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Kremmer Foods had made a name for itself in dairy products and processed foods. Could it repeat its success in an impulse purchase category like fruits? PRATAP Rao was excited as he rummaged through his files and cupboards. He was looking for data on Funsip, the once successful but now dead fruit drink brand of Kremmer Foods. Rao, who was head of marketing at Kremmer, was determined to bring Funsip back from the grave. His determination was rooted in research that had indicated that the processed foods sector was poised for phenomenal growth. Kremmer wanted to tap this opportunity. Rao's objective was to expand the processed foods category by introducing ready-touse products. While such products would remain niche items, he was also researching other products that would be accepted by the mass market. Mass market products like processed milk, packaged atta (flour) and bakery products were identified as major opportunities in the foods business – high-growth products that promised big volumes. Reports said rising income levels had changed the food consumption patterns of the rich as well as the not-so-rich. At one level, the lower middle class was emulating the eating habits of the rich by laying greater stress on nourishment and quality. At another level, as choices increased, the high-end consumer was getting more adventurous when it came to eating. Funsip was targeted at this segment. Rao was happy when Kremmer decided to expand its processed foods division, particularly the biscuit and frozen vegetable categories. That was when he hit upon the idea of introducing processed fruits. A fruit-based drink would be ideal, he reasoned, because it would fit snugly into the entire portfolio of food products. Simultaneously, the brand could be extended to other fruit intermediates like squashes, cocktails and concentrates. Funsip had caught Rao’s fancy after he came across media reports which said that fruit drinks could grow into a multi-billion rupee business in India over the next eight years. That Funsip had failed 10 years ago did not deter him. Rao felt that the company had, in fact, learnt a lot from the brand’s failure. The research and investment that had gone into Funsip had helped Kremmer ascend the learning curve on fruit drinks. “A fruit drink is just what we need to complete the portfolio,” he told his managing director, Vidyut Saraf. But the sales director, Anshu Vaid, did not like the idea one bit. Funsip’s debacle had left an indelible mark on him.
Vaid was funsip’s product manager when it was launched in 1984. The soft drinks market then was roughly 600,000 tonnes, of which the tetrapack segment was a mere 10%. But the tetrapack segment was growing very rapidly at 15-20% a year. The strong brands in this segment at that time were Frooti, Volfarm and Tree Top. Funsip was conceived and positioned as a natural fruit drink that offered convenience, hygiene and variety. It came in three flavours – mango, apple and orange. The tetra packaging was franchised to third parties and plans were underway to add newer franchisees in different markets. Kremmer was predominantly a dairy products company with substantial dairy operations that gave it synergies to produce milk powder, butter and a small range of milk-based Indian dessert mixes. In the 80s, processed dairy products were not a fastgrowing segment, though Kremmer's milk-based drink RevvUp was a leader in many markets. It was Saraf’s foresight that led to a strategic entry into vegetable and fruit processing. In the early 80s, Kremmer bought GreenFoods, a small company that made jams, pickles and chutneys and marketed them under the same name. GreenFoods came with a large plant for processing and freezing vegetables, which fitted in well with Saraf’s vision of expanding Kremmer's food business. The synergies derived from its own dairy products business and GreenFoods' jams gave Kremmer greater distribution strength and catapulted it into the limelight as sales grew. Suddenly Kremmer was a company to watch out for. That was when Kremmer decided to launch the Funsip range of fruit drinks. In fact, Funsip was a brand being researched at GreenFoods when the company was acquired by Kremmer. Given the sourcing and processing advantage Kremmer gained from its new acquisition, the move to launch Funsip was natural. Funsip had a great start. The test market in Gujarat was opportune since the Navratri festival had just begun. Kremmer held promotional Ras Garba festivals in Ahmedabad and Baroda, which resulted in a very good trial rate. Driven by the Gujarat success, Kremmer decided to launch Funsip in Chennai. There too, the response was very good, thanks to the funky, young and festive advertising. By the year-end, Funsip was available in all the metros and was posed to enter mini metros. Buoyed by the exemplary launch results, Kremmer targeted a 50% marketshare over the next three years. In the second year of the launch, Funsip had gained a 25% marketshare which was very heartening. The euphoria over the brand's success was naturally very high and Saraf congratulated the sales force on what he called “one of the biggest successes” at Kremmer. He clearly saw Funsip as a forerunner to a bigger foray into the foods and processed foods business. By then, Kremmer's vegetable processing plant had been refurbished and tailored to processing tomato ketchup. Research had commenced on the proposed frozen vegetables project and other value-added food products. All these were to be marketed under the Funsip brandname.
More good news was in store. By the close of the second year, Funsip had garnered a 33% share of the fruit drinks market. The brand recall was very high and it seemed that Funsip was on its way to market leadership. If the brand was gaining strength, so were Kremmer's expectations. The company doubled the production and sales targets, appointed more packaging franchisees and stepped up advertising. And then the first blow hit Funsip. Studies showed that Funsip was not easily available to the consumer. Advertising visibility existed, but not shopshelf visibility. Funsip was just not available at outlets where there was an opportunity to cater to an impulse purchase. At outlets where consumers could choose from a menu of fruit and soft drinks, the menu did not include Funsip. Kremmer had a common distribution set-up for its dairy products, GreenFoods' processed foods, and Funsip. This bundling of all Kremmer products into one basket meant that all products ended up in grocery stores and supermarkets including dairy products, jams and chutneys. Products did not find their way to roadside vends or places of entertainment where cold drinks sales were brisk. The initial boost during the trial phase had given way to a plateauing of Funsip sales. It’s rivals, on the other hand, were growing at a faster clip. Being in the wrong outlet was not the only problem for Funsip. The Kremmer sales force was not familiar with outlets that should have been stocking Funsip. It was not easy to sell to someone with whom there had been no past dealings. As he rummaged through the old files on Flinsip, Rao found numerous notes from Vaid, the product manager, to his boss, the marketing head. One such note read: “Funsip should ideally be present in Jacob's Fun Food Parlour, but he is not stocking RevvUp. Cinema halls like Sangam stock soft drinks, but we have no dealings with Sangam because it never buys RevvUp, butter or jams. So, it does not appear on our route. These outlets are not central to foods and dairy products, but they certainly are prime outlets for fruit drinks.” Another note from Vaid to the sales head read: “There are three factors which drive soft drink sales. One, you must have a high frequency of service. Two, the outlets need extensive point-of-purchase promotion. Three, these outlets have limited cash; therefore, the brand that reaches the outlet first gets the biggest share of that cash. The latecomers miss out. “We have a problem on two counts. One, we are servicing only one of the five outlets we should be supplying our drink to. That's because we supply one to those outlets which are serviced by the common distribution network. Two, the timing of our service – while Frooti's van reaches these outlets at 7.30 a.m., our van reaches them only at 11.30 a.m. By that time, the outlets would have already bought Frooti. So, how can we survive in a seasonal market without aggressive selling?" he asked. Vaid's notes also pointed out that, given the high seasonality of the soft drinks category, Kremmer's servicing strategy was ill conceived. In soft drinks and fruit drinks, 60% of sales occurred between mid-April and June. Then there was a small second summer (particularly in Delhi and Mumbai) between September and October,
which lasted four weeks “We, therefore, have to achieve our sales virtually in these 14 weeks,” wrote Vaid. That also meant that those 14 weeks required a very intensive marketing and sales effort. That was a major problem because Kremmer's sales force and its distribution system weren't geared to handling a product with such high seasonality. As he pored over the notes, Rao found that Funsip's failure was due to its faulty sales and distribution strategy; there was no problem with the product. He realised that the sales strategy did not optimise opportunities present in the market. For instance, he learnt that over 60% of soft drink sales happened at impulse purchase points like fast food places, cinema halls and roadside vends But these were not being serviced by Kremmer because they did not fall in the distribution route of its diary products, jams and chutneys. In other words, 60% of the sales demand was not being met by Kremmer. Rao felt Kremmer should have set up a dedicated distribution system for Funsip. Also, Funsip had to be hived off as a separate profit centre to evaluate its performance. Earlier, Funsip was under the new foods profit centre and a common sales team handled its sales and distribution. Funsip's targets and revenues were simply added to those of RevvUp and other dairy products. This posed another problem. The sales set-up considered the mainline dairy products and foods business, not Funsip, as priority. After all, the dairy products and foods business assured higher volumes. This meant that the sales staff was not as interested in pushing Funsip, as it was in selling jams and butter. In operational terms, one business head looked after the dairy products business while another looked after allied foods businesses like ketchup, jams, frozen vegetables and Funsip. Both these businesses had a common distribution network. But since the major chunk of the products under the allied foods business had a destination common to the dairy products, there was no real need to look for a change. As a result, Funsip languished for want of a distinctive focus. . Kremmer’s financial situation was tight at that time, since it had committed vast sums of money to the acquisition of GreenFoods and to refurbishing its processing and freezing plant. As a result, it was unable to commit any more money to the aggressive marketing that Funsip required. The marketing plan directed that 80% of the budget be spent on thematic advertising and 20% on promotions. This was in stark contrast to Parle’s strategy, where the entire budge had been earmarked for Frooti's promotion. For example, if Kremmer gave one pack of Funsip free with a tray of 27, Parle gave five. Frooti had an added advantage because it came from Parle which had other beverages like Thumps Up, Limca and Gold Spot. Each of these brands had a powerful national presence that gave Frooti a lot of marketing synergy. The money Parle made on its fizzles was ploughed into Frooti. There was another obvious problem: the outlets which stocked Gold Spot or Frooti were also the target outlets for Funsip. So, when Frooti gave an offer to the retailer, it increased his confidence in the Parle group, aided by the prevailing imagery of its beverages. The other players, too, had developed the agility to match Frooti’s
competitive thrust, but not Funsip. Up against such powerful rivals, Funsip soon ran out of steam. While the first year losses were attributed to depreciation and infrastructure costs, the second year saw a bigger drain. Eventually, the brand had to be withdrawn. Rao could see that Funsip had failed in the market because of the diffused focus. “Today, Kremmer is stronger after a string of successes with its other food products. Now that we have the synergy and the processing plants, and since our foods business has become so salient in the domestic market, why don’t we relaunch Funsip?” he asked. “After all, Funsip was not rejected by the consumer. It failed because we did not get our distribution strategy right,” he said. However, managing director Saraf was wary about getting into the fruit drinks business again. “The marketing of fruit drinks is an altogether different ballgame. We have realised this the hard way,” he said. “It requires a dedicated distribution system, a dedicated sales force and aggressive marketing. After all, in impulse purchase categories, success depends on the agility with which you can service the market. Where do we have that kind of resources and agility?" "But why should that be a deterrent?" asked Rao, surprised. “Ten years ago, we had another problem which was more overwhelming: shortage of money. If we had the money and the resources, I suppose we would have taken corrective steps. But we were still in the growth phase and could not allocate huge sums to the marketing of Funsip. The processing business was new and we were still on the learning curve after the acquisition of GreenFoods. Today, we have crossed all that. Our fruit processing is better than it used to be, our systems are in place." Vaid shook his read. “It is not just the money. Setting up a distribution system for soft drinks is a virtual nightmare. Ask Coke and Pepsi. It took these global giants many years to develop that market agility. Do we want to take that route? Then there is the channel servicing – refrigerators and refrigerated vans. The entire marketplace infrastructure is both expensive and time consuming. Let us face it: the problems which we had 10 years ago exist even now,” said Vaid. It was clear that Rao's optimistic presentation had little effect on Vaid. “We simply do not have the portfolio or channel synergies necessary to sustain soft drinks selling. Our sales force will also have to change its mindset from monthly purchase products like RevvUp and jams and squashes to an impulse product that demands daily servicing. And that is expensive,” he said.
But Rao was smitten by food industry reports that indicated a three-fold growth in the industry by the year 2005. Value-added foods would grow at an even faster rate, the
reports said, since a shift from subsistence foods to value-added foods was expected, thanks to rising income levels and higher aspirations for quality and health. “We have overcome many of the hurdles. Can't we find a way?” he asked. However. both Vaid and Saraf could see Funsip's grave with a huge epitaph that said 'Failed'. That thumping success of its dairy products and other businesses notwithstanding, the marketing of beverages was very different, felt Saraf. “The same problems will still be there. Beverages in tetrapacks are impulse purchase items. They sell on imagery and no differentiator really works. In this segment, the entry cost is very high. The sheer upfront investment required in promotions and advertising will not be less than 20% of sales. This is a high-cost segment,” said Vaid. “Bring back Funsip and you bring back trauma and failure,” he added wryly. But Rao felt that there was an advantage in reviving Funsip. In fact, he not only wanted to revive the Funsip brand, but also thought of using it as an umbrella brand to sell squashes, frozen vegetables, multi-flavoured concentrates, fruit cocktails and fruit pastes for infants and the infirm. “I don't think we should allow the past to stay so firmly entrenched in our mind. The opportunities today are far more, and the chances of success assured,” he said. But Saraf was categorical. “The mere growth of the food sector does not assure success. Having the funds, too, doesn't ensure success. The soft drinks market today is far more competitive than it was 10 years ago. Creating a viable system in a short time or at a low cost is unthinkable. I think we should steer clear of any plans to relaunch Funsip,” he said. “What do you say, Vaid?”
Source: Business World
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