The #1 Thing People Get Wrong About Amul Business Model

Amul is a brand name for milk and dairy products, co-operative of Indian dairy farms. It has been bestowed with the title of ‘Guinness World Records Holder‘ for the most number of product brands in a single food category.

Amul began as a cooperative movement among local dairy farmers in Gujarat in 1946 to market their produce and increase its profitability. Today, Amul is India’s biggest food brand and among the top five in the world.

Amul has 27 factories, the most prominent being its milk plant at Anand ,Gujarat (the hometown of co-operative movement in India), producing around 6 million litres of milk per day.

Milk and its Market

Amul is the largest food brand. It has a large number of products ranging from butter,ghee,cheese to ice cream,yogurt ,dahi(fermented milk),khurchan etc.

Amul’s dominance in the dairy sector can be attributed to its strong business model. Around 98% of the milk produced in Gujarat is collected by nearly 450 village co-operative societies that are affiliated with around 3,000 Primary Agriculture Co-Operative Societies (PACS).

The company has a large number of outlets across the country. It also diversified into a new range of dairy products made from buffalo milk. It also makes ghee on a large scale.

Amul is India’s largest food brand with estimated turnover of Rs 21,000 crore and has been recognised as one of the fastest growing companies in Asia, by Fortune Magazine. This brand was created by Verghese Kurien (belongs to Anand ,Gujarat)

Amul Business Model:

Every milk producer in the village is a member of the Village Dairy Cooperative Society. The members of this society elect their representatives. These representatives work together to manage District Milk Unions. 

The district milk unions take care of milk and milk products, and they are involved in processing them too. They sell these products to the State Milk Federation, which acts as the distributor that sells or facilitates selling them in the market. 

All profits are distributed downwards similarly from this point on.

Amul Business Strategy:

1) Amul targeted areas of the western region initially. In the 1950s, ,it first reached out to Bombay city and other major cities like Mumbai,Surat etc.

2) The company created a brand cashing in on the increasing importance of unions among farmers, which had been creating trouble for other co-operative dairies. So, dairy was named after dairy farmers’ unions-Amul.

3) In 1951, Amul created a brand in the form of “SETU” or a cement platform lending support to a cow ,which is still the symbol of Amul. It was an innovative way to increase visibility and catch customers’ eye.

4) Amul had its own packaging facilities which allowed it to produce cheaper milk without having to pay commission to distributors.

5) Amul gained market share by selling butter at an even lower price than the competing brands. While most other companies were selling it for Rs28 per kilo, Amul was offering it for Rs20. The only reason behind this strategy was that its manufacturing and packaging costs were lower than its competitors.

6) In 1971, Amul diversified into ice-creams as it saw a growing demand for this product. The move proved to be successful as Amul became one of the leading producers in this segment within a short span of time. In fact, it was the first company to introduce the concept of single-use ice-cream bottles.

7) Amul is an innovative company that has launched new products to maintain its leadership in the dairy sector. It also withstood competition from other companies by launching low priced products every time when their prices went up.

8) Amul was able to break into markets where it had no presence due to its strong distribution network.

Challenges Faced by Amul:

1) The company suffered heavy losses in 1991-92 due to the increase in the price of milk, which was used as a raw material by the company.

2) To compete with other brands , Amul introduced new products like pan masala and hair oil under its “non dairy” category. But these products did not attract customers and resulted in heavy losses for the company.

3) In 2004, Amul was embroiled in a controversy over adulteration of its ghee with vanaspati oil. This incident led Amul to lose a large number of its loyal consumers and almost 20-30% of market share was lost within a short time.

4) In 2004, Amul was banned from continuing to use the “Seal of Guarantee” that it had been using for more than three decades. This ban was imposed by the Food and Drug Association (FDA) after the company violated certain norms related to product labelling.

5) Amul was also subject to a number of controversies in the past regarding adulteration and mislabelling. These incidents have threatened the credibility of Amul products and added to its existing problems.

6) Amul had been accused of being a “one-horse show” with only one brand of its own while some people believe that it is wasting money on diversification.

7) Amul faced problems in marketing its ice-creams (which were introduced for the first time) as the company failed to communicate with customers about the new product launch.

8) The government of India has recently decided to increase minimum support prices, which are paid to producers by procuring agencies like Nafed, in order to improve the profitability of milk producers. This is likely to make Amul products less competitive in comparison with their competitors who do not procure milk directly from farmers.

9) Amul too hasn’t been able to expand its distribution network; it is still concentrated in only a few cities, which has limited its reach.

10)Amul has been facing problems in trying to establish itself in new product categories like edible oil and pasta.

Analysts believe that Amul needs a complete overhaul of its marketing strategy because it is currently depending on a few people for its growth, which could prove dangerous if these people left the company. The company needs to strengthen its distribution network and improve its relationship with its retailers.

Amul Business Model: Conclusion

Amul is an Indian dairy products company that was founded in 1946. The company has a business model and strategy to keep up with the changing world, which includes expanding their customer base by focusing on low-income families who may not be able to afford milk.

This shows how they are willing to adapt when faced with challenges like global warming or fluctuating prices of commodities if it means growing their market share. Do you think this approach will work? Why or why not? Let us know your thoughts in the comment section below!

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