. The various stages include Adding Vitamin D,
Homogenization, Pasteurization, Packaging milk and Storing milk. All the stages help topreserve the fresh and creamy quality of milk without adding any extra chemicals orpreservatives. The GCMMF, which markets AMUL milk and dairy products, recently disclosed that itwas targeting over 22% growth in revenue in 2011-12 fiscal year to touch Rs 12,000 crore. Thecompany had successfully closed the last financial year with sales of Rs 9,774 crore ($2.2billion). The Sales turnover of AMUL over the last 15 years is given in Exhibit-2. Buoyed by its persistent growth, GCMMF has now set the target of taking thecumulative turnover of all its 13 member dairy co-operatives to Rs. 27,000 crore by the year2020. GCMMF has chalked out a mission 2020, as part of which it aims to increase the turnoverof all the dairy co-operatives in Western India to Rs. 27,000 crore by the year 2020*.AMUL Kanpur Branch AMUL is the chief packaged milk producer in Kanpur. Kanpur district comes under Delhizone, and the office is Kanpur is its sales office. The turnover of AMUL milk division in Kanpur is21 crores per month and that of dairy & Ice cream is 10 crores per month. The customers ofKanpur City still prefer Loose Milk as compared to packaged milk, and the market share ofpackaged milk is around 15%. In 2010, AMUL market share in terms of packaged milk was 86%in Kanpur. Majority of the customers are satisfied with its quality and taste. It is readilyavailable in the market and is the most visible brand. There were other brands in the city likePARAG, Veri Fresh etc. but none of them were even close to AMUL milk in terms of packagedmilk sales. PARAG is a state government owned brand, but its market share in the city hasdecreased in the past decade and in 2010-11, its market share was around 12% before 2010-11.Veri Fresh on the other hand is still struggling since its launch a few years back and is notpreferred much by the customers. In 2010-11, its market share was around 2%. According to AMUL employees, AMUL is a highly recognized brand among thecustomers and given their wide product portfolio, AMUL’s approach is to promote its brands ina rotational cycle of two to three years. Yearly, they spend around one per cent of theirturnover on promotional activities. They promote through roadside hoardings in various cities.In Kanpur these roadside hoardings are very scarce and they promote their brand throughpromotional items wall paintings, umbrellas etc., which are kept outside the retailer’s outletswhere AMUL milk is sold. They use a wide variety of media to communicate. They evenorganize a food festival held every year since last 5 years in about 50,000 retailers. GCMMFgoes for intelligent marketing of milk, ice-cream and butter milk. * Refer References section
CompetitionDuring March 2011, Namaste India Milk was introduced in the market. It was launched by RSPLgroup, who launched the famous “Ghari” detergent in the market. Just before its launch, theyused to promote their brand through radio FM, newspaper, local magazines, Local TV channelsetc. and they projected themselves as a brand which gives a solid start to the mornings of thecustomers. They promoted themselves as a brand that will give the customers thick milk andthere was a craze in the minds of the customers before its launch and as soon as it waslaunched, many customers switched to Namaste India to try it. As AMUL was the market leaderbefore the launch of Namaste India and had more than 86% market share in terms of Packetmilk sales, the sale of AMUL was most affected after the launch of Namaste India. Exhibit-3shows the sale of AMUL before and after the launch of Namaste India in different areas ofKanpur and the decline in the market share of AMUL milk.The Market SurveyWhen asked the customers as to why they are switching their brands a majority of thecustomers said that the quality of Namaste India is much better than AMUL. While majority ofthe customers (around 68%) still thinks that AMUL milk has better quality and taste than allother packet milk brands, many said that AMUL milk’s quality is not better than Namaste Indiaand they feel that since AMUL milk is not manufactured in Kanpur so they might be addingsome chemicals to it to make it fresh and to retain the taste of the milk (Exhibit-4). Many of thecustomers are not even aware of the milk processing techniques used by AMUL milk union. Alsoafter the recent price rice of AMUL milk, the demand of 200ml packet has decreased drastically(around two-third), while the demand of normal 500ml packet is not much affected by the pricerice. The price of various quantities of milk packets are compared in Exhibit-5. Many customers (around 65%) accepted that they are influenced by the promotionalactivities and would like to try a new brand if it belongs to a trusted group. This was furtherconfirmed by the retailers who told that the promotional items and ads are important factorswhich affect many customers. The retailers too are switching towards Namaste India. Many retailers have nowpartially switched over to Namaste India. Now they are selling both AMUL and Namaste Indiamilk. According to retailers AMUL milk demand is much more than Namaste India but they aregetting more margins from Namaste India (50 paise in Rs. 17 packet) than from AMUL (45 paisein Rs. 17 packet). Also while collecting data from the retailers, it was discovered that the supplyof Namaste India is not proper and there is no timely supply of the same. According to them ifNamaste India’s supply becomes proper then sale of AMUL will decrease further. Exhibit-6
gives data of retailer satisfaction. Many retailers (around 40%) even complained about theleakage problems in AMUL milk. According to them AMUL milk never listens if they come acrossa leaked packet after delivery but Namaste India and other brands do listen and provide fullcompensation in case of leaked packets. The Weaknesses of AMUL according to Retailers sellingAMUL milk are given in Exhibit-7.The ProblemMr. Alok Gupta has noted all these points and is in deep thought as to what should be theirstrategy. They are the market leaders and their demand is still around 68%, so is the launch ofNamaste India is just another brand being introduced in the market or is it a time to hit thepanic button and rethink their strategy. He was afraid that if this could happen in one city thenthis could happen anywhere in India and that would seriously affect them. He was thinkingabout all this when his secretary informed him about his meeting. He collected his notes andwent to discuss about the issues to his colleagues.
Exhibit-1: Dairy Co-operative Structure FEDERATION (GCMMF) UNIONS AMUL & 12 other Plants VILLAGE SOCIETIES 14000 Village Level Milk Collection Centers INDIVIDUAL MILK PRODUCERS More than 2.9 Million Milk producing Farmers
Exhibit-2: The sales turnover of AMUL Milk Union Sales Turnover Rs (million) US $ (in million) 1994-95 11140 355 1995-96 13790 400 1996-97 15540 450 1997-98 18840 455 1998-99 22192 493 1999-00 22185 493 2000-01 22588 500 2001-02 23365 500 2002-03 27457 575 2003-04 28941 616 2004-05 29225 672 2005-06 37736 850 2006-07 42778 1050 2007-08 52554 1325 2008-09 67113 1504 2009-10 80053 1778 2010-11 97740 2172*The above data is taken from the annual sales book of AMUL Milk Union
Exhibit-3: Area wise Analysis of Sales of AMUL MilkArea No of Total Sale (in Sale of AMUL Sale of AMUL retailers Crates) Before Namaste India After Namaste India Launch (in Crates) Launch (in Crates)Kidwai Nagar 10 55 50 42Moolganj 2 57 48 35ChaurahaJagai Purwa 3 24 14 12Chand Nagar 1 6 5 5Lal Bangla 3 145 133 122Kakadev 2 100 87 60Ravatpur 4 64 57 49Krishna Nagar 5 19.5 19.5 19.5Gandhi gram 1 6 6 6PAC 1 20 20 20Naubasta 8 44.5 38 27Govind Nagar 10 87.5 81.5 64.5Coca Cola 2 7 7 6ChaurahaArya Nagar 7 157.5 116.5 102Ashok Nagar 1 6 5 4Parmat 9 92.5 69 56.8Bakarmandi 1 6 6 5Phoolbagh 2 50 40 24Panchakki 2 5.75 5.5 5.5ChaurahaP Road 7 132.5 122.5 85.5TOTAL 81 1086 930.5 750.80
Exhibit-4: Weakness of AMUL according to customers of Kanpur Weakness of ANMOL according to customers None 68.28% Weakness of Amul High Chemicals Added 8.41% 30.10% Lower Quality 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% Percentage of customersAccording to the above graph 68.28 per cent of the customers feel that AMUL milk is good andthere is no weakness in AMUL milk, while 8.41 per cent customers feel that it contains HighChemicals and 30.10 per cent customers feel that its quality is lower than other brands of milk.Exhibit-5: Price Comparison of Various brands in Kanpur (as on June 2011) Price of Namaste Quantity Price of AMUL India Price of State owned Dairy In Rs. In Rs. (PARAG) In Rs. 200ml 6 5 5 500ml 17 17 17 1000ml 34 34 34
Exhibit-6: Reasons of Dissatisfaction of retailers selling AMUL milk Reasons for Dissatisfaction percentage of retailers Leakage Issue 39.51% Lower Quality 4.94% Irregular Supply 6.17% Decreasing Demand 7.41% Aggressive Behaviour 1.23% Lower Margin 3.70% No reason (Satisfied with AMUL) 39.51%Exhibit-7: Weaknesses of AMUL According to retailers selling AMUL Milk Weakness of ANMOL According to Retailers No Weakness 33.33% Aggressive Behaviour 1.23% poor packaging 1.23% Decreasing Demand 4.94% leakage Issue 33.33% lower quality 28.40% Lower Margin 12.35% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% Percentage of RetailersThe above graph states that 33.33 per cent of the total retailers feel that leakage issue is aproblem. Similarly, 28.4 per cent of the total retailers feel that AMUL quality is not up to themark, and around 1.23 per cent retailers feel that the aggressive behavior of AMULemployees/Distributor staff is there biggest weakness. Around 12.35 per cent feel that itsmargin is quite low and 4.94 per cent feel that its demand is decreasing which is a cause forworry. 1.23 per cent feels that its packaging is not that good and the rest (33.33 per cent) feelthat AMUL is still the market leader and it is better than other brands.
References: • www.amul.com from 1.06.2011 to 11.06.2011, the website is referred to get information given in the introduction of the case. • www.amuldairy.com from 1.06.2011 to 11.06.2011, to get the history of the company given in the introduction. • http://www.business-standard.com/india/news on 20.07.2011 * • Amul Sale record book for the year 2010-2011 to get the annual growth chart given in Exhibit-2