AMUL MILK

Case on a Milk Company

MIP Case

Submitted By: Shalabh Srivastava Roll No.: 10334

AMUL MILK
Alok Gupta, Manager of Kanpur branch of the GCMMF, the marketers of AMUL milk products, was pensive about his organizations future strategy. AMUL milk, the market leader in Kanpur district over the years, had lost the market share of AMUL milk drastically. With the introduction of a competitor brand Namaste India milk in the market a few months before, a lot of people have moved on to that brand and have left AMUL. Alok Gupta did not know what should be the strategy of AMUL: whether they should change their action plan or should continue with what they are doing. He had scheduled a meeting with the sales in-charge of Kanpur and Lucknow district and made a point to discuss this issue with them.

The Company
The AMUL Dairy was established in the year 1955 when the small milk producers from Gujarat came together to collect and process milk and then sell them. The company is an example of how to develop a network of firms in order to overcome the complexities of a large yet fragmented market like those in emerging economies by creating value for suppliers as well as the customers. Indigenous R&D and technology development had led to the successful production of skimmed milk powder from buffalo milk the first time on a commercial scale anywhere in the world. Starting with a single shared plant at Anand and two village cooperative societies for milk procurement, the dairy cooperative movement in the State of Gujarat had evolved into a network of more than 2.9 million milk producers (called farmers) who are organized in around 14000 milk collection independent cooperatives (called Village Societies). These Village Societies supply milk to thirteen independent dairy cooperatives (called Unions). AMUL is one such Union. Milk and milk products from these Unions are marketed by a common marketing organization (called Federation). The hierarchical structure of this extensive network of cooperatives is given in Exhibit-1. In 1973, Amul was managed by Gujarat Co-operative Milk Marketing Federation or GCMMF. The Mission of the Federation is to satisfy the taste and nutrition requirements of the customers, of the world through excellence in marketing by their committed team. Through cooperative networking, they are committed to offer quality products that provide best value for money. Every day AMUL collects approximately 10 million liters of milk from more than 2.9 million farmers (many illiterate), converts the milk into branded, packaged products, and delivers goods to over 500,000 retail outlets across the country. AMUL milk goes through various stages of processing before it reaches the customers. The main emphasis of the processing is to maintain the quality and taste of the milk without adding any chemicals and preservatives that could affect the customers. The various stages include Adding Vitamin D,

Homogenization, Pasteurization, Packaging milk and Storing milk. All the stages help to preserve the fresh and creamy quality of milk without adding any extra chemicals or preservatives. The GCMMF, which markets AMUL milk and dairy products, recently disclosed that it was targeting over 22% growth in revenue in 2011-12 fiscal year to touch Rs 12,000 crore. The company had successfully closed the last financial year with sales of Rs 9,774 crore ($2.2 billion). 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 the cumulative turnover of all its 13 member dairy co-operatives to Rs. 27,000 crore by the year 2020. GCMMF has chalked out a mission 2020, as part of which it aims to increase the turnover of all the dairy co-operatives in Western India to Rs. 27,000 crore by the year 2020[1]*. AMUL Kanpur Branch AMUL is the chief packaged milk producer in Kanpur. Kanpur district comes under Delhi zone, and the office in Kanpur is its sales office. Branch manager constitutes the top of the organization hierarchy of the branch. He is responsible for all the three divisions, namely Milk, Ice cream and Dairy divisions. Various divisional heads comes below the branch manager and they had to report their work to the branch manager. Below them were the employees who were put in different divisions and the labors were at the bottom of this organization hierarchy. Kanpur branch had six employees in its milk division. The turnover of AMUL milk division in Kanpur for the month of April was 21 crores and that of dairy & Ice cream was 10 crores. In Kanpur they mainly sell two varieties of milk, namely full cream and toned milk. The customers of Kanpur City still prefer loose milk delivered by milkman at home as compared to packaged milk. The market share of packaged milk is around 15%. In 2010, AMUL market share in terms of packaged milk was 86% in Kanpur. Majority of the customers were satisfied with its quality and taste. It was readily available in the market and was the most visible brand. There were other brands in the city like PARAG, Veri Fresh etc. but none of them were even close to AMUL milk in terms of packaged milk sales. PARAG, a state government owned brand, saw its market share in the city has declining in the past decade. In 2010-11, its market share was around 12%. Veri Fresh on the other hand was still struggling since its launch a few years back and was not preferred much by the customers. In 2010-11, its market share was around 2%. According to AMUL employees, AMUL was a highly recognized brand among the customers and given their wide product portfolio, AMULs approach was to promote its brands [1]* Refer References section

in a rotational cycle of two to three years. Yearly, they spent around one per cent of their turnover on promotional activities. They promoted through roadside hoardings in various cities. In Kanpur these roadside hoardings were scarce. In Kanpur, they promoted their brand through promotional items like wall paintings, Amul boards, and umbrellas etc., which were kept outside the retailers outlets where AMUL milk was sold.

Competition
During March 2011, Namaste India Milk was introduced in the market. It was launched by RSPL group, who launched the famous Ghari detergent in the market. This milk was produced in Kanpur and they had started on a small scale. In the beginning they were just looking to capture the milk market in Kanpur. Just before its launch, they used to promote their brand through radio FM, newspaper, local magazines, Local TV channels etc. and they projected themselves as a brand which gives a solid start to the mornings of the customers. They promoted themselves as a brand that will give the customers thick milk and there was a craze in the minds of the customers before its launch and as soon as it was launched, many customers switched to Namaste India to try it. As AMUL was the market leader before the launch of Namaste India and had more than 86% market share in terms of Packet milk sales, the sale of AMUL was most affected after the launch of Namaste India. Exhibit-3 shows the sale of AMUL before and after the launch of Namaste India in different areas of Kanpur and the decline in the market share of AMUL milk.

The Market Survey

When asked the customers as to why they are switching their brands a majority of the customers said that the quality of Namaste India is much better than AMUL. While majority of the customers (around 68%) still thinks that AMUL milk has better quality and taste than all other packet milk brands, many said that AMUL milks quality is not better than Namaste India and they feel that since AMUL milk is not manufactured in Kanpur so they might be adding some chemicals to it to make it fresh and to retain the taste of the milk (Exhibit-4). Many of the customers are not even aware of the milk processing techniques used by AMUL milk union. Also after 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 price rice. The price of various quantities of milk packets are compared in Exhibit-5. Many customers (around 65%) accepted that they are influenced by the promotional activities and would like to try a new brand if it belongs to a trusted group. This was further confirmed by the retailers who told that the promotional items and ads are important factors which affect many customers.

The retailers too are switching towards Namaste India. Around 75% retailers have now partially switched over to Namaste India. Now they are selling both AMUL and Namaste India milk, although the quantity of Amul milk sales was higher than the quantity of Namaste India. According to retailers AMUL milk demand is much more than Namaste India but they are getting more margins from Namaste India (50 paise in Rs. 17 packet) than from AMUL (45 paise in Rs. 17 packet). Also while collecting data from the retailers, it was discovered that the supply of Namaste India is not proper and there is no timely supply of the same. According to them if Namaste Indias supply becomes proper then sale of AMUL will decrease further. Exhibit-6 gives data of retailer satisfaction. Many retailers (around 40% across city) even complained about the leakage problems in AMUL milk. According to them AMUL milk never listens if they come across a leaked packet after delivery but Namaste India and other brands do listen and provide full compensation in case of leaked packets. The Weaknesses of AMUL according to Retailers selling AMUL milk are given in Exhibit-7.

The Problem
Mr. Alok Gupta has noted all these points and is in deep thought as to what should be their strategy. They are the market leaders and their demand is still around 68%, so is the launch of Namaste India is just another brand being introduced in the market or is it a time to hit the panic button and rethink their strategy. He was afraid that if this could happen in one city then this could happen anywhere in India and that would seriously affect them. He was thinking about all this when his secretary informed him about his meeting. He collected his notes and went 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 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Rs (million) 11140 13790 15540 18840 22192 22185 22588 23365 27457 28941 29225 37736 42778 52554 67113 80053 97740 US $ (in million) 355 400 450 455 493 493 500 500 575 616 672 850 1050 1325 1504 1778 2172

*The above data is taken from the annual sales book of AMUL Milk Union

Exhibit-3: Area wise Analysis of Sales of AMUL Milk Area No of Total Sale Sale of AMUL Sale of AMUL % Decline retailers (in Before Namaste After Namaste India in sales Crates) India Launch (in Launch (in Crates) Crates) 10 2 3 1 3 2 4 5 1 1 8 10 2 7 1 9 1 2 2 7 81 55 57 24 6 145 100 64 19.5 6 20 44.5 87.5 7 157.5 6 92.5 6 50 5.75 132.5 1086 50 48 14 5 133 87 57 19.5 6 20 38 81.5 7 116.5 5 69 6 40 5.5 122.5 930.5 42 35 12 5 122 60 49 19.5 6 20 27 64.5 6 102 4 56.8 5 24 5.5 85.5 750.80 -14.55 -22.81 -8.33 0 -7.59 -27.00 -12.50 0 0 0 -24.72 -19.43 -14.28 -9.21 -16.67 -13.19 -16.67 -32.00 0 -27.92 -16.55

Kidwai Nagar Moolganj Chauraha Jagai Purwa Chand Nagar Lal Bangla Kakadev Ravatpur Krishna Nagar Gandhi gram PAC Naubasta Govind Nagar Coca Cola Chauraha Arya Nagar Ashok Nagar Parmat Bakarmandi Phoolbagh Panchakki Chauraha P Road TOTAL

Negative figures in the last column shows decline in sales

Exhibit-4: Weakness of AMUL according to customers of Kanpur

Weakness of AMUL according to customers

Weakness of Amul

None

68.28%

High Chemicals Added

8.41%

Lower Quality

30.10%

0.00%

10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%

Percentage of customers
According to the above graph 68.28 per cent of the customers feel that AMUL milk is good and there is no weakness in AMUL milk, while 8.41 per cent customers feel that it contains High Chemicals 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 500ml 1000ml 6 17 34 5 17 34 5 17 34

Exhibit-6: Reasons of Dissatisfaction of retailers selling AMUL milk

Reasons for Dissatisfaction Leakage Issue Lower Quality Irregular Supply Decreasing Demand Aggressive Behaviour Lower Margin No reason (Satisfied with AMUL) percentage of retailers 39.51% 4.94% 6.17% 7.41% 1.23% 3.70% 39.51%

Exhibit-7: Weaknesses of AMUL According to retailers selling AMUL Milk

Weakness of AMUL According to Retailers

No Weakness Aggressive Behaviour poor packaging Decreasing Demand leakage Issue lower quality Lower Margin 0.00% 5.00% 10.00% 12.35% 15.00% 20.00% 25.00% 30.00% 35.00% 28.40% 1.23% 1.23% 4.94% 33.33% 33.33%

Percentage of Retailers

The above graph states that 33.33 per cent of the total retailers feel that leakage issue is a problem. Similarly, 28.4 per cent of the total retailers feel that AMUL quality is not up to the mark, and around 1.23 per cent retailers feel that the aggressive behavior of AMUL employees/Distributor staff is there biggest weakness. Around 12.35 per cent feel that its margin is quite low and 4.94 per cent feel that its demand is decreasing which is a cause for worry. 1.23 per cent feels that its packaging is not that good and the rest (33.33 per cent) feel that 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 [1]* Amul Sale record book for the year 2010-2011 to get the annual growth chart given in Exhibit-2