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Amul Business Model and Story of its Success

Last updated on July 7th, 2020 at 12:41 pm

Amul Business Model is such an awesome business model that it almost changed the lives of thousands of farmers.

AMUL Business Model

Who earlier had to face huge problems to sell their milk like a low cost for their milk, many people refuse to buy their milk, a middle man takes the huge commissions, now they are easily selling their milk and earning great amounts.

AMUL founded in 1946 by Tribhuvan Patel is India’s biggest dairy giant and today it does not have any single owner; it is owned by more than 3.6 million milk producers jointly.

Before discussing the Business model of AMUL let’s first put some light on the history of AMUL.

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From 300 Liters journey to 300 Cr. Liters Journey

In the year 1946 landless laborers who did not have any land for their survival mostly did milking of cows and sold for their survival.

But at that time it is very tough for them as people do not pay them properly for their product.

So to save those people Tribhuvan Patel founder of AMUL went to Vallabh Bhai Patel and discussed all the things.

And then come out to a result to build something which can help them so that they don’t get exploited by others.

And they found Anand Milk Union Limited where farmers can give their milk and get good amounts for their milk.

But that was quite tough as collecting all the milk from different villages and then quality check, giving proper payout to the farmers any many more.

Then Dr. Vergees Father of the white revolution came into the picture who did his studies from abroad and has a great business mind.

Then Tribhuvan Patel and Mr. Vergees started visiting different villages and started figuring out how they can build a logistic system that makes the process very easy.

They also started teaching the farmers how to feed their castles so that they produce high-quality milk.

At that time India was a milk deficit country and then was imported from different countries but because of that cooperative model, India is today the highest producer of milk and exports to many different countries.

Amul’s Cooperative Business Model

If you see whenever a huge company is established there is some value behind the success of that company.

And if we see properly Dr. Verghese has also developed two very important values for their company which Value for many and the second one was value for money.

So what is Value for many?

It means to provide a great value to all those who provide them their real product, the milk so they make it sure to provide true value to the farmers.

And today AMUL is the company that is giving the highest amount to the farmer for their milk.

And what is value for money?

So the second thing he makes sure to provide the true value for the money to its customer.

Customers who are giving them their hard-earned money, they provide them with a great product, a true value for their money and that makes a company huge and great.

AMUL’s Cooperative Business Model

Let’s first see what is a Cooperative business model and we will see the Amul Business Model.

So in a Cooperative business model, the whole is run by the members of the company or organization.

They provide the resources to run the company and also they divide the profit among them.

And if we talk about the advantages of Cooperative business, it is the scalability one cannot scale a business to a great height as they lack the proper resources.

But when a huge number of members come together and add the capital and resources they create a huge environment.

And they also make huge profits and take care of the needs of every member of the business.

AMUL Business Model

AMUL also works in the same category the cooperative business model does.

Every person who produces milk in the villages is the part/Member of the Dairy Cooperative society of the village.

Then the members of the dairy cooperative society elect a representative for themselves and those representatives manage the District Milk Union.

Then those in the district milk union manages all the milk there and also the milk products and the processing of those products.

And their next task is to sell all the products to the State Milk Federation.

The State Milk Federation performs all the selling and distribution of products in different markets.

All the revenue then distribute downwards in the same manner and farmers get great profit with that

So if you see the whole company is controlled by the villagers themselves and for all the packaging and distribution they hire employees who have the proper knowledge of all these.

Here all the farmers made their own federation and sold their product directly to the consumer with the help of the State Milk Federation.

So there are no middle man in the whole process so they get great profit for their hard work and products.

And this made their backbone very strong as now they have a steady income source so even with low sales they have some chunks in their hands.

Advertising World Record

You must have seen the AMUL butter girl if you have ever used an AMUL product or AMUL advertisement on Television.

Dr. Verghese has a great business mind and that’s why he hired the managing director of an advertising company, Sylvester daCunha.

Then he created many different advertisement series and one of his advertisements where they show a polka dot frock little girl for the campaign of one of their products which were butter.

And they also did advertisement experiments like they made creative advertisements showing recent events which attract the customers.

Also, their experiments were so great and successful that even today they are using that advertisement and that cute little girl.

And that advertisement made a world record of longest-running advertisement in the world.

This was possible only because of how Dr. Verghese created the AMUL Business Model where they focused on many little things to make it big.

Scalability of the business

AMUL scaled the volume of their product so much that it ultimately reduced the cost of per liter packet for their customer.

And if we see their process they first procure the milk from cattle, then they process the milk and at last, they do the packaging.

And to perform these processes they invest 15% of their cost, and this is obvious as they have huge plants where they have huge machines and manpower.

But here is the game-changer, any FMCG company has to invest about 15-20% in the distribution of their product.

As they have to pay to many different peoples like Distributor, Wholesaler, and Retailer and also for transportation, logistic, reverse logistics.

But for all these processes AMUL just has to invest 5% of their cost so eventually, they just have to pay 20% of their cost in the production and distribution of their product.

Then came R.S Sodhi into picture current M.D. of AMUL, Dr. Verghese built this huge business but R.S. Sodhi is the person because of whom there is a J curve in their profit graph.

As they bring 50 more products in their product line, now they are working to procure milk as much as you can.

Then process that milk very quickly and then make different products and then make them available to the customers.

As India is a huge market and in tier one and tier two cities people are mostly consuming the packed products.

And that’s why they became so huge so this is a win-win situation for both the consumer and for the company.

As consumers get the product at a great price, farmers are also earning great.

Conclusion of the AMUL Business Model

So here we are done with the story of 30 lakhs farmers who are now feeding the entire world by coming together and showing the world what unity can do.

They now have surpassed all the giant organizations with an annual turnover of 38,000 crores and want to cross the turnover of 50,000 crores in the next 3 years.

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