Marketing:

Cover Story: Amul – The number one nobody talks about. In conversation with R.S. Sodhi

Anant Rangaswami, July 26, 2017

The $4.1 billion dollar organization is not situated in Mumbai or New Delhi, but tucked away in Anand in Gujarat, about 45 minutes from Baroda. The organization is the Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF), India’s largest food product marketing organization, hawking a slew of brands in an astonishing 450 stock-keeping units. Considering the size, GCMMF is extraordinary nimble, having built a capability to launch new products within 60-90 days of conceptualization. 85% percent of their revenue is spent on their most critical raw material, milk. Advertising, the second largest cost head, is a mere 1% of their revenue. How does Amul achieve these metrics?

Editor Anant Rangaswami travelled to Anand to meet RS Sodhi, the Managing Director of GCMMF. Sodhi, who studied at the Institute of Rural Management Anand (IRMA), an institute set up by GCMMF specifically to create managers for cooperatives, has spent over 35 years with the organization, ensuring that the DNA created by Dr. Verghese Kurien, is protected and pristine. What makes Amul the Taste of India? Read on.

Anant Rangaswami: What is your role? Are you a managing director? A chairman?

RS Sodhi: Well, it’s not the managing director as one normally describes the role. You can say that my job is CMO cum Supply Chain Manager. Because of the sheer number of SKUs handled, the vast distribution phase, the production phase, four types of distribution highways, in 11–12 hour working day, at least 2–3 hours are spent on supply chain management, besides the other aspects of marketing.

AR: What is the range of SKUs?
RS: We currently have 450 SKUs of various products, manufactured at 69 dairy plants located all over India, and we are distributing these products through our 61 depot branches, where we have got warehousing facilities for chilled products, ambient products, and, obviously, fresh products like milk, curd, or buttermilk — these products are going directly from the farm to the market.

AR: A typical product manager or brand manager spends most of his day on advertising and marketing strategies. In your organization, what does he do?
RS: The most critical aspect of his or her job is in production planning. The manager needs to review production by product, by plant, by SKU. Second, he or she also has to look at pricing. How to price the product compared to competitors, etc. Then third focus are that he or she has to look into is in ensuring that the product is despatched as per the plan from production units ensuring that there are no stock-outs. Whatever planning you do, it is very, very difficult to estimate the demand correctly. They have to look at seasonal changes in demand; for example, when handling summer based products like ice-cream, buttermilk, lassie, Kool, where the demand is based on the temperature, they have to factor in all the variables. If the temperature goes up, the demand goes up. If we experience a small shower somewhere, the demand will go down. So one has to keep changing the production cycle.

AR: But that is the job of the production manager…
RS: Yes, yes, but product manager is my production manager… he is not advertising manager at Amul. I tell my product manager if you are handling butter, or if you are handling ice-cream in this organization, you have to know everything about this product; your information has to be the best in this sector. What is produced, how much to be produced, what is cost of packaging material, has the material reached a particular plant — everything is through the product manager. Finally, he needs to report on sales on a day-to-day basis, by product, market and SKU. No doubt, advertising, branding, ATL, BTL, is also his job.

AR: What is the independence that young managers get?
RS: I mean, he or she can plan anything, how much to produce, how to advertise the product, how to brand the product, what branding, what MRP, distribution, launches, new product ideas, all are given by the product officer. Anyone from our sales and marketing teams can give ideas for products. It is not that it has to be thought about by CEO or MD only.

This organization knows the pulse of the consumer… We know how the mass thinks and what they want in a product

AR: One of the big success stories of Amul is that product launches. So what do you think is that the result of?
RS: We are very fortunate. We read in media that, of any 10 products that are launched, eight or nine will fail, only one or two will succeed. However, fortunately our success rate is very good. If we have launched 10 products, 8 to 9 succeed. I think the reason for this is that this organization knows the pulse of the consumer. Here’s the reason: all our products are mass-based products. In India, mass is middle-class or lower middle-class. Fortunately, this organization is owned by lower middle class or middle class people: farmers. This organization is located at a B or C tier city, which is a middle-class city. And, we are very happy and very fortunate that most of the people working for this organization are middle-class or lower-middle class. People from the big metros might not like to come and settle in Anand. So the thinking is middle-class, the thinking is lower middle-class. So we know the pulse, that is why the success. Our thinking is not like, say, Peddar Road thinking; we do not target those in such areas and package and price our products for these consumers. We know how the mass thinks and what they want in a product.

AR: What you are describing is a sort of anecdotal research. What about structured research? Does the federation believe in structured research?
RS: Structured research is required, qualitative and quantitative. Like every year, we do a market research. Basically, it’s a brand health study that we conduct. We speak to thousands of consumers across India, and we ask them what they think about the Amul brand, pricing and products The most important question we ask them is what new products they expect from Amul. I remember, in late 90s when we were doing such a study, one of India’s biggest MNCs had launched what they called ice-cream. A few consumers commented that when soap manufacturers could launch ice-cream, why couldn’t India’s biggest dairy brand launch ice-cream? That really opened our eyes and we decided to launch ice-cream. But at that time, ice-cream was reserved for the small-scale sector. We had one small factory, which was already registered, and then later on, we made representations to the government and the government was forced to change the rule.

AR: So where has this research helped you? And by this research, I mean structured research?
RS: It really helps us understand what consumer is looking for…

AR: Is that a ratification of what you and your product manager feel? Or is it a check against that?
RS: See, I am not saying that products are launched purely based on market research. I am saying out of 10 products, two or three maybe based on market research, six or seven maybe based on gut feeling on any level. You go to market, and someone makes a suggestion. Alternatively, some youngster says that you have butter, why not a garlic flavoured butter. The popularity of garlic bread was rising and the girl argued that they had to add butter to the bread and then add garlic paste separately. This idea came from an average teenager young girl. So that was a good idea. We did not have to do any market research. Another instance is when I attended a food expo and saw a Canadian firm selling rasmalai in frozen form. That set me thinking; even in India we could not good quality rasmalai every where. I returned to India and asked our factories to develop a frozen rasmalai and we launched the product within two months. Ideas can pop up anywhere. I mean, you may give me an idea. We do not have a separate R&D lab, etc. All our products are developed by the local production people. If we want to explore a new product or variant, we brief two or three of our plants on the thought and ask them to work on it. When the product is ready, we taste the product, and whichever is the best, we freeze on it and the recipe is circulated to all the plants. It’s as simple as that.

AR: Now this kind of nimbleness, is this encoded in the DNA of Amul from Dr Kurien’s time? How come everything is fast and nimble?
RS: The reason is basically consistency. Consistency is in our business philosophy and consistency in our top team. They know the process, that how new products have to be developed, how they have to be executed, and it happens very fast. Today if any idea is there, within 60-90 days, the product will be there in the market. Launching a new product is not rocket-science. If I have to launch a frozen rasmalai, or new variety of ice-cream, or new garlic butter, why should it take years? We do not do pilot research. Just taste it here in the Federation office, and then decide whether this product will work to hit the taste requirement. I mean, I said that we are all middleclass people. So our taste buds are also middle-class. So there is no problem.

On product launches

Today if any idea is there, within 60-90 days, the product will be there in the market. Launching a new product is not rocket science.

AR: Do you have a formal sampling session where you call, say, 50 consumers and ask them to taste?
RS: No, no… If you come to my office, any evening, around 6 o’clock, something new will be tasted or something old, or some competitor’s product. Evening 6 o’clock is a tasting session for new products, for existing products, for competitors’ products. Then we give to others also in the office and we take feedback from others. However, there is no formal way of doing tasting in the market and then deciding if this product will work or not. Sometimes, if we feel the need for formal tasting and testing, we may decide to do it. However, around 90% of the time, we decide ourselves.

AR: So in the marketplace, how important is it to be nimble? How important is it to be able to launch in 60-90 days? What is the competitive edge?
RS: You see it is very, very important that you launch when the idea is good. And if you want to really test it. Otherwise, if you delay, some competitor may come to know, and you are losing the market. I mean, if you take six months to one year to launch the product, you are losing that time in the market. I do not know why we should take more time. I mean, we cannot continue with new product launch for six months to one year. You see, in one year how many new products can you launch? Here, every month we launch one to three new products. And in food products, you require change. You cannot continue with the same type of products. The consumer is changing, taste preference is changing. Most food products are not new product per se. It is a variant or you are converting or shifting consumer from homemade, loose, or unpacked to the branded food. So there you require technology, you require taste to be kept or better than what he/she is having, and to see the shelf life. Because if you make barfi at home, it is just three, four, five, seven days shelf life. But if you are producing the product to be distributed all over India, it should have minimum three months shelf life.

AR: One of the benefits of Amul is that you do not spend a fortune on what we say are the frills of marketing, for example, packaging, or packaging design and so on. So how important is packaging and packaging design to marketing?
RS: You see in marketing, everything is important. Packaging is important. Advertising is important. But one has to see how much you spend on that. In Amul, the philosophy is very, very clear. We have to see that we manufacture the product with the best of the ingredients in the natural products, using the latest technology to process and manufacture it. Going with the best of packaging, which can keep the quality intact, which can keep the shelf life, but not going for two or three layers of packaging just to make it look very good. Advertising or communicating to the desired segment must be at the minimum level required. This is contrary to what is happening in the Indian market for the last few decades. And now people are learning from their mistakes. Most of the big brands like to spend minimum on the product ingredients. I mean, they will do all compromises, when it comes to ingredients of products, but they like to spend maximum on packaging, and more than that on advertising and communications. Then when you spend more on packaging, more on advertising and packaging, naturally, you have to price it higher. Then you have to bribe retailers on trade margins. So you spend more on packaging, you spend more on advertising, you spend more on trade margins, and you price it higher. That is why only one or two products succeed. I mean, ultimately, it has to come out from consumer’s pocket. In Amul, spending more on packaging, advertising, or trade margins is not marketing.

AR: So what is marketing? What is your definition of marketing?
RS: Marketing is simple. You have to develop a product that the consumer needs, pack it in a right form, ensure that the product reaches the consumer efficiently. When I say efficiently, you have to see that whatever expenses you are adding to reach to the consumer, the consumer is happy and willing to pay for it. If the consumer is buying a pack butter of Rs. 44, then the consumer should feel that, out of Rs. 44 for 100gm, the butter must be worth at least Rs. 40 and that the company is spending Rs. 4 – Rs. 5 on other elements. If the consumer buys a cake of soap that costs the same Rs. 40 and believes the soap to be worth just Rs. 5 or Rs. 6, the consumer will not feel happy. He will feel cheated. When a large part of the MRP goes into elements other than the product itself, you are lowering the entry barrier to competition. For example, Amul is in butter for the last 50 years. And again butter is not a complex recipe. Everybody knows how to make butter. But why there is nobody in butter? Everybody has tried. You name the Indian brand, they have tried. Why haven’t they succeeded? It’s because the entry barrier is high. It’s impossible for someone else to sell the butter at Rs. 44 for 100gm. Our consolidated marketing expense from the manufacturer to the consumer is so low that we have made it unviable for others, unless they achieve similar marketing efficiencies. That’s why, in categories such as oil and toothpaste and soap, new brands launch and quickly garner market share. The entry barriers are low. Incumbent leaders underspend on the product itself and more on the frills and paraphernalia. And to sell or market those high-paraphernalia products, you need expensive people at very high salaries and supported by very expensive advertising. Ultimately, it is not benefitting the consumer — and the consumer has no loyalty.

AR: Now tell me what is your philosophy on advertising? Because Amul has always been a conservative advertiser on the one hand, but take the Amul topicals, it is a very aggressive advertiser. It is a mix of both.
RS: Advertising is a must. Communication is required. Dr. Varghese Kurien, our founder and chairperson, realized the need and importance of advertising in the 1950s, when no Indian brands used to be advertised. It was only MNCs and English brands. When we first manufactured Amul butter, we needed to make the consumer aware that it was available. If you have a product, you need to shout. So advertising is necessary. But one has to see how much.

AR: So typically what is your spend?
RS: Our spend is always less than 1% of our annual turnover. And I’m not saying that 1% for all product categories. Some will be half, some less than 25%. We know that consumer will not mind paying more for a 100 gm pack of butter and feels that 1% of the price goes to pay for the TVC he saw last night. But if the consumer believes that the soap he is buying spent Rs. 10 out of Rs. 40 on a TVC, he is certainly going to be unhappy. That is happening today. AR: So what is your philosophy on advertising? RS: We believe in the consistency in communication. And why consistent communication? Because it takes decades to get consumer confidence in your brand. And like Amul butter is now more than 50 years old; the original positioning of Utterly, Butterly, Delicious still works, or the campaign of the Amul topicals, still works — so we are continue with these investments. Then in the 90s, we started Amul, The Taste of India. It is working well, so we continue. In 2000 we started Amul Doodh pita hai India, and it’s working, and we continue using it. Another choice we made was the creation of an umbrella brand — one brand for all product categories. If you have one brand, then you need less money to advertise. One brand. Amul. We see companies creating more than one brand even though need is not there. It’s often just for people to satisfy the personal ego of a head of marketing, or head of organization or head of advertising agencies. He/she changes, a new fellow comes, the campaign is changed, or new brands are launched, because everyone wants to leave his or her own legacy in the organization. So brands have to satisfy the personal aspirations of the people instead of the real market requirement.

On Advertising

Our Spend is always less than 1% of our annual turnover… if the consumer believes that the soap he is buying spent Rs. 10 out of Rs. 40 on a TVC, he is certainly going to be unhappy

In that case of the Amul topicals, Rahul daCunha has full independence. They think of the ad, create it and release it without any interaction with us. And we see when you, the consumer, see it. They do not need to take our approval.

AR: One more facet of Amul is their continued partnerships with their vendors or suppliers. So tell me why that works? For example in advertising, you work with the same agencies. And I understand, even with other vendors, not communication vendors, have been with you 10 years, 15 years, 20 years and so on.
RS:
Let me tell you. Basically, when you are in business, you have partners. You have partners in your supplies. Then you have vendors for your production, then you have distributors, then you have advertising agencies or media companies. See they all are like family members. So when we appoint a distributor, we may take slightly more time. It is a like a marriage. An Indian, Hindu marriage. You take your own time; you check everything around, his family, his father’s family, uncle’s family, around the state, what is the reputation of the person. But once you marry, or once you are appointed, we don’t remove anyone. There may be some shortcomings, but that happens in all families. You try to improve these areas, reduce these areas of problems. So it is better to grind, regrind the existing fellow instead of going for unknown person.

AR: So you work by and large with few agencies and you have had long enduring relationships with all of them. So tell me why it works, and what makes it work?
RS:
See first, you have to understand why we hire advertising agencies. In the 1950s, when we wanted to brand Amul, we started using the help of advertising agencies. ASP was hired. Then we hired Radeus, and we had four agencies. Unfortunately, two closed down — so we have never terminated any agency. We are continuing with two, right from day one. And the people attached, whether it is Shashi Sinha or Nitin Karkare, from the day they joined their agencies, they are on the Amul account. Same was the case with Sylvester daCunha, and now with Rahul daCunha. Dr Kurien said that when you hire advertising agencies, it is because you require their professional capabilities. They are creative people. The first thing is, we give full independence to creative agency because we have hired them. So you can give your opinion, but the ultimate decision has to be taken by the agency and they decide. In the case of the Amul topicals, for example, Rahul daCunha has full independence. They think of the ad, create it and release it without any interaction with us. And we see when you, the consumer, see it. They do not need to take our approval. And by giving them the full responsibility, we have found they become more responsible, because ownership is with them. With less than one percent budget, you have to keep the brand salience high — and that is a challenge to them, not to us. I think all compliments go to them. When they come here, we give our opinion. And they feel more responsible. Because they see that with this limited budget, ultimately, the blame for failure rests with them. And we are very fortunate that our agencies relish the responsibility. Like a family, we fight sometimes, but it is not like I did not like this today, so change the agency! We never think of changing people, whether it is distributor, advertising agency or supplier.

On Celebrity Endorsements

You have to keep changing a celebrity. In our case, our celebrity is the Amul Butter girl. Last fifty years, we have not had to change her.

AR: So what is your view on celebrity endorsements? Let me get that out of you…
RS:
(Laughs) I don’t think that all the celebrities they show for hair oil or for soaps use those products. Today I was reading about one celebrity who endorses a particular brand of juice and was photographed with another brand in her refrigerator! (Laughs). I don’t think the consumer will buy a packet of butter thinking the particular celebrity actually consumes it. In our case, our celebrity is the Amul Butter girl. She is young. Last fifty years, we have not had to change her; you have to keep changing a celebrity. I believe our consumer, our customer, has more faith in the Amul brand than in any other celebrity. Dr Kurien said that whatever branding you do, whatever marketing you do, you have to see that you get blind faith of your consumer in your brand. And blind faith is like a faith you have got in religion. You may be loyal to a particular airline, but you do not have blind faith, because when you really need the airline, in an emergency, the airline will charge four, five, six times more price. Or even sometimes 10 times more. So you feel very jittery that this brand. So you do not have blind faith. But you have blind faith in religion. We try and develop the same blind faith in Amul products, so that any time a housewife walks in to a store, she never looks right or left, but she picks up the Amul butter and puts it in to her basket because she knows Amul is going to give her best product, Amul is never going to overcharge, Amul will not cheat her over the weight, Amul will not ever cheat her by changing ingredients by replacing the expensive with the cheap, synthetic ingredients. So over the last 50 years, that blind faith we have developed with Amul products, and that has come about because of our own marketing mix.

AR: Now there are two questions. One is, the size of your company. Nobody knows the size of Amul. You know, while they speak of the large marketing companies in one breath, Amul is not one of them….
RS:
First, I am always surprised because when they say FMCG, and FMCG means toothpaste, soaps, which you buy once in a month. Which is the fastest moving? Milk! You buy every day. Curd you buy every day. Butter you buy once in a week. These are not FMCG products because these are not produced by the multinationals. What is the FMCG? Many newspapers and magazines do not include Amul in the rankings of FMCG companies because they feel Amul is not an FMCG company, because 3.6mn poor farmers own it, and the FMCG slot is booked only for the high profile companies, not for the small farmers. Coming to the size of Amul, last year, GCMMF turnover was Rs. 27000cr, and the Amul brand unduplicated turnover was Rs. 38,000 cr. In this, branded Amul pasteurized milk is included, curd is ncluded, buttermilk is included, ice-cream, cheese, butter, all these. See what happens is our 18 district unions in Gujarat, they are allowed to sell Amul branded products within their districts without going through the Federation. Why duplicate? In Anand, the Amul milk, Amul butter or Amul curd, for example, that comes to my home does not come into the Federation’s turnover. The same is true for Baroda; the same is true for Surat, etc. This direct sales adds another Rs. 11,000 crore.

AR: What do you think needs to happen for media to consider your products as part of the FMCG basket? Why do you think it is not happening?
RS:
I think they go by the listed companies only. Amul is not a listed company. Second, we are not located in Bombay or Delhi. We are located in Anand. So how can Anand be the hub of the number one FMCG company? Today we are the number one FMCG company in India! Every Indian is consuming it. You go to any Indian house; you will find one or two Amul products.

AR: So that is one of the problems that you have. Now like any marketer today you have to grapple with the fast changing dynamics of the marketing mix. 20 years ago, you only had radio, TV, print and outdoor. You did not have digital. How much time do you spend in understanding what happens in digital or social media?
RS:
I think that is a very pertinent question and a very important one also because especially in the last 10 years, media has changed. So we have to also keep abreast with what is happening. Earlier, it was only press and outdoor and radio, and then TV came, and with TV, so many channels came. And with channels, there were a lot of varieties. Even in one local language, there are ten channels. So much fragmentation of media is there. Then social media, digital media came. We keep trying to learn what is happening. Just the day before, we had full day meeting where our media agency was making all product officers and the entire marketing team aware of the recent developments in media and marketing.

RS Sodhi

 

On Media and FMCG

Many newspapers and magazines do not include Amul in the rankings of FMCG companies because they feel Amul is not an FMCG company, because 3.6mn poor farmers own it, and the FMCG slot is booked only for the high profile companies, not for the small farmers.

When they say FMCG, and FMCG means toothpaste, soaps, which you buy once in a month. Which is the fastest moving? Milk! You buy every day. Curd you buy every day. Butter you buy once in a week. These are not FMCG products because these are not produced by the multinationals.

Last year, GCMMF turnover was Rs. 27000 cr, and the Amul brand unduplicated turnover was Rs. 38,000 cr… Today we are the number one FMCG company in India! Every Indian is consuming it. You go to any Indian house; you will find one or two Amul products.

AR: So how much time do you personally spend on these things? On media plans?
RS: We do our media planning once in the beginning of the year, where we understand how we have spent previous year, what is the reach, and how much competitor has spent, what new things are happening. We look at costs and efficiencies. You can reach the same consumer through radio, through press, through digital, but you have to see efficiency. Each week, we spend at least three to four hours on the media planning. Media planning is essential because in Amul, after milk, that is the biggest cost head.

AR: You say after milk, the largest cost point for you is media?
RS: Yes! (Laughs) And no, that is not only for Amul, it may be much bigger for others, because our spend is very low. Imagine if the company is spending 15% or 12%, there is no other spend like that. Even manpower is lower than that, packaging is lower than that, and transportation is lower than that, warehousing is lower than that. So media is the biggest…

AR: Your spend is less than 1% (of annual turnover) you said…
RS: 85% is milk! (Laughs) Other costs include processing, and distributor and dealer margins. We keep a constant eye on margins, which is very important from efficiency in marketing distribution. You see a pouch of milk that you get at home, from factory to consumer, our cost is only 5 percent to 6 percent.

AR: So what’s next for Amul? In the next one year, what are we going to see coming out from Amul?
RS: It is a public organization so there are not many secrets. Anyone can walk into any plant; they are open to all like a temple. You do not need any permissions
Right now, one area that we are looking at is dairy-based snacks. Frozen. Because we have the frozen distribution highway, so frozen snacks like cheese or paneer paratha, samosa, etc. Second area, which we are really focusing on, is chocolates, which I am sharing for the first time. We are multiplying our capacity by five times. Another area where you will see activity is in the baked snacks segment. We have done some pilot testing of cookies, in this part of Gujarat only. Like Amul, butter cookies. Not cookies made with vegetable oil, and then butter sprinkled on it. 100% butter and doing very well! So that also we are expanding capacity four-five times. We thought of covering Gujarat and nearby states for some bakery products like cookies, bakeries and bread. So those are the areas. Besides that in dairy, a lot of new products will be launched. New varieties of chocolates, new varieties of ice-creams, fermented products like new types of lassi, etc. That will continue.

AR: So finally, when will Amul reach 50,000?
RS: GCMMF, which is Rs. 27,000 cr now, will be Rs. 50,000 cr by 2020-21, but the Amul brand will be Rs. 50,000 cr in another two years. Growth is not a problem.