Amul not to melt under Wal-Mart heat

India's largest dairy producer not to compromise on margins.

In a bid to guard its interests with Indian distributors, Amul, India's largest dairy brand, has taken a non-compromising stance in negotiating with the world's largest retailer, Wal-Mart.

Amul executives said that a potential partnership with Wal-Mart would come unstuck if the latter lives up to its reputation of putting pressure on Amul's margins.

"We work on a standard price and will not compromise. We have 3,000 distributors across India and any compromise on price may not go down well with the network," said Kishore Jhala, general manager, Gujarat Cooperative Milk Marketing Federation.

Amul's reaction comes at a time when there is a backlash against organised retailers, a move that led distributors in Kerala to boycott leading FMCG companies.

The $344-billion Wal-Mart, which signed a pact with Bharti in India, is currently in negotiations with leading Indian brands for its cash-and-carry model. Indian regulations permit Wal-Mart to have only a non-exclusive cash-and-carry operation rather than set up front-end retail stores.

According to Amul executives, the co-operative has already communicated their offer to Wal-Mart.

"We have already sent them our price. Now Wal-Mart has to take a call," said another Amul executive.

Wal-Mart executives were unavailable for comment.

Currently, almost 97 per cent of Amul's business comes from the conventional distribution chains through distributors which in turn sell the company's products to the millions of mom-and-pop grocery outlets scattered across the country.

Organised retail makes up the remaining 3 per cent of sales. Amul also has a chain of 1,300 exclusive retail stores across India and plans to open 3,000 stores.

Three years back Amul had reportedly signed an agreement with Wal-Mart to export to Wal-Mart stores in the US.

The co-operative currently sends products to the US through Kanan Dairy Products.

The joint venture between Bharti and Wal-Mart plans to open 10 to 15 cash-and-carry, or wholesale facilities in India over seven years.

These facilities will sell groceries, consumer appliances and fruits and vegetables. The first cash-and carry store is targeted to open by the end of 2008.