Amul

ORGANISATIONS- THEORY AND PRACTICE PROJECT – WORKSHEET 2 Group B1

Adopted Company

Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF) – AMUL


Porter’s Five Forces

Figure 1 Porter's Five Forces


Assessment of the five forces is as below:
I. Threat of new entrants
• Cost and Resource advantages:
Amul dairy is co-operative society. That means “cooperation among competition” is the
fundamental principle. Amul dairy is managed under the norms of GCMMF and market the
products under the brand name ‘Amul’, which has a very good reputation at domestic and
international level. Here, the raw material procurement is very difficult for the new entrants.
Consequently Capital requirement is also high. Still new entrants are emerging such as domestic
and international players. So the threats of new entrants are moderate.
• Brand preferences and consumer loyalty:
There is an immense level of Brand Preference of Amul in the minds of the people. The level of
preference specifically in the liquid milk sector is that they would go to other retailer if the
retailer does not have milk.
• Access to distribution channels:
The distribution channel of GCMMF is a very planned and perfect one. For any new entrant to
enter it would be a very difficult task. For GCMMF the result is years of hard work and its
investment in its employees as well as at different levels in the distribution network.
• Inability to match the technology and specialized know-how of firms already in the industry:
The technology used by Amul is imported from Denmark. It is a state of art technology. To get
this technology in India, a firm would require a huge amount of resources.
• Capital requirements:
The total investment required in the industry is huge and is a decision worth considering even for
MNC’s. The investment decisions cover the processing costs as well as the marketing costs. To
compete with the brand Amul in India is difficult as Amul is synonymous to Quality.

II. Bargaining power of supplier
The main objective of Amul dairy is not profiting but sustenance. As it is a part of co-operative society, it
runs for the benefit of farmers those are the suppliers of milk and users of milk products. According the
concept of the cooperative society supplier has bargaining power to have a good return on his or her
supply. However, supplier has limited rights to bargain with the cooperative society because it is made
and run for the sake of mass and not for individual benefit. But it is made sure that the supplier gets his
fair share of return.


There is appropriate bargaining power of the supplier. In olden days there were not any kind of
cooperative societies as the farmer was exploited. But, nowadays the farmer’s rights are protected under
the cooperative rules and regulations, which ultimately results in moderate power of bargaining from the
supplier


III.Bargaining power of buyers
• Cost of switching to competitor brands:
The switching of brands is seen very much in products such as ice cream, curd, milk powders,
milk additives etc. but it can be seen comparatively less in liquid milk category.
The other brands which provide the same products as Amul for ice cream are Vadilal, Quality
Walls etc. And the competitors for the milk markets are mainly local or regional marketers. For
e.g., Nandini dairy in Karnataka is a competitor for Amul.

• Large number of buyers:
Milk is a necessity product and hence is a mass product. It has a considerable share of the rupee
spent by any Indian. A study shows that in urban areas about 36% of monthly per capita
expenditure was on food items. Out of that, around 10% was spent on milk and milk products.
Moreover the buyers are spread evenly over the country and do not have any bargaining power.
The buyers we are referring to in this scenario are the common man or any individual who is
health conscious and considers milk as a substitute for daily nutrition value.

IV. Rivalry among competitors
• Demand for the product:
The demand of the products of GCMMF is increasing at a very healthy rate. AMUL’s sales of Rs
11,670 crore for the year ended March 2012, almost 55% more than Nestle India's Rs 7,541-crore
sales. Exactly a decade ago, the gap was much narrower when Amul reported sales of Rs
2,336.48 crore against Nestle India's Rs 2,075 crore. To stand against the rivalry GCMMF is
coming up with a wide range of products like sugar-free chocolates, pro biotic curd and ice
cream.
• Nature of competitors:

 In different business category GCMMF faces competition from different players.
 Amul butter faces the least competition among its products in India. It holds an unchallenged
market share of 86%. The nearest competitor is Britannia.
 In the chocolate category it faces competition from Cadbury and Nestle. Chocolate market is
estimated to be around 1500 Cr., growing at 18-20% per annum. Cadbury is the market leader
with 72% market share. Amul stands third, after Nestle.
 In the ice cream market it faces competition from firms like Kwality, Vadilal and Mother
Dairy. While AMUL holds a market share of 38%, Kwality, Vadilal and Mother Dairy
follows with respective shares of 14%, 12% and 8%.


 Moreover in almost all categories there is presence of local retailers and processors and milk
vendors. Rivalry intensifies as each of the competitors has different lines and this would in
turn depend on the importance the line holds for the competitor.
• Mergers and acquisitions:
As such in the industry there are no mergers or acquisitions. However if any MNC wishes to
enter through this route then the competition might be severe.

V. Threat of substitutes
• Availability of attractive priced substitutes:
Different substitutes are available for different category of products. There is ample availability
of low priced substitutes from local vendors and retailers. This is a front where GCMMF is still
finding hard to combat.
• Satisfaction level of substitutes:
Customers do consider these products as equal on quality if not better then the products of
GCMMF. Hence the rate of customers switching to the substitutes is very high. Moreover the
buyers also can switch to the customers easily without any hurdles.
• Not immediate substitutes:
Distant substitutes are present in many of the categories of business of GCMMF. For example in
the Masti Buttermilk category it faces competition from cold drinks and ice cream.
These 5 forces interact among themselves at different degrees over a period of time. Moreover it will get
intense or loosen up depending upon the moves of its competitors, buyers, suppliers, etc. However
GCMMF has been able to outperform on almost all fronts excluding a few lines of business.

S W O T Analysis

Strengths
• Brand image
Amul has been synonymous with India’s White Revolution and successful model for rural
development. The role played by Amul in promoting livelihoods of millions of milk producers in
India has earned the organisation the goodwill and trust of people in the country. Besides, the
innovative ad campaigns featuring the Amul girl, has positioned Amul as one of the most
recognizable brand in the country, which it can leverage on for further growth.
• Strong distribution network


Amul products are available in over 5,00,000 retail outlets across India through its network of
over 3,500 distributors. There are no other competitors with such a strong network in India. Such
a strong network helps Amul in gaining market penetration and thereby making it a household
name in India.
• Innovation
Amul came up with the idea of targeting the health conscious and diabetes affection people of the
nation. In accordance to this, Amul has come up with two new products: Amul Sugar-free
chocolates and Amul pro-biotic ice-creams. There is no other competitor in national level for
Amul in this sector for this range of products.
• Availability of raw material and labour supply
There is abundant supply of raw materials for Amul products in India. The availability of cheap
and skilled labour in India adds to Amul’s strength. The below table gives data about raw
material, suppliers and employees:

17 District Cooperative Milk Producers' Unions
Members
(16 Members & 1 Nominal Members)
No. of Producer Members 3.18 Million
No. of Village Societies 16,117
Total Milk handling capacity per day 13.67 Million litres per day
Milk Collection (Total - 2011-12) 3.88 billion litres
Milk collection (Daily Average 2011-
10.6 million litres (peak 13 million)
12)
Table 1

Its daily milk procurement is approximately 13 million lit (peak period) per day from 16,117
village milk cooperative societies, 17 member unions covering 24 districts, and 3.18 million
milk producer members.
For example, in the production of Amul Fruit & Nuts ice-cream the following materials and
labor is easily available:
(i) Direct materials
To manufacture one ice cream cup below are the components or raw materials required:
 Dry Fruits: 3%
 Milk: 70%
 Flavours: 5%
 Sugar : 16 %
 Cup : 2%
 Other: 4%
(ii) Direct Labour


There are 17 workers employed in the production of ice-cream and each worker is paid Rs.
2000 per month.

• Wide range of products
Amul offers a wide range of products across different market segments. Amul sells products ike
milk, ice cream, curd, milk powders, milk additives etc. Offering new products to customers
continuously ensures customer loyality. Below is a table showing all the products that Amul
produces, also present are the brand names under which these products are sold.

Product Brand

Breadspreads Amul Butter, Amul Lite, Delicious Table Margarine

Amul Pasteurized Processed Cheddar Cheese, Amul Processed Cheese
Spread, Amul Pizza (Mozarella) Cheese,Amul Emmental Cheese,
Cheese Range
Amul Gouda Cheese, Amul Malai Paneer (cottage cheese), Utterly
Delicious Pizza

Amul Gold Full Cream Milk 6% fat, Amul Shakti Standardised Milk
Fresh Milk 4.5% Fat, Amul Taaza Toned Milk 3% fat,Amul Slim & Trim, Amul
Cow Milk

Amul Gold 4.5% fat Milk, Amul Shakti 3% fat Milk, Amul Taaza
UHT Milk Range
1.5% fat Milk, Amul Lite Slim-n-Trim Milk, Amul Fresh Cream

Amul Full Cream Milk Powder, Amulya Dairy Whitener, Sagar
Milk Powders Skimmed Milk Powder, Amulspray Infant Milk Food, Sagar Tea and
Coffee Whitener

Amul Kool Flavoured Milk, Amul Kool Cafe, Amul Kool Koko,Amul
Milk Drink Kool Millk Shaake, Amul Kool Chocolate Milk,Nutramul Energy
Drink

Health Drink Stamina Instant Energy Drink

Brown Beverage Nutramul Malted Milk Food

Amul Masti Dahi (fresh curd), Amul Masti Spiced Butter Milk,Amul
Curd Products
Lassee, Amul Flaavyo Yoghurt

Pure Ghee Amul Pure Ghee, Sagar Pure Ghee

Sweetened
Amul Mithaimate
Condensed Milk


Mithaee Range Amul Shrikhand, Amul Mithaee Gulabjamuns, Amul Basundi,Avsar
(Ethnic Sweets) Ladoos

Ice-cream Sundae Range, probiotic,,sugarfree and probiotic

Chocolate & Amul Milk Chocolate, Amul Fruit & Nut Chocolate, Amul Chocozoo,
Confectionery Amul Bindass, Amul Fundoo
Table 2 Different products and brands of Amul

Weaknesses
• Perishable nature of its products
The products of Amul are perishable in nature and there is a proper requirement of cold storage to
ensure freshness and longer shelf life for its products.
• Uncertain supply of raw material
The milk yield can get affected by external factors such as monsoon, availability of fodder,
general health of the cattle etc.
• Weak infrastructure
As compared to other players in the market including MNCs, Amul has got weak infrastructure.
• Government intervention
Government intervention into operations has led to politicization of Co-operatives. This has led to
percolation of corruption and favouritism. This might lead to lack of competence and takes the
focus away from operational efficiency.
• Lack of proper implementation
The average milk marketing and procurement by cooperatives during the last four years is given
below:-
Ten ministries and departments are administering the dairy sector. Ministry of Health deals with
food safety and quality. Ten legislations in force are:
1. Prevention of food adulteration act 1954 & rules.
2. Essential commodities act, 1955, administered by Ministry of consumers’ affairs by enforcing
following orders:
(i) Standards of Weights & Measures act 1976.
(ii) Consumer protection act, 1986.
(iii) Infant milk substites Act 1992 & 1993
(iv) Insecticide act 1968.
(v) Export Quality control & inspection) Act 1963
(vi) Milk & milk products order, 1992.
(vii) Environment Protection Act 1986


(viii) AGMARK Act 1937, 1986
(ix) Bureau of Indian Standards Act, 1986

Multiplicity of laws & rules in dairy sector leads to lack of implementation and confusion in the
minds of manufacturers and traders.
The advisory and regulatory role of government towards formulation of food standards cannot be
questioned. Suggestions can definitely be made. Amul’s dairy development programmes have not
been fully implemented across the country in different agro-climatic zones.
Opportunities
• Processing raw materials for adding value:
There is a vast scope for processing milk and making a variety of products from the same. Amul
can come up with a diversified range of products as there is the availability of all primary
resources like raw material, labour, finances etc, also with a well established brand image, Amul
can produce related products and reap the profits from the same.
• Globalization And increasing Export potential:
Amul is exporting its various products to various countries like Bangladesh, Sri Lanka, Nigeria,
and the Middle East. Opportunities for the export of Agri-products are increasing in general and
the increase in export of dairy products is also expected. Globalization has integrated the world
market and has increased opportunities of various companies like Amul.
• Diversification into related products:
Amul can diversify into related products which may be already in the market; it may take a large
chunk of the market share from the existing producers due to its brand image, which can help in
generating the sales for its newly launched products. Biscuits, sports drinks, packaged sweets are
potential products that can be launched by Amul successfully.
• Innovation:
Innovation is an opportunity to any firm to increase its market share, product diversification and
market segmenting. Amul being one of the largest dairy firms in India, it is its responsibility to
bring about technological advancements in the dairy industry and owing to its size Amul can do it
quite easily.

Threats
• Milk vendors can degrade the quality of raw milk:
Milk vendors can pose a threat to the company as they are only concerned with the profit they are
going to earn from milk. The quality of the milk is found to be poor as compared to the
international standards. Companies like Amul have now to check the milk properly before it is
sold to the end consumer.


• Threat from the global companies:
Due to globalization a large number of multinational companies may get attracted towards
manufacturing their products in India due to abundant availability of raw materials and cheap
labour force, which may increase the competition for Amul. It may create shortage of milk in our
country and can adversely affect the companies like Amul and the increase in the price due to
shortage of milk may affect the end consumer.
• Use of technology by foreign companies and quality consciousness of foreign consumer:
Foreign companies are having improved technology like the collection of milk from cattle can be
done with the help of machines this leads to efficiency in terms of less wastage of time and,
further it is automatically disposed to various channels for processing or packaging of milk,
ultimately this helps in higher productivity involving less variable costs of labour and ultimately
low cost of production. However this type if system is not yet prevailing in India. Many European
customers emphasize on the collection of milk through machines due to their quality
consciousness. Because of these reasons they are reducing the market potential of Indian milk
products.

The study of this SWOT analysis displays that the 'strengths' and 'opportunities' of Amul outweigh its
'weaknesses' and 'threats'. Amul has a big market share in India where as in European nations it can create
its market demand by making the products which satisfy their standards.


AMUL’s Strategies
Amul’s business strategy is driven by its twin objectives of:
(i) Long-term, sustainable growth to its member farmers
(ii) Value proposition to a large customer base by providing milk and other dairy products a low
price.
Its strategy, which evolved over time, comprises of elements described below:
Simultaneous Development of Suppliers and Customers
From the very early stages of the formation of Amul, the cooperative realized that sustained growth for
the long-term was contingent on matching supply and demand. Further, given the primitive state of the
market and the suppliers of milk, their development in a synchronous manner was critical for the
continued growth of the industry. The organization also recognized that in view of the poor infrastructure
in India, such development could not be left to market forces and proactive interventions were required.
Accordingly, Amul and GCMMF adopted a number of strategies to assure such growth.
• At the time Amul was formed, the vast majority of consumers had limited purchasing power and
was value conscious with very low levels of consumption of milk and other dairy products. Thus,
Amul adopted a low price strategy to make their products affordable and guarantee value to the
consumer. The success of this strategy is well recognized and remains the main plank of Amul's
strategy even today.
• The choice of product mix and the sequence in which Amul introduced its products is consistent
with this philosophy. Beginning with liquid milk, the product mix was enhanced slowly by
progressive addition of higher value products while maintaining desired growth in existing
products. Even today, while competing in the market for high value dairy products, GCMMF
ensures that adequate supplies of low value products are maintained.
On the supply side, as mentioned earlier, the member-suppliers were typically small and marginal-
farmers had severe liquidity problems, were illiterate and had no prior training in dairy farming. Amul
and other cooperative Unions adopted a number of strategies to develop the supply of milk and assure
steady growth.
• First, for the short term, the procurement prices were set so as to provide fair and reasonable
return.
• Second, aware of the liquidity problems, cash payments for milk supply was made with minimum
of delay.
• For the long-term, the Unions followed a multipronged strategy of education and support. For
example, only part of the surplus generated by the Unions is paid to the members in the form of
dividends. A substantial part of this surplus is used for activities that promote growth of milk
supply and improve yields. These include provision of 12 veterinary services, support for cold
storage facilities at the village societies etc.


• In parallel, the Unions have put in place a number of initiatives to help educate the members.

To summarize, the dual strategy of simultaneous development of the market and member farmers has
resulted in parallel growth of demand and supply at a steady pace and in turn assured the growth of the
industry over an extended period of time.
Cost Leadership
Amul’s objective of providing a value proposition to a large customer base led naturally to a choice of
cost leadership position. Given the low purchasing power of the Indian consumer and the marginal
discretionary spending power, the only viable option for Amul was to price its products as low as
possible. This in turn led to a focus on costs and had significant implications for managing its operations
and supply chain practices.
Focus on Core Activities
In view of its small beginnings and limited resources, it became clear fairly early that Amul would not be
in a position to be an integrated player from milk production to delivery to the consumer. Accordingly, it
chose a strategy to focus on:
• Core dairy activities

• Rely on third parties for other complementary needs.
This philosophy is reflected in almost all phases of Amul network spanning R&D, production, collection,
processing, marketing, distribution, retailing etc.
For example, Amul focused on processing of liquid milk and conversion to variety of dairy products and
associated research and development. On the other hand, logistics of milk collection and distribution of
products to customers was managed through third parties.
• Proactive role in making support services available to its members wherever it found that markets
for such services were not developed. For example, in the initial stages, its small and marginal
member farmers did not have access to finance, veterinary service,knowledge of basic animal
husbandry etc. Thus to assure continued growth in milk production and supply, Amul actively
sought and worked with partners to provide these required services. In cases where such
partnerships could not be established, Amul developed the necessary capabilities and provided
the services.

Managing Third Party Service Providers
Well before the ideas of core competence and the role of third parties in managing the supply chain were
recognized and became fashionable, these concepts were practiced by GCMMF and Amul. From the
beginning, it was recognized that the core activity for the Unions lay in processing of milk and production
of dairy products. Accordingly, the Unions focused efforts on these activities and related technology
development. Marketing efforts (including brand development) were assumed by GCMMF.


All other activities were entrusted to third party service providers. These include logistics of milk
collection, distribution of dairy products, sale of products through dealers and retail stores, some
veterinary services etc.
It is worth noting that a number of these third parties are not in the organized sector, and many are not
professionally managed. Hence, while third parties perform the activities, the Unions and GCMMF have
developed a number of mechanisms to retain control and assure quality and timely deliveries. This is
particularly critical for a perishable product such as liquid milk.
Financial Strategy
Amul’s finance strategy is driven primarily by its desire to be self-reliant and thus depend on internally
generated resources for funding its growth and development. This choice was motivated by the relatively
underdeveloped financial markets with limited access to funds, and the reluctance to depend on
Government support and thus be obliged to cede control to bureaucracy.
Amul’s financial strategy may thus be characterized by two elements:
• Retention of surplus to fund growth and development

• Limited/ no credit, i.e., all transactions are essentially cash only.
For example, payment for milk procured by village societies is in cash and within 12 hours of
procurement (most, however, pay at the same time as the receipt of milk). Similarly, no dispatches of
finished products are made without advance payment from distributors etc. This was particularly
important, given the limited liquidity position of farmer/suppliers and the absence of banking facilities in
rural India.
This strategy strongly helped Amul implement its own vision of growth and development. It is important
to mention that many of the above approaches were at variance with industry practices of both domestic
and MNC competitors of Amul.

Recommendations on future strategies

Expansion of processing and packaging capacity
The company should plan on its expansion and through expansion the company should create fresh
avenues for growth by catering to the rising demand for new products, this would include increasing the
capacity for major product categories including milk powders, Ice-cream, paneer, cheese, curd, ghee and
other dairy products. Milk drying capacity will also be enhanced. In order to strengthen the presence of
company in the large market, for liquid milk Special emphasis will be given to metropolitan cities. The
company should plan to double its processing capacity of its plants to ~21 million kg per day. The basic
raw material of Amul products is milk and for increasing milk production nutritious feed should be
provided to animals. For this very purpose the company is planning to expand its cattle feed
manufacturing capacity by 2020. Amul's achievement of its mission will not only be beneficial for the
organization but it will be helpful for the development of economy as a whole.


Health conscious product line
 Sugar free chocolates and ice-creams - The health-conscious people usually avoid chocolates and
ice-creams fearing weight problem and diabetes. It is estimated that with 50.8 million people living
with diabetes, India has the world's largest diabetes population. By 2025, it is projected that there will
be around 80 million people in India suffering from this disorder. Also, published in the Lancet by the
Organisation for Economic Co-operation and Development (OECD), the study has found that
between 1998 and 2005, India's overweight rates increased by 20%. The market potential for these
product categories is untapped in India though awareness level about sugar-free products is increasing
dramatically in urban areas. We are aiming for diabetic patients as well as the age group of 25-45
years who are looking for an alternative product to regular chocolate bars. GCMMF is also planning
to launch Yogi, a fruit flavoured yoghurt brand, in strawberry, mango and pineapple. The product will
cater to the youth and the health conscious. "
 Probiotic ice cream - Amul is all set to storm the Ice cream market with a new range of probiotic ice
cream aimed at the total health conscious. To give a background of the need of probiotic products, the
gut microflora actively plays a role in health maintenance by modulation of immune system,
protection from pathogens and virus invasion through gastrointestinal tract. Amul probiotic wellness
ice-creams have been made to confer the health benefit of these probiotics. They improve immunity,
improve digestion, prevent gut infection, and manage traveler’s diarrhea.

Marketing and advertising strategy
In order to increase its market share in the future, following strategies would help Amul to do better
business In future:
 Initiative of the marketing team to tap key consumer outlets - Amul representatives should seek to
tap gymnasiums and centers for other physical activities to create an impact. Also, they can choose
sportsmen and athletes as an important target segment. They should have sportsmen as their brand
ambassadors.
 Exclusive distribution - Amul can choose to have prominent distributors who sell only Amul’s
products. This will create a stronger push in favour of the new product with the involvement of a
dedicated distribution channel.
 Shelf Positioning - The new product products should be placed prominently in distribution outlets to
catch the attention of customers. The benefits associated with the use of Amul should be highlighted
by means of promotional features.
 De-centralization of sales units - If sales units are decentralized, there will be better focus on a city-
to-city basis. The responsibility then falls on each unit to create distribution, promote the product
effectively and develop targeted marketing plans.


References:
Pankaj Chandra, Devanath Tirupati, “Business Strategies for Managing Complex Supply Chains in Large
Emerging Economies: The Story of AMUL”, Indian Institute of Management, Vastrapur, Ahmedabad,
April, 2003
Lalitha Srinivasan, “Amul scripts fresh growth strategy to take on rivals”, The Financial Express, June 19.
2008. [url=http://www.financialexpress.com/news/amul-scripts-fresh-growth-strategy-to-take-on-
rivals/324729/]
Company Report, “Amul plans sugar-free chocolates, ice-creams”, FnB News, Dec 23, 2003
[url=http://www.fnbnews.com/article/detnews.asp?articleid=19599&sectionid=7]
Amul Prolife Probiotic Wellness ice cream - India’s First Probiotic Ice cream,
[url=http://toi.amul.com/icecream/aprobioticwellness1.html]
“Amul as a brand name”, [url=http://www.ukessays.com/essays/marketing/amul-as-a-brand-name.php]
Alok Jha, Amit Patel, Pranav K Singh, “Souvenir National Workshop on Entrepreneurship Development
in Dairy and Food Industry”, National Dairy Research Institute, Karnal, December 23, 2005
“Diabetes facts”, March 15, 2012, [url=http://www.worlddiabetesfoundation.org/composite-35.htm]
“India in grip of obesity epidemic”, Times of India, Nov 12, 2010
[url=http://articles.timesofindia.indiatimes.com/2010-11-12/india/28245306_1_obesity-india-and-china-
overweight-rates]
“Dairy Development”, National Dairy Plan 2007-08 to 2020-21, Department of Animal Husbandry,
Dairying and Fisheries, Ministry of Agriculture, Government of India
[url=http://dahd.nic.in/dahd/division/dairy-development.aspx]
“Diabetes: The 21st century epidemic”, Global Diabetes Research Centre
[url=http://www.globaldiabetes.org/background.html]
“About Us - The Amul Model”, [url=http://www.amul.com/m/about-us]
“Organisation”, [url=http://www.amul.com/m/organisation]
“Cost of living: Delhi tops chart in India”, Feb 17, 2012
[url=http://articles.timesofindia.indiatimes.com/2012-02-17/delhi/31070708_1_expenditure-urban-areas-
rent]

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