​ Pizza for Rs

Amul's Diversification Strategy: A

20!
Case Objective:​ Diversification of product catalogue

Summary:

In early 2001, Gujarat Cooperative Milk Marketing Federation (GCMMF)​1​ planned to

leverage its brand equity and distribution network to turn Amul​2​ into India's biggest food
brand. Verghese Kurien, Chairman of GCMMF, set a sales target of Rs.10 bn by 2006 as
against sales of Rs 2.3 bn in 2001. In 2001, GCMMF entered the fast food market in India
with the launch of vegetable pizzas under the brand name SnowCap in Ahmedabad, Gujarat.
GCMMF was also planning to launch its pizzas in other western Indian cities like Mumbai,
Surat, and Baroda.

Depending on the response in these cities, GCMMF would decide to introduce its pizzas in
other cities in India. The pizzas were offered in four flavours: plain tomato-onion-capsicum,
fruit pizza (pineapple-topped), mushroom and 'Jain pizzas' (pizzas without onion or garlic).
GCMMF launched the pizzas in the Rs.20-25 price range. The existing players in the pizza
market, like Domino's, Pizza Hut and Nirula's offered pizzas at nothing less than Rs.39.
Analysts felt that GCMMF's move would force the existing players to reduce their prices in
the long run.
GCMMF planned to open 3,000 pizza retail franchise outlets all over the country by 2005.
The pizzas would be made at the retail outlets. The technical training and the recipe for the
pizza would be provided by GCMMF. It would also negotiate with bulk suppliers of
vegetables to get these at wholesale rates. These would be provided to the retailers.

The main cost component of the pizza is the mozarella cheese. GCMMF would offer the
cheese at a bulk rate of Rs.140 per kg, compared to the market price of Rs 146 per kg, thus
saving the retailers Rs.6 per kg. GCMMF on its part would have a ready market for its
cheese products.

Analysts felt that the supply of cheese products by GCMMF at a cheaper price would enable
the retailers to price pizzas lower than that of the competitors. R S Khanna, General
Manager-North zone, said that GCMMF intended to do to pizza what it had already done to
ice cream. He said, "We want pizzas to become a mass consumption item. And as in the
case of ice cream, we will force pizza manufacturers to slash prices. Eventually, this would
expand the market for cheese."

Background
In 1996, B M Vyas, Managing Director, GCMMF, commissioned the Indian Market Research
Bureau (IMRB) to conduct a consumer survey to identify the products consumers wanted
from Amul. Based on the findings, Amul entered into the following areas: ice cream, curd,
paneer​3​, cheese, and condensed milk. In 1997, Amul launched ice creams after Hindustan
Lever acquired Kwality, Milkfood and Dollops​4​. Positioned as the 'Real Ice-cream,' Amul Ice
cream was one of the few milk-based ice creams in the market.

With GCMMF gradually expanding its distribution reach, Amul was all set to strengthen its
share in the ice cream segment. In August 1999, Amul launched branded yoghurt in India
for the first time, when it test marketed "Masti Dahi" in Ahmedabad first and then
introduced it all over the country. "Masti Dahi" was plain yoghurt sold in plastic cups. Each
400 gm cup was priced at Rs 12.

In January 2000, Amul re-entered​5​ the carton milk market​6​ with the launch of "Amul Taaza"
in Mumbai. Amul Taaza was non-sweetened, plain, low fat milk. The product was positioned
as a lifestyle as well as functional product. It was targeted at the upper middle class
housewife who could use it for different occasions. Amul was targeting sales of about 0.1
mn litres per day. In November 2000, Amul decided to promote mozzarella cheese, which
was used in pizza.

The growing demand for mozzarella cheese from pizza making companies like Pizza Hut and
Domino's Pizza was expected to give Amul's cheese sale an additional push. In July 2001,
Amul planned to enter the instant coffee market through a tie-up with Tata Coffee. GCMMF
had a strong national distribution network while Tata Coffee had expertise in manufacturing
and marketing coffee. As a part of the tie-up, Amul was to source the instant coffee from
Tata Coffee and distribute it.

The domestic coffee market was estimated at Rs.11bn, with the instant coffee segment
being around Rs.4.5bn. In August 2001, Amul decided to enter the ready-to-eat stuffed
paratha,​7​ cheeseburger, cheese and paneer pakoda​8​, and cheese sandwich segments. The
products were to be marketed under the SnowCap brand. The SnowCap brand would also
include tomato sauce and ketchup.

Amul was also restructuring its chocolates business​9​. Seven of its brands that were
withdrawn from the market were to be relaunched soon. Amul tied up with Campco, the
cocoa and areca nuts farmers' cooperative in Karnataka and Kerala, for the supply of cocoa
beans.​10​ Amul marketed Milklairs, which was manufactured by Campco. This tie-up was
expected to help Amul in the expansion of its chocolate business.

Why Diversify?
With the liberalization of the Indian economy in the early 1990s, and the subsequent entry
of new players, there was a change in lifestyles and the food tastes of people. The new
team that took over the management of the GCMMF in the mid-1990s hoped to take
advantage of the change. The management adopted Total Quality Management (TQM) and
set for itself higher benchmarks (in terms of growth). They also diversified the Amul
portfolio, offering a range of food stuffs such as ketchup, jam, ice-cream, confectionaries,
cheese, and shrikhand.​11
According to some analysts, this diversification was probably not entirely
demand-driven. Being a cooperative, GCMMF was compelled to buy all the milk that
was produced in Gujarat. And with milk production having increased since the mid
1990s, GCMMF had to make use of additional milk, and hence the pressure to make
and market more and more processed-milk products. Amul had to expand the
consumption base of milk-based products in India. It planned to make its products
(butter and cheese) a part of the regular diet in most households.

Amul launched its new products with the intention of increasing the offtake of its basic
milk products, including cheese. This in turn was expected to increase the earnings of
the farmers. The pizzas were expected to increase the sale of its cheese. The entry into
the confectioneries market was another avenue for increasing milk consumption. This
flurry of launches helped Amul broaden its appeal across all segments. Price was an
advantage that Amul enjoyed over its competitors. Amul's products were priced 20-40
% less than those of its competitors.

Analysts felt that Amul could price its products low because of the economies of scale it
enjoyed. Amul created two new distribution set-ups: a cold chain for ice-cream, and
another for limited life fresh foods like curd. Expecting the demand for ready-to- eat
foods to grow, Amul prepared to leverage the ice-cream cold chain for a new range of
frozen foods, beginning with pizza. However, some analysts felt that as the pizza's
would be made by the retailers, Amul would have little control over the quality of the
pizzas. That was why Amul was marketing the pizzas under the brand name SnowCap.

Said S K Bhalla, Chief of Quality Control, "The product has received premature hype.
Meeting consumer expectations will be a challenge, until we make the frozen pizza in
our own facilities." According to some analysts, Amul's obsession with keeping down
manpower costs and dealer commissions could be a weakness. In ice-creams for
example, Amul's retail commission in Ahmedabad city was 17.5% which was 10%
lower than what competitors offered.

They also pointed out that Amul might not have the financial muscle that multinationals
had to achieve rapid growth. However, all said and done, Amul seemed to be all set to
make steady progress in the coming years with its products having become quite
popular in both rural and urban households. Said Vyas, "We've handled liberalisation
and globalisation far better than our transnational rivals. It has made us fitter than
ever."

Problem Statement:
1. How should Amul strategize for higher commission offered by competitors?

2. Devise a marketing plan for launching SnowCap and curbing the risks posed by
retailers quality products.

3. Was diversification into Pizzas market a good move? What could they have done
better?