Cover Story: The Taste Of Competition [Pg. 2]

Price is without doubt the source of Amul's edge over the competition, but that doesn't mean the co-operative isn't familiar with other marketing weapons. In August, Nestlé discovered that to its disadvantage, when it launched its eponymous brand of butter in the Delhi and Mumbai markets. The refrigerators of the key retailers it had identified for the launch, were overflowing with Amul butter, which normally sells so much that retailers don't have much of it in storage. ''We knew where they would go and flooded the market with Amul butter,'' grins Sodhi. And, given GCMMF's wide range of products no retailer could say no.

The co-operative will have to fight and win more such battles before it can realise its ambitions of being a food major. But distribution surely won't be its Achilles' heel. With 40 product categories, 300 stock keeping units, 100,000 retailers with refrigerators, a 18,000-strong cold chain, and 500,000 non-refrigerated retail outlets, GCMMF is no marketing minnow and it is now learning to flex its distribution muscle either to make life tough for new entrants, or to push its new offerings.

Cold chains, believe analysts like Motilal Oswal Securities' Shalini Gupta, are a tremendous source of competitive advantage in this business. ''Amul was scoring over HLL in ice creams simply because it controlled the milk and butter outlets that also stock ice creams.'' Now, HLL is trying to put one over Amul by building a network of franchised ice cream parlours and kiosks.

It is, however, in the launch of its new products that GCMMF will find the cold chain most useful. If Amul has set out to enter the frozen pizza business overnight without worrying about logistics, it is on the strength of this existing 18,000-strong chain. Vyas is also not averse to taking the fight to the competition.

Thus Nestlé, which is gnawing away at GCMMF's dairy products range finds itself facing competition in its staple baby foods market from the co-op. ''We'll hit the enemy where it hurts most,'' gloats Vyas. Predictably, Amul Infant Milk Substitute will be priced lower than Nestum and Cerelac, and given GCMMF's distribution muscle Nestlé has reason to be worried (the company refused to speak to BT for this article). Amul's condensed milk brand Mithai Mate has eroded market leader Milkmaid's dominance. Today, Mithai Mate has a 30 per cent share of the market.

Vyas is also betting on Amul's ability to get more bang out of its advertising buck. Thanks to its brand mascot, the Amul girl, the co-op has been able to get away with spending just one per cent of its revenues on advertising. In contrast, the competition spends anywhere between 7 and 10 per cent on advertising.

And unlike the competition, that burns money on product-advertising, Amul spends close to 40 per cent of its annual advertising budget on the umbrella brand through its best-selling Taste of India campaign. This, explains Shashi Sinha, Executive Director, FCB Ulka, and Amul's main advertising agency, bestows the brand with a benefit that stays relevant across categories. ''Amul is all about taste, in the context of needs, and emotions.''

Price may be Amul's most important differentiator, but it is just the front-end of a strategy that involves roping in other co-operatives across the country-Delhi and Bangalore-based Mother Dairy or Akluj Dairy in Maharashtra-to help GCMMF in the critical functions of procurement and manufacturing. "We have realised that if we are to succeed as a food company, we can do so only by procuring and manufacturing through other co-operative federations, ''says Vyas. That shouldn't be too difficult.

Thus, its gameplan for the confectionery business is built around an alliance with CAMPCO, the Karnataka-based cocoa farmer's co-operative which produces 5,000 tonnes of cocoa products every year. Amul ice cream is manufactured in three GCMMF facilities in Gujarat, and four non-GCMMF co-op facilities outside the state. Today, GCMMF has nine such alliances with other co-operatives, and Vyas is in the process of scripting 10 more.

It is on the strength of just such an arrangement with Maharashtra Dairy and Pune Milk Co-operative in Maharashtra that Amul is re-launching its brand in the 35 lakh litre a day liquid milk market in Mumbai. And once the frozen pizza business takes off, GCMMF can probably tap Mother Dairy's Safal as a source of frozen vegetables.

Apart from helping Amul keep capital costs low, these alliances will prove critical in the case of low-shelf life products like milk and curd. And the ability to outsource products from other co-operatives will help GCMMF keep its wage cost low. Its wage costs in 2000-01 were 0.8 per cent of sales; HLL's, although the MNC's revenues were nearly five times GCMMF's, were 5 per cent of sales.

''Today, my strength lies in (the ability to tap into) farmer co-operatives,'' says Vyas. ''If I want to enter sugar-boiled confectionery, all I have to do is tie up with a sugar co-operative.'' That should certainly help, but is there a downside to being a co-operative? Raising money seems to be the least of GCMMF's concerns. ''I have a father-in-law in NDDB, for money as and when I need. Why should I then tap the market,'' says Dr. Kurien, referring to GCMMF's relationship with the apex dairy co-operative federation in the country. Over the next four years, GCMMF will invest Rs 400 crore in its foods offensive; apart from NDDB, other sources of these funds will be loans from banks and debentures issued to the members of the co-operative.

The Government's decision allowing multi-state co-operatives, like GCMMF, to become producer companies will help reduce state governmental control and interference, and enhance its autonomy of functioning.

Does Amul have the marketing wherewithal to compete with the men? It does have a close relationship with the Institute of Rural Management, Anand, from where it recruits 10 young managers every year. But middle- and senior-management salaries in the co-operative are not really comparable to those in companies like HLL and Nestlé. ''GCMMF typically pays a middle or senior level executive 40 to 50 per cent of what he will get in HLL,'' says Ronesh Puri, Managing Director, Executive Access, a head-hunting firm. Kurien's response to this is typically Kurien. ''How much should a farmer pay his employee? 50 times his own earnings?'' Well, he at least needs to pay him enough to ensure he's not tempted by the (taste of) competition.

"We are playing the role of a market leader"

B.M. Vyas, MD, GCMMF

"We are playing the role of a market leader"

Q. What's your vision for brand Amul?

A. Our value chain, for the consumer, was stopping at the stove. You can't eat my butter, ghee or even cheese straight away. We will now get into products that go straight into the consumer's mouth. Amul will be a food brand, for pizzas, traditional Indian sweets, confectionery, baby foods, long life milk, curd. We are building the products for the future

What is your strategy in the pizza market?

We already sell 19,000 pizzas per day, more then both Domino's and Pizza Hut, individually. Show me a multinational that has been able to do this in just 15 days! Our Utterly Delicious factory-frozen pizza, will come in two-variants, a smaller 6-inch for the retailer and a bigger 8-inch for the take-home consumer market. The consumer pack is to beat the multi-national competition. However, what is going to give me volumes is the bulk trade pack.

How do you plan to grow your base in the ice cream market?

We're playing the market leader's role of growing the category, through Snowcap. Snowcap, in one litre, aseptically packaged tetrapack with six months shelf life at room temperature, will grow the market, the in-home consumption of milkshakes, kulfis, fruit salads, even traditional sweets like baasundi. Snowcap is the product of the future. HLL is not marketing ice cream mixes, we are. This year, we'll beat HLL in ice cream sales.

How do you take increasing competition in your traditional dairy line business?

What competition? There is no competition in butter! Britannia is forever on a promotional crutch, because the throughput of its brand, at the retailer, is very low. Yes, Nestle is trying very hard to market its brand of long life milk (Nestle Doodh), but we beat them on sheer price and geographically-spread manufacturing capacities.

You have been lying low on categories such as chocolates and milk additives. Is anything on the anvil here?

Now that the CAMPCO manufacturing facility is with us, we'll re-launch our chocolate range. To start with we have entered the Re 1 price-point confectionery market with Chocolairs and Milklairs. We'll shortly be launching a count-line product (a la Cadbury's Gems) and a puffed-rice centre chocolate product. In milk additives (Nutramul), we just like to sustain whatever capacities we have, because we don't have core competencies here.

What's is your biggest competitive strength?

In our endeavour to become a food brand, the relationship that we enjoy with other farmer-based co-operatives all over the country is my biggest strength. I can get into any new food category, without much time or investment.

Isn't GCMMF too price obsessive?

Yes, but that's the faith. We're a co-operative, with a vision to give the farmer the best price for his milk and the consumer the lowest price for the products he buys.