Milk and More
There may not be a chocolate river or the eccentric chocolate-maker Willy Wonka (like in Roald Dahl's Charlie and the Chocolate Factory) to greet you as you walk into Amul's new 1.5 lakh sq.ft chocolate factory at Mogar in outskirts of its headquarters in Anand, but the place surely entices visitors to indulge in chocolates without guilt. One walks from entrance to the production facility looking at life-size posters about therapeutic qualities of chocolates - that a piece of dark chocolate can keep heart disease away, that chocolates produce endorphins which make one happier, and that a dark chocolate drink can also help in post-workout recovery. The trivia on the walls will surely bring a smile on the face of chocolate lovers, especially the weight watchers.
For the Rs 41,000-crore Amul, known as a traditional milk and butter maker, chocolates are a way to connect with the younger consumers. "The Amul brand was considered conservative and old. We were being looked upon as a traditional milk, butter and cheese company. Chocolates have given brand Amul a new image. I am excited about the traction we are getting for our dark chocolates on social media platforms such as Twitter and Instagram," says R.S. Sodhi, Managing Director, Amul. Chocolates are not a new business for the dairy giant. All those who grew up in the '70s and '80s would remember the tagline, 'Amul Chocolates - A Gift For Someone You Love'. "We started chocolates in mid-'70s when we bought cocoa primarily to help the farmers of Kerala. Within two years, cocoa prices shot up by two-three times. After that milk continued to be our focus."
The company re-started experimenting with chocolates in mid-2017. This time, the intent is to make Amul modern and contemporary. "Our research told us that consumers wanted less sugar and more kick, so we came out with an entire range of pure cocoa chocolates." The facility can produce 20,000 tonnes of chocolates in a year. The dairy major has already rolled out over 50 dark variants, which include single origin chocolates from Peru, Ecuador, Ethiopia and Brazil. Sodhi says they are using 50 per cent capacity and will hit the 100 per cent mark within a year. However, this is just a start. On the cards are a dark chocolate drink, frozen chocolates and dark chocolates with fruit filling. Sodhi sees a tremendous opportunity to innovate and grow the Rs 5,000-odd crore Indian chocolate market.
Amul has so far invested Rs 350 crore in the new chocolate facility and hopes to make it a Rs 1,000-crore business in the next two years. While bulk of the excitement is around chocolates, Amul is testing waters in frozen snacks and bakery, too. Adjacent to its chocolate facility, on the campus of Tribhuvandas Food Factory, is its baking factory that makes butter cookies, breads and cakes. While the output is sold in and around Anand, it recently set up a bakery in Surat. Sodhi claims his bakery products use 100 per cent butter fat, unlike the other brands, which use a lot of vegetable fat. The frozen portfolio includes potato-based snacks such as potato wedges and burger patties.
The Social Angle
Amul's milk story has been about empowering its network of 3.6 million farmers from whom it collects 24 million litres of milk per annum. Sodhi claims the foray into chocolates, bakery products and frozen snacks is also an extension of Amul's ideology of empowering its farmer network. He hopes that the non-dairy business will contribute 10 per cent (currently 2 per cent) to the revenue, profits from which he will be able to plough back into the core dairy business. "The money will go back to the owners, who are the milk farmers. Milk prices, as you know, have dipped over 50 per cent in the past year and half and there hasn't been much improvement. So, we are looking at earning from other food categories and using the Amul brand name and distribution network," he says. The dairy major is sourcing potatoes from its dairy farmers in North Gujarat. "They were not getting good prices and needed money. So, to help them, we are buying directly from them, hence we are getting good prices," he says.
The foray into frozen snacks made sense as Amul has a well-oiled cold chain network across the country that it uses to sell ice-cream and other dairy products that require refrigeration. "Ice-cream mostly sells during summers and frozen snacks do well in winters. It will help our distributors take care of some overheads during winter," says Sodhi. He says the non-dairy business may not be a huge revenue churner but will give Amul top of the mind connect. "Our objective is not a huge top line but to be on top of mind. We have started getting a lot of traction through our new initiatives. It will give a huge push to our main categories like butter or cheese."
Amul's Challenge
While Amul chocolates enjoy a kind of residual equity and have a fair bit of recall in a market dominated by Cadbury, will a consumer buy Amul biscuits or frozen burger patties? The company's 70-year-old legacy is all about purity and fair practices and a consumer will definitely show interest. Also, since it is sourcing the ingredients directly from farmers, it may be able to offer its products at a lower price. But will the consumer repeatedly buy an Amul non-dairy product?
Amul could face multiple challenges in its non-dairy business, say industry experts. The first will be to break through the clutter as most of the products (barring chocolates) it has launched are me-too. Here, it will have to encounter entrenched players Britannia, Parle and ITC Foods in categories such as biscuits, cakes and bread. In frozen snacks, its competition is with the likes of McCain Foods, which has a similar product portfolio and a decent market share in urban markets. "Amul does have distribution might and can penetrate much deeper than McCain, but will the consumer at that end of the supply chain really consume frozen burger patties or French fries?," wonders former Dabur COO Kannan Sitaram, who is currently Venture Partner, Fireside Ventures.
Amul's new forays are more supply chain innovations and not so much product innovations. This, according to Sitaram, is not a bad idea provided the products are mass in nature. "They need to get into products which will give them scale," says Raghu Vishwanath, MD, Vertebrand, a brand valuation company.
So, instead of premium butter cookies, Amul would be better off selling mass biscuits, say industry stalwarts. "Since they have the ability to source directly from farmers, they will be able to give consumers a better price. The margins in mass biscuits are low and Amul can have an advantage over Britannia and Parle," says Sitaram. "They have to do things which will benefit the lowest denominator. They can't do niche," says Vishwanath.
An association with premium chocolates or cookies may not work for a company which promises to be the "Taste of India". Though the initial response to its dark chocolates has been good, Albinder Dhindsa, Founder of e-commerce grocery retail company Grofers, says consumers of niche food like to flirt with different products. "If a consumer is buying one niche product, he/she has the money to buy other niche products, too. Therefore, the differentiation has to be really strong."
"Gone are the days when brands ruled because of their distribution might. With the emergence of modern trade and e-commerce, winning in newer categories is no longer about distribution. The bigger brands are constantly being challenged by the smaller ones," he says.
While Amul is a clear winner in traditional dairy categories such as butter, milk, cheese and even products such as lassi and chach, it hasn't been too successful in flavoured yogurt or milkshakes where smaller brands like Epigamia are challenging it. While Amul is innovating in chocolates, it needs to do the same in premium bakery and frozen products, which as of now appear to be a copy of what others are doing.
But Sodhi doesn't see any reason why he will not succeed. "In butter cookies, for instance, we are using butter fat, and that is where we are differentiating. The butter cookies available in the market today have just 2-3 per cent butter fat. Our product has 24 per cent butter fat," he says. He also believes that his company is well poised to play in the premium space. "The trend has changed. Consumers want products made with fresh and good quality ingredients. A farmer's product is considered premium and Amul has a clear edge here. Today's youth want less sugar in chocolates. Our chocolate sales have multiplied in the last six months."
Brand Amul has been synonymous with health and purity. This could be a problem as its recent forays have been in the indulgence space. Indulgence and health don't go hand in hand and this may taint the brand in the long run, says Alpana Parida, Managing Director, DY Works - a design-led brand consultancy. "Amul is a monolithic brand. If there is a purity issue, it will kill the brand," she says. Parida recommends a sub-brand for all indulgence products, just as Titan did with its Fastrack brand. While Titan caters to people upwards of 35 years, Fastrack has carved a niche for itself in the youth segment.
Sodhi says be it cookies or chocolates, they are all made from Amul products such as butter. "Our ingredients are pure and we source them from the same farmers who sell us milk. So, selling them under the Amul name makes sense."
Still, marketing and FMCG experts doubt the dairy major's capability to manage its health and indulgence portfolios. "Amul is about branding commodities which they are extremely good at. However, chocolates and frozen snacks are indulgences and here brand stories work better. I am not sure about their expertise in creating brand stories," says Sitaram of Fireside Ventures.
Human Resource Challenge
The reason the industry is sceptical about Amul's marketing prowess despite iconic campaigns such as "Utterly Butterly Delicious" is its cooperative backing. The Amul board comprises heads of 17 district milk unions, all of whom have strong political linkages. According to a senior dairy sector expert, the core of the problem is management's incapability to understand the value of professional talent.
"Though Sodhi is a visionary and wants to take Amul to the next level, he has no support from the board in terms of professionals who actually understand the nuances of the dairy business. The board only wants insiders who can toe their line," says a senior dairy industry expert.
Parida of DY Works says though Amul keeps innovating, its innovations are random. It launched probiotic milk, nutrition drinks and flavoured yogurts which are hardly seen in the market today. "They pull out products before figuring out what has gone wrong. They are too distribution-oriented and have no focus on the brand," she says.
"The team is happy with a steady increase in milk prices every year which will give them an increase in turnover. They are not really bothered about incremental growth through brand building and marketing," says a senior dairy industry expert.
Despite being an iconic brand, Amul is hardly able to attract good marketing talent from leading business schools as its compensation culture does not have scope for paying high salaries. "They hire IRMA graduates, who push all their products. They believe in carpet bombing and don't have a dedicated team for each brand like other companies. As a result, only their hero products such as milk, butter and cheese get prominence and the rest are lost," says the dairy expert. "Unless they have a dedicated team to sell chocolates, bakery and frozen products, they will get lost just as many of their value-added products have," he adds.
As the dairy major looks at the next level of growth through its non-dairy portfolio, Sodhi, handpicked by former Chairman Verghese Kurien, is going to retire soon. The industry believes it is high time the company invests in professionals. "After Sodhi retires, Amul doesn't have a leadership team with his vision. If they don't bring in professionals, the brand will languish. In fact, they should have professionals on the board, too," says the dairy industry expert.
Sodhi, however, believes that their practice of grooming own talent to leadership positions is paying them rich dividend. "We don't believe in hiring migratory talent from other companies. Don't worry, Amul is in safe hands, we have a credible talent pipeline," he says.
The dairy mammoth's focus is to become a top of the mind food brand not just on the back of dairy (in which it has invested Rs 3,000 crore in the last one year) but on its non-dairy businesses too.
@AjitaShashidhar
