Amul’s FMCG Makeover

Every morning hundreds of dairy farmers line up outside the collection centre of the Shekhadi Milk Cooperative Society in Shekhadi Village, Gujarat bringing nearly 7,000 litres of milk. A few hours later, the milk is loaded in a tanker and ferried to a dairy plant in nearby Anand, the eponymous district headquarters popularly known as the milk capital of India. Anand is home to the Gujarat Co-operative Milk Marketing Federation (GCMMF), India’s largest food product marketing organisation that is synonymous with the Amul brand.

As one enters Anand, the Amul branding over shops, the numerous parlours and retail outlets give you a sense of the economy the dairy giant has created in that small district, albeit with a touch of simplicity. The minimal aesthetics on the outside and inside of the GCMMF headquarters makes you wonder whether it is really one of the most valuable dairy processors in the world. The simplicity stems from the philosophy and thoughts of Varghese Kurien, which makes the federation always conscious about how the farmers' money is spent.

At walking distance from the GCMMF headquarters is the Amul Dairy, where the milk from hundreds of villages like Shekhadi is processed. This dairy processes 30 lakh litres of milk daily, forming a significant chunk of the three crore litres of milk that Amul handles every day.

Organised Dairy Sector To Grow
Milk production in India has been growing at around 5-6 per cent. As per the latest provisional data from the Department of Animal Husbandry & Dairying (DAHD), milk production in the country stood at 221.06 million metric tonnes in FY22 which translates to roughly 58-60 crore litres per day.

However, the share of the organised sector in the total milk output in the country is 41 per cent, growing 9 per cent in the last three years, as per DAHD. This share is projected to increase to 54 per cent by 2026. This is where Amul senses a huge opportunity.

Back in December 2021, the then-managing director of Amul, R.S. Sodhi, in an interview, emphasised the focus of Amul on the dairy sector in the foreseeable future. "Dairy, dairy, dairy will be 85 per cent of sales over time," he said.

This is evident in the numbers. In its 48th Annual Report, which presented the financial numbers for the year ended 31st March 2022, a whopping Rs 44,577 crore out of total sales of Rs 46,481 crore came from sales of milk and milk products.

All its consumer products grew well, with key products such as milk-based beverages (36 per cent), ice cream (50 per cent), ghee (24 per cent), butter (17 per cent), cream (44 per cent) and dahi (18 per cent) registering double-digit revenue growth.

In FY23, the unduplicated sales of Amul branded products sold by all the 18 member unions crossed Rs 72,000 crore, and now it aims to hit Rs 1 lakh crore by 2025.

Jayen Mehta, the new managing director of Amul, who met this reporter in the somewhat austere GCMMF's Board Meeting Room, says that the Rs 1 lakh crore target does not look daunting. "The three crore litres of milk that Amul handles daily comprise 25 per cent of the total organised milk sector. The way in which consumer behaviour is shifting, even if 5 per cent of Indians shift from loose and unpackaged to packaged and branded milk, India can add one more Amul every year in the domestic market," he explains.

Just as one enters GCMMF's boardroom, one cannot help but notice the almost floor-to-ceiling glass shelf displaying every product in Amul's kitty, not just in the dairy but also the non-dairy segment. You also cannot miss the big smile that it brings on Mehta’s face. It’s a tell-tale sign of where things are headed at Amul.

Amul’s Expanding Non-dairy Food Segment
Amul's non-dairy segment has expanded multi-fold in the last four years. The categories range from breads, rusks, cookies, mithai, ready-to-cook foods, protein-based drinks, noodles, ketchup, and non-dairy beverages. "Amul has introduced premium variants which will drive overall realisations upwards," notes ICICI Securities.

But there is one category which Mehta is most bullish on – organics. "Today, consumers want to consume food which is free from chemicals and pesticides. There is a need to democratise organics because, currently, consumers are paying a huge premium for it," he says.

The brand has already launched 8-10 products in the organic segment, such as basmati rice and different pulses and atta. It plans to launch organic sugar, tea and jaggery as well. "Practically, every item you consume in your kitchen will be Amul branded, either organic or dairy," reveals Mehta.

The market size of organic food and beverages in India is estimated to be worth Rs 6,400 crore by 2025, and nearly half of it would be organic packed food. "Amul is looking at organic food segments such as flour, grains, sugar and pulses. This move can be seen as a strategic response to changing consumer preferences. The increasing health awareness among consumers is a significant driver for the organic food categories," says Palka Arora Chopra, Senior Vice President at Master Capital Services.

While Amul will compete with organic staples players such as Organic India, which posted a revenue of Rs 343 crore in FY20, it will be pitted against biggies such as ITC, which has a large and diversified staples range, including organics. ITC's revenue from the segment, which included branded packaged foods businesses, among other categories, stood at Rs 15,994 crore in FY22.

Amul's revenue from products besides milk and milk products stood at Rs 1,903 crore in FY22, registering a 14 per cent jump over Rs 1,667 crore in FY21.

Another category is cookies, which would pit Amul head-on against Britannia Industries. But Amul is on a familiar territory here, and the experience brings the pricing dynamics with which it is looking at newer categories.

For example, with its butter cookies, Amul went on a campaign highlighting how its cookies contain 25 per cent butter compared to 0.3-3 per cent among its rivals. The high butter content impacts pricing, making the product slightly expensive.

Abneesh Roy, the then Executive Vice President at Edelweiss Securities, in a research note, states that while Amul's cookies may be a healthier alternative, a large section of Indian consumers are value-conscious, which will make it difficult for Amul to gain off-take in the mass consumer segment at 2x pricing.

In the beverages segment, Amul has 120 stock-keeping units (SKUs) ranging from flavoured milk, coffees, carbonated drinks, protein, and probiotics to single species such as camel and buffalo milk.

"Amul's strategic move to focus on high-growth categories such as protein and probiotics is wise in today's health-conscious market. By utilising its cheese whey to make high-protein products, Amul aims to cater to the growing demand for protein-rich foods in India, thereby reducing the need for expensive whey protein imports," says Rahul Ghose, Founder & CEO, Hedged.

Mehta sees the range of high-protein buttermilk and lassi to become a major growth driver, especially among the younger generation. "When every Indian understands that they need to consume one gram of protein daily per kg of their body weight, you can imagine the kind of market opportunity," he says.

He adds that protein is like the US dollar, a global currency which will also help Amul go global at a scale. "The benefit we give to our consumers is a guilt-free indulgence," he states.

Amul's strategy is also to present itself as a modern and contemporary brand. "One significant challenge is maintaining, and further enhancing, the image of Amul as a contemporary, modern food brand, especially among youngsters and children," GCMMF Chairman Shamalbhai Patel said in the group's 48th Annual Meeting in June 2022.

In the carbonated drinks space, which has heated up after Reliance Industries acquired Campa-Cola, Amul is upbeat on 'Tru Seltzer.' Though Mehta says Amul is not directly pitting itself against the 'Cokes' and 'Pepsis.'

Ghose says this category may be a misfit for Amul as Tru Seltzer, a carbonated beverage, cannot be considered healthy. "Brand Amul is known for offering natural, trusted, and nutritious products," he adds.

Market Visibility
A cursory glance at Amul's extensive product portfolio in the non-dairy segment raises the question: Why are most of these products not on shelves in markets beyond Gujarat and neighbouring states?

A senior official at one of Amul's plants in Anand says that most of these products have been launched recently. He adds that GCMMF analyses market trends across regions to gauge demand and the basis for the production cycle to kick in.

"Northern markets at present may not be having that demand for these products, and hence you don't see many of them in the market," the official says.

The weak market penetration of Amul's products brings back memories of its past diversification bet in various categories, such as chocolates, energy drinks, frozen foods etc., which failed to create a dent in the market.

Amul is also focused on creating a strong distribution network across India. It has 10,000 distributors, which cater to 1 million retail outlets. "The company has now expanded its direct distribution reach to towns with 10,000+ population, and it plans to now penetrate in 5,000+ population towns," ICICI Securities notes.

But Mehta believes that all of Amul's past diversifications beyond dairy and value-added dairy products came with multiple learnings through which they better understood the market trends and consumer preferences in that category. In the chocolate segment, for example, while Amul maybe having just 10 per cent of the market share, but today, we are the largest brand of dark chocolates in India, Mehta says.

Mehta says that Amul's USP is consistency, and it will continue with its legacy campaigns for marketing. It also aggressively used the 'Amul Girl' to connect with the masses, which according to Mehta, has seamlessly transitioned from hoardings to social media.

Amul’s ESG Story
Beyond capturing market share or competing with established FMCG behemoths, Mehta believes it is the farmers' interest that Amul has consistently put forward. There is no better proof of this than the 36 lakh farmers of Shekhadi and 17,999 other villages who own Amul.

The Amul model enabled farmers to be involved in decision-making at every stage of operation, from milk procurement and processing to product manufacturing and marketing.

Mehta says that when it comes to the ESG story of Amul, they didn't have to invent the purpose. "Since our inception in 1946, the purpose has been built in. Ever since we started, we were clear that we cannot be self-centred."

Amul has maximised returns on milk supplied by the farmers and provides incentives for better quality milk. During the pandemic, Amul ensured that milk procurement didn't stop, farmers were compensated, and employees were taken care of.

"Every Rs 100 you spend on Amul products, Rs 80-85 goes back to the producer," Mehta states.

As to the sustainability aspect across the entire value chain, Amul, through its Vision 2030, aims at a 35 per cent reduction in specific carbon emissions, recycling 700 kilolitres/day of water, and a 20 per cent reduction in chemical consumption.

Mehta explains that Amul has started developing a robust circular economy, which will become a classic case for India. "India has demonstrated that cow is not a problem but a solution," he says.

India's FMCG majors have announced plans to ramp up manufacturing and innovation as they forecast a healthy revival in the sector. Amul, through its strong brand legacy and distribution reach coupled with its ever-evolving marketing playbook and experience from past diversifications, can make the non-dairy food segment a significant growth driver as it aims for a Rs 1 lakh crore turnover by 2025. With a diversified portfolio in the segment, India's best-kept FMCG secret may soon be revealed.