Amul's Diversification Strategy

Details

Themes: Brand Management
Period : 1996-2001
Organization : Gujarat Cooperative Milk Marketing Federation
Pub Date : 2001
Countries : India
Industry : Food, Beverages & Tobacco

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Case Code : MKTG014
Case Length : 7 Pages
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Why Diversify?

With the liberalization of the Indian economy in the early 1990s, and the subsequent entry of new players, there was a change in lifestyles and the food tastes of people. The new team that took over the management of the GCMMF in the mid-1990s hoped to take advantage of the change. The management adopted Total Quality Management (TQM) and set for itself higher benchmarks (in terms of growth). They also diversified the Amul portfolio, offering a range of food stuffs such as ketchup, jam, ice-cream, confectionaries, cheese, and shrikhand.¹¹

According to some analysts, this diversification was probably not entirely demand-driven. Being a cooperative, GCMMF was compelled to buy all the milk that was produced in Gujarat. And with milk production having increased since the mid 1990s, GCMMF had to make use of additional milk, and hence the pressure to make and market more and more processed-milk products. Amul had to expand the consumption base of milk-based products in India. It planned to make its products (butter and cheese) a part of the regular diet in most households.

Amul launched its new products with the intention of increasing the offtake of its basic milk products, including cheese. This in turn was expected to increase the earnings of the farmers. The pizzas were expected to increase the sale of its cheese. The entry into the confectioneries market was another avenue for increasing milk consumption. This flurry of launches helped Amul broaden its appeal across all segments. Price was an advantage that Amul enjoyed over its competitors. Amul's products were priced 20-40 % less than those of its competitors.

Analysts felt that Amul could price its products low because of the economies of scale it enjoyed. Amul created two new distribution set-ups: a cold chain for ice-cream, and another for limited life fresh foods like curd. Expecting the demand for ready-to- eat foods to grow, Amul prepared to leverage the ice-cream cold chain for a new range of frozen foods, beginning with pizza. However, some analysts felt that as the pizza's would be made by the retailers, Amul would have little control over the quality of the pizzas. That was why Amul was marketing the pizzas under the brand name SnowCap.

Said S K Bhalla, Chief of Quality Control, "The product has received premature hype. Meeting consumer expectations will be a challenge, until we make the frozen pizza in our own facilities." According to some analysts, Amul's obsession with keeping down manpower costs and dealer commissions could be a weakness. In ice-creams for example, Amul's retail commission in Ahmedabad city was 17.5% which was 10% lower than what competitors offered.

They also pointed out that Amul might not have the financial muscle that multinationals had to achieve rapid growth. However, all said and done, Amul seemed to be all set to make steady progress in the coming years with its products having become quite popular in both rural and urban households. Said Vyas, "We've handled liberalisation and globalisation far better than our transnational rivals. It has made us fitter than ever."

Exhibits

Exhibit I: Pizza Price Comparison
Exhibit II: Amul's Product Portfolio
Exhibit III: Market Share in Percentage (1999)

11] A dessert made of curd, cardamom, saffron leaves and sugar.