PRESENTED BY GROUP 7 SDM 1RAJAT GARG AJIT KUMAR

DIBYASOBHAN ROY NIVEDITA RAJUTRIPTI JANGPANGI AVANTIKA TIKMANY

OSHIN GOEL NITIKA

THE SALES AND DISTRIBUTION

STORY OF AMUL

EVOLUTION OF MILK INDUSTRY IN INDIA

Source: CRISIL Research

1960sPoor growth

of dairy industry

Production and

Availability of milk and milk

products: LOW

1970-1981: Operation Flood

Phase I13000 dairy cooperatives established

18 lakh farmers became members of 39 milk sheds34 lakh litres/day

procurement28 lakh litres/day

marketing

1981-1985: Operation Flood

Phase II34500 village level

cooperatives36 lakh farmers

became members of 136 milk sheds

79 lakh litres/day procurement

Marketing of 50 lakh litres/day

1985-1994: Operation Flood

Phase III70000 dairy cooperatives

93.14 lakh farmers became members of

170 milk sheds115 lakh litres/day

procurementMarketing of 100

lakh litres/day26000 tonnes of balanced feed,

24000 tonnes of bypass protein feed

sold through cooperatives

1996-2006: Operation Flood

Phase IVFocus on

infrastructure development and

creating democratic values

Strengthening cooperatives by

providing funds on 50:50 bases from centre and state

Education, Personal Training, Marketing

Support, Product Development and

Improving Standards

• India accounts for 17% of the worlds milk production• India is also the highest

consumer of milk (118-120 billion litres)

The per capita milk consumption in rural households registered an increase of 28%

The per capita milk consumption in urban households registered an increase of 25%

MILK PRODUCTION & CONSUMPTION PATTERNS

Production of milk in

India has a CAGR of

4.2% 1987-88 1993-94 1999-00 2004-05 2009-100.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Kgs/

Year

Consumption of fluid milk

in India has a CAGR of 5%

7 Indian States contribute 65% of all the milk produced

in the country

Milk and Milk Products Segment is expected to record 12-13% CAGR

between 2015-18

BUSINESS MODELS IN THE DAIRY INDUSTRY

Dairy farmers get milk to the VCC where milk is cooled using chillers

Chilled milk is transported from the VCC to the ditrict union where the milk is pasteurized

Pasteurized milk is transported to the regional milk federation factories where dairy products are manufactured and branded

Products are transported to the various wholesale and retail stores

Private player procures milk from sources other than

the dairy farmer

Milk is processed into various value added products

Packs, brands and sells it various

distributors and wholesalers

Wholesalers and retailers sell to end

consumers

CO-OPERATIVE MODEL FORWARD INTEGRATED PVT. COMPANYFirst tranche: Based on quality & quantity of milk, payment within 15 days of procuring milk

Second tranche: Based on the sale of various value-added products manufactured during the year, profits are paid back to farmers on the basis of their shareholding in the cooperative.

Eg: Amul, Mother Dairy

The company does not deal directly with the dairy farmers and procures milk (processed/ unprocessed) through other routes such as village collection centres, franchisee chilling centres, bulk private coolers, district union factories and regional cooperative federation factories.Eg: DudhSagar, Schreiber Dynamic Dairy

FULLY INTEGRATED PVT. COMPANY• The farmer is paid only once, as against dual payments made in

the cooperative model. • More commission is paid to the farmers as the initial payment,

to incentivise farmers to supply milk.

CLASSIFICATION OF INDIAN DAIRY AND MILK INDUSTRY

Dairy Industry in India

Processed Milk Milk Products

Curd and Yogurt/Buttermilk and

Lassi

Butter/Ghee/Ice Cream/ Frozen Desert Cheese/Paneer/Khoa Milk Powder

57%

19%

12%6%

2%1%1%1% 1%

Market Share (%) Liquid MilkGheePaneer/KhoaCurd/YogurtButtermilk/LassiIce CreamButterCheeseMilk Powder

Liquid milk has the highest market share

Cheese and ice cream have the highest

growth rate

OPERATING MARGINS AND ROCE

OPERATING MARGINS TO IMPROVE

Ice Cream

Cheese

Paneer

Curd/Yogurt

Butter

Ghee

Processed Milk

0 2 4 6 8 10 12 14

13

12

8

8

7

6

4

Operating Margin (%)

Operating margins and

ROCE depend on the extent of

value addition

HIGH Value Addition

HIGH EBITDALOW ROCE

High margins for value addition

PRICES AND RATINGS

NEW TREND

Future outlook of milk and dairy companies in India is going to be mostly stable as the demand and consumption of milk and milk products grows in the years to come.

GROWTH DRIVERS/RISKS OF MILK INDUSTRY

Government Incentives

Favourable Demographic

Trends

Improvements in Supply Chain Infrastructure

Technological Innovations for Better Quality

GROWTH DRIVERS

Rise in MSP of Cattle Fodder Crops

Dominance of Co-operatives limits Pricing Power of

Private Companies

Geographic Concentration of

Production

Volatility in Milk Prices

KEY RISKS

Growth is fuelled by various

external dynamics

Risks have increased due to lack of dispersion

Other Factors• Rising share of high margin milk products• Priority lending status via National Dairy Plan• Changing lifestyle of consumers• Rising need for convenience• Better health awareness among consumers• Overall growth in food services industry

Other Factors• Quality of milking animal difficult to judge• Milk handling practices to prevent microbial

contamination• Free rider problems due to mixing different milk

quantities in one storage facility• Small probability of transportation failure

INDUSTRY ANALYSIS- PORTER’S 5 FORCES

Competitive RivalryHIGH

Bargaining Power of Suppliers

LOW

Threat of New

EntrantsHIGH

Bargaining Power of

ConsumersLOW

Threat of Substitutes

LOW

Competitive Rivalry - HIGH• New brands are coming up each day and the

major factor on which they play in this industry is prices

Threat of Substitutes - LOW• Essential item for beverages

like tea, coffee• Traditional consumption habits

make milk a favorite • There is no other offering that

can substitute milk.

Threat of New Entrants - HIGH

• Not many entry barriers • Many local players have

come up with their own local brands

• New company just has to follow the defined standards and it can come up with its offerings in this sector

Bargaining Power of Consumers - LOW• The prices of packaged and branded milk

and milk products is fixed • Bargain with the local milk vendors in

unorganized sector and local shops selling milk products

Bargaining Power of Suppliers - LOW• Farmers, rural households and

small cooperatives sell at the going market rate.

• The big giants and the government control the sector and regulate prices

AMUL- THE TASTE OF INDIAMILK

MILK POWDER

GHEE

BUTTER

CHEEESE

CURD

CHOCOLATE

ICE CREAM

SHRIKHAND

PANEER

GULAB JAMUN

BASUNDI

NUTRAMUL

AMUL DISTRIBUTION SYSTEM STRUCTURE

Village Cooperative

Societies with Chilling Units

Village Cooperative

Societies without

Chilling Units

Local Restaurants and Other

Milk related Businesses

Milk sold to village and

local restaurants

Farmers

Chilling PlantsNetwork Services

• Veterinary Services

• Animal Husbandry

• Animal Feed Factory

• Milk Can Producers

• Agriculture University

• Rural Management Institute

• Trucking Facilities

Milk Processing Union & Warehouses

GCMMF Warehouses

Wholesalers/ C&S

Retailers Home Delivery Contractors

Consumers

AMUL products are available in over

500,000 retail outlets across India through its network of over 3,500

distributors.

Three-tier Cooperative Structure

• Dairy cooperative societies at village level

• Milk Union at district level

• Milk Federation at state level

AMUL MODEL

ANAND PATTERN

SALES & MANAGEMENT AT AMULYear of Establishment 1973

Members 17 District Cooperative Milk Producers' Unions

No. of Producer Members 3.37 Million

No. of Village Societies 18,536

Total Milk handling capacity per day 24 Million litres per day

Milk Collection (Total - 2014-15) 5.42 billion litres

Milk collection (Daily Average 2014-15) 14.85 million litres

Cattlefeed manufacturing Capacity 6340 Mts. per day

Sales Turnover -(2014-15) Rs. 20733 Crores (US $ 3.4 Billion)

21% 5-yr CAGR

INR 20733 crores in sales

230 lakh litres per day

Distributors have sales persons who collect orders almost weekly from retailers and mass merchandisers. The order is forwarded to the

warehouse.

Upto 10 days of credit period received by the distributor is passed on to the retailers. This

kind of a benefit further helps in boosting sales.

The retailers are helped by the distributors in enhancing sale by on time delivery.

GCMMF Overview

Sales Management Process

AMUL SUPPLY CHAIN AT DISTRIBUTOR LEVEL

Company GCMMF

Wholesaler (Dewas Naka)

Small Retailers

Sri Patodia Sales

(Retailer/ Customer)

Customers

Amul’s Supply Chain at Distributor – Sri Patodia Sales

Distribution Management:

7 to 8 people are employed who work under the distributor.

Orders are collected from the retailers via phone or visits by the labour employed by the distributor.

Transportation cost is borne by Amul Orders received are placed online with

GCMMF (Dewas Naka). Robust IT Mechanism helps to collect

orders and places them quickly from the company.

It takes maximum 1-2 days to get materials from Warehouse to the distributor.

As there is a large demand for goods, frequents checks need to be performed regarding the stocks in the shop which is done using calculation on basis of sales.

Sometimes clashes with other distributors occur for territory. If products get expired then claims are refunded within fifteen days.

However, this may sometimes take a bit longer time also. Sales Figures:10 -12 lakhs per month

Category ProductDairy (Buttermilk,

Ghee Butter) 2.75-3.5%

Fresh (Milk, Curd) 3%-4%Frozen (Ice cream,

Chocolates) 9%-10%

Category-wiseMargin Structure

SALES MANAGEMENT PROCESS BY DISTRIBUTOR

Distribution function

• The distributors have an area assigned to them which is done by the company itself and they use area mapping system depending on the population and distance from the warehouse.

• The distributor not only sells to retailers but also sells to large mass merchandiser and other outlets who order in large quantities.

Credit and Sales

• Distributor gets the material from Amul on a credit period of 15 days. And he gives a credit period of 10 days to the retailer.

• Each distributor has a sales force of 7 to 8 people who are responsible for collecting order from various retailers on phone or physically go and collect orders.

Territories

• The distributor has the DMS (Distributor Management System) facilitated by the company which is installed in his computer. This system helps the company to keep a track of the amount of products a particular distributor is selling over the year and this helps in distribution of incentives and benefits to the distributors at the end of year.

• Each territory has 10-15 APO (Amul Preferred Outlets) i.e. exclusive retailers for Amul which are managed by the distributors.

Gujarat Headquarter

s

Amul Warehouse

Distributor

Sale

s Man

agem

ent S

truc

ture

ANALYSIS AT RETAILER LEVEL – Tirupati Enterprises

Dist

ributi

on S

yste

m-Distributor sends material when ordered over telephone.-Lead time is 2 to 3 hours only since the distributor is located in close vicinity. -Orders are send either on pickups or 2 wheeler also depending on the quantity ordered. The costs are borne by the distributor.-Lead time for delivery of goods is 2 hours.

Mar

gins

-Sales amount ranges from Rs. 30,000-35000 a month.-3% extra margin which available on goods that have invoices are transferred to the retailers by the distributors.-17% margin for all products.-More margin on frozen segment than dairy and fresh segment.

Prob

lem

s-Poor service levels have made Amul less competitive.-Old and expired Products are not exchanged and repeated reminders also fail to wake the distributors.-No incentives are provided if extra products are sold or if extra orders are made.-All advertisement costs are paid by the retail store.

The functioning of the distribution network was also analysed from the perspective of the retailers. One such retailer that we visited and surveyed is Tirupati Enterprises.

ANALYSIS AT HYPERMARKET LEVEL – MOREThe functioning of the distribution network was also analysed from the perspective of the hyper-retailers. One such

hyper-market that we visited and surveyed is MORE.

More Retail Outlets Places Orders

Orders placed to Mumbai office

Order is placed with GCMMMF

Orders shipped to More by GCMMF

CENTRALISED ORDER MECHANISM FOR MORE OUTLETS ACROSS THE COUNTRY TO TAKE ADVANTAGE OF ECONOMIES OF SCALE

They have a warehouse to stock their goods that they receive and have refrigerators to keep the SKU’s.

Transportation and shipping charges are paid by AMUL

Margins of 3-4% on AMUL

213 SKU’s available out of which 144 have very less probability of a stock-out

In case of expiry, MORE has to destroy the product since AMUL does not have a return or refund policy

Cash rewards and related benefits are awarded to outlets based on the EBITDA values.

480 stores and 18 hyper markets are used for the calculation of EBITDA.

EXISTING SALES MANAGEMENT AT AMUL

The Sales Management System

RetailerDistributorGCMMF Warehouse

State Co-operative

Milk Marketing

Federation

District Dairy Cooperatives

Farmers & Milk

Producers

Distribution chain: The flow from farmers to final retailers

AMUL is also part of Global Dairy Trade (GDT) platform, where only the top 6 dairy players of the world sell their products.

GCMMF operates through 56 Sales Offices, has a dealer network of 10000 dealers and 10 lakh retailers. It has one of the largest such networks in India.

SALES & MANAGEMENT AT AMULAmul has a very wide range

of products available for distribution. More has as

many as 213 SKUs.

Thus, sales are higher as the retailers have a variety of

products that they can offer to the customers.

It is necessary for the distributors to be sure of which products to be pushed forward

and which are the most profitable along with the speed

with which they sell.

Inventory management throughout the distribution

system is quite well maintained.

The larger distributors and stores like more, with higher inventory being carried, have

electronic systems for tracking the inventory.

Thereby cost is minimized, problems of excessive carrying

costs or that of stock outs is also easily taken care of.

Inventory management and product portfolio at Amul retail stores

SALES MANAGEMENT FRAMEWORK

COMPARISON: AMUL v/s SANCHISANCHI AMUL

Management

Dairy co-operative under the Madhya Pradesh State Cooperative Dairy Federation Limited (MPSCDF), largely based out of Bhopal and Indore.

Formed in 1946 in Anand, Gujarat. It is managed by the Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF).

Organization Structure

Three-tier structure with MPSCDF at the State-level Federation, followed by Regional Level Milk Unions and then Village Level Dairy Cooperative Societies.

Amul's structure has the National, State, District and Village levels, with GCMMF coming under the National Cooperative Dairy Federation of India.

No of SKUs sold in Indore  10-12

In general 144 but nationally it is more than 400

Most preferred SKU Liquid Milk Butter

Product Categories Less diversified Too much diversified portfolio of products.

Highest selling product in terms of packaging

500 ml pouch milk 1 Litre pouch milk

 Sales

A total of 450 litres of Sanchi milk is sold in Indore in a day.

A total of 450-500 litres of milk is sold per day(rough estimates)

COMPARISON: AMUL v/s SANCHI (contd.)SANCHI AMUL

Distribution MarginsDistribution margin is Rs. 1.42

on a litre, irrespective of the SKU size.

Distribution margin is Rs. 1.30 on a litre, and it varies depending

on the SKU size.

Shelf life Lower i.e. 50-60 days higher, 180 days from MFD date

No. of Distributors in Indore

7 10-12

Inventory management No godowns. Direct shippingStocks are kept in a godown (only one in entire M.P ) in

Indore

Incentives structureTo Retailers

Rs 1000 worth products free for the first 5 months Not much incentives provided

Pricing Sanchi Milk is priced at Rs.38 for the 1-litre Gold pack.

After the recent price hike, Amul Gold costs Rs. 48 for the 1 litre

SKU.

RECOMMENDATIONS1

• There is a huge demand for Amul Products in Madhya Pradesh and it becomes very difficult to operate from a single point of sale i.e. warehouse only in Indore. Amul could look to increase the number of Warehouses and Distributors so that it can have greater ease of operation and at the same time increase its customer base.

2• Goods incentives based on sales target are being currently being stopped by Amul which is de-motivating the Amul retailers. Needs

to offer a better Incentive than Amul Yatra which is currently offered.

3• Investment from company’s side is decreasing down the chain. So the company must focus on various aspects of Promotion,

Advertisements, and Providing incentives to retailers.

4• The current demand forecasting system needs to be better managed and needs to be redesigned as retailer and distributors are

always in a fear of Stock out.

5• It is unaware of the competition it is facing from local dairies. They have similar product lines with no preservatives in their

products. They can become a major competitor in the future. Need to focus on them also.

6• Use of IT systems should be made mandatory at both retailer and distributor level

RECOMMENDATIONS (contd.)

7• Amul can also go for better deals with the supermarket chains and the unreached hypermarts which

will help them to capture a larger consumer base.

8• Claims related to refund and return policies of the retailers and distributors needs to be looked at

because if the promises made by the company are not fulfilled it creates a lack of trust for them.

9• The company can focus on their entire system to help them grow in Indore and

make an impact on ‘Make in India’ initiative

10• Amul could also build a perception in the mind of consumer and project itself as a more health-

focussed brand as consumers are increasingly becoming health conscious and looking for sources of nutrition

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ticleshow/47284976.cms http://www.amul.com/m/organisation http://www.business-standard.com/article/companies/amul-turnover-grows-14-to-cross-rs-20k-cr-in-fy15-1150514008

58_1.html http://www.iimahd.ernet.in/publications/data/2002-05-06PankajChandra.pdf https://www.facebook.com/sanchimilk http://mpcdf.nic.in/ http://www.amul.com/ industryhttps://www.facebook.com/amul.coop/?fref=ts http://timesofindia.indiatimes.com/ http://zeenews.india.com/ http://www.amul.com/m/faqs-on-amul http://timesofindia.indiatimes.com/city/vadodara/Amul-Dairy-inaugurates-modernized-semen-station/articleshow/

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