In today’s Finshots, we discuss Amul’s pathway to becoming more than just a dairy brand.

The Story

The ₹61,000 crore Amul has a new leader — Jayen Mehta. And he says he wants to transform the dairy giant into a veritable FMCG behemoth. Think atta to compete with ITC’s Aashirvaad. Biscuits that creep into Britannia’s territory and even carbonated beverages to take on the might of Coca-Cola and Pepsi.

Now, you might have seen some of these products on your supermarket shelves already. Because they’re not exactly brand new launches. Amul has slowly been testing the waters over the past few years. And now, it just wants to double down on this diversification.

But before we get into why and how let’s rewind a bit to understand Amul’s history.

The story begins in 1945. The milk farmers at Anand in Gujarat’s Kaira (now Kheda) district were miserable. The entire market was controlled by one entity — Polson’s Dairy. See, the government had launched the Bombay Milk Scheme where milk had to be sent from Anand to Bombay. And since milk is perishable, it couldn’t be quickly transported across the country without getting spoilt. So the milk had to be pasteurised at Anand itself. And considering Polson had the factories, it emerged as the winner and it began to dictate prices to the farmers. They paid peanuts and Polson’s and the middlemen pocketed all the profits from the sales.

But then came Sardar Vallabhai Patel, the Iron Man of India, who rallied the farmers into setting up a cooperative. He wanted them to work together and pool their resources. A bigger unit meant that they could dictate their own terms. The farmers went on strike. Bombay ran out of milk. And finally, the Kaira District Co-operative Milk Producers’ Union or Amul was born. They kicked Polsons out of the game and started pasteurising milk for the Bombay Milk Scheme in 1948. Two villages, 250 litres of milk. That’s it.

But soon, there was another problem ― excess milk. See, because of a shortage of cow milk, the Union processed buffalo milk as well. But there came a point where Bombay wasn’t able to absorb this excess milk.

Enter Dr. Verghese Kurien, a government servant who was deputed to Anand’s experimental creamery. The man chalked out a billion-litre idea of reprocessing excess buffalo milk. And that’s when they decided to set up a factory to churn the raw milk into milk powder and butter. Products that had a longer shelf-life. In 1954, the first step towards the diversification of Amul’s products began.

Amul became a pan-India movement. And what started as a tiny union of a handful of farmers producing 250 litres of milk a day is now a 3.6 million-strong organisation producing an average of over 26 million litres of milk daily.

So yeah, you can see why consumers like you and me consider Amul synonymous with dairy. There’s a long history and there’s nothing else quite like it.

Now diversification is a natural strategy for any company, right? No one wants to be dependent on just one product. Also, milk is just a commodity. You can’t really earn too much margin on it. So Amul began to create milk-adjacent products that would add more value to the consumer. These products could be priced higher and make the cooperative more money — cheese, paneer, buttermilk, flavoured shakes, and ice creams were a perfect fit for a dairy company. And the strategy worked. In FY19–20, these value-added products actually contributed to 45% of its revenues.

Now if you think about it, Amul has all the ingredients to succeed with its diversification into non-dairy items like colas, atta, biscuits, and french fries too. It just needs to follow the same playbook, right?

It has a brand image that has been carefully cultivated over the years. In part due to the iconic Amul girl in the red polka-dotted dress. While other leading brands apportion 8–15% of their total spending on ads, Amul spends less than 1% on advertisements. And this brand image can come in handy for penetrating the rural markets which typically make up nearly 40% of an FMCG company’s sales. People trust Amul.

And most importantly, Amul has a massive distribution network it can tap — 10,000 distributors and over a million retailers. Its frozen products like french fries and aloo tikki can simply leverage its existing ice cream cold chain network. Amul really doesn’t need to build new distribution facilities from scratch.

But here’s the thing. Despite its decades of success selling dairy products, Amul hasn’t quite been able to crack the diversification code. It hasn’t been able to emerge as a true FMCG player yet.

Take chocolates for instance. Amul actually forayed into the industry way back in the 1970s itself. In fact, it tried the same playbook of setting up a cooperative society for cocoa farming. It wanted to fight Cadbury’s monopoly. It thought it could easily use its existing cold chain network for distribution. It even advertised heavily when colour televisions became popular in India in the 1980s. But nothing worked. Today, Amul has a measly 3% market share in India.

In 2006, it launched a sports drink called Stamina. It didn’t see any takers. It shut shop, re-launched the drink a decade later and failed again. Amul even launched a frozen pizza in the 2000s! And if you’re surprised at that bit of news, well, that’s because it failed too.

In 2019, it forayed into butter cookies. And it even took on rivals like Britannia’s Good Day. It thought, “Hey, we’re supplying all the butter to these FMCG companies. But they’re actually mixing a lot of palm oil into it. Why not make one of our own?”

Amul even went on the offensive and launched ad campaigns saying that it had ‘25% Amul butter.’ And that everyone else had less than 3%. It said that rivals simply used a flavouring. But despite that ad blitz, Amul hasn’t set the butter cookie segment on fire.

And in 2020, it launched the Amul Tru seltzer — a carbonated fizzy drink to take on the colas of India. But even this product hasn’t moved the needle.

Basically, almost everything other than the value-added dairy products hasn’t quite worked out for Amul. Its brand or distribution hasn’t helped it. So will it be different this time under new leadership? We don’t know.

Or maybe Amul should just do what it does best and focus on getting more of the dairy pie? After all, only 30% of the $110-billion dairy sector is organized even today.

Can Amul crack the code for non-dairy FMCG products? What do you think?

Until then…

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