Amul keeping up with the times

STRATEGIC MANAGEMENT

A DETAILED CASE ANALYSIS OF INDIA'S AMUL KEEPING UP WITH THE TIMES

Submitted by: Group 7: Vivek Kuruvilla (C035) Chirag Shah(C050) Essam Syed(C059) Sharan Sistla(C056) Jinal Trivedi(C061) Kumar Vaibhav(C062)

Abstract Amul is an Indian dairy cooperative founded in 1947, eight months before India's independence from British rule, and owned by over three million farmers in the state of Gujarat. It is India's largest food brand, selling 46 products, including pouched milk, cheese, butter, ice cream, and infant food through a million retailers across the country , as well as being the market leader in almost all the categories in which it operates.” Amul”is well known among Indian consumers for offering high-quality products at reasonable prices and runs a very effective low cost advertising campaign that spoofs current events. It offers its farmers 80% of the consumer's price for milk, compared with 35% to 40% typical in some Western markets. Amul's cooperative dairy model is replicated across several Indian states and has succeeded in growing India’s milk industry to a global scale, (at 120 million tonnes it is the world’s largest milk producer). It has helped increase the incomes of 80-100 million farmer families across the country. Milk as a commodity lends itself especially well to the co-operative model. Milk is homogeneous, highly perishable, and storage and processing it from a raw product to ones with more stable shelf lives like milk powder require expensive facilities and technologies that benefit from economies of scale.

Analysis of Key Issues 1. Identify the sources of GCMMF and Amul’s success .       

Strong distribution network – Amul products are available in over 500,000 retail outlets across India throughits network of 3500 distributors. Low cost strategy – Amul adopted a low-cost price strategy to make its products affordable and attractive to consumers by guaranteeing them value for money. Robust supply chain - The vast and complex supply chain cooperative hierarchical network spans from small suppliers to large fragmented markets. Diverse product mix Adopting innovative marketing strategies which helped it cut down on marketing expenses to as low as 1% of the turnover. Kept competitors at bay by using its high volume strategy. Managed to remain a transparent organization over the years without having any vested political interests or political interference.

2. What influence does Government Policy have on this industry ? Why are cooperative models relevant in the Dairy industry.

3. Looking forward – what are the challenges to Amul with growing competition from existing Multinationals like Nestlé and Unilever and new entrants like Danone and Lactalis in valueadded products like yogurt, curd.

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Dairy farming is a labour intensive industry, employing people from the rural areas mostly. It employs 90 million families and 400 million individuals. This is the secondary source of income for farmers whose primary source of income is agricultural activity. In such households, the women of the house are mainly involved in the dairy farming. Farming in India is fragmented. The typical size of land holding is small where on an average two cattle are owned. For these small land holdings, modern technology employing large capital is not possible. Hence the returns are low. In such an industry, the farmers prefer searching for jobs in urban areas where the labour required is less and the wages are comparable. This shift from dairy farming implies huge procurement issues for Amul. Currently, farmers provide 4.5% of the milk they produce to the cooperatives, which provides the steady supply of milk for the farmers. If these farmers quit dairy farming in favour of more lucrative jobs in the urban areas, it affects the supply of milk. To combat the decline, Amul should look at establishment of large scale dairy farms. These dairy farms can complement the cooperative structure of the milk industry. The farmers who are willing to continue dairy farming can establish pooled or joint ownership of land under the cooperatives. Thus the size of the individual farms put together becomes quite comparable making it profitable to employ modern equipment which can increase productivity and efficiency by a large margin. This step could also mean generating opportunities for farmers to turn into entrepreneurs by setting up their own farms and employing modernization to the farm. Thus engaging youth who are not directly inclined towards dairy farming.

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4. India's large young rural population is shying away from dairy farming in favor of urban jobs, posing questions about future procurement. How should the co-operatives manage supply side challenges in the near /long term. One of the major issues that Amul and other co-operatives face in the near future is the procurement problem. It is essential for a continuous growth that these co-operatives are able to obtain milk and other required products with ease and at affordable prices because of the low margins. Moreover, there has been a gradual shift in the country wherein the youth do not favor a career in agriculture and farming. The following are a few suggestions on handling the supply side challenges in the near future: 

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One of the major problems in near future is lack of interest in farming. The youth of the nation are lured by jobs in cities that would give them a better lifestyle. It is essential for these cooperatives to see to it that farming as an industry along with the dairy industry is able to suffice the needs and wants of the modern day youth. Introduction of technology and mass scale milk production techniques can taught to the youths so that the age old toiling work of farming is reduced. Moreover, technological advancements would lead to an increase in productivity and hence increase in profits. To sustain themselves, a coalition amongst the co-operatives needs to work out so that big money private players don't push them out of the game. Such a coalition shouldn't be adverse in nature but must be a stepping stone towards a synergy amongst various co-operatives and the farmers.

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The dairy industry needs to marketed well. It's hardly ever been a lucrative industry for the youth to work in, but if marketed correctly, many budding entrepreneurs would see the immense potential in the industry and the chance to earn handsome profits. Another long term solution maybe to have an in-house cattle farm. Such a step would require a huge capital investment along with manpower from the family farmers.

5. GCMMF model success comes in large part from its independent and effective management of the cooperative model. How sustainable is this and what path do we see for this cooperative What changes are recommended in Amul’s strategy to sustain market leadership? Sustainability of cooperatives Milk procurement is a challenging task, breakdown of AMUL’s supply chain to cooperative level is essential and hence an added advantage for AMUL. The cooperative model ensures reduced operational risk and creates reliable partners. The model’s USP is inclusion, cooperative model facilitates inclusion of farmers, unions and customers. The inclusion is a necessity so as to serve AMUL’s core value “Value for many value for money”. Farmers given due importance in decision making serves as a differentiating factor. AMUL’s success story is driven on cooperative model and Kurian’s ideology rests on the belief that farmers’ welfare is of utmost importance. The only unsure thing about cooperative model is whether it can change according to market needs. Given the Indian dairy market changes in recent time, the only changes required are at a later stage where farmer’s inclusion can be minimal (Example: Online portal of GCMMF). AMUL has already proven that changing market needs from cooperative model are only going to improve their efficiency. Cooperative model places GCMMF in a position where it has to procure all the milk the producer (farmer) is able to sell. The demand for milk is dependent on various factors. This led to surplus of milk (sometimes shortage). AMUL instead of changing to market needs choose to stick with cooperative model but innovate at a stage where farmer inclusion is minimal, they choose to come up with milk powder, infant foods and other dairy products with surplus milk as raw material. It is advisable for GCMMF to stick with cooperative model and innovate at stages where it does not hurt the business mode. Cooperative model is what brought AMUL to this position and it’s the same model which will take it further. Major changes to remain market leader AMUL presently enjoys the position of market leader but players such as Mahindra, TATA have seen the space in Indian dairy market. GCMMF should have relaxed rules regarding inclusion of local players thereby facilitating mergers with emerging players (milkmantra). AMUL has to increase its stretch in south India where it is still fairly new player. Product innovation obviously serves as a means to strengthen AMUL’s current leader position. AMUL could explore the market of frozen vegetables and livestock.