GCMMF- A Business Strategy Analysis

This document outlines various strategies implemented by GCMMF to stay ahead in competition, its environmental changes/challenges/problem areas and possible solutions to tackle these issues.

About GCMMF
Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF), is India's largest food product marketing organization with annual turnover (2010-11) US$ 2.2 billion. Its daily milk procurement is approx 12 million lit (peak period) per day from 15,712 village milk cooperative societies, 17 member unions covering 24 districts, and 3 million milk producer members. It is the Apex organization of the Dairy Cooperatives of Gujarat, popularly known as 'AMUL', which aims to provide remunerative returns to the farmers and also serve the interest of consumers by providing quality products which are good value for money. Its success has not only been emulated in India but serves as a model for rest of the World. It operates through 47 Sales Offices and has a dealer network of 5000 dealers and 10 lakh retailers, one of the largest such networks in India. Its product range comprises milk, milk powder, health beverages, ghee, butter, cheese, Pizza cheese, Ice-cream, Paneer, chocolates, and traditional Indian sweets, etc

Success Mantra of GCMMF

Cost Leader Ship- GCMMF has applied cost leadership model to catch the mass in India. It has positioned itself as a provider of quality goods at affordable prices. One of the largest supply chain- It operates through 47 Sales Offices and has a dealer network of 5000 dealers and 10 lakh retailers, one of the largest such networks in India. Diversification- Its product range comprises milk, milk powder, health beverages, ghee, butter, cheese, Pizza cheese, Ice-cream, Paneer, chocolates, and traditional Indian sweets, etc Societal cause- It is a for- profit organization but focuses more on rural areas and giving back to farmers. Its profit margin may be less than that of its competitors but it has positioned itself as a transparent and well organized co-operative union. It has a very loyal customer base. Advertisements- One of the pioneers in hoardings with innovative comic appeal with a good taste. Lean and transparent organization model without adding other operational overheads Sticking to core Philosophy of providing milk at the basic price. Implementation of TQM( Total Quality management) principles. Technology and e-initiatives GCMMF actively pursues developments in embryo transfer and cattle breeding in order to improve cattle quality and increases in milk yields. GCMMF was one of the first FMCG (fast-moving consumer goods) firms in India to employ Internet technologies to implement B2C commerce. Another e-initiative underway is to provide farmers access to information relating to markets, technology and best practices in the dairy industry through net enabled kiosks in the villages.

GCMMF has also implemented a Geographical Information System (GIS) at both ends of the supply chain, i.e. milk collection as well as the marketing process.

SWOT ANALYSIS OF GCMMF

STRENGTHS

WEAKNESS Sweet ,ice cream and other foods market were dominated by major players Major players like Nestle, Britannia, HLL have huge capital. Constraints from supply side of milk which is the flagship product from GCMMF. Complex organization structure which is hard to replicate and manage in other regions and product offering.

Quality products that offers best value for customers. Milk and milk products thereby catering to large section of vegetarian community. Strong brand name which stood for quality and purity Extremely loyal customer base. Wide spread reach and it targets rural areas which constitute major part of India. Very strong supply chain management. A strong societal appeal.

OPPURTINITY Large potential in rural markets as it is not aggressively targeted by major players. Huge opportunity in export market where GCMMF has entered into alliance with vendors in U.S.A, New Zealand, Australia and SriLanka etc. With improved per capita income, there was huge shift of consumption towards fruits, packaged food and other premium varieties.

THREAT

Major players like HLL, Britannia, Nestle and Cadburys etc Brand loyalty does not hold for long in chocolate and milk market as consumers continuously look for variety and convenience. A tussle between social responsibility and profit seeking behavior which hits the bottom line in highly competitive market.

GCMMF- BCG Matrix

PORTERS FIVE FORCES

Threat of New Entrant is high because there are no entry barriers

Bargaining power of customer is very high due to presence of various players in market.

Competitive Rivalry is high due to presence of other major players and brands.

Bargaining power of suppliers is low as most of them are rural co-operative unions and that is the best fit for them

Threat of substitute is high due to availability of alternate products.

Major Competitors of GCMMF include

Milk o o o o Gayatri Royal Uttam Shreshta

Ice Cream

o o o

Vadilal Kwality Local players

Milk Powder o Nestle

Chocolate o Nestle and Cadbury

Threat of New Entrants

Economies of Scale- GCMMF has economies of scale which is very difficult to catch up Cost and resource- GCMMF has cost leadership and largely has a co-operative principle. Capital requirement and raw materials requirement is very high for new entrants. Yet, we see new entrants so the threat is moderate. Brand Preference- It is synonymous with pure vegetarian brand at affordable price. This has a very large customer base. Distribution- One of the best in India. It is extremely difficult for new entrant to quickly replicate this model. So threat here is low. Capital requirement- Needs huge investment in resources and technology. Threat of new entrants is low. However, companies like NESTLE, CADBURY etc are aggressively catching up.

Bargaining power of suppliers It is not a pure profit organization. Supplier has limited rights to bargain because it is established
on fair price policy and caters to masses. Farmers right is protected but it is far from bargaining power of other pure profit based business.

Bargaining power of buyers

Cost of switching- Baring the liquid milk, switching of brands is very prominent in chocolate, ice cream, cheese, milk additives. So bargaining power of buyers is high. In case of milk the bargaining power of buyers is less as GCMMF has large market share and it provides the best value for the money spent.

Rivalry of Competitors
Demand- With increase in per capita income, Indian food habit is changing. So starting from basic items like MILK to the extent of likening for Ice cream, chocolates, packaged food and fruits everywhere there is a growing demand. So rivalry is high. Nature of competitors- It has rivalry in various segments. In milk powder and chocolate category, it face stiff competition from Cadbury and Nestle While in ice cream, it has completion from kwality, vadilal and other local players. Some of the corporate houses have huge capital and technology investment. It is difficult for a societal organization like GCMMF to compete with the scale of spending of these big corporate houses.

Threat of Substitutes
Availability of attractive price substitutes- Availability of low priced substitutes from local vendors. Satisfaction of substitutes- Customers consider it at par with GCMMF product quality. Availability during festive seasons adds to the worry of GCMMF.

Issues at GCMMF

Confusion over objective of the organization. What started as a mass co-operative revolution and role model for rest of the world cannot be applied or replicated to other product lines effectively. Should its objective be only societal or pure profit oriented? Should it keep this diverse product portfolio or work on expanding its core business of milk production and supply? Should it abandon some of its business?

How can it compete with other major players with large capital?

Challenges Ahead
Global demand and liberalization Foreign alliances Value system change Urbanization International quality standards Increasing spend in R&D Better animal husbandry practices. Up gradation of plant and equipments Elimination of no-performing product lines. Development of new markets.

Suggestions

As mentioned by GCMMF chief, it has to play in fair playing field. It should compete in the changing political environment and ask for subsidy as it is largely a co-operative unit with societal cause. If GCMMF wants to enter into chocolate, ice cream, packaged food and fruits business in big way then it has to work on attracting skilled human resources. Just depending upon self motivated people is not enough. It needs to hire from top management schools and provide competitive salary. They may exclude basic milk from this but all other product category needs this. GCMMF should have a better market research and analysis wing to come up with innovative products with global appeal. It should try to create a new market for itself. Diversification is good but objective for different product lines cannot be mixed. When it comes to their core business of MILK, GCMMF quite rightly keeps the cost minimal thereby catering to large number of poor households who consume milk. This has an extensive societal appeal and that is the USP of GCMMF. It is good that GCMMF wants to leverage the good quality at affordable price motto for other businesses like ice cream, chocolate etc. But replicating similar co-operative framework is not possible in those businesses. GCMMF has to make these businesses profit oriented and they should be floated under different company and brand name. Profit from those businesses will enable them to improve their core business and that will lead to fulfillment of their prime objective. GCMMF is competing in red ocean with very large players like HLL, NESTLE, CADBURYS etc. However, there is a huge playing field in case of fruit and vegetable production. It should jump into that area and capitalize on first mover advantage. There is a big scope in terms of ripening of

fruit, proper storage and handling, transport, packaging, temperature control etc. With the help of technology, GCMMF should create a new market in this area.

GCMMF should increase its spend on automation to increase its efficiency. This is required to compete with other majors like HLL, NESTLE, CADBURYS etc. Hoardings are the primary advertising media for GCMMF. However, in changing competitive times, they need to do extensive advertising in all other communication media like TV, Radio, mobile messages, web banners , mail orders and social websites etc GCMMFs core business of MILK market has a very low rate of growth. It is close to 6%. The main reason is attributed to supply side. Milk yield of Indian cattle is almost half of their other countries. Research and technology investment has to be increased to increase the lactation per animal.