Arun Ice Cream - Strategic Management Case Study 5k622n

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Arun lce Cream cn June l0 1997 cven as he signed the Annual s of Harun Mitk Fooci Limired [or !o March

rhe

1997. it rvas clear to R-G.chandramogan. rbe chaiiman and Managing Director tlrat his company was in the middlc of srraregic cross-roads. The dilemma relared ro rhe s:ralegic direction the chennai-hcadluanered rnakcrs of Arun ice crearn had to take: rhis in :'ani':-rlai invclved the quest:on of market expansir;n io: icc crearn bevond South India vis-e_ -vear

'";s 'livcrsificatic:i inlc prccucls lhal coul !evcrage on the corlpany,s currenr slrengrhs Recellt ycars had be-bn momenrous flor Arun as the company itsetf had com€ (o be known cDonymous with irs key brand- Early 1996 saw Hatsun Milk Food Limired (HMFL) raken publi:' with thc Indian stock marker in the gnp of a bcarisi phasc, Harsun.s inirial public otfenng (tPo) barcly managed to sail through. Bur the grcarcr visibiliry and crncrgence ol a pow'e;ful sakeholdcr in thc form of public invcstors mcant the tacirurn managemenr of Hatsun had to play a completely unfamiliar rolc in rnanaging expcctarions. with ice cream sales incrcasing by a healthy 4l%' the just complered fiscal. the f,*st fu1 year aftcr the lpo. Cnandramogan reflccted' was probably satisfacrory in rhis rcspecr- This, be fett. however only underscored the ur-qency to develop a sound shon-term su:ltegy to consolida te Arunbra.nd of icc cream in the fa-stchangiog competitive scenario and rhus esrablish a sclid plarfonn to launch aegressive grounh initiarives and anain a crirical rra-<s and scale by thc year ?o00.

"Arun'o ice cream: early history and strategt:

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Cfundrqrmg:F, son of a vesetable wholesalcr frc::': gc-rr11\ rpdiTn .T:*il srare of Nadi,. v:i up Arun lcc Cream in 1970 in Madras (now re-named as Chcnnai), csscnrially morivared b.r rhe urge to -"do some thing"' After his colleee srudies wcrc discontinued ar rhc pre-univcr-siry stag<' chandramogan agonised over several wceks abour stanin e. some business wirhout bein5 quirc ablc to narrow down to any spccific linc, mainly bccausc of heaw invesrmcnr_s enrailcd" while driven by an urge to succeed as a businessman. he did not quire know how ro q(i abL.)ttt scfling up a business. It was his ararernal unctc who suegesred rhe business of ice cream' In'csting Rs' l5.0oo as his o.wn crpirai and raisins arrother Rs- ?t.o00 bv u,av of a bairk ioan' he ser up a small ice cand-v unir in'a renrcd premises adjacenr ro his unclc.s rerail tertile outlct" Frorn a quick srrrvey around the l\.ladras markct ir appcarcd ro charrdramopan that ihere werc about i50 small-rimc ice cand-v manufacrurers likc himself compcrine in rhc low cnd of the market' Thcsc were offerine no compctirion to the up-markct seqmen( dcrrni"11"6 by ;hq !eading t,rands Da-raprckash. Jcv ar,c Kr..alrn. ,-;;.-;""-;n.rr'i ,r. cl'orvrj"' chandran:cg?n \\'as also sclling his.4run i.i-or,,i irc candies for !0 paisc an
Abraharn Kosbyaod N- Vcnrireswaran_ Ls preparcd as a basis foi class

of 6c lrdian lrutirurc or n*r,'g.o.ol Arracdabad

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The suppon rcccived,from Sm:ll lndusu-ics Dcvclo_prncor Banl of India (siDBI) aM thc company managemcn( in rhc dcwlopmcn{ of &is casc is gntefuffy".t&"lcAgJ. Copyr-ignt O 20OO by rhc lodirn lnstirute of marngemcnC A-hrrrdabad:

2oll8 IIMA/BPi. a piece predominantly through street-vendors. Thanks to its prominent location in a busy locality. Arunl also quickl.v began anracting rvalk-in customers. The fact that one could get "fresh" ice candies right across the factory counter was a major selling point in promoting inlactory sales. ln the very first year of operations, Chandramogan recalls, Arun clocked a turnover of about Rs. 150,000 and profit of about Rs.40,000. Over-the-counter sales probably ed for nearly half the business- Emboldened by this earlv success, Chandramogan \ven[ for a three-fold expansion in the second year of operations. Even in the very first surnmer season, typically the peak months for ice crcam and candies sales, Chandramogan found that his production capacity was simply inadequate to meet the peak demand. This and an early rcsolve to move away frcm the large pack of srnall+imc, faceless competitors infiuenceci his ciecision to exparrd. As the existing location was found crarnped, he decided to

relocate the plant in a more spacious locale in thc outskirts of the city" As it rumed out, Chandramogan found selling the hugely expanded volumes, particuldrly during off-season,

quite tough. The somewhat inconspicuous lrcation of the new factoqy in a rather low traffic are a was also found to bc inappropriatc for across-the corrnter-sales that dropped precipitously. Though Chandramogan quickly resumcd ovcr-thc-counter salcs at rhe old premises (by sourcing from the new factory), it never regained the old volumes- The expanded lacilities also meant higher capaciry-related fxed costs, With sharply increased costs and sales not keeping pace, Arun fel! into the red. Chandrarnogan financed the losses through additional borrowings, partly from his uncte- Even as he was struggling debating about various options to get out of the financial squeeze" the induss-v was going through a major upheaval- As the input costs were rising sharply, icc+andy manufacrurers decided to increase thc retail price from l0 paise to 1-5 paise a piece, Ieadingto a revol( and boycott by the ice-cbndy vendors. With manufacrurers such as Arun sticking to their decision" r,'endors sloivly lregan returning to the fold"

With somewhat staenating volumes and low prohcabitiry,

Chandramogan

felt the

business

outlook \\,as one of the same une-xciting existence" As he sought to move up-market into ice cream and increase volurnes through bulk institulional sales, a lead:tng group of hotels in Madras expressed interest to source irs ice cream requirements- Howcver the horel gryoup insisted that Arun up-eraded the product quality and supplied homogenised ice cream and also increased the ranqe of product offering and flavours- This would invoive acquiring cenain neu'equipment for homo.qenisation costing Rs.7500 and rccruiting a qualified and experienced person to ovcrsee production, at a salary subsantially hieher rhan rvhat the business could have probabl-v then afforded. Though his fellow ice candy manufacrurers' caution and his or,.n earlier experience and the current state of his financcs suggested orhtrs'ise. Chandrarnossn decided to iake thc risk. With vastly improved qualir;r anC largei numb€r cf flavours in ils offering. A.un ivas able to break into the rough horel mariiei" Whilc this did help his confidence, it did linle to improve the finances, which conlinucd ro sufler from serious profitabilitt' and liquidity problems" Chandramogan soon realiscd rhar horels. '.'..hile oroviding stable r.olume s, s'e re nonctheless prone to imaking ,h*.y dernands, oni theii su'gPJians'ffid.'aiic iverc. esuernelil.,stow in ..cteasing pay-meurs' I&r; die.nrppr6ge-,snade;..4s" fhe tlpical hotel custonler \\'as not panicularly, brand-sensitive, hotcls rhemsclves vieu,ed ice t

t Th. ,.r* '.\rur'.is oli:n uscd in thr'cajc. I

:s a rnancr of conUcnicnce. to rcfcr ro thc busincss cnrin, as u.cll.

J va ro

cream like any other provision in their rveekly shopping iist and were not shy of using their substanlialcIourr.is-a.vistheirsmalltimesupp!iers.

In the next two years or so even as the ice c:'eam business was beginning to break-even, chandramogan was searching for a rvinning fbrmula for steering Arun away from other ".metoo" outfits' Having learnt eveq4hing the hard way "on the job,"

through triat and error, chandramogan was also beginning to feel the acute need for some kind of formal training and structured inputs on the various aspects of management" He enrolled with Davar,s college, an instirution offering specialised shorriuration prograrnmes for working iilcutives. and took courscs in Marketing and personnel Manaqenlent.

Marker

for

ice cream in Madras city and Arun,s search

for a niche

Searching for a suitable slot to position Arun in an intensely price-scnsitive comrnodities market with a highly fragmented compctition jrrckeyrng for evcry rittre competitive space, chandramogan found linle roorn Nearly ninety five pcr ccnt of the primary or burk purchases of ice cream in Madras around the time were acco'rnted for by the following three catescrie-s.

" . .

Generar provisions and departmental store-s .*ith de freezers. Hotels and restaurants

Social

.u":o, mostly rvcdding parties

lypically the ice cream majors (sucir

as DasapraAzsh. Jov and Kw,aliry)invesreci in deep freezers and supplied them to general stores ,"'"ior., extent hotets and restauran* ""0 thereby establishing some kind of "cold chains" "tro as dedicared reail outrets for their brands. (often these general stores also stocked a varieqw of other items besides

the ice cream of the specific principals in the freezers)" Aware of his own lim quire surc about the reasib'irv and appropriareness or this Arun" At the same time he r'r'as also ?;: conscious of the fact that thesc two-the -deep so
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brand_narne decision).

Lcft with limited options, chandramoean conrinued

his search ror a nichc for Arunand fe* foirrt about rl*e pcrcent of thc Madras ice cream markct somc hopc' Thcsc rverc educarionar insrirurions and suppries ro ships

that two othcr segmcn* ing

possibly gave him callirre..ar. the Mad,rai port," Ru*,.by{ rncs& sccrelasiesr.,whorthE 11 p ica if rhe cote ge, v mcss leadine ice cream manufacrurers such as Dasaprakash and-lo.).. chandramogan in his rarc leen ins(antly struck rappon r'irh rhc key decision-makcrs of colrcgc cantccns. yer it required scvsl3l and ercar pcrseverance before he could bag orders for suppries 'isits to a rarge and

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prcs(icious instiruiion like the [ndian Instirute of Technology, Madras. He also felt thar collerrc students were more than *'illinq to experirnent wi(h a ne,.v brand or neu, flavoursScnsinr: a conrpetitive vacuurn, he stepped in rvith vastly improved service and deliveries they \\'erc unaccustomed to and steadily caprured bulk of this segment.

Sinrilarly ship-chandlers, rvho procured and supplied provisions ro ships that calted ar the N'ladras port, were particular about delivery of ice cream just in tirne for onrvard transhipment to ships. Chandramogan felt that this segment, rvhile fastidious about quality, was nor thzrt brand{riven. Most leading ice-cream manufacrurers were unsurpdsingly unexcited abour these supplies in view of the small volumes and the erratic delivery requirement:. Chandramogan began meeting these agents u'ho were procuring and supplying provisions tc various shipping lines, understood their special requirements as to packing and delivery anC quickJy caprured most of this market as rvell. By 1974, Chandramogan recalls that" Arun had probably caprured 95"/, of the college canteen and ship
\\rith Anrn's volumes picking up in the follorving months Chandrarnogan was able ro pay off alI his outstanding loans, and the business resained a sernblance of financial flexibiliry. Despite this, Chandramogan $ill did not feel financially strong cnough ro cnrer rhe deep freezer based eeneral storcs sesment in Madras citv" While in these early days, he did provide some advenisement to build and enhance the brand image of Arun, very ferv enquiries for agency or franchisee inreresr follorved.

As he continugd to stayclearof the top three segments in the Madras market. it u,as er.ident ro Cltandramogan that the business \\'as probabtl, eniering a phase of stagnarion. So he besan iooking our for nerv markeis in rvhich he could compcre effectively anC ero,*'.

Breaking into upcountry market

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.+C.Ch1'vdra'rir"-eailt s:,$i!r thg;'eFeat+ii::g{srtllf itolfn{;i0i\|;a9,:.tgn$ji:!' &lsupgsunr,{1: l,r8fi-(s;Jji, tow'Iri lh3t rverc- compi-ctcly isrro;c; L';. :!:: icc crcam majors. Whilc t!:::c ii,.arkcrs \\,ere virein" the cost and logistics of sen'i:inc thcm from a central lacrory in Madras wcre in decd

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comc u9 l"irh rhe riehr markerinl and disrribution lormulae.

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I{aving made inroacls into upcounrry college canteens and hostels, Chandramogan begal looking at the feasibility of supplying icc crea.tro wedding and other important sociarevenrs in upcountry towns' while ice cream was a srandard fare fo*u.h in Madras, this concePt rvas virfually unknorvn outside the ciry. so he went "uJn,, around canvassing for orders for rvedding and other sociar events in upmarket househords outside

Madra persistent efforts' Arun was able to achieve some measure of succesr" did help in enhancing brand awareness and adiiti.nal sares, chandramoeun ...rir"a

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Initialiy, Chandramogan identifiecl a few towns lil.e pondicherry,, Madurai, Kumbakonam and Sivakasi in Tamil Nadu for initial foray, parricularly bccause good quariry icc cream was available in thesc ph"cs- (At bcsr not a fcw hotels ,o,

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"i. and hoardings in thesc selected towns that icc cream from Madras r+,ourd bc zuppricd certain pre-announced days and on that those interested could book their ora"o *,rr, Arun either in person or by phone- using agens local telephone directories to obtain addresses, he arso had" mailers posied to porential upmarket cusromers, rcferring to them u, .n.,,n.n, pcrsons figuring in the list of vIPs- Typically chandramogan bad An-tr icecream L'edrrr supplt( suppried throueh the a-qenis within four to five days of the ".booking,,"lce cream supplied from Madras..

\*.a_s the L.., colj-^ __ point" Mailers to addressees the specified rocariry were rare ourside :tt1"g ,n".":,:-t t tlrne. ltv As tirc long_ignored small town ", consumers felt recognised" there was tremendous responsc tc thesc . forays- Even as chandrarrrugan was beginning to feer confident ,o rhi,rkt::t-marketing" arran-qements in prace of rhe ad-hoc *ice cream cavs',,,r. wear-off and cusromer responsc sraned declining. He atso felr that ..n*J_a"y." sclling probably left out a large numbcr of potential customers frorn praces conriguous to thesc as well as rvalk_in cusromers towns indulging in impulse purchascs"

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The break-through came by chince. As chandramogan said, ..peopre see ad*eniscmen.,; they setdom ..uh ir ca.refully.,. bur On rhe appoinred Cays whcn ice
5ofl8 "sit-and-eat parloiir" thus rvas born in 1981. Though Kanakaraj sugeested that price of Arun ice creanr be kepr lorv keepiirii in vierv of the price-sensitiviry of the iocal marker. Chandrarnogan \t'as not in favour of doing so as he felt that Anrn v,as nor rhe same as unbranded, lorv-priced ice cream served in local resraurants. chandramo_san ed this agent through r promotions and reqular ment campaigns. Even as this firsr Arun "franchisee" began tasting success rvith sreadily-gro*,ing demand, other smal to\(Tl agents also felt emboldened to invest in their orrn freezers. A 400-litre freezer of repured brand typically cost aL,oLrr Rs. 12000 to 13,000 around the rime"

As chandram'i'i:rri iecalls, he "accidenrall.,'hit thc right

-This was;r<.ri a creditto invest in his own freezers and

bunorr'".

oriented market". And he did not have adequate resources supply them to retail outlets. As it turned out" "there was no invesrment, no credit, but also no competition in this market"" And he was implementing the franchisce concepr without ever knowing the tenn.

From l98l he began replicating the model by opening, on an avemge, two such fiznchiseerun parlours every lnonth" with over 700 such outlets in Tamii Nadu. K-?rnaraka, Kerala and Andhra Pradesh by early 1999, Chandramogan beli'eved that AruD franchisee nerwork was one of the largest in South India.

In appointing his franchisees, chandramogan typically looked ar rhe personal profile and

business backgroirnd of the potential candidates" Typically, hc would not offer Arun fiarichise bi.g time, successful traders or businessmen. He also avoided, as far as possible, eiclerly

to

persons or highly educated individuals for distributorstiip-

cn the orher hand, hc *.ould pre fer some one who r,,.as in his mid or late twenties, prefcrably complcte_d his schooling, with average famil-v income and had probably io his carly busincss failed endeavours" very often, friends and relatives of existins franchisees approached him with requesrs for franchise rights to open parlours in new locations- This made Chandramogan's task easicr. once appointed, the franchisee \\'as assured of cenain exclusiveness and "area* protection in thar anothcr Arun franchisee was not appointcri wirhin a lt/t ' 2 kilometre radius. Thesc franchiscd outlcts were exclusive "sit-and-eat'" ice cream parlours wirh good ambience and located in ciry centre or main roads' unlike the qeneral stores freezer outlets of other ice c:eam brands, Arun,s outlets did not stock other irems like buncr and chocolarcs. o*er rhe ycars Chandramogan fineruned the parlour and franchisec concepts- Chandramo-san had deliberarcty dccided on rr,. srrategy of parlours sellin*e.{.run Ice Crbam exclusi'ely. on its pan, the company u.ould ensure rhar ir distribured its iioducrs onll' through its franchisees" parlours and not throu-eh any orher channels e'\cepr direct deli'erics lo cusrorners aqainst spccific orders for pu.ri., erc. Thc concept of exclusi'e parlours, chandramoean felt, enablcd the Fanchisee to focus on sclling Arun rangc of ice cream and give better cusromer sen'ice- By 19s5. Arun crnerqcd as the larqesr ice
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-

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lvladras suburbs and outskirts and cnly thereafter, he moved into the city. In the next lg to 24 rnonths, An-rn achieved its brand leadership in l,{adras city as weli. While he continued with

the strategy

of not cultivating

the hotet segmenr, the wedding parties segmenr came "arrtomatically" to Arun norr'. It was estimated that Arun had a market share of around 60y,in Tarnil Nadu by 1999 and about 36% in the four South Lndian srates. Chandramogan esrimares that probably about 120 franchisees came to his fold as friends/relatives of existing Arun agents. One franchisee, Ganesan, wzts responsible for introducing as many as 32 other agents.

Arun's franchisee family, Chandramogan felt, was an extremely loyal lot as most them grew with Arun" There was a strong symbiotic relationship between the companv and its frar'chisees. At a more personal level, many of them enjoyed very warrn relationship with Ch:ndramogan. And several of them have named their sons and grand sons as Arun! Ch:ndramogan was clear that in any business decision he took, he would not ignore the collective interesrs of his exrended family of franchisees.

Manufactu ring Operations and Logistics v/hile

the seventies were a period of "learning", the eightics turned out to be one of ..eaming"

for Chandramogan- He also realiscd that in the business of icc crcam, cfficient management

of

i;iward and oulward logistics rvas extremely important- The most challenging aspecr was Procurement of miik" a key input in ice
o[ the seasonal demand-supply imbalance in rcspcct of the product and its ixtremely shcin shelf-life. Summer months of March througir June, though pcak season tor ice cream sales, also happcn to be the lean seasoa for milk supplres in Scuthern India" Similarly the flush season f,or milk coincide with thc pcriod of low ice cream sales-

From fairly early days, Chandramogan dccided procure milk dircctly from dairy farmers and lor this purPose set up collection centres in major mitk-producing villages close ro his ice cr::rm plant- The miik procured at thesc collection centres could bc brought to rhe Arun faciory within 2 to 3 hours of collection- He offered guarantecd procurement of certain mirrimum quantity of milk based on his lean scason requiremens. For bis additionat recuirements of milk in the peak ice cream scason, he offcred ro pay a higher price. Typicaly thc payments to the dairy farmers for thc milk purchascs were macle oncc every thrce days at thr collection centres. According to Chandramogar\ Arun's ice crcam sales had, on an a!'erage, exhibited the kind of scasonal pattem as given in Table lHe sourced other inpurs

and ingredients such as susar" fruirs. packing marerials ctc. from "r,hol

esa

I

lcading

erVma nu lacrure rs.

For outward transpon of icc cream to various fianchisees locared in differenr towns. he recogrrised

that the lorv r.olumes to

Months

various

dcrtinzrbns di&'not jusrif,y,"rhe,,usc of, erpensivc. reGigerared transport rhar had to reun cmpr-v rvith no comparible load. So he rypically took

of the re.qular enqcr rrain scr,,.ices of rhe InCian Railrr.avs for dcsparch of icc cream adr''an13gg

TABLE:

I

Percentage

of

annual sales

Aprii.J.rme

l$va

July-Septcmbcr

22%

Octobcr-Dcccmbcr janiary-March

19"/"

25%

8otl8 to various desrinations, For this purposc, ice cream cartons u'ere tiqhtly packed in small ryooden boxes (Z'x2'x2') rvirh thermacole lining and tilled *'ith dry ice (solid carbon dioxidc) ro prevenr melring. Being a highli, perishable product, ice cream rr"as accorded high "bo.xes" collected priority by the Railrvays for rransponation. The franchisees rvould have the ar their respective destinations. They also rerurned the empty con(ainers by return trains. And ir was nor unril 1995 that he purchased refrigerated vehicles for delivery of ice cream. Chandramogan also felt that in the long run transporting lce cream to long distances by train or by refrigerated vehicles might not be a viable strategy. He also reckoned that a 250 to 300 K.M" radius was probably the timal area thai couid be cusi-effectir'eiy serviceci bya centrai ice cream plant. As the Madras ice cream plant wa; i'.lniiing out of capacity thanks to Arun's rapid cxpansion in the eighties, Chandramogan felt a cornpelline need to set up another Plant both to meet the growing demand and also to improve the overall logistics. In l99l he set up a spanking new ice crcam plant at Salem, some 320 kilometres south west of Madras and also closc to both Kerala and Karnataka b<-rrders. Moreovcr thc new plant was located in the hean of Tamil Nadu's milkbelt which facilitated procurentent of high qualiry milk at competitive prices- Sec Exhibit: I for a rnap of South India. The Salein planr involving an invcstrrrcrrt of Rs.22 million was constructed in record time of about 3 rnonths, right in time for the summer season. The plant capacity at both Madras and Salcrn were designed for peak seasonal production; during ofFseason the plant utilisation was only partial and all annual maintenance and revamp were rJpically scheduled during this pcriod While on an average 7 to l0 new flavours were introduced every year. an equal numtter were probably phascd out. Chandramogan fie.ured that about 30 to 35 flavours wcre on offer at an1' given time" A process diagram in respect of ice-cream manufacture is given in Exhibit: 2. In order to coi:fcr-::: !o the prevailing regulaticns restricting menufaclrr: oI ice cr--ultl tlrrly irr tlre SSI sector explained elscrvhere in the case. the Salem plant was set up as an SSI unit under a ne\ ' proprietary concern, Atlanric Foods- I.n the following years ice cream production in the Salem factory more rhan mer the n-owing demands placed on it. Chandramogan then turned his attention to the Madras plant tbat required major invesrments in up-gradation. Rather than attempting a piecemeal revamp and modernisation of tire Jecades-old plant, he decided to set up a totally new auromatic facility and for this purposc he acquired a new flve-acre plot in the Red Hills area in the outskins of thc city. This plant wiih a capacity of 15000 [itrcs] of ice cream mix a day and costing about Rs. 45 million (inclusive of the cost of land) became operarional in July 1995, In vicrv of the investment restrictions on individual SSI unit, the neu, Madras plant was sel up under a separate firm" Hatsun lr'{ilk Products.

Around itris time. Chandrainogan found it necessan' to te-vai'ilp the disrriburion logistics. Recenr and continuine increase in the number of franchisees on the one hand as r,r'ell as in the varietv of ice cream flavours on the other. he feh. u'as beginning to takc a hcarr totl on thc lacrories. He rhoueht of relieving factories of the responsibility of managing thc direct r.

d'isll'il'butlonl'ofiics'gle. fins"thb'-vanbug'destina:iox$s*€rfiiil'{':}rri5*'+:sa'lras"!scEeuh'+scttupaj depor in Madurai in 1995 rtirh adcquare cold storage faciiirics and the required istrative

personncl ro handle ice cream distributisn to the franchisces located in the southcrn districts

1, Th. c"prcirr.nIrhc salcm plant

.'it may bc norcd.

rras 5000

lit:c;

of icc crce;a mir e drt'

I

9 ot' l8

of Tamit Nadu. The depot rvoulC be resp<.rnsible for sourcing from An-rn factories, invenrorv and cold storage management, orcjer taking and execution as well as collections. With the requirements of milk steadily going up in keeping with rhe rising ice cream sales, Chandramogan was becoming increasingly concerned about managing the expcctations of rhe dairy farmers particularly dur"lng the lean season for ice crqrrrL While he needed increasingly large quantity of milk during the peak surrmer months, lailure to maintain mitk procuremenr at a reasonably high base dudng cff-season could lead to thc farmers snaooing the linJcs u,irh Arun anC mcving av,'a)/ to other inore "depenCable" customers-

Brand

anC

promotions starcgt

From very early days Chandramogan was keen to build and pres€rve a distinct brand identiry "4run" for his ice cream. Almost since inception, he was spcnding fairly large sums of rnoney for promotion and ment" Whether it was a Madras city college campus or zrr

upcountry high-traffic junction, the brand *Arun" was heavily promored through colourful banners, posters or flyers. In the early ycars, the unin advcrtiscrcnt media were newspapers and magazines. When colour television covcrage rcccivcd a big boost in the mid-cighries,

Chandramogan immediately took to the popular visual ncdium for advertising" As the tumover went up sharply following the success of the franchisc stateg-y, Chandramogan stepped up brand-focused ment and began investing in technology. The fact that he

did not have to invest in working capital and in dc freezcrs meant that his liquidiry remaineC unimpaireci" This gave him considerabie frecdom to invest in brand building" By 1991, according to Chandramogan, Arun's advcrtiscment spcnding was probably higher rhan the tcrtal turnover of Dasaprakash-

From 1987 Chandramoqan bega; carrying out focussed sales promotion activities. The firsr such promotion was "Eat Alt Ycu Can" Ice Cream Mela qndtrcted in Madras city. Under rhis scheme, for a fixed entry fee cf" say, Rs. 8/-, the participants were allowed to eat any amounr of ice crearn on display and the one who "consumes" thc craximum quantiry was declared winner. The specific purpose of this sales prornotion campaign was to encourage consumers to try out higher-cnd, cxpensive flavours, which, in thc norrnal coursc they werc normally reluclant to experiment u'ith" (Consumers normally coosunrcd Vanilla flavour, the cheapesr). Altosether, about -{200 people panicipated in campaign that probably cost about Rs. 270,000. Similar campai_ens were larer repeated in other cirics like HyderabadAnother successful schcme '*'as "slow spced driving compctiriou". From 1993 onwards, Arun also beqan conducting "'slou'-spced" driving compctitioo for cwo wheelcrs like motor cycles and scooters. An inlending panicipant typically is rcquircd to purchase ice cream worrh, say, Rs":: !r1(- asi,':csnrrr f,g-cfr: Gonductcdl).iriras$mi$iffiiwi&rth+rhca!.,rr:Jffri.ipglicrs,:irp:.cinicsr,likq,r

Madras and Bansalorc. such compctitions rurncd out to bc big hit with some 3400 persons participating in one such event- The objective of such campaigns was again lo encourage customer trial of high-end flavours rhat hopcfully u'ould lead to grcatcr florv of two-rvlrecler traffic to .{run's pa,rlo,-rs.,

*,

*0",,

d

urin

s'0":l

:;;

; _n,

u,.

",r,,::""T1L:*: i:::rJj,[ ::Lil:::i._ .";

i:il:Ji',!{iif ;ft :i4ti:*:*:""':,'ffi *"To,r"" tt:: campattnt

iiff 1,'::".':.':l*'":::;

t"*ptigtt: pt*"t*i,t, such as "the ;inay inilinlives Sales pronru"* to.ut flavours' .^*or,*]^,tlts come \. rv v-'-parrours to parlours Promot't'* Such its p\aces. '*u,xtring Plan' Arun "naou*g.a i]'^'""'etc'

such

i","-

otu"ci-i schems' to

Approach

rvp c a

priang

and franchisee

fiancgement ;

of ice cream-

v*1:.=r*i:ffi##,lgH*ffi

Franchisces

wgt

'*.T,;; ::'tr il':j|;".;",;"." .fter'exP€n*t ::-"r and *unuiu.*.,ng rnanufac ers'this ice creann Vadilal' a

..0,,"*,on

65yo ortrre

l

**t1 ': T";ading icc cr:^T"*^:'::":,:1,:, *'*':i;r"'o'* ort:::H"i""'i*-t

.rr,"o,er ;;;;''o-Tl":; ;;', ::'^^f,,.bu,ion i:::::: il"",:,... "

**:T.f

;;;"'

as prorits-

.11t,

sares.

our,ers

ma

*H{{fi*[d*H*r-Hlf$Hffi *"',:il,liu',io.i":T;;;;,.* was believecl

ro be sigirificantlY

']r1.,

rheir rh."i, u.andsto their over-all ,uur,unt'uttv and

;;0""

otrrr,ufi"l til;;;;,

as

*1.;;tt",'

packagn'timares.

,"

l,ij'_nr),

rhe o*erair 8compared to

Yq:1';;;;;;'u o-",1, manocu\re" Ln rrr: environment) r"frigerar.d oi was T",;t" "t *:ff"^rir. n,* i*T:0"* r2vo to 15e," ^i;;..r.r:.T:r-;oyed cost of AIun or distribution crea'1nt*; leadin9 icc other tor 9Yo cream leading ice case

probably

a

a marsrn

er

of other

t,tRP'

o#"-:l s rec,o*ook iill':1y could be

c^m rranchisees bv

^,u seasonat months

phonc' The

numbe:::^T''i.,

Tt::'Hfiitl

i:t; :ffi*iq:lir*mX:;

iil;;r.*^:1:;,:'*-*,*.i,r. advantt ltil:-;;n.n,r..t:il;"e, 1,.. crcam suppiies u,ere ro'rake expccrerr no sooner.',n rac"roq, rvould, be

nace' As regatdsrt""q;'.ou".t:l":

depanment made' chandramogon

Franchrsees

"i,l:;"* o,rr"r.nt *tilt**ti*o :11:0,.'in ttton=.Jir."" 1:,"1. rist issued by Arurr. *"0' i""ltlr';;;i*r, ,n._.:'].r,rn, rermrnared have bcen nr n'ls *' *n

* ;, ; ::;,,'.1 #tr Chandramoean'fiso:tcstFat'll,

pac

{,'

s

or._o".kac.ed .*._..1^,",,,i.Jsizes.

tne would bank

k

xt''i[g'i

:l: X*": !i:r"

Mtir violation of N{RP for violarion

* "rn*tots,14r.r(t5-:' gutdelurLr su'e-'-

4ludcd tict distrrbutro

Thc l\\c

*o

.

stockistr =

----

-r- disrnbulion .. --,rrp ' rhc rrc 'ticrrib'Jlion

*ho *ouldhandlc

<

to ro

chrnncls rctail chrnncls"

IIMA/BP-253

Organisatiort Managetttent and a group had recruited chandramosan over the years ttrat *u, oi f1r,:ff :1 H. oo, ti o,i f,

;*

;;

functional iike

"t:'^l-"-'.T:::T:i:t-;::'sation

"l T:j

:j:.";*

lli

;::::^;:!: Ti:

;ff [,"rffi ;:"::.,::l'il:"",:T;*;:.ffi

ilil*..:'J".|*j::"'i^i,,"'.**f

';''[,"'i']:l,;,., #"*#l{i:li'*dru;*i'::: -'i::il;; R.'chandraT.'t'.::-::::

go durin3 Arun's B)i record time' sc:en project in tn,n positions' These functronul key in

*o as Markettng ,."r",u,i]'t--i"gunutttu,.,"='',fi-::,rTa" ;

company

^* ,l*nnu**u,

Manager. ^":":r: wi"'h most adequatelv stalTed-

'**"i t"^W;$# **:;* Ir dT Hi# t'= "[in'*ould to #*Hirew davs'r need *: hr defrnitelY str:

p

:**;*:.*".::*fi.":I[;;;';'; H[iliH;:*;lx' in i995' employec rela

strikeAockout

co m P eanve E m erging

organised segmenr

rhe

r' a

scefl arl o

or ice-cre":l

'l: Xl 5:U:ilT:*lii T:'['ii:ITrt:r: tntre were t:::ilTr**u"'

vadital:t f't'npiuyt" such as Kwality in the South u"' ""tryunder ":'.;.ror ;iiorrg rccir:nai Anr-n iater sclring ice r"o .cream ouruprul wesr and "'ri,l.l

rti;*it;f [::T*stilr'trffi for flavours in-house thett

of ice cream

,o"n",'*tl

was reseryeo

to

(F

necessarly

so*."

specificauy ,o "i-i,

seale industry

ltig"*;iffi

t"':].:.f,:"j'l'#1";;i

their icc cream thc. ice

"nit'

: ';rr:f which were

their family

::Ht".T"h;:. :::::,"'.;,Tff1."#f,o-the

often membcrs" The

in therr meuopolitan cities

-.r,. fu:T*i;*::,'"'-".il:ll'"'-;ruru:::U*"'."":'"#i.;Tli "".,liu*, ,n,rtl-national fairly in Gujarat rvide presence

had

*il.ll;.'Ji:l:":':i"::1,'fui::f bv its launch' DolloPs ;;;;;t"

.

created

also appea"a

rh e (

BB

IL) :

:qil*"

itself t"as somer'r'hat

;il;

\^?vcnng

rea

i

ot-t';hires; "u

be'

r''$a'd;,"J;

;

of consumer

:i'lif,l'.T-.

'

J': illi-:K: i:f" Tt:i]': ?t bcvcrage compar

dia "': m marker n rn through tfi "'r",:'[:'X and t"coffcc "\,""Jr; gianr unilcrer.

ice -c

;;;*,

tt'"*

:lTl11;)

"

^o

":".:il

:

:X. ::'J:

l2oft8 ice c:-eam and other food products as thr scsmenr (such as jam and saucei

[t o" j;"[:1,1xff j:ff ;,".':1, ;':H::":'il: ".",l,tl,lj11lll,Tt,tl-*l_ #H::::,;;ilT::::,'j,:flffi

entcrcd processcd-fruir

,1,lli;illl;::;:';ll"1:I,:',):lf,,;.Tff several

of the extant restrictions rela -

",**:

tli:,':*'[::'.-.T":,lJ;:lTHi

jjkill *..l ":tJ

rs rve re be i n g p h a s ed o u r or .., ;J ;"u?il;*','.x', Limited (HLL) undertook "i a series of transactions to consoridate and strengrhen group's presence in several the unirever product-markets- Having identified frozen d.ra..r, as qy3r.14i., sec ro

:T#**"m,.,":'.-rndiaand.,r,..r..io*;;:? fi?;;:;':;,,;:T';,,;'fi in its oo.,-.,,o. BBrL ..*r.o' ::J#_::..: ;:J.,,, :rt market overnight' with ft::JfiJ:r;:: "l:':l:: the .nry"t r un int.-utio,.,", ioo ,gianr deep pockcrs an6 with regronar r.,a.,,i,ip]T:"ft: 'j?r.*nJH:",:T.*,"^1,u not bc ;";;, wirh merc

comprerery re-wrinen. In February rgg7, the

;:'::;:'.::ffi4'*e

**;m:fljilil

rrom

G*"-rn"n,

;;ff,.rrff",:::::_:."r:#:

,i. ,t* ornroducl **i.a

ror excrusrve deveropmenr in

ji:l#il:::-+lql"iff ::,r::*ji#T:'::.:T;

top spor in the four southern Even as Arun emerged ro the srares, llao to contend with the dynamics and re-work neriv c6s1-1ps1i1iyg his orrn rr.ur.*-"-'ctrrv5drr

.n*l'0"*"j;1T::TT:'

Ownership structure cnd finances Whcn Chandran

nnnsry,edch,Jd',-"ll;::;rJ::fl:.:T,;,:;:,::r;:,:"[J:,,1r_1,:,ij::nT?

:ilu;:TJ il:::::'lrca lunnr-; was incorpo*,* ," Madras. on aprii jo, brand name

conccrn

r

e86, HFPL

ri.'"*'.*hip

or "*;T;i':[T:Til""fr]*:ffi ff:"* the company *.as ailowed T::,: :iereby,

rhe brand name Arun ," ," gross ice cream sares rn Augusr,

the

"*" "*: ,;;-;:T:,;;?;l

;::1

Jl;ii;:jl[:,,mr;.;tm

ffJy:,:rr."il.:T,,1_T[ in,o u i.- ;.i,ed comp v ;jj::T.d puu

r

r

In January 1996 m\,{FL w.as taken public through an inirii public shares ar an issue offbring ;':;:::":t^l,an.tnttt1l. pa i d -u p cap i,a r'

".:.:::,",:T; Tj .T, i |"T'# ::::: i:. :3 *T x'

;:1TTi1:'-'"ffI:::JIj: *; :...1x; *:*:::" precluded HM,FL,

t

carrv;"g.oor rce cr.4rn:p.rodrr"r*:[lH markqring company' Acrual icc cream manufacturing . fro,nn,

,

a

,,,

rlion of ic: :rqar::

.r'rls

n

oi r.80 miilion

i:'

:

:l,y"i

; ;;;;.n jus, a vear

::, J_T::l;_il:::

\\,as conrinucd to be carried our

Ir ma.r.bc norcd rhat dc_r

to

annoucccd b-. thc (icvcr:r;ircnt o.:.!. in

c-k^.-

in

the

!3ofl8 IIMA/8P.25J

two closely-held ed small scale units Atlantic Foods in Salem and Harsun Foods Company in l.ladras. HMFL sourced its ice cream requirements from these two SSI units.

The financial performance of the ice cream business Arun over the years reflected the sharp grouth in volumes arising from aggressive franchise exparsion anci strong promotion of the Arun brand. For example, HMFL's spending on ment, promotion and related items amounted to Rs.2l.7 million in the year to lvlarch 1997, nearly lTYo of its fiscal 1997 sales of Rs. 184"1 million. Tbe spending in rupeb. tcrrns represented a near 1007o increase over the previous year. As can be seen from Exhihits -J alC 4,..','ith a net-..rorth cf over Rs" 100 rniliion as'of March 1997, the compan!'; fi.rr.'r:iai position hati indeed t'ecn fuiiher strengrheneC. While this gave substantial strategic elbcwroom for Chandramogan, he was acutely aware of the fact the competitivc and regulatory scenario had changed dramatically in recenr months. S trategic c hallenges

and. dilem m as

The principal worrying factor for Arun marugement was the dramatic developments in the market place that could seriously undermine's Arun's growth plans. The aggressive entry of the Unilever gtoup (through BBIL since merged into HLL) into the ice-cream/frozen desserr market through a seriesof acquisition of well-known regional brands, as noted earlier, rvas in deed a pregnant pointcr to the remaining indepcndent players. The cnorrnous array of product portfolio and financial resources at its command meant HLL could supporr its Rs. 1500 million ice credm/frozen desscrt business for any length of time and ag-eressively seek market share, even if this meant taking eye s off the business's profitability tenrporarity. And untike '.he rcgional playcrs '.vho wei:e h^ppy ::ot to disrurb the rcgional compctitive baiarce, HLL would not bc conlent with anything less than leadership position in every single marker. HLL"s announced srategies for its Frozen Dcssert and lce Cream product group carried in its recent Annual Report were ringing ominous bells for thc likes of Arun.

(@

Your Company's Frozen Products business consolidated is leadership in the Ice Cream market rlfrA irs national share e-rceeding 50% despite strong low-priced comperition in ke-v ntarkets" You:'Comparyt's brands have been consolidated under the house name "KwaliNI*'alls " E.rtensive consumer research has provided valuable insights into the developnrent and applicatien ,of relevant rechnologies in product formulation and relrigerated producr handling. v'hich have begun Io se( ne\" standards in of delivered product quatin,. The standard ice Cream partfolio was consolidated under the "Dairy C/assic " brand, e new recipe having better producl stabilitv and innovative virgin boardfood grade packoging were establisheC. This is a signiJicant move for an industtt'. which had hitherto been using non-

food grade

The

rec.vcle.d packaging.

on brand building and innovation, rchich are the ket; drivers for rhe overal! development of the lce Cream category. The ke'v brand franchises in tlte inptilse seg:n.ent. "Corne:to" and "' Feast". lhe cornerslone of unilet'er'-r [ce Creant pt'€sence v'orltl*'ide. and''"Chc:obar'" *'ere strengthened v,'ith appropriate advertising - the business sIrengrhened its eJlorts

l4 of

tt

J'irst individual brands to be d in rhe lce Cream carcgory brands have ed significanr grov,th in ail the markers

in the counlrv.

These

A major exercise was underlaken lo upgrade the manufacluringfacilities of your Company,s Ice Cream sourcing units- Products, marketed under rhe Kwality-walls brand name, confornt fullv 16 the stringent standards specified by the Bureau of Indian Standards and alsb to the nore exacting Unilever norms on producl sa/'ety anC hygiene. This is a major milestone and a key diferentiator for the Kwatity-Walls brand -.. For Chandramogan it was 4;s": :hat he iraci to quicicly re';;ork ihe cornpctitive strategy fcr Arun- The key question was whether to aggressively reinforce Arun's competitive profile and further expand its franchisee nenvork in the face of HLL's competitive onslaughr or pursue alternative business opportunities woven around Arun's limited strengths and competencies. The latter strategy, he thought, whilaproviding an altcrnative plaform of growth might also bc necessary fi'om the point of his abiliry and the nced to givc continucd to thc lcc Cream business. He was ccrtainly determincd that unlikc scveral other lndian cntreprencurs in the FMCG secror, he would not sell-out to the MNCs.

t

Hindur,." Lc,.sr [-i11,,--,;. Ron

and Accounrs 1996

15

l_8

of

IIMA/Bp_25:

==:=::-

Exhibit-

I

Slqbta

\

rai*r,) :4,

ruuru

au"Lgo{a

I

I

Sirira:: OIKE I

:.t

Ir

lo

am

.lror( Pok

&a-v

T}iAPt'Rh{ .

C'nlf of

Mqwr

P6do

l6 of l8

!!MA/BP-251

.:i

Exhibi12

ice Cream Manufacturing Process

ELECTION OF INGREDIEN

MAKJNG THE M

E

OMOGENTSTNG TI{E

Addition of flavours and colours

REEZING THE M Additioo of frui* and nuts

ACKAGING OF ICE CRE

HARDENING AND STORAGE OF ICE CREA

l7of18 Ii\{.A/BF-253

Notes on Ice cream menufacturing process

S

electio n lvf

of ingrediens :

itk and milk products, sugar, stabilis:r and emulsifier, fruits, nuts, flavour and colour

Figuring the mix A prior knowled-ee and calculation oi.ce cream mix is necessary i;-r propcri), balancing of mix, establishing and maintaining uniform quality, and for conFcrming to tegal srandards.

Making the mk

(

Mi.ting of ingrcdiurts (i.e. tiqui,J iupiredieuts uutl ,Jry iugredicutu) in a batch srcam jacket vet"

Pasteurising of mix This process is requircd to destroy all patlrogenic and discasc+ausing o-acteria for the consumer. Pastcurisation temp€ranre-rime combination:

fJ:T:.il:il:::th"of Homogenising the

mk

Homogenisation is to ensure a perrnanent and uniforrn susp€nsion of fat by rcducing the size of fat globules" Homogenisation is carried out under pressurised conditions as under-

e

l"

Stage: 2500 PSI ar 60

oC

2d stage: 500 PSi at 60 oC

Cooling and ageing of rr.Lr This'process, u'ith a vierv to improve the body, texture etc. of icc crcam, involves keepine the mix at a low temperarure (i-e- bctow 5 c C; tbr period f 3 to 4 hours before being frozen.

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