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7/29/2019 AMUL Diversify Strategy http://slidepdf.com/reader/full/amul-diversify-strategy 1/5 AMUL'S DIVERSIFICATION STRATEGY Case code- MKTG014 Published-2001 "You've got to think big." - Verghese Kurien, Chairman, GCMMF, Commenting on Amul's diversification, 2001.  "This dairy, non-dairy thing is a producer's distinction."  B M Vyas, Managing Director, GCMMF, 2001.  A PIZZA FOR Rs 20! In early 2001, Gujarat Cooperative Milk Marketing Federation (GCMMF) [1] planned to leverage its brand equity and distribution network to turn Amul [2] into India's biggest food brand. Verghese Kurien, Chairman of GCMMF, set a sales target of Rs.10 bn by 2006 as against sales of Rs 2.3 bn in 2001. In 2001, GCMMF entered the fast food market in India with the launch of vegetable pizzas under the brand name SnowCap in Ahmedabad, Gujarat. GCMMF was also planning to launch its pizzas in other western Indian cities like Mumbai, Surat, and Baroda. Depending on the response in these cities, GCMMF would decide to introduce its pizzas in other cities in India. The pizzas were offered in four flavours: plain tomato-onion-capsicum, fruit pizza (pineapple-topped), mushroom and 'Jain pizzas' (pizzas without onion or garlic) GCMMF launched the pizzas in the Rs.20-25 price range. The existing players in the pizza market, like Domino's, Pizza Hut and Nirula's offered pizzas at nothing less than Rs.39. Analysts felt that GCMMF's move would force the existing players to reduce their prices in the long run.GCMMF planned to open 3,000 pizza retail franchise outlets all over the country by 2005. The pizzas would be made at the retail outlets. The technical training and the recipe for the pizza would be provided by GCMMF. It would also negotiate with bulk suppliers of vegetables to get these at wholesale rates. These would be provided to the retailers. The main cost component of the pizza is the mozarella cheese. GCMMF would offer the cheese at a bulk rate of Rs.140 per kg, compared to the market price of Rs 146 per kg, thus saving the retailers Rs.6 per kg. GCMMF on its part would have a ready market for its cheese products.

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AMUL'S DIVERSIFICATION STRATEGY

Case code- MKTG014

Published-2001

"You've got to think big."

- Verghese Kurien, Chairman, GCMMF, Commenting on Amul's diversification, 2001. 

"This dairy, non-dairy thing is a producer's distinction."

 B M Vyas, Managing Director, GCMMF, 2001. 

A PIZZA FOR Rs 20!

In early 2001, Gujarat Cooperative Milk Marketing Federation (GCMMF)[1] planned to

leverage its brand equity and distribution network to turn Amul [2] into India's biggest

food brand. Verghese Kurien, Chairman of GCMMF, set a sales target of Rs.10 bn by2006 as against sales of Rs 2.3 bn in 2001.

In 2001, GCMMF entered the fast food market in Indiawith the launch of vegetable pizzas under the brand

name SnowCap in Ahmedabad, Gujarat. GCMMF wasalso planning to launch its pizzas in other western

Indian cities like Mumbai, Surat, and Baroda.Depending on the response in these cities, GCMMF

would decide to introduce its pizzas in other cities inIndia. The pizzas were offered in four flavours: plain

tomato-onion-capsicum, fruit pizza (pineapple-topped),

mushroom and 'Jain pizzas' (pizzas without onion orgarlic)

GCMMF launched the pizzas in the Rs.20-25 pricerange. The existing players in the pizza market, like

Domino's, Pizza Hut and Nirula's offered pizzas atnothing less than Rs.39. Analysts felt that GCMMF's

move would force the existing players to reduce theirprices in the long run.GCMMF planned to open 3,000

pizza retail franchise outlets all over the country by2005. The pizzas would be made at the retail outlets.

The technical training and the recipe for the pizzawould be provided by GCMMF. It would also negotiate

with bulk suppliers of vegetables to get these atwholesale rates. These would be provided to the

retailers. The main cost component of the pizza is themozarella cheese.

GCMMF would offer the cheese at a bulk rate of Rs.140 per kg, compared to themarket price of Rs 146 per kg, thus saving the retailers Rs.6 per kg. GCMMF on its

part would have a ready market for its cheese products.

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Analysts felt that the supply of cheese products by GCMMF at a cheaper price wouldenable the retailers to price pizzas lower than that of the competitors. R S Khanna,

General Manager-North zone, said that GCMMF intended to do to pizza what it hadalready done to ice cream. He said, "We want pizzas to become a mass consumption

item. And as in the case of ice cream, we will force pizza manufacturers to slashprices. Eventually, this would expand the market for cheese."

1]  GCMMF was India's largest food products marketing organization based at Anand,Gujarat. GCMMF had annual sales of more than Rs 22 bn in 2000-01. It is a state level 

apex body of milk cooperatives in Gujarat. GCMMF has 14 affiliated dairy plants with a

total milk handling capacity of 6 mn liters per day and milk drying capacity of 450 Mt  per day. With 12 milk processing units, each located at the district level, GCMMF has a

membership of 2 mn farmers who belong to 10, 000 village dairy co-operative societies.

[2]Amul is the mother brand of GCMMF.

BACKGROUND

In 1996, B M Vyas, Managing Director, GCMMF, commissioned the Indian MarketResearch Bureau (IMRB) to conduct a consumer survey to identify the products

consumers wanted from Amul. Based on the findings, Amul entered into thefollowing areas: ice cream, curd, paneer[1], cheese, and condensed milk.

In 1997, Amul launched ice creams after HindustanLever acquired Kwality, Milkfood and Dollops[2] .

Positioned as the 'Real Ice-cream,' Amul Ice cream wasone of the few milk-based ice creams in the market.

With GCMMF gradually expanding its distribution reach,Amul was all set to strengthen its share in the ice

cream segment. In August 1999, Amul launchedbranded yoghurt in India for the first time, when it test

marketed "Masti Dahi" in Ahmedabad first and thenintroduced it all over the country. "Masti Dahi" was

plain yoghurt sold in plastic cups. Each 400 gm cupwas priced at Rs 12.

In January 2000, Amul re-entered[3] the carton milk

market[4] with the launch of "Amul Taaza" in Mumbai.Amul Taaza was non-sweetened, plain, low fat milk.

The product was positioned as a lifestyle as well asfunctional product. It was targeted at the upper middle

class housewife who could use it for differentoccasions. Amul was targeting sales of about 0.1 mn

litres per day. In November 2000, Amul decided topromote mozzarella cheese, which was used in pizza.

The growing demand for mozzarella cheese from pizzamaking companies like Pizza Hut and Domino's Pizza

was expected to give Amul's cheese sale an additional

push.

In July 2001, Amul planned to enter the instant coffee market through a tie-up with

Tata Coffee. GCMMF had a strong national distribution network while Tata Coffee had

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expertise in manufacturing and marketing coffee. As a part of the tie-up, Amul wasto source the instant coffee from Tata Coffee and distribute it. The domestic coffee

market was estimated at Rs.11bn, with the instant coffee segment being aroundRs.4.5bn.

In August 2001, Amul decided to enter the ready-to-eat stuffed paratha[5],cheeseburger, cheese and paneer pakoda[6], and cheese sandwich segments. The

products were to be marketed under the SnowCap brand. The SnowCap brand wouldalso include tomato sauce and ketchup. Amul was also restructuring its chocolatesbusiness[7] . Seven of its brands that were withdrawn from the market were to be

relaunched soon. Amul tied up with Campco, the cocoa and arecanuts farmers'

cooperative in Karnataka and Kerala, for the supply of cocoa beans[8]. Amul marketedMilklairs, which was manufactured by Campco. This tie-up was expected to help

Amul in the expansion of its chocolate business.

[1]  Paneer or cottage fresh cheese is made from low fat milk, without involving long,

complicated procedures.It is rich in proteins.

[2]

  In 1993, HLL acquired Dollops Icecream from Cadbury's India. In 1994, BBLILlaunched the Wall's range of frozen desserts. By the end of the year, HLL entered into a

 strategic alliance with the Kwality group. In 1995, the Milkfood icecream marketing and 

distribution rights were acquired by HLL.

[3]  In 1983, Amul had introduced branded milk in 500-ml tetrahedron-shaped packs

 priced at Rs.4.50 and one litre rectangular packs at Rs.9. Amul felt that the tetrahedron

 pack was well ahead of its time, which was why it was not accepted in 1983. Moreover,

the packaging was not convenient and it was difficult to store.

[4] The three main players in the Rs.360 bn packaged milk market are Amul, Nestle and 

Vijaya. The market is important to all three. Nestle is looking at a Rs.1.50 bn business from milk alone by 2004. Amul Taaza is expected to be a Rs.1 bn brand by 2001, and 

Vijaya could achieve Rs.1.2 bn sales from packaged milk. Amul is investing Rs.300 mn intwo new factories in Andhra Pradesh and Maharashtra. Nestle is targeting the south as a

 potential big milk market. Nestle is setting up two more plants (amount invested yet to be

revealed) in the southern region and is aggressive on the price front, pegging its Pure Milk brand at Rs 20 a litre against Amul Taaza's Rs.22.

[5]  A flat unleavened bread made from flour, water and clarified butter.

[6]  A deep-fried fritter made by dipping pieces of vegetable, meat or shellfish in chickpea

 flour batter and generally eaten as a snack.

[7]  Amul's chocolate portfolio includes brands like Amul Bitter, Amul Premium, Amul Crisp, Amul Fruit & Nut, Amul Badam Bar, Amul Milk and Amul Crunch.

[8]  Amul followed a strategy of roping in cooperatives to aid growth around the country.

 Amul ice cream is now manufactured in seven locations across the country. Pune Milk 

Cooperative and Akluj Dairy (near Baramati in Maharashtra) have been roped in to sell 

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0.2 mn litres of milk per day under the Amul brand name in Mumbai. In TamilNadu,

Salem Dairy has signed up to produce milk and ghee under the Amul brand name.

WHY DIVERSIFY?

With the liberalization of the Indian economy in the early 1990s, and the subsequent

entry of new players, there was a change in lifestyles and the food tastes of people.The new team that took over the management of the GCMMF in the mid-1990s

hoped to take advantage of the change.

The management adopted Total Quality Management(TQM) and set for itself higher benchmarks (in terms of 

growth). They also diversified the Amul portfolio,offering a range of food stuffs such as ketchup, jam,

ice-cream, confectionaries, cheese, and shrikhand[1].According to some analysts, this diversification was

probably not entirely demand-driven. Being a

cooperative, GCMMF was compelled to buy all the milk

that was produced in Gujarat. And with milk productionhaving increased since the mid 1990s, GCMMF had tomake use of additional milk, and hence the pressure to

make and market more and more processed-milk

products.

Amul had to expand the consumption base of milk-based products in India. It planned to make its

products (butter and cheese) a part of the regular dietin most households. Amul launched its new products

with the intention of increasing the offtake of its basicmilk products, including cheese. This in turn was

expected to increase the earnings of the farmers. Thepizzas were expected to increase the sale of its cheese.

The entry into the confectioneries market was anotheravenue for increasing milk consumption.

This flurry of launches helped Amul broaden its appeal across all segments. Price wasan advantage that Amul enjoyed over its competitors. Amul's products were priced

20-40 % less than those of its competitors. Analysts felt that Amul could price itsproducts low because of the economies of scale it enjoyed.

Amul created two new distribution set-ups: a cold chain for ice-cream, and another

for limited life fresh foods like curd. Expecting the demand for ready-to- eat foods togrow, Amul prepared to leverage the ice-cream cold chain for a new range of frozen

foods, beginning with pizza. However, some analysts felt that as the pizza's would bemade by the retailers, Amul would have little control over the quality of the pizzas.

That was why Amul was marketing the pizzas under the brand name SnowCap. SaidS K Bhalla, Chief of Quality Control, "The product has received premature hype.

Meeting consumer expectations will be a challenge, until we make the frozen pizza inour own facilities."

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According to some analysts, Amul's obsession with keeping down manpower costsand dealer commissions could be a weakness. In ice-creams for example, Amul's

retail commission in Ahmedabad city was 17.5% which was 10% lower than whatcompetitors offered. They also pointed out that Amul might not have the financial

muscle that multinationals had to achieve rapid growth.

However, all said and done, Amul seemed to be all set to make steady progress inthe coming years with its products having become quite popular in both rural andurban households. Said Vyas, "We've handled liberalization and globalization far

better than our transnational rivals. It has made us fitter than ever." 

[1]  A dessert made of curd, cardamom, saffron leaves and sugar.