III

;!d+f*. -t ;;=*A.*;ryt=+";1;j; r:

lndiqn lnstitute of ManogementAhmedqbod

{tvco-g.\D

4'

Arun lce Creamcn June l0 1997 cven as he signed the Annual Accounts of Harun Mitk Fooci Limired [or rhe-vear !o March 1997. it rvas clear to R-G.chandramogan. rbe chaiiman and Managing Directortlrat his company was in the middlc of srraregic cross-roads. The dilemma relared ro rhes: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_'";s 'livcrsificatic:i inlc prccucls lhal coul !evcrage on the corlpany,s currenr slrengrhsRecellt ycars had be-bn momenrous flor Arun as the company itsetf had com€ (o be knowncDonymous with irs key brand- Early 1996 saw Hatsun Milk Food Limired (HMFL) rakenpubli:' with thc Indian stock marker in the gnp of a bcarisi phasc, Harsun.s inirial publicotfenng (tPo) barcly managed to sail through. Bur the grcarcr visibiliry and crncrgence ol apow'e;ful sakeholdcr in thc form of public invcstors mcant the tacirurn managemenr ofHatsun had to play a completely unfamiliar rolc in rnanaging expcctarions. with ice creamsales 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 onlyunderscored the ur-qency to develop a sound shon-term su:ltegy to consolida te Arunbra.nd oficc cream in the fa-stchangiog competitive scenario and rhus esrablish a sclid plarfonn tolaunch aegressive grounh initiarives and anain a crirical rra-<s and scale by thc year ?o00.

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

tCfundrqrmg:F, son of a vesetable wholesalcr frc::': gc-rr11\ rpdiTn srare of .T:*il

Nadi,. v:i upArun lcc Cream in 1970 in Madras (now re-named as Chcnnai), csscnrially morivared b.r rheurge to -"do some thing"' After his colleee srudies wcrc discontinued ar rhc pre-univcr-sirystag<' chandramogan agonised over several wceks abour stanin e. some business wirhoutbein5 quirc ablc to narrow down to any spccific linc, mainly bccausc of heaw invesrmcnr_senrailcd" while driven by an urge to succeed as a businessman. he did not quire know how roq(i abL.)ttt scfling up a business. It was his ararernal unctc who suegesred rhe business of icecream' In'csting Rs' l5.0oo as his o.wn crpirai and raisins arrother Rs- ?t.o00 bv u,av of abairk ioan' he ser up a small ice cand-v unir in'a renrcd premises adjacenr ro his unclc.s rerailtertile outlct" Frorn a quick srrrvey around the l\.ladras markct ir appcarcd ro charrdramopanthat ihere werc about i50 small-rimc ice cand-v manufacrurers likc himself compcrine in rhclow 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<! i_; paise

Itt:."tr bas bccn prcparcd by profcssors Abraharn Kosbyaod N- Vcnrireswaran_Teacirhg c'"tcrial of 6c lrdian lrutirurc or n*r,'g.o.ol Arracdabad Ls preparcd as a basis foi classdiscussion Cascs are oot dcsierred ,o pr.-t"ni iiio*i;;il#:.i,f,., .. incorrccr rurd'ng ofadTdpistradvq.:problasl. v' !'u(r LqIErt ar lncorrttl hafidlrn€

The suppon rcccived,from Sm:ll lndusu-ics Dcvclo_prncor Banl of India (siDBI) aM thc companymanagemcn( in rhc dcwlopmcn{ of &is casc is gntefuffy".t&"lcAgJ. -

Copyr-ignt O 20OO by rhc lodirn lnstirute of marngemcnC A-hrrrdabad:

IIMA/BP-25]

t

2oll8IIMA/BPi.

a piece predominantly through street-vendors. Thanks to its prominent location in a busylocality. 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 in-lactory 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 probablyaccounted 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 firstsurnmer season, typically the peak months for ice crcam and candies sales, Chandramoganfound 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 trafficare 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 debatingabout 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 cenainneu'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 largeinumb€r cf flavours in ils offering. A.un ivas able to break into the rough horel mariiei" Whilcthis did help his confidence, it did linle to improve the finances, which conlinucd ro suflerfrom 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 theiisu'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 Th. ,.r* '.\rur'.is oli:n uscd in thr'cajc. :s a rnancr of conUcnicnce. to rcfcr ro thc busincss cnrin, as u.cll.

I

J va ro

cream like any other provision in their rveekly shopping iist and were not shy of using theirsubstanlialcIourr.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 ".me-too" 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 andstructured inputs on the various aspects of management" He enrolled with Davar,s college, aninstirution offering specialised shorriuration prograrnmes for working iilcutives. and tookcourscs 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 comrnoditiesmarket 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 purchasesof ice cream in Madras around the time were acco'rnted for by the following three catescrie-s.

" Generar provisions and departmental store-s .*ith decp freezers.. Hotels and restaurants. Social .u":o, mostly rvcdding parties

lypically the ice cream majors (sucir as DasapraAzsh. Jov and Kw,aliry)invesreci in deepfreezers and supplied them to general stores ""0 "tro

,"'"ior., extent hotets and restauran*thereby establishing some kind of "cold chains" as dedicared reail outrets for their brands.(often these general stores also stocked a varieqw of other items besides the ice cream of thespecific principals in the freezers)" Aware of his own limquire surc about the reasib'irv and appropriareness or this lllll ::tTffTH:l

?;:Arun" At the same time he r'r'as also conscious of the fact that thesc two-the so<a*ed -deepfreezer"" segments-represenred potentially rhe largest and the most srabre market for hisproduct' Ice cream supplies to social cvents likc weddings, whilc quite lucrarive, wereextremely seasonal and imposed heavy demand on nruni, rimited rogistics rnanagement"Morco'er this se-ement wa: highly brand<onscious and Arun brandwas virnrally unknown atthe time' (while the brand narne "Arun" was used alrnost siiice inception, chandramoqanadmirred rhar nor much rhinking had probabry gone into the brand_narne decision).

Lcft with limited options, chandramoean conrinued his search ror a nichc for Arunand fe*that two othcr segmcn* accounting foirrt about rl*e pcrcent of thc Madras ice cream markctpossibly gave him somc hopc' Thcsc rverc educarionar insrirurions and suppries ro shipscallirre..ar. the Mad,rai port," Ru*,.by{ rncs& sccrelasiesr.,whorthE11 p ica if v rhe cote ge, ;;;;l'ri'Ioo.r mcss -r.r.',.nrffiffioffi;;*-*"leadine ice cream manufacrurers such as Dasaprakash and-lo.).. chandramogan in his rarcleen ins(antly struck rappon r'irh rhc key decision-makcrs of colrcgc cantccns. yer it requiredscvsl3l

'isits and ercar pcrseverance before he could bag orders for suppries to a rarge and

4 ol' l8IIMA/BP.253'

prcs(icious instiruiion like the [ndian Instirute of Technology, Madras. He also felt tharcollerrc students were more than *'illinq to experirnent wi(h a ne,.v brand or neu, flavours-Scnsinr: 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 theN'ladras port, were particular about delivery of ice cream just in tirne for onrvard transhipmentto ships. Chandramogan felt that this segment, rvhile fastidious about quality, was nor thzrt

brand{riven. Most leading ice-cream manufacrurers were unsurpdsingly unexcited abourthese supplies in view of the small volumes and the erratic delivery requirement:.Chandramogan began meeting these agents u'ho were procuring and supplying provisions tcvarious 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<bandler s€gments. However, 95o/o c,fthe total Madras market" represented by the other three scgments, was still outside the reach

ofArun"

Having firmly established in the city college carnpuses, Chandramogan toyed with the idea cfreplicating the approach in the college canteens in thc interior districa of Tamil Nadu" Ice -

cream majors of the time practically ignored the district towns because of sheer togisticsproblems. Sinc'e'the srudent community in district-level colleges included in their midstformer students of Madras colleges, brand recognition for Arun .,,;as made relatively easier.Chandranioran began supplying ice cream to a few colleges in neart,v Cistricts, packed in dry-tce containcrs. employing sales persons ior the puryose. Very scon Arurr had virruaiiy i00oziof the small, but growing upcountry collegc market"

\\rith Anrn's volumes picking up in the follorving months Chandrarnogan was able ro pay offalI 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 providesome advenisement support to build and enhance the brand image of Arun, very fervenquiries for agency or franchisee inreresr follorved.

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

Breaking into upcountry market

{' .+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 \\,erevirein" the cost and logistics of sen'i:inc thcm from a central lacrory in Madras wcre in decd

,.daunting. Ii hc could comc u9 l"irh rhe riehr markerinl and disrribution lormulae.

(d'

J of l8

,tT.:::"r."#,:i:I':il;:,l,ill'chance orhis striking it big, parricurarry becausc orthe

I{aving made inroacls into upcounrry college canteens and hostels, Chandramogan begallooking at the feasibility of supplying icc crea.tro wedding and other important sociarevenrsin upcountry towns' while ice cream was a srandard fare fo*u.h "uJn,, in Madras, thisconcePt rvas virfually unknorvn outside the ciry. so he went around canvassing for orders forrvedding and other sociar events in upmarket househords outside Madrapersistent efforts' Arun was able to achieve some measure of succesr" rvi-,ir.ttlttl',#:T:did help in enhancing brand awareness and adiiti.nal sares, chandramoeun ...rir"a that r,rese

;:ffi: ...1l' : :;:::il:f"T # : jJ i::'..".,#ffi

,": :1:o *",, io,o u. r, i

""*,h i s, i,

there were a rew enquiries indicaring- inreresr in srccring "tr;trff}T, ,::::tJf#:i:.n';ifi ffi "T;,'#"il:HT:j#1*-o*'uooii.otheaeef

rree.,,'cn"narzunogan

Initialiy, Chandramogan identifiecl a few towns lil.e pondicherry,, Madurai, Kumbakonam andSivakasi in Tamil Nadu for initial foray, parricularly bccause good quariry icc cream was notavailable in thesc ph"cs- (At bcsr a fcw hotels -a ,o,unbranded, pt

" in -"uni t tu i.. .r** to tt

"i. diners). .*,offiil;H,U-J;ff ,n';;and hoardings in thesc selected towns that icc cream from Madras r+,ourd bc zuppricd oncertain pre-announced days and that those interested could book their ora"o *,rr, Arun agenseither in person or by phone- using local telephone directories to obtain addresses, he arsohad" mailers posied to porential upmarket cusromers, rcferring to them u, .n.,,n.n, pcrsonsfiguring in the list of vIPs- Typically chandramogan bad An-tr icecream suppried throueh thea-qenis within four to five days of the ".booking,,-

L'edrrr supplt(

"lce cream supplied from Madras.. \*.a_s the L.., colj-^ __ -

the specified rocariry were rare ",

,n".":,:-t ltv :tt1"g point" Mailers to addressees oursidet tlrne. As tirc long_ignored small town consumers feltrecognised" there was tremendous responsc tc thesc .

chandrarrrugan was beginning to feer confident ,o rhi,rkt::t-marketing" forays- Even as

arran-qements in prace of rhe ad-hoc *ice cream cavs',,,r. [J:il";i":n[ffi:J::wear-off and cusromer responsc sraned declining. He atso felr that ..n*J_a"y." scllingprobably left out a large numbcr of potential customers frorn praces conriguous to thesc townsas well as rvalk_in cusromers indulging in impulse purchascs"

The break-through came by chince. As chandramogan said, ..peopre see ad*eniscmen.,; burthey setdom ..uh ir ca.refully.,. On rhe appoinred Cays whcn ice<rcam was ro bc supplied asannounced in advcnisement mailers and hoarding" even those who had aor bookcd ice_creams' came to the prcmises of thc agent whose address appcarcd in the adveniserrrurs rorbuving ice cream' Similarly *uny po,"ntial cus(omers atso rurned up on orher da;s- Ercited'by rhe consurner response and secing thar on sevsral occasions, *.alk.in cusromcrs had .o be<'rurnc&'backi:ac''eggn(" Kznak*ni som.: rlrrs rcmpfe+ourn, of.Madura ofrirbd..ro in'es1.;n, 61,orrn deep-freczer and sought long_term distribution arratfacilirics ro peopre to "sir and cat" icc cream. A novcr ,n",n#'"T:l,ti;,,il',t.r:.:r#::;l

5ofl8

"sit-and-eat parloiir" thus rvas born in 1981. Though Kanakaraj sugeested that price of Arunice 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 asunbranded, lorv-priced ice cream served in local resraurants. chandramo_san supported thisagent through joinr promotions and reqular advertisement campaigns. Even as this firsr Arun"franchisee" began tasting success rvith sreadily-gro*,ing demand, other smal to\(Tl agentsalso felt emboldened to invest in their orrn freezers. A 400-litre freezer of repured brandtypically cost aL,oLrr Rs. 12000 to 13,000 around the rime"

As chandram'i'i:rri iecalls, he "accidenrall.,'hit thc right bunorr'". -This was;r<.ri a credit-oriented market". And he did not have adequate resources to invest in his own freezers andsupply them to retail outlets. As it turned out" "there was no invesrment, no credit, but also nocompetition in this market"" And he was implementing the franchisce concepr without everknowing the tenn.

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

In appointing his franchisees, chandramogan typically looked ar rhe personal profile andbusiness backgroirnd of the potential candidates" Typically, hc would not offer Arun fiarichiseto bi.g time, successful traders or businessmen. He also avoided, as far as possible, eiclerlypersons or highly educated individuals for distributorstiip- cn the orher hand, hc *.ould pre fersome one who r,,.as in his mid or late twenties, prefcrably complcte_d his schooling, withaverage famil-v income and had probably failed io his carly busincss endeavours" very often,friends and relatives of existins franchisees approached him with requesrs for franchise rightsto 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 Arunfranchisee was not appointcri wirhin a lt/t ' 2 kilometre radius. Thesc franchiscd outlcts wereexclusive "sit-and-eat'" ice cream parlours wirh good ambience and located in ciry centre ormain roads' unlike the qeneral stores freezer outlets of other ice c:eam brands, Arun,s outletsdid not stock other irems like buncr and chocolarcs. o*er rhe ycars Chandramogan finerunedthe parlour and franchisec concepts- Chandramo-san had deliberarcty dccided on rr,. srrategyof parlours sellin*e.{.run Ice Crbam exclusi'ely. on its pan, the company u.ould ensure rhar irdistribured its iioducrs onll' through its franchisees" parlours and not throu-eh any orherchannels e'\cepr direct deli'erics lo cusrorners aqainst spccific orders for pu.ri., erc. Thcconcept of exclusi'e parlours, chandramoean felt, enablcd the Fanchisee to focus on scllingArun rangc of ice cream and give better cusromer sen'ice- By 19s5. Arun crnerqcd as thelarqesr ice<ream m:nulacrurer in TamjI Nadu in tcrms of volumcs- Arun.s rurno\.er. which

r"*-'rs'sboul,'Rs-. r50.ooG:in *,-alo and-hed'b:retv,inpbcd,upritqr:abcrnrR_s:;4-5_00{.Fb} l.g&r_ had,risen to about Rs 2s.0 milliorr by 1990" E'en as Arun bccame largesr icc crearn brand inTamil Nadu bv l9s5 thanks to its success in the upcounrry disrricts. Arun srill did nor havc

sienificant prrsencc in rhe N{adras cirv. ChanCramogan now.bcgan aggrcssiyel_v anacking thcfr{adras citv n-larkct iniiiall-v'bs establishine the Do\\. sssqs5sful -sir=and-e.,r-- nartnrrrc i-

I

- 7of i8

lvladras suburbs and outskirts and cnly thereafter, he moved into the city. In the next lg to 24rnonths, An-rn achieved its brand leadership in l,{adras city as weli. While he continued withthe 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,inTarnil Nadu by 1999 and about 36% in the four South Lndian srates. Chandramogan esrimaresthat probably about 120 franchisees came to his fold as friends/relatives of existing Arunagents. 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 grewwith Arun" There was a strong symbiotic relationship between the companv and itsfrar'chisees. At a more personal level, many of them enjoyed very warrn relationship withCh: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 thecollective 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 ofi;iward and oulward logistics rvas extremely important- The most challenging aspecr wasProcurement of miik" a key input in ice<ream manufacturc in a cost+fficient manner" Theproblems arose because o[ the seasonal demand-supply imbalance in rcspcct of the productand its ixtremely shcin shelf-life. Summer months of March througir June, though pcakseason tor ice cream sales, also happcn to be the lean seasoa for milk supplres in ScuthernIndia" 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 andlor this purPose set up collection centres in major mitk-producing villages close ro his icecr::rm plant- The miik procured at thesc collection centres could bc brought to rhe Arunfaciory within 2 to 3 hours of collection- He offered guarantecd procurement of certainmirrimum quantity of milk based on his lean scason requiremens. For bis additionatrecuirements of milk in the peak ice cream scason, he offcred ro pay a higher price. Typicalythc payments to the dairy farmers for thc milk purchascs were macle oncc every thrce days atthr collection centres. According to Chandramogar\ Arun's ice crcam sales had, on ana!'erage, exhibited the kind of scasonal pattem as given in Table l- He sourced other inpursand ingredients such as susar" fruirs. packing marerials ctc. from lcading

"r,hol esa I erVma nu lacrure rs.

For outward transpon of icc cream to variousfianchisees locared in differenr towns. he

recogrrised that the lorv r.olumes to variousdcrtinzrbns di&'not jusrif,y,"rhe,,usc of, erpensivc.reGigerared transport rhar had to reun cmpr-vrvith no comparible load. So he rypically tookadr''an13gg of the re.qular passenqcr rrain scr,,.icesof rhe InCian Railrr.avs for dcsparch of icc cream

TABLE: I

Months Percentage ofannual sales

Aprii.J.rme l$vaJuly-Septcmbcr 22%

Octobcr-Dcccmbcr 19"/"janiary-March 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 di-

oxidc) ro prevenr melring. Being a highli, perishable product, ice cream rr"as accorded high

priority by the Railrvays for rransponation. The franchisees rvould have the "bo.xes" collected

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 cptimal 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 administrative

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'

9 ot' l8

of Tamit Nadu. The depot rvoulC be resp<.rnsible for sourcing from An-rn factories, invenrorvand 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 rhedairy farmers particularly dur"lng the lean season for ice crqrrrL While he needed increasinglylarge quantity of milk during the peak surrmer months, lailure to maintain mitk procuremenrat a reasonably high base dudng cff-season could lead to thc farmers snaooing the linJcs u,irhArun 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 rnoneyfor promotion and advertisement" Whether it was a Madras city college campus or zrr

upcountry high-traffic junction, the brand *Arun" was heavily promored through colourfulbanners, posters or flyers. In the early ycars, the unin advcrtiscrcnt media were newspapersand magazines. When colour television covcrage rcccivcd a big boost in the mid-cighries,Chandramogan immediately took to the popular visual ncdium for advertising" As thetumover went up sharply following the success of the franchisc stateg-y, Chandramoganstepped up brand-focused advertisement and began investing in technology. The fact that he

did not have to invest in working capital and in dccp freezcrs meant that his liquidiryremaineC unimpaireci" This gave him considerabie frecdom to invest in brand building" By1991, according to Chandramogan, Arun's advcrtiscment spcnding was probably higher rhanthe tcrtal turnover of Dasaprakash-

From 1987 Chandramoqan bega; carrying out focussed sales promotion activities. The firsrsuch promotion was "Eat Alt Ycu Can" Ice Cream Mela qndtrcted in Madras city. Under rhisscheme, for a fixed entry fee cf" say, Rs. 8/-, the participants were allowed to eat any amounrof ice crearn on display and the one who "consumes" thc craximum quantiry was declaredwinner. The specific purpose of this sales prornotion campaign was to encourage consumersto try out higher-cnd, cxpensive flavours, which, in thc norrnal coursc they werc normallyreluclant 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 Hyderabad-

Another successful schcme '*'as "slow spced driving compctiriou". From 1993 onwards, Arun

also beqan conducting "'slou'-spced" driving compctitioo for cwo wheelcrs like motor cyclesand 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-rvlreclertraffic to .{run's pa,rlo,-rs.,

I

*, *0",, d urin s'0":l :;; ; _n, u,. ",r,,::""T1L:*: i:::rJj,[ ::Lil:::i._ .";

i:il:Ji',!{iif ;ft :i4ti:*:*:""':,'ffi iiff 1,'::".':.':l*'":::;such campattnt *"To,r"" t"*ptigtt: tt:: ;inay pt*"t*i,t,

to.ut inilinlives such as "theflavours' Sales pronru"*

.^*or,*]^,tlts parrours to come \. -

p\aces. Such Promot't'* "naou*g.a

its parlours rv v-'--

'*u,xtring Plan' Arun i]'^'""'-i","- otu"ci-i schems' etc'

Approach to priang and franchisee fiancgement

; of ice cream-

rvp c a v*1:.=r*i:ffi##,lgH*ffiFranchisces

wgt

::'tr il':j|;".;",;"." '*.T,;; as prorits- ..0,,"*,on 65yo ortrre l

*unuiu.*.,ng and .fter'exP€n*t ::-"r **t1 ': T";ading icc cr:^T"*^:'::":,:1,:,

ice creann rnanufac ers'this *'*':i;r"'o'* ort:::H"i""'i*-t .11t, .rr,"o,er sares.;;;"' **:T.f i:::::: il"",:,... ;;;;''o-Tl":; ;;', " ::'^^f,,.bu,ion our,ers

Vadilal' a ma

*H{{fi*[d*H*r-Hlf$Hffiwas believecl ro be sigirificantlY ']r1., otrrr,ufi"l til;;;;, as packagn'timares.

rhe o*erair;;0"" rh."i, u.ands- rheir *"',:il,liu',io.i":T;;;;,.*

," l,ij'_nr), compared to 8-

,uur,unt'uttv to their over-all *1.;;tt",' Yq:1';;;;;;'u o-",1,

manocu\re" Ln rrr:r"frigerar.d

environment) and

T",;t" "t *:ff"^rir. n,* i*T:0"* r2vo to 15e," oidistribution cost of AIun was ^i;;..r.r:.T:r-;oyed

a marsrn or a

9Yo tor other leadin9 icc crea'1nt*; probably er

case of other leading ice cream

t,tRP' - c^m rranchisees bv phonc' The numbe:::^T''i., Tt::'Hfiitl

^,u s rec,o*ook o#"-:l iill':1y i:t; :ffi*iq:lir*mX:;

seasonat months could be iil;;r.*^:1:;,:'*-*,*.i,r. 1,.. crcam suppiies u,ere

expccrerr ro'rake advantt ltil:-;;n.n,r..t:il;"e, no sooner.',n or._o".kac.ed

rac"roq,rvould, be nace' As regatdsrt""q;'.ou".t:l":

"i,l:;"* .*._..1^,",,,i.Jsizes.

Franchrseesdepanment

would bank tne

*tilt**ti*o :11:0,.'in o,rr"r.nt 1:,"1. rist issued by Arurr.

made' chandramogon ttton=.Jir."" *"0' i""ltlr';;;i*r, ,n._.:'].r,rn,

have bcen rermrnaredp a c k s

:l: X*": !i:r" #tr * ;, ; ::;,,'.1 * n *o *' n'ls nr

' xt''i[g'i

{, Chandramoean'fiso:tcstFat'll, * "rn*tots,14r.r(t5-:'

for violation of N{RP gutdelurLr ' -r- 'ticrrib'Jlion

to rctail chrnnclsviolarion of Mtir su'e-'- . .. --,rrp rrc disrnbulion ro rctail chrnncls"

4ludcd stockistr *ho *ouldhandlc rhc <

Thc l\\c tict distrrbutro = ----

IIMA/BP-253

p

Managetttent and Organisatiort functional

over the years chandramosan had recruited a group "t:'^l-"-'.T:::T:i:t-;::'sation iike

f, o,i ti oo, H. *u, oi ;; ;* ttrat f1r,:ff :1 "l T:j

:j:.";* lli ;::::^;:!: Ti:

ilil*..:'J".|*j::"'i^i,,"'.**f [,"rffi ;ff ';''[,"'i']:l,;,.,;:"::.,::l'il:"",:T;*;:.ffi #"*#l{i:li'*dru;*i':::durin3 Arun's go

sc:en project in record time' B)i -'i::il;; R.'chandraT.'t'.::-:::: ^* ,l*nnu**u,in key functronul positions' These tn,n

*o as Markettng Manager. ^":":r:

company ,."r",u,i]'t--i"gunutttu,.,"='',fi-::,rTa" ; adequatelv stalTed- wi"'h most

Hi# *: hr Ir

t'= t"^W;$# dT **:;* #*Hi

'**"i"[in'*ould

defrnitelY need to str:

H[iliH;:*;lx' :**;*:.*".::*fi.":I[;;;';'; r' a rew davs'r

strikeAockout in i995' employec rela

E m ergin g co m P eanve scefl arl o

rhe organised segmenr or ice-cre":l T:'['ii:ITrt:r: Xl 5:U:ilT:*lii 'l:;iiorrg rccir:nai piuyt" such as Kwality t:::ilTr**u"'

""try- vadital:t f't'n-

tntre were

wesr and ouruprul "'ri,l.l r"o iater Anr-n in the South u"' ":'.;.ror sclring ice

.cream under

[::T*stilr'trffi rti;*it;f ltig"*;iffi ';rr:f :of ice cream flavours in-house for thett

was reseryeo ,o"n",'*tl seale industry t"':].:.f,:"j'l'#1";;i "nit'

which were often

to necessarly so*." their icc cream ::Ht".T"h;:. their family membcrs" The

specificauy ,o "i-i, thc. ice :::::,"'.;,Tff1."#f,o-the meuopolitan cities in therr

fu:T*i;*::,'"'-".il:ll'"'-;ruru:::U*"'."":'"#i.;Tlihad fairly rvide presence in Gujarat "".,liu*,

-.r,. ,n,rtl-national :lTl11;) of consumer

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

. also appea"a tt'"* ;il; itself t"as somer'r'hat

\^?vcnng

rh e ice -c r e a m marker i n rn d i a "': "'r",:'[:'X

":".:il

J': illi-:K: i:f" Tt:i]':

;;;*, gianr unilcrer. through "\,""Jr; and coffcc bcvcrage compar

( B B IL) : "u

ot-t';hires; be' r''$a'd;,"J; ; " ^o t" tfi ?t

: :X. ::'J:

(F

l2oft8

Ownership structure cnd finances

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

:ilu;:TJ il:::::'lrca lunnr-; was incorpo*,* ," Madras. on aprii jo, r e86, HFPLbrand name "*;T;i':[T:Til""fr]*:ffi ff:"*

conccrn ri.'"*'.*hip or theregister rhe brand name Arun ," ," "*" "*: T::,: :iereby,

the company *.as ailowed togross ice cream sares rn Augusr, ,;;-;:T:,;;?;l ffJy:,:rr."il.:T,,1_T[;::1 Jl;ii;:jl[:,,mr;.;tm ;jj::T.d in,o u p u u r i.- r ;.i,ed comp a n v

In January 1996 m\,{FL w.as taken public through an iniriishares ar an issue ;':;:::":t^l,an.tnttt1l. public offbring oi r.80 miilion

pa i d -u p cap i,a r' ".:.:::,",:T; Tj .T, i |"T'# ::::: i:.

"

:3 *T x' i:' : :l,y"i;:1TTi1:'-'"ffI:::JIj: *; :...1x; *:*::: t , ; ;;;;.n jus, a vearprecluded HM,FL, fro,nn, carrv;"g.oor rce cr.4rn:p.rodrr"r*:[lH ::, J_T::l;_il:::. markqring company' Acrual icc cream manufacturing \\,as conrinucd to be carried our in the

ice c:-eam and other food products as thrscsmenr (such as jam and saucei o" ".",l,tl,lj11lll,Tt,tl-*l_

[t entcrcd processcd-fruir;':H::":'il: j:ff #H::::,;;ilT::::,'j,:flffi ;,".':1, j;"[:1,1xff

",**:,1,lli;illl;::;:';ll"1:I,:',):lf,,;.Tff tli:,':*'[::'.-.T":,lJ;:lTHiseveral of the extant restrictions rela -

s e c r o rs rve re be i n g p h a s ed o u r or .., "i ;J ;"u?il;*','.x',

":tJ *..l jjkillLimited (HLL) undertook a series of transactions to consoridate and strengrhen the unirevergroup's presence in several product-markets- Having identified frozen d.ra..r, as qy3r.14i.,

fi?;;:;':;,,;:T';,,;'fi :T#**"m,.,":'.-rndiaand.,r,..r..io*;;:?::J#_::..: ;:J.,,, in its oo.,-.,,o. BBrL ..*r.o' "l:':l:: ft::JfiJ:r;::deep pockcrs an6

:rt market overnight' with the .nry"t r un int.-utio,.,", ioo ,gianr withregronar r.,a.,,i,ip]T:"ft: 'j?r.*nJH:",:T.*,"^1,u not bc ;";;, wirh merccomprerery re-wrinen. In February rgg7, the G*"-rn"n, ;;ff,.rrff",:::::_:."r:#:;:'::;:'.::ffi4'*e rrom ,i. ,t* ornroducl **i.a ror excrusrve deveropmenr in

**;m:fljilil ji:l#il:::-+lql"iff ::,r::*ji#T:'::.:T;top spor in the four southern srares, .n*l'0"*"j;1T::TT:' Even as Arun emerged ro thedynamics and re-work his orrn rr.ur.*-"-'ctrrv5drr

llao to contend with the neriv c6s1-1ps1i1iyg

Ir ma.r.bc norcd rhat dc_r<

,,, tscn rlion of ic: :rqar:: .r'rls annoucccd b-. thc (icvcr:r;ircnt o.:.!. in c-k^.-

(@

!3ofl8IIMA/8P.25J

two closely-held registered 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 advertisement, promotion and related items

amounted to Rs.2l.7 million in the year to lvlarch 1997, nearly lTYo of its fiscal 1997 sales ofRs. 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 rniliionas'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 ofthe 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 ofthe 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 indeed a pregnant pointcr to the remaining indepcndent players. The cnorrnous array of productportfolio 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, HLLwould 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 itsrecent Annual Report were ringing ominous bells for thc likes of Arun.

Your Company's Frozen Products business consolidated is leadership in the Ice Creammarket 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 "KwaliN-I*'alls "

E.rtensive consumer research has provided valuable insights into the developnrent andapplicatien ,of relevant rechnologies in product formulation and relrigerated producrhandling. v'hich have begun Io se( ne\" standards in terms of delivered product quatin,. The

standard ice Cream partfolio was consolidated under the "Dairy C/assic " brand, e newrecipe having better producl stabilitv and innovative virgin boardfood grade packoging wereestablisheC. This is a signiJicant move for an industtt'. which had hitherto been using non-

food grade rec.vcle.d packaging.

The business sIrengrhened its eJlorts 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 Creantpt'€sence v'orltl*'ide. and''"Chc:obar'" *'ere strengthened v,'ith appropriate advertising - the

l4 of tt

J'irst individual brands to be advertised in rhe lce Creambrands have registered significanr grov,th in ail the markers

A major exercise was underlaken lo upgrade the manufacluringfacilities of your Company,sIce Cream sourcing units- Products, marketed under rhe Kwality-walls brand name, conforntfullv 16 the stringent standards specified by the Bureau of Indian Standards and alsb to thenore exacting Unilever norms on producl sa/'ety anC hygiene. This is a major milestone and akey diferentiator for the Kwatity-Walls brand -..

For Chandramogan it was 4;s": :hat he iraci to quicicly re';;ork ihe cornpctitive strategy fcrArun- The key question was whether to aggressively reinforce Arun's competitive profile andfurther expand its franchisee nenvork in the face of HLL's competitive onslaughr or pursuealternative business opportunities woven around Arun's limited strengths and competencies.The latter strategy, he thought, whilaproviding an altcrnative plaform of growth might alsobc necessary fi'om the point of his abiliry and the nced to givc continucd support to thc lccCream business. He was ccrtainly determincd that unlikc scveral other lndian cntreprencurs inthe FMCG secror, he would not sell-out to the MNCs.

t Hindur,." Lc,.sr [-i11,,--,;. Rcpon and Accounrs 1996

carcgory in the counlrv. These

15 of l_8 IIMA/Bp_25:

==:=::-

Exhibit- I

Slqbta

\ ruuru

au"Lgo{a Irai*r,)

:4, ISirira::

OIKEI

Ir :.tam

lo

.lror( P6doPok &a-v

T}iAPt'Rh{ .

C'nlf of Mqwr

l6 of l8!!MA/BP-251

.:i

Exhibi12

ice Cream Manufacturing Process

E

ELECTION OF INGREDIEN

MAKJNG THE M

OMOGENTSTNG TI{E

Addition of flavours and colours

Additioo of frui* and nuts

REEZING THE M

ACKAGING OF ICE CRE

HARDENING AND STORAGE OF ICE CREA

l7of18Ii\{.A/BF-253

e

Notes on Ice cream menufacturing process

S electio n of ingrediens :

lvf 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), balancingof 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 srcamjacket vet"

Pasteurising of mix

This process is requircd to destroy all patlrogenic and discasc+ausing o-acteria for

fJ:T:.il:il:::th"of the consumer. Pastcurisation temp€ranre-rime combination:

Homogenising the mk

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

under-

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, involveskeepine the mix at a low temperarure (i-e- bctow 5

c C; tbr period f 3 to 4 hours beforebeing frozen.

tllttlilIllI

I

I

I

I

I

t^l'c'lot.-l-cl=.el>vl6l z:Cl ^/I-.t

-. tv

(+_ |ct

I '.lI q)tlcn -c II I gll.: /11lplI r: rJllx cllrlr <lr-lI cli c-tlI EllEll>JI ol

l"l

r-o\I

c\

=

g&

c-)

C\

c:c'!

qc-O

$(\trl

\co\

Itr)6o\H

rn6

I.<r.o\

vloom

\c),ri\.c

oo

c-c.)

(r)

c\ceoc

cn(r)

Os

.<ro\

Ic.]o\o\:c.)o\

Ic'lo\o\

c{l(atra)

r-c\t

r-''ltr-

q.o\

rnra1m

,.?(\s

c'l(\l \o *lu

c{lc:o\ l\o,i l.'rO\lO\l-. 1

clO rn

l* lR

qtolalo. I

-l----{olqlO\l@lO\lF.

I

qoo

cof-c{

C.J

s

O

\.qca

oce.;

=l

1

(\oo

C-n

o\co

I€€o\

\qoo

c-O.O

c:O

,.1O

I lrl lEij l- crt l.':l_q lEl5l r-lrn Ic-

Lnl

E i.e'=lcPleEI-ol v,Ll l-qt.€

.fl10\i

r E:l'dcs l5-l(').3 lF<tA

tr)c)'4cC)

/-.)

l-ct()

occ.)

cAC.:0.)

.!cc

I,(t

(-c

c2

it

-j-t-I c\ i- io (rl

,r/

an

c.r

.l?z

=:c