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Diverging Tracks
The Gormu-Lhasa railway line will significantly improve China's military logistics capability and exert strategic pressure on India.

Plane Pique
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BUSINESS: AMUL

Utterly Butterly Ambitious

With competition breathing down its neck, India's largest cooperative ventures out of the dairy business and hopes to grow five times in six years

By Malini Goyal with Uday Mahurkar

	"Innovative marketing and focus on the masses are our strength against rivals." B.M. VYAS, Managing Director, Gujarat Cooperative Milk Marketing Federation

Roughly three years ago, B.M. Vyas, managing director of the Gujarat Cooperative Milk Marketing Federation (GCMMF) which owns the Amul brand, asked one of the cooperative's food technologists to take a course in pizza making. Soon Moitriyee Mukherjee, the food technologist, was out tasting pizzas at all the major fast-food outlets in Gujarat and learning how to prepare different kinds of the popular item. Once she had mastered the art, 25 more women were recruited and groomed as pizza trainers. Armed with Amul's pizza cheese, the trainers then fanned out to 200 towns across India to conduct Amul's "Teach and Treat" classes. Over 15,000 classes, Amul taught housewives how to make a pizza.

This wasn't a ploy by Amul to change the food habits of Indians. It was a project to test and create a market for low-priced pizzas. The painstaking preparations paid off. Launched in 25 cities in July 2001, Amul's six-inch, Rs 20 pizza has been an instant hit. In Delhi alone its 96 franchisee outlets are selling an average of 50 pizzas a day on weekdays and 600 a day on weekends. In two months, Amul plans to spread to 3,000 outlets across 100 cities and sell three lakh pizzas a day. Says Vyas, 51, who stepped into the shoes of Amul's celebrated founder Verghese Kurien in 1993: "We first study the strategies of our competitors and then devise our own strategy based on small innovations before launching our product."

The Rs 2,258-crore Amul, India's largest and most successful cooperative, isn't going to stop at pizzas. In the next six months, it plans to launch three more food products-frozen stuffed parathas, matar paneer and paneer pakoras. It is eyeing the growing but largely under-serviced market for ready-to-eat foods for working couples and office-goers looking for cheap and healthy food. Also on the anvil are new brands of filter and instant tea and coffee. Both Comark and Tata Coffee have sought Amul's help to brew new coffee brands for the Rs 1,032-crore coffee market. Following the food trail, Amul hopes to touch a turnover of Rs 10,000 crore by 2006-7, of which new products will contribute 25 per cent

What prompted the 55-year-old dairy cooperative to venture outside its main business of milk products? To begin with, there is some synergy between the food products Amul is launching and its dairy business. The pizza business will give a big push to its mozzarella cheese. In two months since the launch of its pizza, sales of its mozzarella cheese have doubled in cities where its pizzas are sold. Amul already has a 55 per cent share in the Rs 70-crore Indian cheese market. Even its matar paneer and paneer pakoras will use cottage cheese produced by Amul.

Part of Amul's aggression is driven by compulsion. The dairy sector is no longer protected. Not only are domestic companies and MNCs now allowed to enter the sector, from April this year imports of dairy products too have been freed from licensing. While that has multiplied the choice for consumers, it has intensified competition for Amul. Britannia, Le Bon and Nestle are already challenging Amul's commanding control over the butter and cheese markets. And imported brands like Laughing Cow and Kraft have hit the shelves in metros.

The heightened competition has had a telling effect on Amul's sales. After a fall of 0.03 per cent in 1999-2000, its sales grew only marginally by 1.8 per cent in 2000-1. Says R.S. Khanna, head of the northern zone of Amul: "Whoever has to stay in business has to have a global outlook, be it the quality or pricing. But our diversification has nothing to do with the threat of competition."

It makes sense for Amul to utilise its strong retailing and marketing infrastructure to get into new areas. The cooperative has 3,600 wholesale dealers and four lakh retailers for its products. But now with a slew of frozen products on the launch pad, it is setting up a parallel network of franchisees across the country with cold-storage facilities. Setting up cold-storage chains has been challenging for even MNCs like Hindustan Lever. "We realised that our franchisees would be hesitant to invest Rs 10,000 in cold storage facilities," says Khanna. But the initial success of the pizzas and good margins (Rs 8 per pizza) mean that they may be able to recover the cost in about two months.

Though Amul has ventured into non-dairy business for the first time, it has been adding new products to its dairy business since 1995. It has launched eight different products in the past five years, with several variants for each. First came different varieties of long-life milk. In 1997 came ice creams which now have a dozen flavours. Other launches were yoghurt, condensed milk, frozen paneer, chocolate eclairs and gulab jamun mix. Being a price warrior, Amul prices its products cheaper than its competitors, making them instant successes. Within four years of launch, Amul ice creams have cornered a 35 per cent share of the Rs 450 crore organised ice-cream market. "Whatever we launch, we keep the masses in mind. The demand doesn't just grow, it multiplies," says R.S. Sodhi, Amul's general manager, diary products, who along with S.K. Panigrahi, general manager, non-diary products, is one of Vyas' key men for Amul's bold expansion plans.

Thinking of masses should come naturally to Amul. After all it is a cooperative of 2.1 million farmers and of every rupee of GCMMF's sales an average 80 paise go to farmers. If that seems too high, it is because GCMMF only markets the products. The procurement, processing and publicity are done by member dairies. That's why on a turnover of Rs 2,258 crore, GCMMF's profits were only Rs 8 crore in 2000-1. But that doesn't mean shortage of funds for expansion. Amul will invest about Rs 400 crore in the next four years which will come from borrowings from the NDDB, money raised from farmers through debentures and bank loans. But the key question is: does Amul have the flexibility and agility to take on its rivals?

So far Amul's cooperative structure and commercial interests have worked harmoniously. It has also been quick to adopt new business practices. In 1996, when very few in India had heard of the Internet, Amul set up a website. People can buy Amul products on the Internet in over 100 cities. All its dairies are ISO 9002 certified. To strengthen its supply chain, all villages supplying milk to Amul will be connected with the Internet in the next three years. Comments Sunil Alagh, managing director of Britannia Industries Ltd: "Amul has wonderfully combined a social objective with a commercial one."

Now it has to successfully combine its new business with the old.

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