MNCs think companies like us are from villages, says Amul’s RS Sodhi

Amul’s turnover grows 18% to Rs 27,085 crore in FY 2016-17

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Amul
Gujarat Co-operative Milk Marketing Federation MD RS Sodhi says Amul is national, and still only 25% of the organized dairy market

Gujarat Co-operative Milk Marketing Federation MD Sodhi on how Amul is fending off a bevy of new entrants in the industry while expanding to new products and geographies.

RS Sodhi was named managing director of Gujarat Co-operative Milk Marketing Federation Ltd, the organization behind the Amul brand of milk and milk products, in 2011. Since then, he has staved off incoming competition in the dairy business, expanded Amul’s portfolio of products and attacked new geographies. In the midst of another legal battle, Sodhi talks about why the ice cream versus frozen dessert issue refuses to die down, why MNCs find it hard to succeed in the dairy business and what Indians want from their dairy products.
Edited excerpts from an interview:

Q: You have been fighting Hindustan Unilever Ltd (HUL) on your right to advertise the difference between ice creams and frozen desserts since 2012 and won every case since. Why is this issue not dying down?

RS: It is a case of multinational ego. The tendency among multinationals is that the way they think, their interpretation of the law, cannot be wrong. They feel they have the best of brains and the best of lawyers. And they think companies like ours are from the villages so we wouldn’t know anything.

HUL argued that the use of vanaspati in our ads to describe frozen desserts is wrong because they use liquid vegetable oil. But in English we wrote vegetable oil, and in the voice-over we said vanaspati tel. We had said, even in the food safety book, that vegetable oil literally translated in Hindi is vanaspati tel.

Q: So what is the company’s plan now?

RS: The Bombay high court did not grant HUL’s prayer for taking down our ads. Now the matter will be heard on Wednesday (5 April). By then, one month of our ice cream versus frozen desserts ad campaign will be over. We run our campaigns for one month.

Q: You see, we have to educate the consumers that this is natural and this is artificial. We want to let the consumers decide what is good for them and what is bad for them. Every manufacturer promotes a natural range. For instance, companies say they use amla in their hair oil or doodh in their soaps. If we want to tell consumers what is there in our own products, what is wrong in that?

Ice creamRS: Speaking of educating the consumer, for the last four-five years, there has been a lot of talk on the trends in health and wellness in food. Are you seeing that among Amul’s customers? And if so, how are you catering to this demand?

There is a difference between value-added and health products. Both cannot be the same. People do want more natural and fresh products. They don’t want to have synthetic and artificially-made products. Simultaneously, we are seeing consumers wanting more and more of Indian traditional products. So, we have seen maximum growth in products like kulfi, lassi and buttermilk. The highest volume of growth is in Indian products.

Q: So, are traditional Indian dairy products driving most of your growth?

Amul1RS: Categories like butter, milk powder, or ghee, they will grow at the rate of 8-10%. New categories like lactose-free milk or buttermilk will grow 20% or more. For instance, our Amul brand of flavoured milk Kool is already a Rs1,000 crore brand. These categories may be 10% of our turnover now, but they will see 30-40% growth going forward.

Q: This is an old question, but large conglomerates and multinationals have been trying to enter the Indian dairy market for a long time. This has only intensified lately. Why is this sector so attractive?

RS: There is a lot of scope in the market, there is no doubt about it. Milk consumption in India is growing at 4.5% per year overall. Branded (milk and milk products) volume is growing 10-11% per year. But branded products by volume are only one-third of the sector. Growth in branded products is coming from two areas—increasing milk consumption overall and another 6-7% growth is coming from the shift from unbranded to branded forms of milk and dairy products. For example, people are shifting from making dahi at home for themselves to buying packaged dahi. We used to buy ras malai from the halwai, now we are buying packaged ras malai. People do not trust the quality and safety of the halwai. For dairy, our effort is always to bring people from loose, unbranded products to branded packaged products.

The competition is intense and it is regional. But the business that an FMCG (fast-moving consumer goods) company can do in one state or market; in dairy, a company can do that in one city.

Q: New entrants to the sector often talk about going straight to selling value-added dairy products because they have higher margins…

AMUL ALPHONSO MANGO 100MLRS: There is a misconception among corporates that branded or value-added products are only (things like) cheese or ice cream. But the biggest branded product in dairy is packed pasteurized milk! Every home will use it. The one product that any home spends its money on is branded milk. The most brands and competition is in milk. There is no regional market in India where there aren’t at least two dozen brands in just packaged milk. There are brands which are only in Vashi or only in Ghatkopar.

Besides, the biggest challenge for these MNCs is getting milk. How will you sell anything without procuring milk? Unless you are selling milk—which is the cake—you cannot sell the icing. If you want to sell the yoghurt, you need milk collection centres and factories near consumption centres like large cities, so that your products can be delivered fresh. Remember, dairy products don’t have a long shelf life.

Q: What is the biggest challenge for a company trying to enter India’s dairy sector?Chees

RS: It takes time to convince farmers in each village, create a network and then set up a centre. It is not easy to collect doodh. If you want to make soap or biscuits, it is easy to buy caustic soda or atta in the market. But with milk, you have to work with and network with farmers, make cooperative societies, make collection centres, and then ensure supply. It took us 70 years to do so.

Besides, you have to compete with the local cooperatives in each state that you enter. Amul is the largest national brand, but we are not number 1 in the states we are in. In Karnataka, for instance, Nandini is ahead. In Bihar, Sudha is ahead. (These are all state milk cooperatives like Amul). Of course, in Gujarat we are ahead. Then, we buy milk at maximum price and sell it at reasonable prices. The corporate outsider wants profits, because it has spent money to come in. They would want 10-12% Ebitda (earnings before interest, tax, depreciation and amortization) at least. If the market leader is getting only 4-5%, how will you earn such margins?

Q: So will new dairy companies succeed at all in India?

RS: Amul is national and still only 25% of the organized dairy market. I don’t see any other dairy brand becoming pan-India for the next 20 years. Some companies have tried to do it and they have failed. It is not possible to become pan-India. If you have a 10×10 bed sheet, and I ask you to spread it 100×100, will you be able to do it? After liberalization in 1991, not a single dairy entrant has made profits. The only company making profits is Nestlé and because they are well established over a long time. Besides, they have limited products.

Q: You are also expanding Amul’s portfolio with new products. What are you looking at?

ButterRS: For us, the focus is on dairy. When we say we will sell parathas, or patties, or samosas, these are all dairy-based. For instance, we will have paneer or cheese parathas. These are all natural, with no preservatives, but they are frozen. Like your frozen peas that you buy. We are also working on khoya-based sweets like kalakand, pinni and dodha. These will also have a long shelf life. You can keep them for six-nine months.

Q: How are you keeping up with the rise in demand for your new products?

RS: The way demand is going, we are adding more geographical areas and more farmers. We are expanding in Haryana, West Bengal, Rajasthan, Madhya Pradesh and we will go into Guwahati. We are making milk farmer societies. For instance, 100% of Kolkata’s supply used to come from Gujarat. Now, 80-90% is coming from neighbouring areas. We are investing Rs800 crore on new plants and machinery every year. We will have spent Rs2,000 crore in the next two years. We will have new plants in Kolkata, Mumbai, Gujarat and a new ice cream factory in Pune.

Q: Finally, since we started by talking about ads, Amul’s ads are iconic. Today, you are focused on commercials that educate the consumer. Any new ad strategies we might see from Amul?

RS: We believe in consistency. We like to be fresh and like targeting the youth, but our communication strategy remains the same. Our butter tagline— Utterly Butterly Delicious—has been going on for the last 50 years. To make it contemporary, we comment in the ads on current events. If you want to make a mark on the consumer’s mind, consistency is a big thing. When I tell people I meet while travelling in trains or on a flight that I work for Amul, they say: “Arre, we really like your topical ads with the young girl.” Our marketing budget is less than 1%, and we spend 4-5% of it on topical ads.

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