Amul sees big fat profit in milk, dumps chocolates

    Amul sees big fat profit in milk, dumps chocolates

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    Amul chocolates, which made a determined entry in the market in the nineties and stayed put till a couple of years ago, is barely seen on shop shelves nowadays.

    The grit with which the brand, then only known for its butter and cute ads, posed a challenge to market leader Cadbury is gone.

    A two-horse race that became three-horse competition, with joining in, appears to have slipped back into a market dominated by the two foreign brands. The homegrown Indian brand, a household name more famous than its owner, , is barely visible in the chocolate market.

    Amul contests this. But try buying a bar of the brand, chances are that most retailers will shake their heads. This, when the brand has grown into a giant business in milk and other milk products. Cheese, ghee, ice cream and curd, for example.

    Marketing and branding aces blame the vanishing trick on poor marketing and low expertise in chocolate making. Another plausible reason could be the diversion of milk fat, an important ingredient in chocolate making, to producing liquid milk.

    Why must Amul feel compelled to do so? To protect and expand its liquid milk business, perhaps a necessity when raw milk supplies dry up in a below-average monsoon. In such a scenario liquid milk, being more profitable, takes precedence over chocolates.

    Like farmland, milch cows yield less in a drought because fodder is not plentiful. Also cattle feed is scarce. Not just that, the fat content in the milk drops. Even in a good monsoon year the yield varies from season to season. Since milk is the cooperative’s mainstay, accounting for 35 per cent in value of all sales, it must be constrained to preserve fat for use to produce liquid milk in dry times.

    In 2008 the branded chocolate market in India was worth around Rs 2,300 crore (56,747 tonnes), dominated by Cadbury (70 per cent market share). Nestle, with 28 per cent, came next. Amul and other minnows shared the rest, according to A C Nielsen. In 2007, the market absorbed 49,487 tonnes worth Rs 1,700 crore.

    This becomes an imperative where consumer demand for milk is growing. With disposable incomes rising, consumers have become more discerning and are spending more on a better lifestyle, which includes better food. “One manifest of this is the significant growth in overall milk consumption,” said a senior official in the department of animal husbandry, dairies and fisheries.

    Between 2006-07 and 2008-09 milk production in India went up from 100.9 million tonnes to 110 million tonnes, and the per capita daily milk consumption from 246 gm to 261 gm.

    At Amul, too, the milk output has grown rapidly – from 6.2 million litres a day in 2005-06 to 8.5 million litres a day in 2008-09. Chocolate production – Amul claims it is growing — still remains a very small part of its business.

    In 2008 the branded chocolate market in India was worth around Rs 2,300 crore (56,747 tonnes), dominated by Cadbury (70 per cent market share). Nestle, with 28 per cent, came next. Amul and other minnows shared the rest, according to A C Nielsen. In 2007, the market absorbed 49,487 tonnes worth Rs 1,700 crore.

    Vivek Agarwal, chief operating officer for Amul chocolates claimed an annual production growth of 15 to 20 per cent. In 2007-08, production was 1,000 tonnes, last year it was 1,200 tonnes. This year he hoped to touch 1,500 tonnes.

    He admitted chocolates contributed “probably half a per cent to one per cent” to Amul’s overall turnover (Rs 6,711 crore in 2008-09, Rs 5,255 crore in 2007-08). Expressing a hope not matched by recent performance, he said he expected to garner a 10 per cent market share in three years. To attain that, he said, Amul, would launch more products, begin marketing and communication in right earnest, and push for deeper retail penetration.

    Ground reality does not support his optimism. A shopkeeper in south Delhi has not been able to get supplies for quite some time. “We tried, but have stopped trying now,” he said. According to his account, Amul used to push chocolates by tying them to the offtake of milk and milk products. “Not so any more,” he said.

    Other than a lack of focus, Amul’s chocolate business also suffers from a poor . In chocolates it is a small brand. It brought in too many variants, too quickly. “It should have created a mother brand — like Cadbury did with Dairy Milk or Nestle with Kitkat — and then expanded the category,” said Harish Bijoor, an independent brand consultant.

    Amul has successfully extended its milkman image to ice cream, cheese and other dairy products, but has made no headway in chocolate. Cadbury once tried to sell Bournvita biscuits but failed. , known for bed linen, tried to sell Vivaldi men’s shirts and failed. “A brand must understand its fundamental associations,” said Anand Halve of Chlorophyll, a brand consultancy firm.

    The milk cooperative’s chief marketing manager, , put the business priorities of the cooperative in perspective: “For us, chocolate is not big. We are not putting any advertising. Our focus is dairy and dairy products.”

    Source: Financial Chronicle