CORPORATE STRATEGY

NOT TOO OLD FOR GROWTH

Case Analysis 1

Submitted in Partial Fulfilment

Of

Course: Corporate Strategy

Course Number: 09GM52

By

TEAM 1

KRISHNAVENI V.D. (11AC13)

ABIMANYU (11AC01)

SUGANYA.S (11AC36)

RAMYA SHREE.N (11AC22)

SATHYA.S (11AC29)

PSG Institute of Management, Coimbatore

December 2012
 INDIA’s MILK DADDY – AMUL

THE TASTE OF INDIA

1.0 INTRODUCTION

AMUL is ranked as the number one brand in India and the top Dairy brand in the
whole of Pacific Asia. It holds 25% of the organised sector; that is 30% of the total milk
business in India. Kaira District Co-operative Milk Producers Union Ltd began its journey
with just 2 village co-operatives in the year 1946 with a Processing capacity of 247 litres of
milk to stop the exploitation by middlemen. Today, better known as AMUL DAIRY, which
means “Priceless” in Sanskrit . Amul is a giant spread across 15,000 villages with 3.1 million
farmers as members, with a processing capacity at an average of 11.5 million of milk holding
40% share of Rs 2500 crore in the rapidly growing Indian Ice Cream Market . AMUL is the
largest exporter of dairy products with Rs 100 crore in the year 2011-2012.

Amul Butter, Amul Milk Powder, Amul Ghee, Amulspray, Amul cheese, Amul
chocolates, Amul Shrikhand, Amul Icecream, Nutramul, Amul milk, Amulya have made
Amul a leading Milk Products brand in India.

Figure 1.1
1.1 GCMMF:

Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF) is India's largest food
product marketing organisation with annual turnover (2011-12) US$ 2.5 billion. Its daily milk
procurement is approximately 13 million litres (peak period) per day from 16,117 village
milk cooperative societies, 17 member unions covering 24 districts, and 3.18 million milk
producer members. It is the apex marketing federation of 13 district cooperative milk unions
in Gujarat. The products of its member unions are marketed and distributed under the brand,
Amul , which aims to provide remunerative returns to the farmers and also to serve the
interest of consumers by providing quality products which are good value for money.

1.2 SUPPLY CHAIN:

Figure 1.2

The Amul model has helped India to emerge as the largest milk producer in the world.
More than 15 million milk producers pour their milk in 1,44,246 dairy cooperative societies
across the country. Their milk is processed in 177 District Co-operative Unions and marketed
by 22 State Marketing Federations. The model also helped in eliminating internal competition
and ensuring that an economy of scale is achieved .It has establishes itself as a uniquely
appropriate model for rural development.

1.3 VISION AND MISSION OF AMUL:

Officially, Amul does not have a vision or mission statement. But, the vision and
mission statements that we have inferred from our review of the organisation is:

VISION : To bring affordable and quality nutrition to all.

MISSION : To benefit consumers and suppliers by producing and delivering good quality
and low cost dairy products.

1.4 OBJECTIVES:

 The primary objective of AMUL is to provide more milk products to more and more
consumers with in our country.
 To create more value added dairy products through constant research and
development and innovation.
 GCMMF plans to invest Rs 3000 crore in the next 5 years towards capacity
enhancement & product development with an aim of processing 18 million litres of
milk.

1.5 STRATEGIES:

 Low Cost - Price strategy:

Amul wants its products to be available and affordable by all and so follows a low cost
strategy. Given that it represents a co-operative society, its focus is always people above
profits. As a result, it distributes most of its margins to its suppliers. It pays Rs 32/litre of
milk to farmers, whereas Mother Dairy pays just Rs 24.5-27/litre

 Amul relates its advertisements to the day-to-day issues or entertainment

programmes. For eg: Sponsoring team India’s London Olympic efforts
  GCMMF spends 85% of the revenue on farmers, as farmers are the backbone of the
industry, by providing free veterinary service, good feed at low prices, bonus at the
end of financial year
 Super Distributors :

Dealing with 30 super distributors covering 520 smaller towns. Amul is planning to
provide better convenience to the consumers by increasing the super distributors from 30 to
150 to cover 3000 smaller towns

 Regular Leadership Development Programmes (RLDP) :

Amul provides RLDP to its Top Level Management, which is one of the major reason for
low attrition rate and that in turn helped address new challenges, consistency in marketing
communication strategy and Build brand equity

 Target Customers :

Amul targets all the customers from the low end to the top of the Pyramid whereas Nestle
& most of Amul’s competitors targets only the top sector of the pyramid. This is the main
difference between Amul and its competitors success path.

 Distribution Network :

The distribution network of Amul provides cash transactions throughout the supply chain
with dry and cold warehousing facilities. Just In Time (JIT) improves the dealer’s Return on
Investment (ROI).
 2.0 ANALYSIS

2.1 New Vision and Mission of Amul :

Vision:
To be the global choice for high quality and affordable dairy nutrition.

Mission:
To deliver high quality and affordable nutrition to our consumers worldwide through our
wide ranging dairy products in a sustainable manner that brings social and economic benefits
to our producers, always placing people above profits.

The vision and mission developed here reflect the purpose behind the establishment of the
GCMMF and the Amul brand. The focus is always on the primary customer who is the
farmer. Amul’s aim is to become a global player in the dairy arena with a wide variety
product portfolio indulging in environmentally and socially beneficial procedures and
processes to provide the best quality dairy nutrition to its consumers.

2.2 AMUL’S EXTERNAL OPPORTUNITIES AND THREATS:

According to ASSOCHAM, milk production in India is likely to reach 190 million

tons by 2015 with an annual turnover of Rs. 5 lakh crore. The future growth of milk
consumption is expected to be 3.5 million tonnes . If this expected consumption is not met,
then India have to start importing milk.
 OPPORTUNITIES WEIGHT RATING WEIGHTED SCORE
Growing Demand (3.5 mn tonnes) 0.15 5.0 0.75
Capacity Enhancement (Rs 3000 cr) 0.10 4.0 0.40
Robust economic Growth 0.10 3.0 0.30
Supply Chain Management 0.10 4.0 0.40
Export Potential 0.05 3.5 0.17
Table 2.1

Amul is facing heavy competition from private players and MNCs eg. Mother Dairy,
Nestle etc. It is very easy for them to follow Amul and their strategies, as Amul is the First
Mover in the Indian Milk Market. Recently, there was an increase in the price of Rs 2/litre of
Amul milk because of increase in the cost of packaging material and Excise Duty hike by
Government.

THREATS WEIGHT RATING WEIGHTED SCORE

New Entrants(Private players & 0.05 4.0 0.20
MNC’s)
Rising costs(Packaging & Excise Duty) 0.10 3.0 0.30
First Mover Disadvantage 0.15 5.0 0.75
(Adulteration, Low price)- Rivals 0.15 4.0 0.60
Lower cattle yield 0.05 4.0 0.20
TOTAL 1.00 4.07
Table 2.2
2.3 Competitive Profile Matrix :

Critical Success Factors Weight Amul Nestle Britannia

Rating Score Rating Score Rating Score
Product Quality 0.15 4 0.60 4 0.60 3 0.45
Price Competitiveness 0.15 4 0.60 2 0.30 2 0.30
Product Range 0.05 2 0.10 4 0.20 3 0.15
Market Share 0.10 4 0.40 3 0.30 4 0.40
Global Expansion 0.10 3 0.30 4 0.40 3 0.30
Advertising 0.10 4 0.40 3 0.30 3 0.30
Financial Position 0.05 3 0.15 4 0.20 3 0.15
Value Chain & Logistics 0.10 4 0.40 2 0.20 2 0.20
Production Capacity & 0.10 4 0.40 2 0.20 2 0.20
Sustainable Production
Practices
Organisation Structure 0.05 4 0.20 3 0.15 3 0.15
Research & Development 0.05 3 0.15 4 0.20 3 0.15
Total 1.00 3.70 3.05 2.75
Table 2.3

A brief explanation of the different key success factors is given below:

1. Product Quality: Amul’s major strength is its ability to deliver high quality products
at low rates. A case in point is the packaged milk product. Unlike other domestic and
international players, Amul provides fresh packaged milk all year round instead of
adding milk powder for recombination during the lean season.
2. Price Competitiveness: Amul has adopted a low-cost price strategy to make its
products affordable and attractive to consumers by guaranteeing them value for
money. A comparison of prices for a 400 gram dahi product:
Amul : Rs. 32
Nestle : Rs. 40
Britannia : Rs. 40
*Prices as on 09-Dec-2012
3. Product Range: Amul has a product range of 85 items. The product width is 17.
Some lines are: bread spreads, cheese, dessert, health drink, milk drinks, powder milk
 and fresh milk. Nestle on the other hand has over 8000 brands of which some are not
dairy products. Britannia’s product lines include biscuits, cakes, cheese, yoghurt and
other Dairy products.
4. Market Share: Amul is No.1 in certain product sales such as butter (85% market
share), milk powder (40% market share) and cheese (50% market share) whereas
nestle leads in categories like chocolates and Britannia in biscuits.
5. Global Expansion: Unlike Nestle, Amul is yet to establish itself as a truly global
dairy and dairy products firm. It sells its products in the UAE, USA, UK, Singapore
and so on. It is the largest exporter of Dairy products from India and its exports
include full cream milk powder, ghee, cheese, butter, paneer etc.
6. Advertising: Amul spends less than 1% of its revenues on advertising as against 20 or
more percent by its competitors.
7. Financial Position: Nestle is the world’s largest food company in terms of revenues
with the latest figures showing an 8.9% increase in profits over last year. Amul has
revenues of around Rs. 11,670 crore (US $ 2.15 billion). Britannia’s latest figures
indicate that it has got a net profit of 18.8% to Rs. 134 crore and revenues to the tune
of Rs. 4,670 crores (US $ 850 million).
8. Value Chain and Logistics: Amul scores a very big advantage over its rivals in the
fact that it is a co-operative. Amul passes on as much as 85% of its total revenues to
farmers attracting its suppliers. Regarding distribution, Amul has 4,000 distributors
and is in the process of creating 30 super distributors to cover 8 states.
9. Production Capacity and Sustainable Production Practices: Amul is proposing to
add to its areas of procurement to maintain its leadership position. It has a proposed
budget outlay of Rs. 3000 crores for this purpose. It indulges in sustainable practices
like providing nutritionally balanced animal feed and fertility Improvement
Programmes.
10. Organisation Structure: Amul has very few employees – only 750 to manage a US $
2.15 billion business. The main focus is always on benefitting the farmers who supply
the milk earning them very high supplier loyalty. The top executives are always
technically qualified persons.
11. Research and Development: While Amul has been investing in R&D and
developing new product lines, it does not have the financial muscle that Nestle enjoys.
Overall, the matrix suggests that Amul has many strengths in relation to its competitors.
Strictly speaking, Amul does not have an Indian competitor who is equal to it in terms of
product specialisation or expansion potential. Most of its competition comes from the
unorganised sector that covers around 80% of the Indian dairy industry.

2.4 EXTERNAL FACTOR EVALUATION (EFE) MATRIX

EXTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE

Opportunities
Growing Global Demands 0.15 5.0 0.75
Greater Productivity 0.10 3.0 0.30
Export Potential 0.05 4.0 0.20
Robust Economy Growth 0.10 3.0 0.30
Supply Chain Management 0.10 4.0 0.40
Threats
Competitors 0.15 4.0 0.60
Environmental Costs 0.15 3.0 0.45
Milk Vendors 0.05 3.0 0.15
Adulteration 0.05 1.0 0.50
Lower Cattle Yield 0.10 2.0 0.20
Total Scores 1.00 3.85
Table 2.4

As a Global enterprise, AMUL will be meeting global demands and ensure greater
productivity and the opportunity to enhance integration in order to increase efficiency and
effectiveness in the business. It already has wide geographic positions and hence this will
give it an advantage to get access to gain presence in mature markets. Efforts to exploit
export potential are already on, as AMUL is exporting to Bangladesh, Sri Lanka, Nigeria, and
the Middle East. By following the new GATT treaty, opportunities have increased
tremendously for the export of agri products in general and dairy products in particular.

Local competitors are the major problem facing by AMUL. They sell their products at
a lower price, since being a low capital company; they have fewer expenses to take care of.
Secondly as the environmental costs are rising day by day, it’s getting tough to carry the
same pricing throughout. Thus cutting down the extra cost will surely help. Adulteration -also
a major threat to quality takes place due to illiterate farmers from remote villages.
2.5 AMUL’S INTERNAL STRENGTHS AND WEAKNESSES :

CRISIL believes that GCMMF will maintain its dominant position in the dairy industry over
the medium term, supported by its strong milk procurement capability. GCMMF financial
risk profile is also expected to remain strong over the medium term, supported by negligible
debt and healthy cash flows. GCMMF has ample liquidity. As on March 31, 2011 the
federation has healthy cash surpluses of Rs.960 million against debt of Rs.72 million. The
bank limit of Rs.230 million also remains unutilised. GCMMF cash accruals of more than
Rs.400 million per annum are adequate to meet its moderate capital expenditure (capex) plans
and working capital requirements.

STRENGTH WEIGHT RATING WEIGHTED SCORE

Dominant position in Domestic Market 0.15 5.0 0.75
Strong Control over Procurement 0.20 4.0 0.80
Strong Financial risk profile 0.05 3.0 0.15
Wide range of Products with value for 0.05 4.0 0.20
money
First Mover Advantage & Competitive 0.05 4.0 0.20
Advantage (JIT, Cash transaction ,TQM)
Table 2.5

The CRISIL rating may be revised to a “Negative”, if GCMMF procurement of raw materials
gets disrupted because of adverse environmental conditions or any significant pressure on
cash flows because of competition.
 WEAKNESSES WEIGHT RATING WEIGHTED SCORE
New Product Development 0.10 3.0 0.30
Making low Investments 0.05 2.5 0.12
Perishable products 0.15 3.5 0.52
Lower yield management 0.10 3.5 0.35
Problem in Distribution 0.10 2.5 0.25
TOTAL 1.00 3.64
Table 2.6

2.6 INTERNAL FACTOR EVALUATION MATRIX (IFE)

WEIGHTED
INTERNAL FACTORS WEIGHT RATING
SCORE
Strengths
Product Range 0.15 5.0 0.75
Economies of Scale 0.15 5.0 0.75
Manufacturing Cost 0.10 4.0 0.40
Co-operative Structure 0.05 4.0 0.20
Global Outlook 0.05 4.0 0.20
Weaknesses
Logistics 0.10 3.0 0.30
Lack of Investment 0.05 2.0 0.10
Perishability 0.15 3.0 0.45
Low Yield Management 0.10 3.0 0.30
Distribution Problem 0.10 2.0 0.20
Total Scores 1.00 3.65
Table 2.7

The strengths for AMUL are product differentiation, Economies of scale, Low cost
manufacturing, and strong cooperative organization. The demand profile is absolutely
optimistic. While the margins are quite reasonable, even on packed liquid milk. Wal-Mart has
low fat products of AMUL on their shelves, due to high customer demands.

The weaknesses for AMUL are Poor management of logistics, Low investment,
perishability, lower yield management. Perishability is being overcome partially by UHT
technology.UHT (Ultra high temperature) gives a longer shelf life to milk and milk products.
2.7 ANALYSIS TOOLS

2.71 SWOT:

STRENGTHS WEAKNESSES
Dominant position in Domestic Market New Product Development
Strong Control over Procurement Making low Investments
Strong financial risk profile Perishable products
Wide range of products with value for money Lower yield management
First Mover Advantage & Competitive Advantage (JIT, Problems in Distribution
Cash transactions, TQM)
Table 2.8

OPPORTUNITIES Strong Opportunity Weak Opportunity

STRATEGIES
Growing Demand (3.5 mn tonnes) Expansion plans Increase the use of
(Rs 3000 crore for Scientific Developments
Capacity Enhancement (Rs 3000 cr)
Capacity Enhancement)
Robust economic Growth Increase Productivity
Improve channel of
Supply Chain Management Distribution through cost effective
Export Potential (Amul Kiosks , Amul manufacturing
Café & restaurants) (usage of Breed cattles)

Table 2.9

THREATS Strong Threat Weak Threat

STRATEGIES
New Entrants (Private players & Introduction of New Product Positioning
MNC’s) Products, Continuous
Rising costs (Packaging & Excise R&D and Innovations Efficient & economical
Duty) Procurement & Distribution
First Mover Disadvantage Value Marketing system
(Adulteration, Low price strategies)
Rivals Control over yield &
Lower cattle yield Diversification
Table 2.10
2.72 The Strategic Position and Action Evaluation (SPACE) Matrix:

Financial Strength (FS):

S. No. Parameter Rating

1. Return on Investment 5
2. Working Capital 6
3. Liquidity 3
4. Cash Flow 5
5. Inventory Turnover 6
Average 5

Table 2.11
Some figures that substantiate the above ratings are:
Year-on-year sales growth of 19.3% to reach rs. 11,668 crores. Last year’s turnover was
Rs.9,774 crores. This is an impressive growth, considering the shortage of milk faced in the
beginning two quarters of the year and that GCMMF has recorded a consistent 20% of
growth rate for last five years. Millk product exports touched rs. 95 crores.

Financial data upto 2009 show the following values*:

Current Ratio : 1.62
Quick ratio : 0.53
Inventory Turnover Ratio : 35 days
Fixed Assets turnover Ratio : 17.51
Working Capital Turnover Ratio : 21.42
Net profit ratio :0.42
*http://www.scribd.com/doc/50847648/55/TOTAL-LIABILITY-TO-ASSET-RATIO

Environmental Stability (ES):

S. No. Parameter Rating
1. Technological Changes -2
2. Demand -1
3. Price range of competing products -1
4. Barriers to entry into market -3
5. Competitive Pressure -3
S. No. Parameter Rating
6. Ease of exit from market -5
7. Risk involved in the business -3
Average -2.57
Table 2.12
Competitive Advantage (CA):

S. No. Parameter Rating

1. Market Share -2
2. Product Quality -1
3. Customer Loyalty -1
4. Product Life Cycle -1
5. Competition’s Capacity Utilisation -3
6. Technological Knowhow -2
7. Control over suppliers and distributors -1
8. Sustainable practices -1
Average -1.5
Table 2.13
Industry Strength (IS):
S. No. Parameter Rating
1. Profit Potential 5
2. Financial Stability 4
3. Technological Knowhow 3
4. Resource utilisation 2
5. Ease of entry into the market 3
6. Productivity, capacity utilisation 2
Average 3.17
Table 2.14
X-axis value = CA + IS = -1.5 + 3.17 = 1.67
Y-axis value = FS + ES = 5 – 2.57 = 2.43

Figure 2.1

2.73 BOSTON CONSULTING GROUP (BCG) MATRIX

The BCG model is a well-known portfolio management tool used in product life cycle theory.
BCG matrix is often used to prioritize which products within company product mix get more
funding and attention. The BCG matrix model is a portfolio planning model developed by
Bruce Henderson of the Boston Consulting Group in the early 1970's.

The BCG model is based on classification of products (and implicitly also company
business units) into four categories based on combinations of market growth and market
share relative to the largest competitor.
 Figure 2.2

The Question Marks are basically new products of Amul like Amul Breads, Amul Mithai
Mate and Amul's new line of sweets including Kesar Peda and Kaju Katri. They have low
returns currently and so they have to increase their market share by improving their visibility
among their customers.

The Stars of Amul product line are Amul Ice-creams, Amul Kool Cafe, Amul Cheese Spread
and Amul Pure Ghee. They have a good market share, but still require support as they still
have some improvements to make.

The cash cows of the Amul Co-operative are Amul Butter, Amul Packaged Milk and Amul
Cheese Slices. Amul Butter was one of the frontrunners in the butter market and it still is as it
generates a huge profit. The packaged milk sells at a lower price than its competitors, but
serves the same quality.

When it comes to dogs, Amul line of products has just a few ones that make the cut.
Nutramul has been in the energy drinks for quite a long time, but has not made any headway
in the market and so remains as a dog. Amul's pizza and chocolates also remain as dogs as
they are unable to offer the quality to satisfy customers' preferences.

2.74 INTERNAL-EXTERNAL MATRIX:

The Internal-External (IE) matrix is a strategic management tool used to analyze working
conditions and strategic position of a business. The Internal External Matrix or short IE
matrix is based on an analysis of internal and external business factors which are combined
into one suggestive model. The IE matrix is a continuation of the EFE matrix and IFE matrix
models.

Figure 2.3

Hence, the IE matrix for Amul indicates growth and build strategy. This means intensive and
aggressive tactical strategies should be focused on market penetration, market development,
and product development. From the operational perspective, a backward integration, forward
integration, and horizontal integration should also be considered.
 2.75 GRAND STRATEGY MATRIX

Rapid Market Growth

1
2 Market Development
Product Forward Integration
Development
Related Diversification
Backward Integration
Horizontal Integration
Weak Strong
Competitive Competitive
position position
3
Retrenchment 4
Unrelated Market Penetration
Diversification
Divestiture
Liquidation

Slow Market Growth

Figure 2.4

For Amul, continued maintenance and improvement of markets and products is an option. It
should not move from its established competitive advantages. It can take aggressive risks.
 2.76 QSPM (QUANTITATIVE STRATEGIC PLANNING MATRIX)

Strategic Alternatives
Geographical
Retailing Expansion
Key Factors Weight AS TAS AS TAS
Opportunities
Growing number of consumers 0.15 3.00 0.45 4.00 0.60
No organised competitors 0.05 4.00 0.20 3.00 0.15
Robust economic growth 0.05 3.00 0.15 4.00 0.20
Export Potential 0.15 - -
R&D and Innovation 0.10 - -
Capacity Enhancement 0.10 4.00 0.40 3.00 0.30
Supply Chain Management 0.10 4.00 0.40 4.00 0.40
Threats
New Entrants 0.05 1.00 0.05 2.00 0.10
Rising costs of packaging etc. 0.15 2.00 0.30 1.00 0.15
New value added products by competitors 0.10 2.00 0.20 1.00 0.10
1.00
Strengths
Dominant position 0.15 4.00 0.60 3.00 0.45
Control over procurement 0.15 - -
First mover advantage 0.05 - -
Sustainable Practices 0.10 - -
Strong financial profile 0.10 2.00 0.20 3.00 0.30
Product Range 0.10 3.00 0.30 2.00 0.20
Organisation Structure 0.10 - -
Weaknesses
Low yield management 0.10 - -
Low distribution 0.10 2.00 0.20 1.00 0.10
Perishable products 0.05 2.00 0.10 1.00 0.05
1.00
3.55 3.10
Table 2.15

SHORT TERM

The strategic factors that the company needs to satisfy in the short run is capacity
management by building few more storage capacity at their new projects. This will also
benefit in global expansion of the company. As short term defines a period of a year or so, the
solution should be found within a year for a proper success.
INTERMEDIATE TERM

The strategic factors that the company needs to consider during this term are lower
yield management and supply chain demand. These are classified into intermediate duration
because the company must be able to overcome its weaknesses, make use of the opportunities
and defeat the threats. All this must be done at the right time to ensure efficient results. In this
case the factors are such that the earliest (short term) might not be the best decision to make,
as the duration might not be sufficient to overcome all the issues with a clear outlay.

LONG TERM

The strategic factors that the company needs to satisfy during this period are to build
on the strength of having a wide range of products. They must be able to continue to maintain
many products varieties and build on them efficiently. Using R&D (research and
development) to overcome the problem of pasteurization as well as satisfying growing global
demand is not an easy task and hence requires time and efficiency to meet the needs globally.
The major challenge is in overcoming the threat of competitors in the long run.

2.77 ALTERNATIVE STRATEGIES:

2.77.1. MARKET PENETRATION THROUGH RETAILING

Amul faces competition across all product categories. They are the leader in the
packed liquid milk in the country but state-wise they have competition from local co-
operatives in milk. More than the national players, the competition they find tough to fight is
from regional dairy players. Even in the near future, they don’t see any private dairy
company fighting out with us nationally in a big way.
Amul’s current distribution network:

Figure 2.4

Amul’s distribution network

 48 Depots
 7000 Amul parlors
 3600 wholesale distributors
 10000 village co-operative societies
With the above distribution network the total household consumers covered by Amul is only
around 4 lakh.

Supporting facts for strategy

There are more than 50,000 villages with population of 5000 plus. India has the largest
consumers of milk.
 PERIOD PER CAPITA MONTHLY
EXPENDITURE ON MILK
IN RURAL AREAS
2006-2007 47.31
2007-2008 55.87
2008-2009 71.98
2009-2010 80.55
Table 2.16

Improvement in both width and depth of distribution across urban and rural India should be
the key focus.

It is important for moving a service from producer to consumer in certain sectors, and both
direct and indirect channels may be used. Hotels, for example, may sell their services
(typically rooms) directly or through travel agents, tour operators, airlines, tourist boards etc.

2.77.2 MARKET DEVELOPMENT – EXPANDING IN SOUTH INDIA

Managing director at Gujarat Co-operative Milk Marketing Federation (GCMMF), Mr. R S

Sodhi has stated, “So far we were able to set up most of our distribution networks in terms of
depots and outlets in north, east and west India. We are today not present in terms of fresh
dairy products in south.” Therefore , South India presents a good market for expansion.

Supporting facts for strategy

 Around 30000 tonnes of milk are being produced per year in South India.
 Presence of strong consumers of milk in South India.

2.8 COST PROJECTIONS

Considering opening a new Amul milk depot up in Coimbatore:

Cost of opening a depot in Coimbatore:

Land Cost (500sq.ft) – Rs. 25,00,000

Population in Coimbatore (2011)- 3472578

Assuming 2% of people preferring Amul,

.02*3472758=69455.16

Cost of 1litre of Amul Tazza= Rs.28

Total Sales=28*69455

= Rs. 1944740

Assuming Labor cost to be Rs.5000 /month and miscellaneous expenses to be around

3000Rs, the depot can see a fair profit of around Rs.1935000.

2.9 FORECASTED RATIOS AND PROJECTED FINANCIAL STATEMENT

CONSTITUENTS OF WORKING CAPITAL

The main constituents of working capital are

•Current asset

•Current liability

The main components under current asset in AMUL ARE

•Stock

•Deposits

•Due from societies

•Advances

•Trade and sundry debtors

•Income tax deposits

•Cash and bank balances

The main components of current liabilities ARE

•Creditors

•Due to societies
 •Outstanding against expenses and purchases

1. CURRENT RATIO

Current ratio is the ratio of total current assets to total current liabilities. Current
assets of a firm represent those assets which can be in ordinary course of business converted
into cash with in short period of time and current liabilities defined as liabilities which are
short term manufacturing obligation to meet current assets.

To measure the financial liquidity of Amul Current assets = Stock, Advance &
debtors, Cash & Bank Balance. Current liabilities = Deposits, Due to societies, O/s against
Expenses and Purchases, Sundry Creditors, Provisions. Current Ratio = Current
assets/ Current liabilities

YEAR CURRENT CURRENT RATIO

ASSETS (in LIABILITIES
lakhs) (in lakhs)
2007-08 28995.9 13892.41 2.09
2008-09 28874.39 17801.69 1.62
2009-10 28759.19 20690.07 1.39
2010-11 28845.5 21688.54 1.33
2011-12* 29845.5 24685.40 1.2
2012-13 30367.779 23191.69 1.31
2013-14 30899.20 22727.86 1.49
Table 2.17

* Assuming 10 new depots to be opened up in India in the year 2011-2012.

Cost of one depot is assumed to be taken as 30lakhs.

Therefore, cost of 10 depots= 10*3000000= Rs. 300,00,000

Hence current liability for the year 2011-12 is (2468540000+30000000)

= Rs. 24685.4 lakh

 Similarly, lets assume that each depot can make a profit of around Rs.100, 00,000 per
year (Based on cost projection)

The overall profit made by 10 depots would be around Rs.1000,00,000.

Current assets take cash into account and hence the asset increases to Rs.29845.5
Lakh.

The growth rate of Amul in sales is 1.75%. With the increase in sales, Amul can
reduce its liability to some extent (lets say 2%)

INTEPRETATION

CURRENT RATIO
2.5

1.5

RATIO
1

0.5

0
2007-08 2008-09 2009-10 2010-11 2011-12* 2012-13 2013-14

Figure 2.5

The ideal Current Ratio of any firm is 2:1. In AMUL first year ratio is more than 2, it
indicates good financial ability of the sector. But after that the ratio is declining because of
the increase in Current Liability. With the opening of new depots, Amul can definitely bring
up the ratio to 2 within a span of around 5 years.
2. TOTAL ASSET TURNOVER RATIO

Total Assets Turnover Ratio shows the firms ability in generating sales from all
financial sources committed to total assets.

Total Assets Turnover = Sales/Total Assets

Total assets (TA) include Net fixed assets (NFA) and Current Assets (CA)

YEAR SALES (in TOTAL ASSET (in RATIO

lakhs) lakhs)
2005-06 70206.23 24595.17 2.85
2006-07 81631.69 25761.82 3.17
2007-08 107187.29 35864.51 2.99
2008-09 137212.35 47809.18 2.87
2009-10 164358.75 58490.65 2.81
2010-11 176572.2 59995.86 2.75
2011-12* 205547.78 68975.53 2.98
2012-13 209144.86 67466.08 3.1
2013-14 212804.89 65478.427 3.25
Table 2.18

 The sales is said to be increased due to the opening of new depots.

 The growth rate of sales is 1.75.
INTERPRETATION

TOTAL ASSETS TURNOVER RATIO

3.3
3.2
3.1
3
2.9
2.8 RATIO
2.7
2.6
2.5

Figure 2.6

If a company can generate more sales with fewer assets it has a higher turnover ratio,
which tells it is a good company because it is using its assets efficiently.

From the above data we can say that in AMUL Total Asset Turnover is recovered
2.85 times, 3.17times, 2.99 times in 2005-06, 2006-07 and 2007-08 respectively. Till 2007-08
the Total Asset Turnover Ratio is increasing because the total asset is quiet same in every
year. But in 2007-08 the Total Assets is increasing by40% from 2006-07. So the turnover
ratio is declining in that year. But with the implementation of its new strategy it can increase
its turnover ratio.
PROJECTED FINANCIALS ( please refer Appendix A for 2011 Profit & Loss Account)

Retailing Strategy (10 Depots)

2012
Considering the Income to be the same
as 2011.
Expenses: (Rs.)
1,082,092,768
(+)30000000

Total Expense 1112092768

Sales 1144175607
Total Income 1217187816

Profit before Tax 105095048

Table 2.19

PROJECTED FINANCIALS
Year PBT
2010 49236533
2011 38373221
2012 105095048
2013 120093449
2014 148022706.5
Table 2.20

2.10 ANNUAL OBJECTIVES AND POLICIES

Following are the objectives and policies that Amul should follow:

1. Amul should focus on improving the quality levels as a recent test showed that seven of
their twenty three products failed the quality test.

2. It should connect with the youth more as the current generation associate Amul with the
1970s and try to adopt attractive packaging.

3. Amul's should have a major overhaul with respect to its Pizza line of products and
chocolates as it is quite evident from the BCG that they are "Dogs".

4. Amul should improve their supply chain to cater to the needs of the market as a significant
percent of the losses occur along its supply chain.
5.Amul, as a brand is quite popular in North India but not so quite popular in the south. Amul
can garner more market in the south if it is actively involved in marketing its products in the
south as it has a superior cold storage to make the attempt work.

2.11 STRATEGY REVIEW AND EVALUATION

Procedure for Strategy Evaluation

1. Objectives of the business - Are they appropriate?

Yes. Amul follows a low cost strategy which uses econcomies of scale. It ensures that their
first customers - the farmers get benefits when compared to competitors like Mother Dairy
and Nestle.

2. Appropriate Policies and Plans

Amul's co-operative structure means that the middle man is eliminated and thus the policy of
acquiring milk directly from the farmers have been a huge benefit for Amul as well as the
farmers. Also, its plan oof having a superior cold storage means that it has an efficient back
up.

Its differentiation strategy has yielded success so far. Add the Regular Leadership
Development Programmes (RLDP) and women empowerment programmes, the result is an
impressive array of plans and policies at Amul's disposal which can upset and overwhelm
even the closest competitors with aplomb.

3. Results & Confirmation of the strategy.

Amul's results has been successful so far. Its emphasis on farmers getting maximum benefits
has enabled them to gather resources on a large scale. Its marketing campaign of using the
polka-dotted-dress-wearing chubby-girl and associating with current issues has been one of
the hallmark ads of the country. Its adherence to quality deliverance at low prices has
endeared it to the Indian masses.

The strategy evaluation can be confined to the following criteria:

1. Consistency: Amul's consistency began during the White Revolution and has been growing
on a consistent basis.
2. Consonance: Amul's response to the market has always been adaptive. its product
differentiation started slowly but rapidly grew to include more than 50 different products in
response to the demands of the market.

3. Advantage: Amul had a clear cut advantage as it offered the farmers more money than
other firms for the milk procured. It also possessed technology which gave it an edge in the
milk industry.

4. Feasibility: Amul has abundant resources and it has used them with audacity and purpose.
It has a few problems but they have been overshadowed by the sheer efficiency of its
strengths.
 REFERENCES:

1. "Evaluating Business Strategy", Richard P. Rumelt, November 28, 1993.

2. http://www.scribd.com/doc/38230427/GCMMF-Balance-Sheet-1994-to-2009 last accessed

on 10-Dec-2012

3. http://www.docstoc.com/docs/12162563/AMUL last accessed on 10-Dec-2012

4. "I Too Had A Dream", A Biography of Verghese Kurien, Gouri Salvi

5. www.maxi-pedia.com/internal+external+IE+matrix last accessed on 10-Dec-2012

6. www.maxi-pedia.com/BCG+matrix+model last accessed on 10-Dec-2012

7. www.amul.com/m/gcmmf last accessed on 10-Dec-2012

8. http://www.firstpost.com/election/farmer-empowerment-is-amul-model-better-than-retail-
fdi-551382.html last accessed on 10-Dec-2012

9. http://www.moneycontrol.com/news/wire-news/dairy-farmers-will-suffer-if-fdi-is-
allowedretail-gcmmf_645521.html last accessed on 10-Dec-2012

10. http://www.amul.com/products/amul-fruitnnut-info.php last accessed on 10-Dec-2012

APPENDIX A