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The Amul concept

K. Ramesh

BUSINESS needs ideas, not merely money. Ventures run on just money, but starved of ideas, would eventually fall prey to competition and perish. And, if ideas are available in abundance, business can overcome other handicaps, including its relative weaker money power, compared to that of its rivals. The success story of the Gujrat Co-operative Milk Marketing Federation (GCMMF) proves this point.

GCMMF, known through its popular **desi brand, Amul, budgets its turnover currently around Rs 2,250 crore, to reach a staggering Rs 10, 000 crore by 2006-07, capturing a greater market share, confronting even MNC brands with greater wherewithal.

Generally, food products being consumable, are recession-proof. Mckinsey has estimated that the food processing industry has a market of $60 billion in India. Given this huge potential, what specific ideas of Amul ensure its rapid growth?

Amul's central idea seems to be that of marketing for the poor to use the expression of the eminent Management guru, Mr C. K. Prahalad. The latter identified that India has enormous potential in taking its various products and services to the masses at affordable prices. Amul's latest offer, Amul pizza, is priced attractively around Rs 20, at a fourth of its competitors. Such price-leadership is possible by:

*Cost-effective production, including primarily, procurement of milk from over two million dairy farmers which, in turn, assures poor farmers reasonable prices.

*Climbing up in the value-chain by diversifying in value-added products, such as milk sweets, ice creams, pizzas, confectioneries, truly as a food company, rather than merely selling milk, to be known only as an organised milk-vendor.

*Sustained building of loyalty of customers, not by promoting individual products, but all products under the umbrella of its premium brand, Amul, by investing a good 40 per cent of its ad budget towards brand promotion.

*Facilitating reach to customers throughout the country by a strong chain of distribution outlets. The investment in relationship with business partners -- both farmer-based co-operatives and distribution net-works -- for purchasing and selling functions respectively, enables Amul enter into any food category without much time or investment.

Thus, in just less than 15 days after launch, Amul was able to sell 19,000 pizzas everyday, and expects this figure to go up to 100,000 by the end of this financial year. The novelty in concept, right from sourcing of basic ingredients, cost-management, production, marketing, distribution, selling all tailor-made to country-specific requirements -- seem to reward Amul.

True, multinationals generally have certain inherent strengths such as technology, brand, financial muscle power, global experience and so on. But, equally true is that such firms by their very nature, cannot operate below a certain cost-level, in certai n niche areas, where the country naturally offers cost-advantages.

It is precisely for this reason that there have been increasing shifts of outsourcing of various back-office functions, and IT-enabled services from companies abroad in a variety of businesses, that are expected to reach a huge $17 billion per annum by t he end of 2008.

At a time when Indian business houses lament high cost of production owing to high input charges -- be they power, port, freight, taxes, octroi, cost of capital and other transaction costs -- identifying such niche areas themselves lead to competitive ad vantage. And, if such specific segments are further pursued with sound strategies, to sustain those business strengths and to constantly compete with the global players, Amul's idea is worth emulating, is it not?