Amul’s American dream

THE ‘UTTERLY BUTTERLY DELICIOUS’ girl is all set to delight American consumers. At a time when dairy majors across the world are shying away from selling liquid milk and doubling down on value-added products (probiotic, whey and dairy based nutritional products), 78-year-old Amul continues to garner over 50% of its revenue selling generic milk in India.

“If I were to compare states where we sell milk and states where we only sell value-added products, the difference in sales is 2x. Brand traction goes up multiple times when people consume milk,” explains Jayen Mehta, MD, Amul. The ₹80,000 crore dairy brand plans to do in the U.S. exactly what it does best in India — sell liquid milk. “Cheese, butter, paneer and lassi generate higher margins but volume growth comes only from milk. In the next six months, brand Amul would be available in stores across the east coast, midwest and southern parts of the country,” adds Mehta.

Amul has partnered with the 108-year-old dairy cooperative, Michigan Milk Producers Association, from where it will source milk, and sell to the close to 5 million strong Indian diaspora through Indian stores such as Patel Brothers, Cherians and Shalimar.

“The opportunity for Indian brands starts with the Indian diaspora which provides a reasonable addressable market,” says Rishav Jain, MD, Alvarez and Marsal.

“Our product has 6% fat. In the U.S. nobody sells milk with 6% fat (the fat content there is 2-3%). We know the Indian diaspora would like this taste. We are calling it double cream milk (Amul Gold),” says Mehta. It also plans to launch milk with 4.5%, 3.25% and 2% fat levels under brands Amul Shakti, Amul Taaza and Amul Slim n Trim, respectively. Though the U.S foray would piggyback on the India diaspora, Mehta wants to be the milk brand of choice in the U.S.

The company intends to launch fresh locally produced value-added products such as paneer, dahi (curd) and shrikhand. The question, however, is whether the Indian dairy major’s foray into the U.S. market (where it already exports long shelf-life products such as butter, ghee and cheese) with liquid milk will yield the desired results! The brand is entering a market where liquid milk consumption has been going downhill year-on-year. Though the current dairy market in the U.S. is $107 billion (according to Mordor Intelligence) and is projected to grow to $127 billion by 2029, the reality is that the average consumer’s milk consumption has been dipping 2-3% year-on-year. Bulk of the dairy consumption in the U.S. has been happening on the back of products such as cheese, yoghurt and probiotics. All major brands, be it Nestle, Fonterra, Lactalis or Danone, are in the business of value-added products.

In fact, the U.S. is a market where there is little brand loyalty in milk consumption. Consumers typically buy private brands sold by retailers such as Walmart, Target or Whole Foods. So, will Mehta’s strategy of making Amul a national milk brand in the U.S. really work? It is also a market where milk production has been stagnant. While the Indian dairy Industry is growing by 5-6%, the global growth rate is less than 2%. India is the world’s largest milk producer. However, most developed markets shy away from buying milk from India due to lack of traceability of source, which goes against domestic brands, says Rahul Kumar, COO, Parag Milk Foods.

For the dairy industry worldwide, traceability is an important criteria. “If you collect millions of litres of milk from millions of farmers it is difficult to trace from which village the milk has been sourced. Also, we source both cow and buffalo milk and the latter is not liked by the rest of the world. So, everything changes in terms of the profile of the type of milk. It is difficult to segregate cow and buffalo milk. In the U.S., one farm would have 50,000-100,000 cows, which makes traceability far easier,” explains Kumar.

In fact, Amul can’t even export its value-added products to most countries in Europe. One of the reasons is farmer objection in those countries and pressure on governments not to import, but traceability of Indian dairy produce also plays spoilsport.

Tough Market

This is not the first time Amul is eyeing the U.S. Back in 2013, the dairy major had set up a plant in Waterloo to manufacture paneer and ghee. It eventually shut down the operations after a fall-out with manufacturing partner. Even at that time, the intent was to sell to the diaspora. The homegrown major had competition from Canadian-Indian brands such as Nanak and Deep, which sold not just value-added dairy products such as paneer, dahi and ghee, but also fresh milk. A decade later, these brands have gotten stronger and would give Amul stiff competition.

Vishal Mehta, an Indian banker who lives in New Jersey, says diaspora consumers typically visit Indian stores to buy grocery products. “Milk is usually bought from Target or Wholefoods,” he says.

Alpana Parida, dairy industry expert and founder, Tiivra Ventures, says Amul’s strategy of launching liquid milk in the U.S. will be successful only if it comes up with differentiated products such as A2 milk, which has a clear nutritional benefit. “It will be difficult for Amul to make money with generic milk. It is a business that works on volume, supply chain and logistics cost efficiency. I haven’t seen a milk brand being built in the U.S. There is no money for it. Unless a new brand has a hugely differentiated proposition, it will be difficult.”

A gallon of milk costs $6.90 in the U.S. and is considered a loss-making proposition since margins are wafer thin. Most supermarket chains source milk from local dairy cooperatives at cheap prices. However, retailers such as Whole Foods also sell raw milk (which is not pasteurised) at a premium of over $23 per gallon. Health freaks are lapping it up. “Brand building for Amul will be tough, as it doesn’t have recognition in that market,” explains Parida.

In fact, Kumar of Parag Milk Foods says Amul shouldn’t aspire to be a national brand in the U.S. “There is no need to be a national brand. Amul has traction among the diaspora and it should capitalise on that. The Indian diaspora population in the U.S. is 5 million. Even if Amul is able to take care of half of that, it will manage to sell 300,000-400,000 litres of milk.”

Even if Amul were to increase its focus on value-added products, it would be a tough ride unless it comes up with out-of-the-box innovations. “Americans find Indian butter and cheese too salty. Moreover, they have varieties of cheese and other value-added dairy products. Building a global brand will take time. Amul has to work really hard to pull it off,” says Kumar.

American consumers are embracing plant-based dairy products as cows are considered unsustainable for the planet. Cows produce methane, harmful for the environment. From plant-based milk, beverages and even meat, supermarkets offer myriad choices.

Piggybacking On Amul

Days after Prime Minister Narendra Modi stated his vision of India and Amul becoming a dairy to the world, the latter announced its U.S. foray. A senior official of the National Dairy Development Board (NDDB) sees the announcement as a way to use Amul’s supply chain to sell organic staples in the U.S. Amul along with NDDB, NAFED, Kribhco and IFFCO, has already formed the National Exports Cooperative (NCEL) to export organic staples and vegetables.

Mehta doesn’t rule out selling branded staples and vegetables using Amul’s supply chain. He claims the exports entity has already done a business of ₹1,500 crore in the first year, and has an order-book of ₹15,000 crore. “Already 2.5 lakh tonnes of rice has been shipped and another 2.5 lakh tonnes is at the port; onions are on the way to Bangladesh and the U.A.E. Using our understanding of international business, we are creating a market not just for milk, but also Indian agricultural products globally.”

Though the export business is currently about bulk commodities, sooner or later, Amul would get into branded staples and farm products business, says Mehta. “It’s an opportunity for Indian farmers to get market access to 180 countries using the multi-state cooperative model of exports. The profit we get from the international market would be ploughed back to the farmer just as we do with milk. We will soon develop brands, as it will give long-term business opportunities.”

However, building the milk supply chain and entering the homes of average Americans beyond the diaspora would be a tougher game for Amul.