N.A. Shaikh, MD, Mother Dairy: To beat new corporate players, Mother Dairy is beginning to think like one

On December 27 last year, when Mother Dairy Food Ltd (MDFL)-a wholly-owned subsidiary of the National Dairy Development Board-signed a joint venture agreement with the Kerala Cooperative Milk Marketing Federation, it should have been business as usual. Except that it wasn't. By inking the deal, NDDB, set up in 1965 to replicate the success of Amul (from the stables of Gujarat Cooperative Milk Marketing Federation, GCMMF), was declaring war as much on Amul as other dairy marketers. To the industry watchers, the message was unmistakable: NDDB-or rather Mother Dairy, its flagship marketing company-was not going to be content playing a meek cooperative. It wanted to take on Amul and other multinational players and beat them at their own game.

The blueprint for the makeover is being drawn up as much in the Rs 1,000-crore Mother Dairy's Patparganj (Delhi) office as in nddb's Anand headquarters, chaired by "milkman" Verghese Kurien's protégée-turned-competitor Amrita Patel. Like his boss, Mother Dairy's Managing Director N.A. Shaikh, 55, speaks the same language. "Corporate or cooperative," says the NDDB veteran of 33 years, "is just a difference in nomenclature. Both serve their stakeholders, only in our case they are farmers and not investors."

At the core of Shaikh's concern is the growing gap between the milk procured from farmers and the milk sold to consumers. In 1997-98, 130.71 lakh litres of milk was bought from farmers every day and by 2001-2002 it had grown 34 per cent to 176.02 lakh litres per day. However, the sale of liquid milk in that period grew less than 19 per cent-from 112.94 LLPD to 134.23 LLPD. The issue for cooperatives like Mother Dairy is this: if they don't figure out ways to increase milk sales to keep up with the supply, oversupply will eventually lower prices and prompt farmers to switch to other activities. That, of course, defeats the cooperative's very purpose.

Then, private players have been cropping up in markets where the cooperatives traditionally held sway. In Delhi, Mother Dairy's bread and butter market, new contenders Nestle, Paras, Gopaljee, Gagan, and Britannia are beginning to flex their muscle. Fine, Mother Dairy still has 55 per cent share of the 41 LLPD market, but it is beginning to feel the pressure. Britannia is believed to be talking to Fonterra, a cooperative from New Zealand, for a joint venture. Its entry will directly threaten Mother Dairy's pole position in Delhi.

That apart, Amul has been making inroads into the capital. Last year, it came in with ice cream and butter and has since expanded its range to include dahi, mishti doi and shrikhand. In response, Mother Dairy has been filling up its pipeline too. Its ice cream launch has been followed by lassi, dahi and flavoured milk, and other milk-based products like butter are in the offing, but Shaikh wouldn't divulge the details. The cooperative even has five different types of milk-cream, skimmed, toned, double-toned, and homogenised toned milk-to appeal to a larger consumer base.

The point: To beat the new corporate players, Mother Dairy is beginning to think like one. All these years its attention was focussed on the backend, ensuring that the milk reaches consumers every day. Now, it is beginning to focus on the consumer and her needs. Its consumer research group of six regularly visits different schools and neighbourhoods to keep its finger on the consumer pulse. The launch of products such as butter and dahi last year was a result of this process. Its Safal brand of frozen vegetables vends through 279 self-owned retail outlets in and around Delhi. It even has a 100 per cent export oriented unit in Mumbai that sells to markets in countries such as the United States and The Netherlands. Says a Delhi-based industry analyst: "Corporate marketing is a different ballgame. Mother Dairy is trying to transform itself, but only time will tell whether it will be able to pull it off."

Branding is another area where Mother Dairy is getting down to work. The reason is simple. Earlier, when milk was a commodity, it could afford to not invest in the brand. But with competition fighting it for shelf space, brand building has acquired new importance. Two advertising agencies, Interphase (of FCB Ulka) and Interact Vision (Mudra) have been given the mandate to work out a new branding strategy for the cooperative, and the advertising spend is to be jacked up from nearly Rs 1 crore in 2001-02, though Shaikh wouldn't say by how much. Says an Interphase executive working on the brand: "They are reforming their image. We are going to see a resurgent Mother Dairy. They are talking more often to the customer now."

Increased customer interface has led Mother Dairy to remove "painpoints" in reaching the customers, who were beginning to complain about poor proximity of its booths. In the last three years alone, it has added 1,000 outlets and 150 bulk vending machines. Apparently, the pace of addition of outlets would have been faster, but for the long-drawn process of land acquisition. To strengthen the marketing team, Shaikh has repurposed people from other departments. For example, a former plant maintainance worker now works on the bulk vending team. Impressively enough, the cooperative has even managed to convince a mid-level executive from Hindustan Lever to join head its marketing subsidiary.

Expanding Reach

The key to Mother Dairy's future growth, however, is market expansion. Its new marketing subsidiary, Mother Dairy Food Ltd (MDFL), is trying to reach out to each of the 23 state federations, and striking a joint venture with them. The December deal with Milma, for example, involves co-branding the milk. Shaikh says about 15 dairy federations, including Vijaya (of Andhra Pradesh), Verka (Punjab), Saras (Rajasthan), Nandini (Karnataka), and Gokul (Kolhapur) are interested in joint ventures with Mother Dairy. "This joint effort is needed because it facilitates the movement of products for better marketing," explains Shaikh. Even today, Mother Dairy gets milk from five state federations comprising UP, Haryana, Punjab, Madhya Pradesh and Rajasthan.

Like in any marketing battle, price is a big issue in the dairy business. Despite a 5-6 per cent increase in producer costs over the last two years, Mother Dairy has kept its retail price for milk at Rs 13 a litre. How? By slashing its own costs-by some 25 per cent in the last two years-of processing using total quality management techniques. For instance, back in 2001 one litre of furnace oil was needed to process 250 litres of milk; today, the same quantity of furnace oil can process 400 litres of milk.

Impressively enough, such gains are coming from improvements at the operator level. The Patparganj dairy has been divided into a number of zones to enable easier house-keeping. A kaizen (or continuous improvement) movement encourages employees to identify improvements in their areas of work. A recent total productive maintenance (TPM) initiative has turned the focus on zero breakdowns and defects. Such initiatives are helping improve employee satisfaction too, which has gone up from 66 per cent in 1998 to 83 per cent last year.

A lean, mean Mother Dairy is precisely what Shaikh will need in his battles to come. The good news is that the overall market for milk and milk-based products is set to boom. According to Dairy India (a trade publication), milk production will touch 120 million tonnes by 2010 and per capita availability 275 grams per day. And the demand for products like ghee and cheese in the organised sector will soar-from 1 lakh tonnes to 2 lakh tonnes for of ghee, and from 4,200 tonnes to 15,000 tonnes for cheese. Shaikh's challenge then is to ensure Mother Dairy stays on top of the wave.