DMS seeking to reinvent itself, doubts remain

Doesnt mean govt will sell off DMS, instead it would ensure that it has more flexibility to conduct operations rather than running to the Union Agri Ministry

As the government moves towards corporatizing the beleaguered Delhi Milk Scheme (DMS), doubts remain as to whether DMS will finally be able to run in as an autonomous organisation in a more professional environment.

As of now government officials said that the corporatizing does not mean that government will sell off DMS. Instead, it would ensure that it has more flexibility to conduct its operations rather than running to Krishi Bhawan (the office of union agriculture ministry) for minor things.

“We are not selling off DMS, but yes only trying to corporatize it so that it can work in a more professional manner and have more flexibility,” said Rajni Sekhri Sibal, joint secretary in the Agriculture Ministry.

Farm Minister Sharad Pawar recently said in Parliament the chairman of Gujarat Cooperative Marketing Federation (GCMMF), which sells its products under the ‘Amul’ brand has written to the government proposing to take up the operation of DMS and the federation has been asked to submit a comprehensive and detailed proposal.

Bihar’s state cooperative organisation, which owns the ‘Sudha’ brand of milk and milk products, has also shown interest in participating in the process of corporatization of DMS. 

While, the final shape of DMS’ corporatization is yet not known, officials said it could involve infusing fresh equity, having a new professional board of directors and more freedom to operate and make important decisions.

So what it is about DMS, an ailing corporation that all big players in the milk industry is seeking to get a pie of.

Set-up in 1959, with the primary objective of supplying wholesome milk to the citizens of Delhi at reasonable prices and providing remunerative prices to milk producers, DMS saw its milk procurement drop to 1.82 kilograms per day in 2011-12, from 2.15 kilograms a year before that. The corresponding sales that year also fell to 3.07 litres per day from 3.26 litres a year before that.

Clearly, DMS was not in the shape that it was meant to be and hamstrung by increasing manpower cost and low capacity utilization as its plant and machinery became old and outdated. DMS’s net loss in 2011-12, had run into almost Rs 24.24 crore. Its plant had an installed capacity of processing 5 lakh litres per day, but did only 3.50 lakh litres.

Why DMS?

DMS as a brand might be fading from memory, but not its infrastructure and penetration, which makes it an ideal candidate for cooperatives and companies looking to set foot in Delhi.

According to the DMS website, it has almost 1,300 outlets spread across the length and breadth of the city, a network not matched by many of its rivals.

Mother Diary has 1,000 odd exclusive outlets; its website says and has a market share of almost 66% in Delhi.

Clearly, getting hold of DMS will mean getting a firm footing in Delhi, the country’s largest milk market, which is estimated to consume almost 40 million litres of milk every day.

Others allege that it is the lure of real estate which is attracting big players towards DMS and nobody wants to actually run it in a profitable manner.

DMS owns a 34 acre plot in the Shadipur locality of Delhi, where its headquarters are located along with chilling centres situated in the NCR region each having a land bank of 2-3 acres. As land rates go through the roof in the national capital, DMS is prime target, allege company insiders.

DMS procures its milk everyday in the chilling centres and then processes and packs it in its main centre in Shadipur. To cover its losses, DMS since 2003 has also started custom packaging milk for Mother Diary.

The need for corporatisation

DMS as an organisation has been running into losses for most part of its existence, barring few years in between. Though, the objective of the company right from its inception was not to make profits but to provide service, but rising input cost and low capacity utilization has made its operations unviable.

Almost 13-14% of the total cost of milk production in DMS is due to staff salaries and wages, while the common industry norm is just 5-6%.

While DMS competitors are trying to increase the share of high-value milk products to their total sales, DMS has negligible presence in the milk product market.

In 2011-2012, DMS bought and sold the least amount of milk in the last five years mainly because it lost out to rivals in a fiercely competitive market.

While other milk cooperatives and companies operating in the NCR region kept their procurement cost low, DMS could not do it as it was bound by its set of regulations.

In sales, while other milk companies increased their retailer commission to Re 1 per packet to push up their sales, DMS had to keep it constant at 0.90 paise per packet.

Gradually, retailers lost interest in selling DMS milk and instead stocked their outlets with other milk brand, which not only gave them more margin for every packet sold, but also offered lucrative schemes to boost sales. As of now, DMS milk is hardly available in Delhi markets and brands like Mother Diary and Amul dominate the scene.

Going Forward

Though the future of DMS looks uncertain as of now and will be decided once cabinet approves the shape of its corporatization plan, officials said the programme can be run efficiently within the current set-up as well with just minor tweaking of rules.

“We have no handicap in government set up and can make DMS an exemplary organisation within the same set of rules,” said B.S. Beniwal, General Manager, DMS.

He said that DMS has managed to bring down cumulative deficit to Rs 4.66 crore as in  November 2012 from a high of almost Rs 12 crore as in April, 2012 and would wipe it off completely by year-end. “From 2013-14, we hope there would be no deficit though we are entitled to keep a deficit of Rs 18 crore yearly,” Beniwal said.

He said its 800 strong staff will also come down as one-third of them will retire in the next 2-3 years, while sales are expected to rise.

Beniwal’s efforts might bear fruit, but the fact remains that in a market where new and upcoming players are outsmarting each other in trying to grab the consumer’s attention, DMS would find itself increasingly marginalized unless it undertakes a complete overhaul.