When one talks about dairy products in India, the first name that perhaps comes to mind is Amul. R. S. Sodhi, Managing Director of Gujarat Co-Operative Milk Marketing Federation (GCMMF which owns the brand) Ltd., spoke with The Dollar Business about the USP of the cooperative, the continued relevance of its business model and Amul’s expansion across overseas markets.
Interview by Ahmad Shariq Khan | Decemember 2017 Issue | The Dollar Business
TDB: When it comes to dairy products, Amul is a well-known name both in India and abroad. What is the secret behind Amul’s success?
R. S. Sodhi (RSS): The Amul brand name that you know has two audiences: our consumers and our farmers or suppliers, and we have been able to gain the trust of both. The reasons for our success has been our business philosophy – ‘Value for Many and Value for Money’. Value for Many means giving value day-after-day and at a remunerative price to our 3.6 million milk producers. They are after all the owners of this brand and this growing organisation. When they give milk to us, they are assured that the price that they get will be very good. On the other hand, we provide consumers the best quality products, using the best ingredients, using the latest technology for processing and packaging at a very affordable price. Because of this business strategy of ours, other producers find it difficult to compete with us. Any business would like to buy raw materials at as low a price as possible and would like to sell the finished product at a price as high as possible. When it comes to Amul, we buy our raw material at a price as high as possible and sell at a low price.
TDB: In FY2017, GCMMF saw an increase in turnover by around 17.5%. Has this met your expectations?
RSS: Yes. Most FMCG companies have shown less than double-digits growth, at around 6-7%. We on the other hand have seen a much higher growth rate. If you see over the last seven years, our CAGR has been around 19%. In FY2010 our turnover was around Rs.8,000 crore, which in FY2017 grew to Rs 27,043 crore. This is the turnover of Gujarat Co-operative Milk Marketing Federation (GCMMF). If you look at the Amul brand, you can add another Rs.9,000- Rs.10,000 crore. In FY2018, we are already growing at almost the same rate. We are confident that revenues will continue to grow further. In India, there lies an immense opportunity for value-added dairy products. The size of the dairy market in India is around Rs.5 lakh crore but the organised sector constitutes only 17% of this. There is a lot of scope for growth.
TDB: GCMMF aims to achieve a turnover of Rs.50,000 crore and become the largest FMCG organisation in India by 2021. How does the federation plan to achieve these targets?
RSS: In the dairy industry, you cannot grow only by putting up of more plants as the raw material is not easily available. Our strategy to achieve this goal has been of 3Es – Expansion in milk procurement, milk processing and marketing. We have been working for the last five years on this strategy and will continue to do so for the next five years. We have been expanding procurement, both within and outside Gujarat. At present, 15% of our milk procurement is from outside Gujarat. Our average annual milk procurement growth has been around 9-10%. This year it may be slightly more. Next is expansion in milk processing. We are investing in more facilities. Every year, we invest around Rs.600-800 crore in expanding processing. In FY2011, we had a processing capacity of only 120 lakh litre per day. Today, we handle around 320 lakh litre per day which we plan to soon expand to 380 lakh litre per day. We are also expanding our distribution network. We have four types of products: Products which are stored and distributed at room temperature in tetra packs like ghee, milk powder, etc.; frozen products like ice creams; chilled products like butter and cheese and then fresh products like milk in pouches, dahi, etc. We are adding more stock points, distributors, retailers, etc., both across India and abroad, for all these product categories.
TDB: How do you plan to expand Amul’s global footprint?
RSS: When it comes to exports, there are two types of products that we ship. The first is packaged consumer products – mainly for the Indian diaspora (products like Amul Butter, Amul Cheese and Amul Ghee, etc.). The second are commodities like milk powder and white butter. Export of commodities depends on international prices. The conditions are not conducive for exports of milk products presently due to price volatility in international markets. Export of butter is however becoming viable.
We are currently concentrating on exports of branded products like tetrapack milk, ice creams, etc. Last year, we exported products worth Rs.250 crore and this year we expect exports to touch Rs.1,000-crore mark. We are also setting up production facilities outside India. In fact, we now have two small production bases in US to produce ghee, shrikhand, etc. In near future, we plan to set up a production facility in Europe as well.
TDB: How difficult is it to find an audience among non-Indian consumers?
RSS: Our focus has been mainly on the Indian diaspora. But now, in terms of products like ghee, the mainstream consumers are also buying. In the case of cheese, people who want to buy vegetarian cheese prefer Amul Cheese. Even the Amul ice creams are taste wise better. So, while concentrating on the South Asian diaspora we are expanding our audience.
TDB: In November 2016 Amul tied up with Amazon to sell its products in the US market. Can you shed some more light on this new sales channel?
RSS: With growing popularity of yoga, many want to try ghee – a product that offers many health benefits. We went to Amazon (US) to sell Amul Ghee to their mainstream consumers because reaching this scattered population is difficult. Amazon is giving us very good results.
TDB: India is the biggest producer of milk in the world. Despite this, we lag far behind when it comes to its exports. What have been the hurdles?
RSS: India is not only number one in milk production, but it is also the world’s largest and the fastest growing market. On the other hand, markets like Europe and US are mostly stagnant. Hence, the world is eyeing India. Everybody wants to to sell their products in India. If everybody is coming to India, there surely is untapped potential in this market. Since we are located in India, a market which is the largest and the fastest growing, we obviously have to focus more on the domestic market. So, India is our main focus and we would like to export only after meeting the local demand. We would be focussing on expanding abroad and exporting, but for Amul Indian market will always remain a priority.
TDB: With the growth of other FMCG brands how is Amul bracing up for the competition in this sector?
RSS: Competition is always good and welcome because if more corporates come into the market they will bring in technologies and transparent commercial systems that will help our farmers. This will in turn ensure that farmers will get better prices. And Amul is always happy when we see our farmers happy. Amul is the only big dairy company in India that has its own Cow to Consumer (C2C) supply chain. Most other companies in this business invest in processing plants and branding, but very few have a connect with the farmers.
TDB: Amul has been following a co-operative business model since inception. How challenging has it been to maintain this model in the present dynamic business environment?
RSS: The co-operative model is relevant and very necessary, even today. India is a country of small farmers where production is very small. There is a need to aggregate the produce of these farmers and producers, else they will be exploited. There is no better model than a cooperative for this purpose. And while Amul is owned by farmers, it is managed by a professional team. We are thus able to combine traditional and modern approaches to achieve success.