A Study of the Sales and Distribution System at AMUL

- Evolution of the dairy industry in India
- Milk Production and Consumption Patterns in India
- Prevalent Business Models in the Dairy Industry
- Major Players, Operating Margins, ROCE, Prices and Ratings
- Growth Drivers, Key Risks and Porters 5 Forces Analysis
- Analysis of Sales and Distribution Systems of AMUL at distributor, retailer and hypermarket level
- Comparison of Amul with Sanchi
- Recommendations

1. PRESENTED BY GROUP 7 SDM 1 RAJAT GARG AJIT KUMAR DIBYASOBHAN ROY NIVEDITA RAJU TRIPTI JANGPANGI AVANTIKA TIKMANY OSHIN GOEL NITIKA THE SALES AND DISTRIBUTION STORY OF AMUL

2. EVOLUTION OF MILK INDUSTRY IN INDIA Source: CRISIL Research India accounts for 17% of the worlds milk production India is also the highest consumer of milk (118-120 billion litres)

3. The per capita milk consumption in rural households registered an increase of 28% The per capita milk consumption in urban households registered an increase of 25% MILK PRODUCTION & CONSUMPTION PATTERNS Production of milk in India has a CAGR of 4.2% Consumption of fluid milk in India has a CAGR of 5% 7 Indian States contribute 65% of all the milk produced in the country Milk and Milk Products Segment is expected to record 12-13% CAGR between 2015-18

4. BUSINESS MODELS IN THE DAIRY INDUSTRY CO-OPERATIVE MODEL FORWARD INTEGRATED PVT. COMPANY First tranche: Based on quality & quantity of milk, payment within 15 days of procuring milk Second tranche: Based on the sale of various value-added products manufactured during the year, profits are paid back to farmers on the basis of their shareholding in the cooperative . Eg : Amul , Mother Dairy The company does not deal directly with the dairy farmers and procures milk (processed/ unprocessed) through other routes such as village collection centres, franchisee chilling centres, bulk private coolers, district union factories and regional cooperative federation factories. Eg : DudhSagar , Schreiber Dynamic Dairy FULLY INTEGRATED PVT. COMPANY T he farmer is paid only once, as against dual payments made in the cooperative model. More commission is paid to the farmers as the initial payment, to incentivise farmers to supply milk.

5. CLASSIFICATION OF INDIAN DAIRY AND MILK INDUSTRY Liquid milk has the highest market share C heese and ice cream have the highest growth rate

6. OPERATING MARGINS AND ROCE OPERATING MARGINS TO IMPROVE Operating margins and ROCE depend on the extent of value addition HIGH Value Addition HIGH EBITDA LOW ROCE High margins for value addition

7. PRICES AND RATINGS NEW TREND Future outlook of milk and dairy companies in India is going to be mostly stable as the demand and consumption of milk and milk products grows in the years to come.

8. GROWTH DRIVERS/RISKS OF MILK INDUSTRY Growth is fuelled by various external dynamics Risks have increased due to lack of dispersion Other Factors Rising share of high margin milk products Priority lending status via National Dairy Plan Changing lifestyle of consumers Rising need for convenience Better health awareness among consumers Overall growth in food services industry Other Factors Quality of milking animal difficult to judge Milk handling practices to prevent microbial contamination Free rider problems due to mixing different milk quantities in one storage facility Small probability of transportation failure

9. INDUSTRY ANALYSIS- PORTER’S 5 FORCES Competitive Rivalry - HIGH New brands are coming up each day and the major factor on which they play in this industry is prices Threat of Substitutes - LOW E ssential item for beverages like tea, coffee T raditional consumption habits make milk a favorite There is no other offering that can substitute milk. Threat of New Entrants - HIGH Not many entry barriers Many local players have come up with their own local brands New company just has to follow the defined standards and it can come up with its offerings in this sector Bargaining Power of Consumers - LOW The prices of packaged and branded milk and milk products is fixed Bargain with the local milk vendors in unorganized sector and local shops selling milk products Bargaining Power of Suppliers - LOW Farmers , rural households and small cooperatives sell at the going market rate. The big giants and the government control the sector and regulate prices

10. AMUL- THE TASTE OF INDIA MILK MILK POWDER GHEE BUTTER CHEEESE CURD CHOCOLATE ICE CREAM SHRIKHAND PANEER GULAB JAMUN BASUNDI NUTRAMUL

11. AMUL DISTRIBUTION SYSTEM STRUCTURE Village Cooperative Societies with Chilling Units Village Cooperative Societies without Chilling Units Local Restaurants and Other Milk related Businesses Milk sold to village and local restaurants Farmers Chilling Plants Network Services Veterinary Services Animal Husbandry Animal Feed Factory Milk Can Producers Agriculture University Rural Management Institute Trucking Facilities Milk Processing Union & Warehouses GCMMF Warehouses Wholesalers/ C&S Retailers Home Delivery Contractors Consumers AMUL products are available in over 500,000 retail outlets across India through its network of over 3,500 distributors. T hree-tier C ooperative Structure Dairy cooperative societies at village level Milk Union at district level Milk Federation at state level AMUL MODEL ANAND PATTERN

12. SALES & MANAGEMENT AT AMUL Year of Establishment 1973 Members 17 District Cooperative Milk Producers' Unions No. of Producer Members 3.37 Million No. of Village Societies 18,536 Total Milk handling capacity per day 24 Million litres per day Milk Collection (Total - 2014-15) 5.42 billion litres Milk collection (Daily Average 2014-15) 14.85 million litres Cattlefeed manufacturing Capacity 6340 Mts. per day Sales Turnover -(2014-15) Rs . 20733 Crores (US $ 3.4 Billion) GCMMF Overview Sales Management Process

13. AMUL SUPPLY CHAIN AT DISTRIBUTOR LEVEL Amul’s Supply Chain at Distributor – Sri Patodia Sales Distribution Management : 7 to 8 people are employed who work under the distributor. Orders are collected from the retailers via phone or visits by the labour employed by the distributor. Transportation cost is borne by Amul Orders received are placed online with GCMMF ( Dewas Naka). Robust IT Mechanism helps to collect orders and places them quickly from the company. It takes maximum 1-2 days to get materials from Warehouse to the distributor. As there is a large demand for goods, frequents checks need to be performed regarding the stocks in the shop which is done using calculation on basis of sales. Sometimes clashes with other distributors occur for territory. If products get expired then claims are refunded within fifteen days. However, this may sometimes take a bit longer time also. Sales Figures:10 -12 lakhs per month Category Product Dairy ( Buttermilk, Ghee Butter) 2.75-3.5 % Fresh ( Milk, Curd) 3%-4% Frozen ( Ice cream, Chocolates) 9%-10% Category-wise Margin Structure

14. SALES MANAGEMENT PROCESS BY DISTRIBUTOR Sales Management Structure

15. ANALYSIS AT RETAILER LEVEL – Tirupati Enterprises The functioning of the distribution network was also analysed from the perspective of the retailers. One such retailer that we visited and surveyed is Tirupati Enterprises.

16. ANALYSIS AT HYPERMARKET LEVEL – MORE The functioning of the distribution network was also analysed from the perspective of the hyper- retailers . One such hyper-market that we visited and surveyed is MORE. CENTRALISED ORDER MECHANISM FOR MORE OUTLETS ACROSS THE COUNTRY TO TAKE ADVANTAGE OF ECONOMIES OF SCALE They have a warehouse to stock their goods that they receive and have refrigerators to keep the SKU’s . Transportation and shipping charges are paid by AMUL Margins of 3-4% on AMUL 213 SKU’s available out of which 144 have very less probability of a stock-out In case of expiry, MORE has to destroy the product since AMUL does not have a return or refund policy Cash rewards and related benefits are awarded to outlets based on the EBITDA values. 480 stores and 18 hyper markets are used for the calculation of EBITDA.

17. EXISTING SALES MANAGEMENT AT AMUL The Sales Management System Distribution chain: The flow from farmers to final retailers AMUL is also part of Global Dairy Trade (GDT) platform, where only the top 6 dairy players of the world sell their products. GCMMF operates through 56 Sales Offices , has a dealer network of 10000 dealers and 10 lakh retailers. It has one of the largest such networks in India.

18. SALES & MANAGEMENT AT AMUL Inventory management and product portfolio at Amul retail stores

19. SALES MANAGEMENT FRAMEWORK

20. COMPARISON: AMUL v/s SANCHI SANCHI AMUL Management Dairy co-operative under the Madhya Pradesh State Cooperative Dairy Federation Limited (MPSCDF), largely based out of Bhopal and Indore. Formed in 1946 in Anand , Gujarat. It is managed by the Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF). Organization Structure Three-tier structure with MPSCDF at the State-level Federation, followed by Regional Level Milk Unions and then Village Level Dairy Cooperative Societies. Amul's structure has the National, State, District and Village levels, with GCMMF coming under the National Cooperative Dairy Federation of India. No of SKUs sold in Indore   10-12 In general 144 but nationally it is more than 400 Most preferred SKU Liquid Milk Butter Product Categories Less diversified Too much diversified portfolio of products. Highest selling product in terms of packaging 500 ml pouch milk 1 Litre pouch milk   Sales A total of 450 litres of Sanchi milk is sold in Indore in a day. A total of 450-500 litres of milk is sold per day(rough estimates)

21. COMPARISON: AMUL v/s SANCHI (contd.) SANCHI AMUL Distribution Margins Distribution margin is Rs . 1.42 on a litre , irrespective of the SKU size. Distribution margin is Rs . 1.30 on a litre , and it varies depending on the SKU size. Shelf life Lower i.e. 50-60 days higher, 180 days from MFD date No. of Distributors in Indore 7 10-12 Inventory management No godowns. Direct shipping Stocks are kept in a godown (only one in entire M.P ) in Indore Incentives structure To Retailers Rs 1000 worth products free for the first 5 months Not much incentives provided Pricing Sanchi Milk is priced at Rs.38 for the 1-litre Gold pack. After the recent price hike, Amul Gold costs Rs . 48 for the 1 litre SKU.

22. RECOMMENDATIONS

23. RECOMMENDATIONS (contd.)

24. REFERENCES http://timesofindia.indiatimes.com/business/india-business/Amul-achieves-turnover-of-Rs-20733-crore-in-2014-15/articleshow/47284976.cms http://www.amul.com/m/organisation http://www.business-standard.com/article/companies/amul-turnover-grows-14-to-cross-rs-20k-cr-in-fy15-115051400858_1.html http://www.iimahd.ernet.in/publications/data/2002-05-06PankajChandra.pdf https://www.facebook.com/sanchimilk http://mpcdf.nic.in/ http://www.amul.com/ industry https://www.facebook.com/amul.coop/?fref=ts http://timesofindia.indiatimes.com/ http://zeenews.india.com/ http://www.amul.com/m/faqs-on-amul http://timesofindia.indiatimes.com/city/vadodara/Amul-Dairy-inaugurates-modernized-semen-station/articleshow/50784250.cms http://articles.economictimes.indiatimes.com/2013-12-06/news/44864199_1_amul-gcmmf-co-operative-milk-marketing-federation http ://amul.com/m/amul-parlour-consumer-zone