AMUL Case Study

2) Amul created a win situation for several stake holders. This was a major success factor.
Discuss

 Suppliers- purchase milk from 3.2 million farmers, twice a day, fair and square.
Increased the yield of existing farmers. In 2013, it procured 12.8 million litres of milk
daily. Amul maintained programs that allowed farmers to buy fortified feed and
worked to improve fertility and milk production
 Consumers- Amul established a supply chain to ensure its freshly prouched milk
could be distributed. Ensured the quality. Value added products at a slight lower
price by developing its distribution and procurement network. Positioned as
premium and affordable.
 Society –

 Dairy was a secondary occupation in villages mostly performed by women.

With the dairy business picking up, her income through milk soon became
equal to her husband’s income through farming and that led to more
equality.
 Training institute in field of rural management to uplift the rural population.

 Government- Remained free of political interference. In certain other states,

govt owns some equity in the cooperative federation and can appoint its MD.
Govt appointed MD’s can be for shorter periods and are accountab;e to
government. Parties put their diffeences aside while making decisions
affecting the organisation. Kurien had direct access to PM and prez

 Distributors- Dairy cooperatives, three-tier model

 At rural level- farmers committed the surplus. Get payed fairly. Farmers could
purchase affordable cattle feed and other services.
 At district level- Brought all the unions together and formed the apex body to
avoid competition. Provided common distribution network, individual
product mixes, jointly procured raw materials, provided technical and
management support.

3) Explain the 3 tier cooperative structure of Amul. How did it benefit the organisation and
its members.
Village level:

 At the village level was a society that residents owning cows or buffaloes could join
by purchasing a share and committing all surplus milk beyond their household
consumption.
  Farmers brought their milk to the collection centre, where employees paid them in
cash
 Farmers were also able to purchase affordable cattle feed and other services at the
society.
District level:

 At the district level, unions purchased milk from each society and transported it via
tankers to their dairy plants, where they processed and packaged value-added
products.
 The finished goods were sold within the district.
 Union also manufactured cattle feed, provided services such as veterinary care and
artificial insemination, and also trained farmers in animal husbandry and dairying.
State level:

 Societies, unions and GCMMF were merged to the state co-operative societies.
 They retained part of their earnings to meet expenses, and shared profits with their
farmer members according to the quantity of milk each supplied.
 They also contributed to community development through activities such as
construction of educational institutions, roads and wells.
4) Explain Anil's strategy of popularising its brand in urban centres

 The Kaira Union came up with a catchy name “Amul” to market its products in cities
with a tag name “Purely the best” positioning it as a high quality, trurstworthy and
value for money product.
 They started a very unique and attractive ad campaign of “Amul girl” depicting the
current happenings in the country that instantly became a hit.
 Having established a toehold in the butter market, Amul expanded into value added
products such as milk powder, condensed milk, cheese and baby food.
 Amul established a supply chain to ensure that its freshly pouched milk could be
distributed and stored without spoilages, ensuring its widespread availability.

5) How did Amul deal with excess production of milk?

 In 1953, Kaira union collected 20,000 litres of milk daily, exceeding demand of BMS
(Bombay milk scheme ). Hence by 1955 & 1960, union expanded its facilities and
began producing milk powder, butter, ghee, sweetened condensed milk, baby food
& cheese.
 Improvements in distribution & refrigerated transportation – allowed the expanded
product portfolio to reach new markets. Marketed under brand name – “AMUL”.
 Converted surplus milk into commodities like milk powder & butter oil and sold
them to bulk buyers.(Also, due to Fluctuating prices in the dairy commodity business
give inconsistent realization compared to value added, branded consumer products.)
  With increasing milk production, decided to expand footprint and started to sell
branded liquid milk in consumer packs.
 As fresh milk is perishable, they countered logistical challenge by establishing a
supply chain – now fresh milk is distributed & stored without spoilage – ensuring
widespread availability.
 Supplies milk – both morning & evening in key markets.
 Only national brand in India – supplies in approximately in 30 cities.
 Cow to consumer distribution chain

6) How did Amul address rural markets which had low purchasing power?

 To penetrate rural markets, Amul had differential pricing, charging urban consumers
more than the rural ones.
 In cities it sold large packs of its products such as butter, cheese and ice cream at
price points of $0.50-$3.00, while in smaller towns it sold the same products in
smaller packs at $0.09-$0.18.

7) How did Amul offer products at lower prices inspire of paying higher rates to
producers?

 Amul used its scale in distribution and procurement to keep its prices low and its
competitors at bay.
 It entered into exclusive partnership with its distribution partners, such as
transporters and warehousing agents, and paid them relatively low margins per unit,
keeping distribution costs and prices low.

8) What barriers to entry were created at the retailer end?

 Multinationals in India typically incurred higher advertising expenses than Amul,
offered retailers higher margins, and incurred additional expenses such as royalty
payments to parent companies.
 Conversely, Amul priced fresh milk at a slight premium because of its higher
transportation costs compared to local dairies. For most product categories, Amul’s
prices served as a benchmark for its competitors.
 Competitive prices of Amul (butter brand) served as entry barrier.
 By reducing marketing budget.
 Amul used its scale in distribution and procurement to keep its prices low and its
competitors at bay.
 It entered into exclusive arrangements with its distribution partners, such as
transporters and warehousing agents, and paid them relatively low margin per
unit, keeping distribution costs and prices low.
 Industry observers agreed that no player apart from Amul had managed to generate
sufficient volumes to compete profitably in the market for butter. Any dairy firm can
 manufacture butter but the actual volumes are not sufficient to justify the
investments made in the cold chain. Nestlé withdrew its butter from the Indian
market in 2005, four years after its launch because of the same reason.
 Amul also had an advantage over private players in procuring milk, given its focus on
maximizing farmer income. Amul passed on approximately 80%–85% of revenues to
its farmers. In 2012, it offered them $0.52 per liter of milk, compared with $0.45 per
liter for similar quality milk at other dairies.
 Amul’s executives felt that it would be difficult for multinational firms to match
cooperatives in developing a widespread milk procurement network through large,
mechanized cattle farms

9) Compare Amul's advertising strategy with MNC competitors

1) Amul has different competitors for its product range. Multinational FMCG firms like
Nestle – milk powder, Kraft, Unilever, Britannia – baby food, chocolates, cheese, ice
creams, dairy whiteners, coca-cola & PepsiCo in beverages.
2) Competes with local cooperatives & private diaries in milk
3) 2 biggest regional competitors are Karnataka cooperative milk federation &
Tamilnadu cooperative milk producer’s federation.
4) MNC’s have higher advertisement expense than Amul.
5) Amul spends 1% of turnover on advertising, while, Nestle spends 8% to 12% and
Unilever spends 14%. Amul uses its budget effectively & reduces communication
costs.
6) To maximize advertising budget – employed innovative “umbrella brand strategy”,
where the advertisement would showcase the entire product range.
7) 1st umbrella brand strategy in 1994 – with slogan “Taste of India”. Spends 40% to
50% of advertising budget on these commercials. While, MNC’s advertised individual
products.
8) Also, Amul ran their advertising campaigns longer than their competitors. Example:
“Amul Surabhi” – cultural television show that amul sponsored, ran for 12 years
before it was discontinued.
9) Amul bought best advertising spots, even if the dint run them often or throughout
the year.
10) Dr. Kurien was against running promotions & offering things for free – not to bribe
consumers.
11) Amul’s advertisements & sponsorships reflected its Indian roots & values. They
sponsored those television shows which were culturally focused & & for the entire
family.
One of amul’s umbrella brand commercial inn its 50th year – told proud story of their
cooperative movement.
  Promising selling line – Utterly, butterly delicious
 Amul girl – face of brand  built outdoor campaign around here  world’s
longest running outdoor advertising campaign.
 6 hoardings in prime locations  example chowpatty traffic light  where
people usually stopped and they always wanted to see what it said.
 The 1st billboard said – 1966 – on lampposts & prime bus stops showed girl
praying by her bedside with the tag line “Give us this day our daily bread:
with amul butter”.
 During horse racing season, billboard showed a girl dressed as jockey sitting
on a horse & holding a slice of buttered toast with a tagline –
“Thoroughbread”.  within 6 months amul butter became major brand &
polson family faded.
 1960 – Kolkata – Cholbe na – Toast without Amul, Cholbe na, chlobe na!
 Strike by indian airlines – Amul girl as stewardess – “Indian airlines serves
amul butter – when it flies” - controversial
 By 2013, 4000 billboards, vast range of topics – politics to sportsto
entertainment to issues of regional, national & international importance.

10) What was the business model of Fonterra? Why did it fail?

Introduction about Fonterra

· Fonterra Co-operative Group Limited is a New Zealand multinational dairy co-

operative owned by around 10,500 New Zealand farmers.

· In New Zealand, as in most Western countries, dairy co-operatives have long been the
main organisational structure in the industry.

Business Model

· Fonterra follows the co-operative mutual business model.

· Benefits are provided to Members either on the basis of volumes supplied and/or the
amount of business transacted with the organisation.

· In the case of volumes supplied, an initial (opening) price is paid for products such as
milk, meat and horticultural products by the organisation at the beginning of the financial
year with a final payout provided at the end of the year once annual returns are finalised.

Explanation
· Fonterra buys raw milk from farmers at a rate per kilogram of milk solids, and then on-
sells it after it has been processed at one of its plants around the country.

· About 10,500 New Zealand farmers have shares in Fonterra.

· Farmers own shares in proportion to the volume of milk they produce every season.
one share is held for every kilogram of milk solids supplied. If a farm is new, shareholding is
based on estimated production. Farmers must have 1000 shares before milk will be
collected from them.

· Much of Fonterra's profits go to farmers. It pays out up to about 75 per cent of its net
profit to shareholders in the form of dividends.

Reasons for failure

· Fonterra was in a joint venture with Britannia- named Britannia New Zealand Foods
Pvt Ltd since 2002.

· Britannia bought out Fonterra’s holding in the joint venture.

· Fonterra’s mainstay is ingredients (liquid milk, primarily) and has very little presence in
branded business. “The company primarily is a cooperative of several New Zealand farmers
and it didn’t see a big opportunity in India for its core competency (i.e. ingredients)

· While Fonterra was witnessing a lot of growth in India, given the fragmented local milk
supply that requires significant development, investing in India’s consumer dairy market
was not a core priority for Fonterra.

· The Joint Venture was losing money. For the year ended March 31 2008, BNZF
incurred a net loss of Rs. 5.1 crore on a turnover of Rs. 142.40 crore, with the corresponding
figures for the preceding fiscal being Rs. 11.2 crore net loss and Rs. 118.60 crore,
respectively.

· The company was forced to exit the liquid milk business about four years back, while
Britannia Milkman ghee and dairy whitener are not doing particularly well.

· The losses, in turn, reflect the limitations of a marketing strategy revolving around
contract manufacturing. “Unlike an Amul, Hatsun Agro or even Nestle India, BNZF does not
have any independent milk procurement and processing network. The company’s cheese is
produced by Schreiber Dynamix Dairies at Baramati, just as it was earlier dependent on
Modern Dairies, Karnal and other local players for sourcing and packing liquid milk,

· A dairy business cannot succeed here unless it develops its own milk procurement
network. But that does not fit in with Fonterra’s main purpose, which is to market the
milk of its 11,000 farmer-shareholders rather than that of Indian farmers

· For Fonterra, BNZF was an avenue that would eventually help market dairy products
manufactured in New Zealand under its own brands, such as ‘Anchor’ in India. This
objective was certainly not being met under the present arrangement, compounded by
high import duties and limited domestic market for products such as cheese.

11. What challenges is Amul facing? How should it deal with these challenges?

Challenges

A. Brand Loyalty and Competition

· Private diaries, especially in South India were increasing their procurement and
distribution footprints and expanding offerings beyond milk.

· Many co-operatives replicated the Amul model – brand differentiation became a

challenge.

· Multinational firms like Danone and Nestle were targeting urban consumers with
premium products – flavoured milk.

· Large dairies entered the B2B segment – Fonterra.

· Concerned about brand’s connection with India’s large young population. Youth may
view the brand differently as compared to previous generations.

Amul’s response:

o Amul sponsored popular sporting events like Formula One, Cricket World
Cup and Indian contingent at 2012 London Olympics, to attract young
consumers.

o Awarded 50,000 Amul-branded prizes to school children for academic

excellence.

· Multibrand retail – Western retailers operated at margins of over 30%

Amul’s response:

o Setting up of Amul parlors where customers can buy Amul products

directly.

B. Procurement
 o Need to secure its source of raw liquid milk – to meet challenges of increased
competition and growing demand.

o Amul had to retain and grow network of farmers and ensure optimal yield from
herds.

o Yield of Indian herd was hindered by poor genetics, limited access to water,
diseases etc

Amul’s response:

o Amul offered higher payments to farmers, which resulted in increased

procurement.

o Amul maintained programmes that allowed farmers to buy fortified feed

and operated mobile veterinary units to improve fertility and milk
production.

C. Migration to urban areas

· Younger generations in rural areas reluctant to join dairy farming. This added to
concerns about future procurement.

· The exodus undermined the social fabric and institutional knowledge of farms and
threatened the procurement process.

Amul’s response:

o To attract youth to dairy farming – Encouraged creation of larger firms

with 20-30 cattle, which had the scale to benefit from newer technologies.

o Amul identified local banks willing to off loans of around $30,000 for
start-up capital.