AMUL: HOW THE DAIRY GIANT STRATEGIZE

Did you know India is the largest producer of milk and Amul contributes 6% of total production? Anand Milk Producer Limited (Amul) is an Indian dairy cooperative based at Anand, Gujarat. The word ‘Amul’ springs from the Sanskrit word ‘Amulya’ which means ‘precious’. It’s a brand managed by Gujarat Co-operative Milk Marketing Federation Ltd. (GCMMF). Over the years, Amul the dearest brand of our country has become the taste of India just like its tagline.

#How it all started

Nearly 74 years ago, the milk marketing system was controlled by contractors and middlemen. Farmers were forced to sell their milk to them at extremely low prices. However, this system, wherein the contractors could buy the produce at such a low price and sell it at huge profits, was not fair. The farmers then sought to take advice from Sardar Vallabhbhai Patel who advocated them to demand permission from the government to set a farmer’s co-operative. As a result in 1946, Kaira District Cooperative Milk Producers’ Union Limited was registered in Anand marking the beginning of Amul under Tribhuvamndas Patel’s leadership.

By the end of 1948, the union grew to 432 farmers and the quantity of milk pastured increased to 5000 liters a day. In the early stages, the rapid growth led to problems like excess production that the Bombay’s milk scheme couldn’t accommodate. To solve this issue a plant was set up in 1953 to process the extra milk into products such as milk powder and butter. The year 1964 was a turning point in the history of the dairy development program for India when Amul inaugurated its Cattle Feed Plant. Later in 1965, The National Dairy Development Board (NDDB) was established at Anand and by 1969-70 NDDB came out with the world’s largest dairy development program for India popularly known as ‘Operation Flood’ or ‘White Revolution’.

This was all possible due to Amul’s true architect Late Dr. Verghese Kurien, rightly called the Milkman of India. He had a vision where he wanted to offer small-scale dairy farmers quality control units and centralized marketing. Thus, in 1973 GCMMF was created to market milk and milk products produced by six district cooperative unions in Gujarat. From then till now it has come with several different products like cheese, ice creams, chocolates and many more.

Every day Amul collects around 447,000 liters of milk from 2.12 million farmers, converts it into packaged products, and delivers goods worth Rs. 6 crore to over 5 lakhs retail outlet across the country. GCMMF Ltd. has reported a 17% increase in turnover to Rs. 38,500 crore in the year ended March 31 and it targets Rs. 50,000 crore by FY20. Amul has truly come a long way since its founding in 1946. Let us look into its success mantra.

#Business Model

Amul model comprises of three-tier cooperative structure. The above three-tier is structured to distribute the various functions like milk collection is done at the village society, milk procurement and processing at the district level and milk & its product marketing at the state level. This structure consists of

Village Dairy Cooperative Society (VDCS) – It is an independent entity managed by the local milk producer and assisted by District Milk Union.It has a membership of milk producers of the village and is governed by an elected management committee consisting of 9 to 12 members. The primary function of VDCS is

  • A collection of surplus milk from producers of the village.
  • Providing support service to members like veterinary first aid, animal husbandry, etc.
  • Supplying milk to District Milk Union.

District Cooperative Milk Producers’ Union is the second tier. It is governed by a Board of Directors consisting of 9 to 18 elected representatives of the village societies. The main functions of the Milk Unions are:

  • Procurement of milk from the VDCS
  • Arranging the transformation of raw milk from VDCS to the Milk Union
  • Providing input service to the producer like cattle-feed sales, fodder & fodder seed sales, etc.
  • Conducting different training programs like Cooperative Development, Animal Husbandry, etc.
  • Providing management support to VDCS along with regular supervision.

State Cooperative Milk Federation – It has a membership of all the cooperative milk unions of the state and is governed by one elected representative of each Milk Union. The main functions of the federation are:

  • Marketing of milk and milk products
  • Establishing distribution networks for marketing their products
  • Arranging transportation from Milk Union to the market
  • Providing support service to the Milk Union & its members like Technical Inputs, management support, etc.
  • Pooling surplus milk from Milk Unions, and supplying it to Deficit Milk Unions.

This process eliminates the involvement of middlemen and directly engages the farmer with the processor, thus increase revenue and production at the same time.

#The Butter Girl

The Amul Butter Girl was created in 1967 by Eustace Fernandes, art director of DaCunha Communications, and the same year the catchy phrase “Utterly Butterly” was coined by Sylvester DanCunha’s wife. Dr. Verghese Kurien, the then chairman of GCMMF suggested a mischievous little girl as a mascot with two requirements i.e. it had to be easy to draw and memorable. They came up with the idea of little polka dot frock girl for their butter campaign. This campaign idea was revolutionizing and new at that time. People went gaga about her.

Since then, this little girl appears at billboards, strategically placed all over India. It holds the Guinness World Record of the longest-running campaign. She became so famous that four Indian generations could identify Amul with that girl. She depicts the mood of the nation with her famous “hing-lish” punch-lines. For example, recently during the boycott, China mood in India Amul campaigned their punchline as “Amul ‘topical’ takes on China” which means Boycott China and their products.

#Business Strategy

The business strategy of Amul covers various aspects from developing demand and managing supply chains to the overall mission and vision of the company. Let us discuss

Developing Demand – Amul adopted a low-cost price strategy to make its products affordable and attractive to consumers as at the time Amul was formed consumers had limited purchasing power and modest consumption of dairy products.

Strong Distribution Level – Amul products are available over 5 lakh retail outlets across India through its network of over 3500 distributors. To buffer inventory it has 47 depots with dry and cold warehouses.  GCMMF’s philosophy is to maintain cash transactions throughout its supply chain.  It transacts on an advance demand draft basis from its wholesale dealers other than the cheque system. All GCMMF branches engage in route scheduling and have dedicated vehicle operations.

Umbrella Brand – Amul is the common brand for most product categories produced by various unions. Its sub-brands include variants such as Amulspray, Amulya, and Nutramul. The network follows an Umbrella Branding strategy to avoid inter-union conflicts and also creates an opportunity for the union members to cooperate in developing products.

Managing the supply chain – Amul has tremendous strength and reliability in its supply chain with a good synergy between board and union. GCMMF and union play a major role and jointly achieve the desired degree of control. The federation handles the distribution of end products and coordination with retailers and dealers whereas unions coordinate supply-side activities like milk collection contractors, the supply of animal feeds and other supplies, provision of veterinary services, and educational activities.

Managing Third-party service providers – Activities such as logistics of milk collection, distribution of dairy products, sale of products through dealers and retail stores, provision of animal feed, and veterinary services were entrusted to third parties. From the beginning, it was recognized that the unions’ core activity lay in milk processing and production of the dairy product.

Technology and e-initiatives – GCMMF’s technology strategy is focused on new products, the process of improving milk production, and e-commerce. Amul actively pursues developments in embryo transfer and cattle breeding to improve cattle quality and increases in milk yields. Provide farmers access to information relating to markets, technology, and best practices in the dairy industry through net-enabled kiosks in the villages. GCMMF has also implemented a Geographical Information System (GIS) at both ends of the supply chain, i.e. milk collection as well as the marketing process. It was one of the first FMCG firms in India to employ internet technologies to implement B2C commerce.

Contributor: Devansh Bihani
Research Desk | Leveraged Growth

Qualifications: I am currently a post-graduate student at the Gokhale Institute of Politics and Economics, Pune, and a CFA Level 1 candidate at CFAI, USA. Being a fitness enthusiast I take part in many sports activities. I am an International as well as National Karate Champion. I’m a keen learner who aspires to find a solution for every challenge by employing my creative and analytical bent.

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