At the helm of the country's largest dairy organisation, Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF), which markets the popular Amul brand of milk and dairy products, R S Sodhi has led the federation to clock a turnover of over Rs 27,000 crore for the financial year 2016-17. In the past seven years, GCMMF's turnover has grown by about 3.5 times. As it eyes a sales turnover of Rs 50,000 crore by 2020-21, the federation is now taking on new entrants in the dairy space and overcrowded ice creams segment. Speaking to Sohini Das, GCMMF's Managing Director R S SODHI, who is in the middle of a controversy surrounding Amul's advertisements distinguishing frozen desserts from ice creams, speaks about his future strategies to hold on to its position as the market leader. Edited Excerpts.
The Bombay High Court will hear the matter on the Amul ice cream advertisement on April 5, but it will be almost a month of the ad on television and print. Do you plan to discontinue the ad after the verdict or come up with new ads on the same theme?
We have to submit our replies to the high court by Monday and on Wednesday there is the hearing. We are continuing with our campaign, both in print and on television, differentiating between frozen desserts and ice creams. By April 5, it will already be four weeks of the campaign and, usually, we run our campaigns for that much time. So, our purpose is served. Also, such kind of campaigns cannot work for longer periods. We have been running campaigns on frozen desserts versus ice creams for the past seven-eight years. It was not there on television. We run it for a few weeks and then take a break. Then, when next season starts, we run it again. This time, we did it on television as we wanted to reach a wider audience. It caught on well on digital and print as well and this controversy also got us some free publicity. When the competition gets rattled with something, it means it is working well.
In this case, the campaign is ice cream versus frozen dessert. In others, there is ‘Taste of India’ or ‘Amul Doodh Peeta hai India’, the theme remains the same and we have different ads or stories. Here we are using a father-daughter story, tomorrow there might be another story to convey the same message of differences between ice creams and frozen desserts to the consumers.
You spend less than one per cent of your turnover on advertising and never rope in celebrities. What works as the USP of brand Amul?
I think it is the blind faith that consumers have in our celebrity, the Amul Butter Girl. The Amul brand is a celebrity. We have never cheated consumers, never given inferior products with synthetic or cheaper ingredients. People buy our products with blind faith. We don’t need any celebrity. Also, celebrity endorsements have an issue of credibility. Do the celebs themselves use what they sell? End of the day, people don’t believe in celebrity endorsements.
You have always chosen a ‘health’ narrative to position your products, be it ice creams, buttermilk, energy drinks etc. But does this work on impulse category food items too?
We have differentiators. Like in ice creams, we use fresh cream, so that is why we say ‘Real Milk Real Ice cream’. I don’t think you can come out with a differentiator in butter or milk when you have good recipe, the only thing is positioning. Like our positioning in butter is ‘Utterly Butterly Delicious’ and it is ‘Amul Doodh peeta hai India’ in milk. And it is working well. That is why we don’t feel we have to change our positioning. Last year, we changed positioning in our beverages. For Masti buttermilk,k we said ‘Desi Refresher’; in lassi, we started ‘Hamara Drink’; and in the case of Amul Cool, we said ‘Drink Cool Stay Cool’.
In the case of any food, health comes after taste. First, it has to be tasty, then healthy, refreshing or natural, whatever it may be. If it’s not tasty, consumers will not buy again. You have to see how to make a tasty product healthy; it does not work the other way, making a healthy product tasty.
These are very niche products and the products are selling on their own. Some products like Lactose Free milk are sold on repeat purchase basis. As far as Memory Milk is concerned, it requires lot of investment in brand building and communication; which we have not done. Moreover, summer is at its peak and we have limited capacity, so naturally, we are engaging our capacity for a product that is already high-selling. We create demand and if we cannot supply then we have to cut down on some other product.
Are you witnessing more traction from your online app and other online channels like grocers for such premium and niche products?
Yes, definitely. For products like Lactose Free Milk, online sales contribute around 20 per cent. However, in our overall sales, this product does not even contribute one per cent. Our online presence through our app is limited only to Ahmedabad at the moment. But, we have received a good response. We are now open to expanding to other cities but we have to work out the distribution costs. Also, online grocers, as well as some hyper-local online retailers, are already selling our products. At present, the contribution of online is not more than two per cent of our turnover.
The ice cream space in India is getting increasingly crowded with regional players gaining a foothold and also eyeing national expansion. As the market leader, what is your strategy to beat the competition?
Amul is the only Indian brand in the ice cream segment that has a pan-India presence — from Kashmir to Kanyakumari and from Jaisalmer to Shillong. The Amul brand is marketed in metros as well as Tier-II and Tier-III cities. Our competitors do not market everywhere. Some choose to market only in premium cities. Ice cream does not become premium by only marketing in premium cities, it becomes premium by its ingredients. Someone who is using cheap palmoline oil and markets their products as premium, how can that work? That is what we want to tell our consumers, that you are paying for a premium product and you are getting some of the cheapest ingredients. The cost of production of frozen desserts is 40 per cent less compared to ice creams, but they sell at the same rate. May be the company gives more margin to the retailer or the distributor. That is why we want to highlight the ingredient part.
Secondly, you are right that the ice cream space is getting increasingly crowded. In this case, you have to see that your reach is more than the regional players. Regional players have more penetration in their respective zones. So, in our case, we have to be present not only in metros but also in smaller towns. One has to have lower price point products and also invest in national brand building, something that regional players cannot afford. Also, one has to come up with exclusive products, especially those that use high-end technology, the kind of technology not available with regional players.
We are growing at 14-15 per cent in ice creams and the industry, as such, is also growing at 12-14 per cent.
While many corporates have entered into value-added dairy products, Amul’s DNA requires that it stays true to its liquid milk portfolio which is a low margin product. As India’s largest dairy, how do you see the advent of corporatisation of dairying and the rise of value-added products?
Let me tell you, it is the biggest myth that value addition or higher MRP implies higher realisation. The cost of production is also equally high. Plus, from factory to consumer, it attracts at least 12-15 per cent tax, excise etc. There is no tax on fresh milk sales. Value-added products are good only when it is good for the manufacturer as well. In liquid milk, the margins are around five per cent, whereas it is around 25-28 per cent in ice creams. But, the volumes are much higher in liquid milk. At present, 50 per cent of our revenues come from liquid milk sales and the remaining comes from value-added products. You cannot make money in dairying if you do not make milk. Since we make milk, we have the by-products readily available. For someone who has to buy it, the economics won’t work.
Secondly, the key in dairying is the link between the rural production centre and the nearest consumption centre. Milk is just like an agricultural crop — you have to sow it, nurture it, fertilise it and then harvest it. In case of an agricultural crop, this process takes three to six months. In case of milk, it takes two to three years. No corporate wants to invest in this. They want to directly start procuring milk, no one is sowing. They go to the procurement centre and offer a slightly higher pay than what the farmer is getting. The second day, someone else does the same thing. It does not work that way.
I wonder why no one is investing in creating a milk ecosystem in states like Odisha, West Bengal, Bihar where production is very low. The word value addition is thrown around to attract investors, not consumers.