Arun Ice Cream

Download Arun Ice Cream

Post on 19-Nov-2014

17 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

<p>Arun Ice cream</p> <p>On June 30 1997 even as he signed the Annual Accounts of Hatsun Milk food Limited for the year to March 1997, it was clear to R.G.Chandramogan, the Chairman and Managing Director that his company was in the middle of strategic cross-roads. The dilemma related to the Strategic direction the Chennai-headquartered makers of Arun ice cream had to take: this in particular involved the vis question of market expansion for ice cream beyond South India vis-a diversification into products that could leverage on the company's current strengths. Recent years had been momentous for Arun as the company itself had come to be known eponymous with its key brand. Early 1996 saw Hatsun Milk Food Limited (HMFL) taken public. With the Indian stock market in the grip of a bearish phase, Hatsun's initial public offering (IPO) barely managed to sail through. But the greater visibility and emergence of a powerful stakeholder in the form of public investors meant the taciturn management of Hatsun had to play a completely unfamiliar role in managing expectations. With ice cream sales increasing by a healthy 41 %, the just completed fiscal, the first full year after the IPO. Chandramogan reflected, was probably satisfactory in this respect. This, he felt, however only underscored the urgency to develop a sound short-term strategy to consolidate Arun brand of ice cream in the fast-changing competitive scenario and thus establish a solid platform to launch aggressive growth initiatives and attain a critical mass and scale by the year 2000. Arun Ice cream: Early history and Strategy Chandramogan , son of a vegetable wholesaler from South Indian state of Tamil Nadu, set up Arun Ice Cream in 1970 in Madras (now re-named as Chennai), essentially motivated by the urge to "do something". After his college studies were discontinued at the pre-university stage, Chandramogan agonized over several weeks about starting some business without being quite able to narrow down to any specific line, mainly because of heavy investments entailed. While driven by an urge to succeed as a businessman. He did not quite know how to go about setting up</p> <p>a business. It was his maternal uncle who suggested the business of ice cream. Investing Rs, 15,000 as his own capital and raising another Rs. 21.000 by way of a bank loan. He set up a small ice candy unit in a rented premise adjacent to his uncle's retail textile outlet. From a quick survey around the Madras market it appeared to Chandramogan that there were about 350 smalltime ice candy manufacturers like himself competing in the low end of the market. These were offering no competition to the up-market segment dominated by the leading brands Dasaprakash .Joy and Kwality. Like the "others in the crowd", Chandramogan was also selling his Arun brand ice candies for 10 paise and 15 paise prestigious institution like the Indian Institute of Technology, Madras. He also felt that college students were more than willing to experiment with a new brand or new flavours. Sensing a competitive vacuum, he stepped in with vastly improved service and deliveries they were unaccustomed to and steadily captured bulk of this segment. Similarly ship-chandlers, who procured and supplied provisions to ships that called at the Madras port, were particular about delivery of ice cream just in time for onward transshipment to ships. Chandramogan felt that this segment, while fastidious about quality, was not that brand-driven. Most leading ice-cream manufacturers were unsurprisingly unexcited about these supplies in view of the small volumes and the erratic delivery requirements. Chandramogan began meeting these agents who were procuring and supplying provisions to various shipping lines, understood their special requirements as to packing and delivery and quickly captured most of this market as well. By 1974, Chandramogan recalls that, Arun had probably captured 95% of the college canteen and ship-chandler segments. However, 95% of the total Madras market, represented by the other three segments, was still outside the reach of Arun. Having firmly established in the city college campuses, Chandramogan toyed with the idea of replicating the approach in the college canteens in the interior districts of Tamil Nadu. Ice-cream majors of the time practically ignored the district towns because of sheer logistics problems. Since the student community in district-level colleges. Included in their midst former students of Madras colleges, brand recognition for Arun was made relatively easier. Chandramogan began supplying ice cream to a few colleges in nearby districts, packed in dry ice containers, employing sales persons for the purpose. Very soon Arun had virtually 100% of the small, but growing upcountry college market.</p> <p>With Arun's volumes picking up in the following months Chandramogan was able to pay off all his outstanding loans, and the business regained a semblance of financial flexibility. Despite this, Chandrarnogan still did not feel financially strong enough to enter the deep freezer based general stores segment in Madras city. While in these early-days, he did provide some advertisement support to build and enhance the brand image of Arun, very few enquiries for agency or franchisee interest followed. As he continued to stay clear of the top three segments in the Madras market, it was evident to Chandramogan that the business was probably entering a phase of stagnation. So he began looking out for new markets in which he could compete effectively and grow. Breaking into upcountry market As Chandramogan saw, the greatest growth potential was seen 10 the upcountry mofussiltowns that were completely ignored by the ice cream majors. While these- markets were virgin, the cost and logistics of servicing them from a central factory in Madras were indeed daunting. If he could come up with the right marketing and distribution formulae, Chandramogan felt there was a good chance of his striking it big, particularly because of the absence of any serious competition. Having made inroads into upcountry college canteens and hostels, Chandramogan began looking at the feasibility of supplying ice cream to wedding and other important social events in upcountry towns. While ice cream was a standard fare for such events in Madras, this concept was virtually unknown outside the city. So he went around canvassing for orders for wedding and other social events in upmarket households outside Madras city. Through persistent efforts, Arun was able to achieve some measure of success. While these initiatives did help in enhancing brand awareness and additional sales, Chandramogan realized that these would not be adequate to give him stable volumes and a critical mass. And to achieve this, it was important that somehow he got into some kind of mass marketing. Around this time there were a few enquiries indicating interest in stocking and retailing Arun ice cream in some areas of the Madras city provided Chandramogan supplied the deep freezers. Chandramogan firmly, but politely turned down the offers. Initially, Chandramogan identified a few towns like Pondicherry, Madurai, Kumbakonam and Sivakasi in Tamil Nadu for initial foray, particularly because good quality icecream was not</p> <p>available in these places. (At best a few hotels and, restaurants were serving "home-made", unbranded, plain-vanilla ice cream to their diners). Chandramogan advertised through banners and hoardings in these selected towns that ice cream from Madras would be supplied on certain pre-announced days and that those interested could book their orders with Arun agents either in person or by phone. Using local telephone directories to obtain addresses, he also' had mailers posted to potential upmarket customers, referring to them as eminent persons figuring in the list of VIPs. Typically Chandramogan had Arun ice cream supplied through the agents within four to five days of the "booking" "Ice cream supplied from Madras" was the key selling point. Mailers to addressees outside the specified locality were rare at that time. As the long-ignored small town consumers felt recognized, there was tremendous response to these "test-marketing" forays. Even as Chandramogan was beginning to feel confident to think in terms of regular distribution arrangements in place of the ad-hoc "ice cream days", the novelty factor was beginning to wearoff and. customer response started declining . He also felt that. 'fixed-day" selling probably left out a large number of potential customers from places contiguous to these towns as well as walkin customers indulging in impulse purchases. Having made inroads into upcountry college canteens and hostels, Chandramogan began looking at the feasibility of supplying ice cream to wedding and other important social events in upcountry towns. While ice cream was a standard fare for such events in Madras, this concept was virtually unknown outside the city. So he went around canvassing for orders for wedding and other social events in upmarket households outside Madras city. Through persistent efforts, Arun was able to achieve some measure of success. While these initiatives did help in enhancing brand awareness and additional sales, Chandramogan realized that these would not be adequate to give him stable volumes and a critical mass. And to achieve this, it was important that somehow he got into some kind of mass marketing. Around this time there were a few enquiries indicating interest in stocking and retailing Arun ice cream in some areas of the Madras city provided Chandramogan supplied the deep freezers. Chandramogan firmly, but politely turned down the offers. Initially, Chandramogan identified a few towns like Pondicherry, Madurai, Kumbakonam and Sivakasi in Tamil Nadu for initial foray, particularly because good quality ice-cream was not available in these places. (At best a few hotels and, restaurants were serving "home-made",</p> <p>unbranded, plain-vanilla ice cream to their diners). Chandramogan advertised through banners and hoardings in these selected towns that ice cream from Madras would be supplied oncertain pre-announced days and that those interested could book their orders with Arun agents either in person or by phone. Using local telephone directories to obtain addresses, he also' had mailers posted to potential upmarket customers, referring to them as eminent persons figuring in the list of VIPs. Typically Chandramogan had Arun ice cream supplied through the agents within four to five days of the "booking. "Ice cream supplied from Madras" was the key selling point. Mailers to addressees outside the specified locality were rare at that time. As the long-ignored small town consumers felt recognized, there was tremendous response to these "test-marketing" forays. Even as Chandramogan was beginning to feel confident to think in terms of regular distribution arrangements in place of the ad-hoc "ice cream days", the novelty factor was beginning to wearoff and. customer response started declining . He also felt that. 'fixed-day" selling probably left out a large number of potential customers from places contiguous to these towns as well as walkin customers indulging in impulse purchases. The break-through came by chance. As Chandramogan said, "people see advertisements; but they seldom read it carefully". On the appointed days when ice-cream was to be supplied as announced in advertisement mailers and hoarding, even those who had not booked ice creams, came to the premises of the agent whose address appeared in the advertisements for buying ice cream. Similarly many potential customers also turned up on other days. Excited by the consumer response and seeing that on several occasions, walk-in customers had to be turned back, an agent Kanakaraj from the temple-town of Madurai offered to invest in his own deepfreezer and sought long-term distribution arrangements. This agent provided facilities to people to "sit and eat" ice cream. A novel method of retailing ice cream through "sit-and-eat parlour" thus was born in1981. Though Kanakaraj suggested that price of Arun ice cream be kept low keeping in view of the price-sensitivity of the local market, Chandramogan was not in favour of doing so as be felt that Arun was not the same as unbranded, low-priced ice cream served in local restaurants. Chandramogan supported this agent through joint promotions and regular advertisement campaigns. Even as the first Arun "franchisee" began tasting success with steadily-growing demand, other small town agents also felt emboldened to invest in their own freezers. A 400-litre freezer of reputed brand typically cost about Rs. 12000 to 13,000 around the</p> <p>time. As Chandramogan recalls, he "accidentally hit the right button". "This was not a credit oriented market. And he did not have adequate resources to invest in his own freezers and supply them to retail outlets. As it turned out, "there was no investment, no credit, but also no competition in this market". And he was implementing the franchisee concept without ever knowing the term. From 1981 he began replicating the model by opening, on an average, two such franchisee run parlours every month. With over 700 such outlets in Tamil Nadu, Karnataka, Kerala and Andhra Pradesh by early 1999, Chandramogan believed that Arun franchisee network was one of the largest in South India. In appointing his franchisees, Chandramogan typically looked at the personal profile and business background of the potential candidates. Typically, he would not offer Arun franchise to big time, successful traders or businessmen. He also avoided, as far as possible, elderly persons or highly educated individuals for distributorship. On the other hand, he would prefer someone who was in his mid or late twenties, preferably completed his schooling, with average family income and had probably failed in his early business endeavors. Very often, friends and relatives of existing franchisees approached him with requests for franchise rights to open parlours in new locations. This made Chandramogan's task easier. Once appointed, the franchisee was assured of certain exclusiveness and "area" protection in that another Arun franchisee was not appointed within a 1.5- 2 kilometre radius. These franchised outlets were exclusive "sit-and-eat" ice cream parlours with good ambience and located in city centre or main roads. Unlike the general stores freezer outlets of other ice cream brands, Aruns outlets did not stock other items like butter and chocolates. Over the years Chandramogan fine-tuned the parlour and franchisee concepts. Chandramogan had deliberately decided on the strategy of parlours selling Arun Ice Cream exclusively. On its part, the company would ensure that it distributed its products only through its franchisees' parlours and not through any other channels except direct deliveries to customers against specific orders for parties etc. The...</p>