Butter girl gets tough!

At a dairy farm in Manchar on the outskirts of Pune, a fourhour drive from Mumbai, about 200 cows await their turn to be milked. They wait like shoppers in the billing queue of a supermarket, quiet and orderly. One by one, the cows step onto a 20-feet rotating circular platform and rubber hoses are attached to their udders. Once milked, the cows themselves kick away the hoses. "Minimal human effort, maximum milk produce," gushes Devendra Shah, Chairman, Parag Milk Foods, which started its operations in Manchar in 1993.

The company has spent over Rs 4 crore on its rotary milking parlour, the first in India. The 3,000-plus Holstein cows, purchased at Rs 40,000 apiece, are treated to a special diet of calcium-rich feed and mellifluous bhajans in their sheds. "The music increases their milk produce," claims Shah, citing that each cow produces 25 litres of milk a day. "It's total cow comfort technology. These are the standards we need to adopt if we need to compete with international players in products like cheese," he adds. And cheese is where Shah's immediate ambitions lie.

With a turnover of about Rs 550 crore, Parag Milk Foods has been selling milk and ghee in Pune and Mumbai since the mid-90s. But in the last one year, the company's focus has shifted to products like cheese and flavoured yogurt. It has invested Rs 110 crore to build what it claims is Asia's largest cheese plant (with a capacity to process 40 tonnes of raw cheddar daily). "Cheese from this plant is right now being sold in South Korea. Within a few months of our launch, we have cornered a 30 per cent market share of cheese sales at modern retail outlets in Mumbai. Our competitors are the Krafts and Laughing Cows of the world. With our superior product quality, we are not even competing with the Indian dairy players," says Shah.

Some 450 km away, lounging in his spartan office in Anand in Gujarat, the mecca of the Indian cooperative movement, B.M. Vyas would be tempted to disagree with Shah's claims. After all, as MD of India's largest and only billion-dollar cooperative dairy player, the Gujarat Cooperative Milk Marketing Federation (GCMMF), Vyas has seen competitors make more audacious claims in his 16-year tenure as MD. GCMMF sounds like a mouthful, but the brand name under which the cooperative sells its products, Amul, is, perhaps, the most recognised and revered dairy brand across the country.

This despite the fact that, unlike Parag Milk Foods' state-of-the-art dairy farm, Amul's milk is collected by dairy farmers every morning largely by hand. "The fact that 2.7 million farmers wake up early each morning to milk their cows and then give it to us is our biggest strength," says Vyas. He is no stranger to pretenders challenging Amul's dominance. "Amul has seen competition in the past. It really does not worry us," he says matter-of-factly.

A mildmannered, portly man of 59 years, Vyas has managed the cooperative since 1994. When he took over Amul, GCMMF's turnover was a little over Rs 1,000 crore. Today, that has increased over six times to Rs 6,700 crore. Back then, Amul was viewed as a brand that would not survive the pressures of competition in the post-liberalisation era. Vyas and Amul have not just survived the onslaught of competition, but have often taken the fight to their territory (as it did in ice creams a decade ago, when it dethroned Hindustan Unilever Ltd (HUL)—then Hindustan Lever Ltd—from pole position).

Taking on competitors in a category or two at the same time is something Amul has done before. But the threat today is different, and huge. That's because never before has Amul been buffeted by as much competition as it is today, across every category it operates in—right from pouched milk and butter to cheese and ice creams. Other than HUL and Nestle, multinational giants like Kraft (which recently acquired Cadbury globally, thereby getting a passage into India) and Groupe Danone are beginning to flex their muscle. "We hope to bring some of our big brands like Kraft Cheese and Oreo cookies to India. With Cadbury's distribution strengths, we can push some of these brands in India," Sanjay Khosla, President (Developing Markets), Kraft, recently told BT. Groupe Danone is looking at tapping into the small, but fast-growing flavoured milk market. It's currently testing a chocolate-flavoured fortified milk in Hyderabad.

Regional players, too, are upping the tempo. Other than Parag, there's Amrit Group in Kolkata, which plans to launch valueadded milk products. Says Harish Bagla, MD, Amrit Group: "We are coming up with various value-added products like flavoured milk, dahi, lassi, cheese, butter, paneer and ice cream." Bagla's also exploring tie-ups with international companies. Finally, don't forget Johnnies-come-lately like Zydus Wellness—which has carved a niche for itself in butter alternatives—that are opening up new markets.

The biggest threat to Amul, though, could well come from its one-time friend but now a bitter rival, Mother Dairy, a subsidiary of the National Dairy Development Board (NDDB). In mid-February, Amul made a bold claim when it declared itself as the #1 player in the branded packaged milk segment, with sales of 1.45 million litres daily, in the Delhi market, a traditional stronghold of Mother Dairy. Within a day, the New Delhi-headquartered Mother Dairy shot back. "Mother Dairy sells approximately 29 lakh litres of milk per day in Delhi NCR, which is about twice as much as that of the nearest competitor," says Paul Thachil, CEO (Dairy & Foods), Mother Dairy Fruit & Vegetable.

Amul's counter: "We do not operate in the loose milk segment and our figures are only for the pouched milk category," says R.S. Sodhi, Chief General Manager (Marketing), Amul. Mother Dairy is the leader in the loose milk segment. "These little things happen in marketing," chuckles Sodhi about the game of oneupmanship. Incidentally, Mother Dairy was set up by Dr Verghese Kurien, the man who transformed GCMMF from a struggling dairy in Anand into India's largest foods producer. "We will grow the market when we compete," says Vyas.

"Amul and Mother Dairy are both different sides of the same coin," he adds rather diplomatically. Quiz him about why then did Amul choose to drop the "milk drop" symbol (which is owned by NDDB but which both cooperatives willingly shared for years) from all its pouched milk packets and the answer is a wry: "Amul is Amul. We were born before every other droplet." Incidentally, both NDDB and GCMMF have been battling each other for milk procurement in the Saurashtra-Kutch region after GCMMF started procuring milk there earlier this year. The dairy farmers in the region are not complaining as milk prices have gone up.

Make no mistake: With their common cooperative roots and procurement strengths, Amul versus Mother Dairy is going to be the big battle ahead. "It may take some time for Amul to dislodge Mother Dairy in the North, where the latter has a great distribution network. But think about this—Amul entered the pouched milk segment in Delhi only in 2005 and today it's giving Mother Dairy a run for its money," says an analyst with a foreign broking firm who covers the FMCG sector. Mother Dairy has over 14,000 retail outlets and 845 exclusive outlets, mostly in the northern region.

"We are present in milk, ice cream and fresh dairy categories in the Delhi NCR market. Our distribution network is very strong and we further plan to expand it by 15 per cent in milk and 25 per cent in the other two categories in the coming year. We also have 1,100 own outlets in Delhi NCR," says Thachil, who expects the dairy to touch a turnover of Rs 4,000 crore this fiscal. Mother Dairy, he says, has been growing at 25 per cent year-on-year and is likely to do so in the near future.

Other competitors, too, are lining up for a slice of the fastgrowing Rs 2,30,000 crore Indian dairy market, the bulk of which is unorganised. Just the organised branded milk distribution market is estimated to be close Rs 30,000 crore. "More importantly, value-added products like cheese are growing at the fastest rates globally. Our per capita consumption of cheese, for example, has tripled since 1995. The market is growing at 25 per cent per annum at least," says an analyst with a foreign brokerage.

Another factor that has contributed to the renewed interest in the dairy sector has been the growth of modern retail. "The cold chain is very crucial to the dairy business," explains Anand Ramanathan, Manager, KPMG Advisory Services. "With modern retail coming of age in the last 3-4 years, the cold chain fell into place. For the dairy players themselves, to set up a cold chain was not possible earlier as it is a very capital intensive affair," he adds. Market watchers believe that Mukesh Ambani's Reliance Retail, which is readying to sell milk to general distributors under the brand name Life, is a great example of a company attempting to utilise its cold chain better by entering the dairy business.

A cold chain is just one of the important pieces that has to be in place. Another is the product itself and how different it is from those of the established players. A company selling plain cheese slices is unlikely to loosen Amul's or Britannia's grip on the cheese segment. The new players seem to be aware of this. Amrit Group's Bagla, for instance, is targeting milk products for different consumer segments, including kids, senior citizens and pregnant women. Parag will also launch chilli, Spanish tomato and pepper-flavoured cheese, all under the Go brand and customised for the Indian palate.

Parag splurged another Rs 6 crore on an advertising blitz, between January and March this year, to push it products under the brand name Go. "We will differentiate ourselves by offering international quality products and a bouquet of variants like pizza cheese, cheddar, mozzarella, wedges, slices," says Rahul Akkara, VP (Marketing), Parag Milk Foods. Incidentally, the Go cheese mascot, a rather lascivious looking cow, looks like a not-so-distant cousin of French cheese maker Fromageries Bel's Laughing Cow.

Another key parameter for success in the dairy business is backward integration. "In the fresh foods business, procurement is everything. The farmer is the backbone of this business," says Vyas. That would explain why big names like Nestle and Britannia couldn't make a dent in the butter and pouched milk markets, respectively. "Without backward integration, you are bound to fail. You have to be a C-to-C (cow to consumer) company to succeed. You cannot procure milk from somebody, slap a label, advertise it and hope to succeed. That's been the failing of the MNCs in India… it's a long-term game of patience," explains Sodhi.

It's a game Vyas is very good at playing. And he has had a lot of practice. "Vyas is a person who never loses heart if something does not work out," says a former Amul employee. "He just moves on and attributes the losses to learning," he adds, citing examples of Amul's not-so-successful outings with pizzas, chocolates and an Amul card (a kind of a debit card for Amul customers). Every evening, Vyas gets an Excel sheet on his e-mail, something called aaj ka scorecard (today's scorecard). It details sales data across product categories, from paneer to pouched milk, from gulab jamun to ice creams.

More crucially, Vyas is already looking at the future. On his desk lies a 150-page tome called Vision 2020 (an internal business plan). It's something Vyas is reluctant to talk about, in detail. But here's a teaser. "By 2020, at the current growth rate (of 28 per cent), we expect to be generating revenues of around Rs 30,000 crore. If we go by our 2008 growth rate (23 per cent), we should be about Rs 28,000 crore," says Vyas. "That means that everything we have built in terms of capacity, market size since 1947 will have to be doubled in the next 12 years."

Amul has already ordered equipment to build plants to address market opportunities in 2015. Insiders reveal that preliminary groundwork, including site identification, for a massive milk powder plant at Ahmedabad (to be commissioned five years hence) is under way. In his annual address in June 2009, P. Bhatol, Chairman, GCMMF, had suggested that to create such infrastructure, investments to the tune of Rs 2,600 crore would have to be made by 2020.

Another focus area for Amul is retailing. Back in 2002, Vyas had been invited by Future Group boss Kishore Biyani for a social function. "At the function, Biyani had suggested that we become strategic sourcing partners of the Future Group," recalls Vyas. "Around the same time, I read in the newspapers that dairy farmers in Germany and France had gone on strike, asking for better prices from large retail groups. The big retail groups relented quickly and I realised that they had big margins and were exploiting the farmers," he adds. To avoid a similar situation, Amul experimented with a small store format, starting with a store inside a park whose upkeep Amul had taken up. Now, Amul opens almost three stores a day and has over 5,000 retail outlets. Vyas expects to have to 10,000 Amul outlets by 2011. Revenues from the stores have crossed the Rs 200-crore mark.

Brand Amul is also, perhaps, changing in subtle ways. During the past year, the Amul Butter Girl, the Peter Pan-esque mascot which has graced Indian hoardings since 1966, started appearing on Amul milk packets. "The Butter Girl has come to symbolise the goodness of Amul's products," says Rahul DaCunha, whose agency DaCunha Communications has been handling the Amul Butter Girl for over four decades. "It's come to symbolise the whole brand, in some ways. Amul is the last of the great Indian brands from that era that's still relevant," he adds, citing that his agency has churned over 2,600 campaigns.

Vyas, though, does not dwell in nostalgia. "What we are today is because of the homework we did 10 years ago. I am laying the groundwork for 2020 now," he sums up. The competition will be watching.