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7/29/2019 AMUL Diversify Strategy
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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.