I distinctly remember my first meeting with Dr Verghese Kurien in the boardroom of our headquarters at Anand. It was a brand review meeting and one of my colleagues said: "Why can't we reduce the quantity of Amulya, our dairy whitener, from 500 grams to 450 grams to make the price seem more attractive to customers?" To that Dr Kurien responded: "Never try to short-change your customer; she is always smarter than you."
This is one mantra that has guided me throughout my career. I have been lucky to get the opportunity to work under the visionary leadership of Dr Kurien. Today, as managing director of the cooperative, I have two key stakeholders - 3.6 million farmers who are owners of Amul and supply us our raw material, milk, and the customers for whom we make our products. In 36 years, I have learnt that the more you give to these two stakeholders, the more you'll earn. At Amul, I buy the raw material, milk, at the maximum possible price from our farmer members, and sell finished products to the customer at the most reasonable prices possible. This is just the opposite of every other CEO/MD's role - he is required to maximise EBITDA by buying raw material at minimum price and selling finished goods at the highest price possible!
When suppliers are assured of stable and remunerative prices, they form a strong procurement base, and when customers are assured of getting the best products made with best ingredients and state-of-the-art technology, they start believing in the brand blindly. And it's only on the foundations of a strong procurement base and customer faith in the brand that you build sustainable businesses. This essentially is at the core of Amul's philosophy of Value for Many for its farmers, and Value for Money for its consumers. Be it planning, new product development, production, sales and distribution, marketing or HR, all our processes are aligned to giving more value to both ends of our supply chain.
Giving more to earn more also drives efficiency in our supply chain. As an organisation, Amul has always believed that a brand is not built by bribing channel partners with bigger margins; it's the consumers who make your brand. With fresh products like milk, 80-85 per cent of the total consumer value spent is given back to the farmer members. This is possible because total margins from factory to consumer in this case are restricted to 5 per cent. Take, for instance, butter - it's not that our competitors can't make butter. But they are not aggressive in the segment because it is not possible for them to manufacture butter of Amul's quality at our price and margin. There is huge investment required in refrigerated logistics to be able to supply it and that will not be justified unless there is scale. Thin margins and cost plus pricing not only keeps us on our toes but also keeps the market disciplined by restricting new players looking to operate by premium pricing.
I clearly remember what my boss and ex-MD of Amul, J.J. Baxi used to say: "Only the one with a nose for money is a successful manager." Essentially, this single penny negotiation is aimed at reducing wasteful expenditure and providing better returns to our farmers and consumers. If I am going to Ahmedabad from Anand, for example, to catch a flight, and another executive is going on tour to Ahmedabad, we always pool our cabs. Such small things also contribute to creating a flat organisation and facilitate effective brainstorming in informal settings.
Aligned with the same principle, our advertising spend is always less than 1 per cent of our annual turnover. If the consumer is buying a pack of Amul butter at `46 and finds that, of the amount, `0.50 pays for the TV commercial she saw last night, she will be fine with it. However, if she learns that out of the `40 spent on her soap, `10 went to pay for an emotional commercial along with its celebrity endorser, she is certainly going to feel cheated. We do understand the importance of brand building and advertising; it is a must. Dr Kurien realised the need of advertising in the 1950s, when only MNCs used to advertise. If you have a product, you need to shout to let your consumers know. But one has to also see how much is spent on the shouting.
As a cooperative we are built on foundations of equality. Our planning process is a holistic bottom-up approach that ensures everybody is involved. It is called Hoshin Kanri (a Japanese term meaning policy deployment) where strategic goals are decided collectively and drive progress and action at every level. We have two such Hoshin Kanri meetings yearly, attended by all key employees, to plan, strategise and review. Consequently, the entire organisation thinks and works in the same direction and there is high level of ownership across all levels. In one such Hoshin in 2006, we were discussing the government's intent of allowing foreign direct investment in retail. One of our area sales managers suggested having our own priority stores to guard against foreign retail giants who may dictate terms in the market. The idea was brainstormed upon in the same meeting and within two months we started one Amul Preferred Outlet (APO) each in Delhi, Mumbai, Kolkata, Bangalore, Ahmedabad and Chennai. Today, we have 8,000 APOs across the country.
Interestingly, Amul, a `27,000-crore brand, does not have a separate R&D vertical. All our products are developed by the shop floor in-charge at plants. If we want to explore a new product or variant, we brief two or three of our plants and ask them to work on it. They come up with three to five combinations; we taste them; the best one is frozen and its recipe is shared with all plants. As the production in-charge treats the new product as his baby, launches happen swiftly. Research suggests that out of 10 new products launched, only one or two succeed. Fortunately, our success rate is about 80-90 per cent - the reason being we know the pulse of consumers. All our products are for the masses i.e., the middle-class. Amul is owned by middle-class people, farmers. Its headquarters is located in a small town, Anand; most of us working here are also middle-class. So we can relate to the needs of the masses.
Anyone in our organisation or among our channel partners and their families can give us ideas for new products. A young girl in the office mentioned that she had to add garlic paste to melted butter and then apply it on the bread to make garlic bread - why couldn't we have garlic-flavoured butter? We realised that the popularity of garlic bread was rising and this was a great idea. Within the next three months, Amul Garlic and Herbs Butter was in the market! With such a swift innovation process, our consumers continuously get world-class products at reasonable prices. We receive so many e-mails and tweets from consumers telling us that they do not have to spend hefty sums on imported dairy products because Amul has brought them their own lactose-free milk, camel milk chocolate, single-country origin chocolate, chocolate butter, Gouda cheese and Emmental cheese. Further, the more value added products we launch, the less is our dependence on the commodity market and the more stable the remuneration to our farmers.
Today, Amul butter is more than 50 years old. The original positioning of "Utterly, Butterly, Delicious" continues. Similarly, Amul Butter Topicals, our corporate campaigns - Amul, The Taste of India, adopted in the 1990s, and Amul Doodh Pita Hai India started in the 2000s - connect well with consumers and we have continued with them. Another choice we made was to create an umbrella brand for all product categories. We see companies creating multiple brands without any need for them. It's often done to satisfy the egos of their heads of marketing or advertising agencies. When a new person takes over, the campaign is changed, or new brands are launched, because each one wants to leave her own legacy. Ultimately, it's the customer who ends up paying to fulfil their aspirations. We do not face such situations because we practise consistency in human resources.
Business is about people - your suppliers, distributors and advertising agencies are your partners. Our partnerships are like an Indian marriage. You take your own time to consent to one; you check everything about the family, its reputation, etc. But once you marry, it's for a lifetime. There may be some shortcomings in your partner, but that happens in all families. You try to work on the problem areas. B.N. Chatterjee, my first boss, used to tell us that it is better to grind and regrind existing tools - which in this case were our partners - instead of going for new, unknown equipment. The same goes for us employees as well - the entire top management of Amul consists of people for whom Amul was their first job.
We go for campus placements from reputed A-class institutes and ensure we ingrain our value system in each employee. Every employee in the organisation treats the customer as king. Contact numbers of our entire top management are easily available - if any one of us gets a customer complaint, irrespective of what we are doing, we make that our priority. I remember I was once in the middle of a meeting with a CEO. I received a call from a lady in Delhi, who had tried to complain about a leaking packet of milk but could not get through to our customer care representative. She found my number and called me. She was furious, and it took me five to seven minutes to calm her down. Immediately after her call, I telephoned the concerned area manager to resolve the issue and meet her in person. The CEO I was meeting, commented: "Were you talking to a customer all this while?" I said, "Yes. Definitely the customer is more important to me!"
Last but not the least; I want to talk about transparency. Dr Kurien used to say: "If you are always honest with yourself, it doesn't take much effort to be honest with others." As an organisation, our integrity does not allow us to replace milk fat with vegetable fat in our ice creams, or sell 180 ml flavoured milk in 200 ml packs or add more sugar to dairy whiteners as many of our competitors do. Similarly, on the procurement side, there is transparency due to complete digitalisation, wherein farmers can see historical and current data of milk poured, fat and SNF (solid not fat) content and payment status, on their mobile apps. Every fortnight, payment is credited directly to their bank accounts and an SMS alert sent.
Give more to earn more might sound counter-intuitive; however, this is completely in line with how our forefathers looked at business. Amul, at its core, is still run with the wisdom and common sense that our visionary leaders - Dr Kurien and Tribhuvan Das Patel - passed on to us.