;!d+f*. -t ;;=*A.

*;ryt=+";1;j; r:
I
I
I

lndiqn lnstitute of Manogement

{tvco-g.\D
Ahmedqbod
IIMA/BP-25]

Arun lce Cream

cn June l0 1997 cven as he signed the Annual Accounts
of Harun Mitk Fooci Limired [or rhe
!o March
-vear 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
s:ralegic direction the chennai-hcadluanered ro rhe
rnakcrs of Arun ice crearn had to
:'ani':-rlai invclved the quest:on of market take: rhis in
expansir;n io: icc crearn bevond South
'";s 'livcrsificatic:i inlc prccucls lhal India vis-e_
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
pow'e;ful sakeholdcr in thc form of public invcstors ol a
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
underscored the ur-qency to develop a sound only
shon-term su:ltegy to consolida te Arunbra.nd
icc cream in the fa-stchangiog competitive scenario of
and rhus esrablish a sclid plarfonn
launch aegressive grounh initiarives and anain to
a crirical rra-<s and scale by thc year
?o00.

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

t
Cfundrqrmg:F, son of a vesetable wholesalcr frc::': gc-rr11\ rpdiTn
srare of
.T:*il
Nadi,. v:i up
Arun lcc Cream in 1970 in Madras (now re-named
as Chcnnai), csscnrially morivared
urge to -"do some thing"' After his colleee b.r rhe
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
bairk ioan' he ser up a small ice cand-v unir bv u,av of a
in'a renrcd premises adjacenr ro his unclc.s
tertile outlct" Frorn a quick srrrvey around rerail
the l\.ladras markct ir appcarcd ro
that ihere werc about i50 small-rimc charrdramopan
ice cand-v manufacrurers likc himself compcrine
low cnd of the market' Thcsc were offerine in rhc
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

bas bccn prcparcd by profcssors

Itt:."tr
Teacirhg c'"tcrial
Abraharn Kosbyaod N- Vcnrireswaran_
of 6c lrdian lrutirurc or n*r,'g.o.ol Arracdabad
discussion Cascs are oot dcsierred ,o pr.-t"ni Ls preparcd as a basis foi class

adTdpistradvq.:problasl.
iiio*i;;il#:.i,f,.,
v' !'u(r .. incorrccr
LqIErt ar lncorrttl hafidlrn€
rurd'ng of
4'

The suppon rcccived,from Sm:ll lndusu-ics

Dcvclo_prncor Banl of India (siDBI) aM
casc is gntefuffy".t&"lcAgJ. -
managemcn( in rhc dcwlopmcn{ of &is thc company

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 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 probably
accounted 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. :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
substanlialcIourr.is-a.vistheirsmalltimesupp!iers. not shy of using their

In the next two years or so even as the

ice c:'eam business was beginning
chandramogan was searching for a rvinning to break-even,
fbrmula for steering Arun away
too" outfits' Having from other ".me-
learnt eveq4hing the hard way "on
the job," through triat and error,
chandramogan was also beginning to feel
the acute need for some kind
structured inputs on the various aspects of formal training and
of management" He enrolled with
instirution offering specialised shorriuration Davar,s college, an
prograrnmes for working iilcutives.
courscs in Marketing and personnel and took
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
market with a highly fragmented compctition comrnodities
jrrckeyrng for evcry rittre
chandramogan found linle roorn competitive space,
Nearly ninety five pcr ccnt of the
of ice cream in Madras around the time primary or burk purchases
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
freezers and supplied them to general in deep
stores
""0 ,"'"ior., extent hotets and restauran*
thereby establishing some kind
of "cold chains" "tro
as dedicared reail outrets
(often these general stores also stocked for their brands.
a varieqw of other items besides
specific principals in the freezers)" the ice cream of the
Aware of his own lim
lllll ::tTffTH:l
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
?;:
freezer"" segments-represenred two-the so<a*ed -deep
potentially rhe largest and the
product' Ice cream supplies to most srabre market for his
social cvents likc weddings, whilc
extremely seasonal and imposed quite lucrarive, were
heavy demand on nruni, rimited
Morco'er this se-ement wa: highly rogistics rnanagement"
brand<onscious and Arun brandwas
the time' (while the brand narne "Arun" virnrally unknown at
was used alrnost siiice inception,
admirred rhar nor much rhinking chandramoqan
had probabry gone into the brand_narne decision).

Lcft with limited options, chandramoean

conrinued his search ror a nichc for
that two othcr segmcn* accounting Arunand fe*
foirrt about rl*e pcrcent of thc Madras ice
possibly gave him cream markct
somc hopc' Thcsc rverc educarionar
insrirurions and suppries
callirre..ar. the Mad,rai port," ro ships
Ru*,.by{ rncs& sccrelasiesr.,whorthE
11 p ica if
v rhe cote ;;;;l'ri'Ioo.r
ge,
leadine ice cream manufacrurers
-r.r.',.nrffiffioffi;;*-*"
mcss
such as Dasaprakash and-lo.)..
leen ins(antly struck rappon r'irh chandramogan in his rarc
rhc key decision-makcrs of colrcgc
scvsl3l cantccns. yer it required
and ercar pcrseverance before
'isits he could bag orders for suppries
to a rarge and
 4 ol' l8
IIMA/BP.253'

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, 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 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<bandler s€gments. However, 95o/o c,f
the 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 cf
replicating 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 togistics
problems. Sinc'e'the srudent community in district-level colleges included in their midst
former 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 i00ozi
of the small, but growing upcountry collegc market"

\\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 support 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

{' .+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
,.daunting. Ii hc could comc u9 l"irh rhe riehr markerinl and disrribution lormulae.
 J of l8

orhis striking it big, parricurarry

,tT.:::"r."#,:i:I':il;:,l,ill'chance becausc orthe

I{aving made inroacls into upcounrry college

canteens and hostels,
looking at the feasibility of supplying Chandramogan begal
icc crea.tro wedding and
in upcountry towns' while ice cream was other important sociarevenrs
a srandard fare fo*u.h
concePt rvas virfually unknorvn
outside the ciry. so he went "uJn,,
in Madras, this
around canvassing
rvedding and other sociar events in for orders for
upmarket househords outside
persistent efforts' Arun was able to Madra
achieve some measure of
did help in enhancing brand awareness succesr" rvi-,ir.ttlttl',#:T:
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#:
(d' i:.n';ifi ffi rree.,,'cn"narzunogan
"T;,'#"il:HT:j#1*-o*'uooii.otheaeef
Initialiy, Chandramogan identifiecl a few
towns lil.e pondicherry,, Madurai,
Sivakasi in Tamil Nadu for initial Kumbakonam and
foray, parricularly bccause good
available in thesc ph"cs- (At bcsr quariry icc cream was
a fcw hotels not
,o, -a
unbranded, pt
"
in -"uni t tu i.. .r** to tt diners). .*,offiil;H,U-J;ff ,n';;
and hoardings in thesc selected "i.
towns that icc cream from
certain pre-announced days and Madras r+,ourd bc zuppricd
that those interested could book on
either in person or by phone- using their ora"o *,rr, Arun
local telephone directories to agens
had" mailers posied to porential obtain addresses, he arso
upmarket cusromers, rcferring
figuring in the list of vIPs- Typically to them u, .n.,,n.n, pcrsons
chandramogan bad An-tr icecream
a-qenis within four to five days L'edrrr supplt(
suppried throueh the
of the ".booking,,-

"lce cream supplied from Madras..

\*.a_s the L.., colj-^ __ -
point" Mailers to addressees
the specified rocariry were rare
t tlrne. ltv
,n".":,:-t As
:tt1"g
tirc long_ignored small town
ourside
recognised" there was tremendous ", consumers felt
responsc tc thesc .
chandrarrrugan was beginning forays- Even as
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
[J:il";i":n[ffi:J::
probably left out a large numbcr felr that ..n*J_a"y." sclling
of potential customers frorn praces
as well as rvalk_in cusromers conriguous to thesc
indulging in impulse purchascs" towns

The break-through came by chince.

As chandramogan said, ..peopre
they setdom ..uh ir ca.refully.,. see ad*eniscmen.,;
On rhe appoinred Cays whcn bur
announced in advcnisement ice<rcam was ro bc supplied as
mailers and hoarding" even
creams' came to the prcmises those who had aor
of thc agent whose address appcarcd bookcd ice_
buving ice cream' Similarly *uny in the adveniserrrurs ror
po,"ntial cus(omers atso rurned
up on orher da;s- Ercited
'by rhe consurner response and secing thar on sevsral
<'rurnc&'backi:ac''eggn(" occasions, *.alk.in cusromcrs had .o be
Kznak*ni som.: rlrrs rcmpfe+ourn, of.Madura
orrn deep-freczer and sought long_term ofrirbd..ro in'es1.;n, 61,
distribution arrat
facilirics 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 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
supported this
agent 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 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 bunorr'".-This was;r<.ri 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 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 fiznchisee-
run 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
to bi.g time, successful traders or businessmen. He also avoided,
as far as possible, eiclerly
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 carly
failed his busincss 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<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 in
Tamil 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 thc
fr{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 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<ream manufacturc in a cost+fficient manner" The
problems arose because 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 l-
He sourced other inpurs
and ingredients such as susar" fruirs. packing marerials ctc. from lcading
esa I erVma nu lacrure rs.
"r,hol

For outward transpon of icc cream to various

TABLE: I
fianchisees locared in differenr towns. he
Months Percentage of
recogrrised that the lorv r.olumes to various
annual sales
dcrtinzrbns di&'not jusrif,y,"rhe,,usc of, erpensivc.
Aprii.J.rme l$va
reGigerared transport rhar had to reun cmpr-v
rvith no comparible load. So he rypically took July-Septcmbcr 22%
adr''an13ggof the re.qular passenqcr rrain scr,,.ices Octobcr-Dcccmbcr 19"/"

of rhe InCian Railrr.avs for dcsparch of icc cream 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
"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 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
d'isll'il'butlonl'ofiics'gle. fins"thb'-vanbug'destina:iox$s*€rfiiil'{':}rri5*'+:sa'lras"!scEeuh'+scttupaj
r.
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'
 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 advertisement" 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 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 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 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 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.,
 s'0":l
*, *0",, d urin
:;; ; _n, u,.
",r,,::""T1L:*: i:::rJj,[ ::Lil:::i._ .";
i:il:Ji',!{iif ;ft :i4ti:*:*:""':,'ffi
suchcampattnt
*"To,r""
Sales pronru"*
tt::
t"*ptigtt: ;inay pt*"t*i,t,
to.ut inilinlives
iiff 1,'::".':.':l*'":::;
such as "the
flavours' .^*or,*]^,tlts come \. -
rv v-'--
Such Promot't'* its parrours to
parlours
p\aces.
'*u,xtring Plan' Arun "naou*g.a
i]'^'""'-
etc'
i","- otu"ci-i schems'
fiancgement
priang and franchisee ; of ice cream-
to
Approach

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

::'tr il':j|;".;",;"." '*.T,;; as prorits-

..0,,"*,on
65yo ortrre
l
and .fter'exP€n*t ::-"r **t1 ': T";ading icc cr:^T"*^:'::":,:1,:,
*unuiu.*.,ng
rnanufac ers'this
*'*':i;r"'o'* ort:::H"i""'i*-t
ice creann
;;;"' **:T.f
i:::::: il"",:,...
;;;;''o-Tl":; ;;', ::'^^f,,.bu,ion
.rr,"o,er .11t, sares.

Vadilal' a ma " our,ers

*H{{fi*[d*H*r-Hlf$Hffi
was believecl
ro be sigirificantlY
*"',:il,liu',io.i":T;;;;,.*
rheir
']r1., otrrr,ufi"l til;;;;, as packagn'timares.
rhe o*erair
;;0"" rh."i, u.ands-
to their over-all
*1.;;tt",' ,"
l,ij'_nr), compared to
8-
,uur,unt'uttv and Yq:1';;;;;;'u o-",1, manocu\re" Ln rrr:
was T",;t" "t *:ff"^rir. n,* i*T:0"*
environment)
r"frigerar.d oi
cost of AIun ^i;;..r.r:.T:r-;oyed or r2vo to 15e," a
distribution crea'1nt*; a marsrn
tor other leadin9 icc probably er
9Yo cream
leading ice
of other
case
t,tRP' phonc' The
numbe:::^T''i.,
Tt::'Hfiitl
-
o#"-:l c^m rranchisees bv

^,u
s rec,o*ook
seasonat months
could be
iill':1y
iil;;r.*^:1:;,:'*-*,*.i,r.
i:t; :ffi*iq:lir*mX:;
expccrerr ro'rake advantt ltil:-;;n.n,r..t:il;"e, 1,.. crcam suppiies u,ere
no sooner.',n
rvould, be nace' As regatdsrt""q;'.ou".t:l": rac"roq,
or._o".kac.ed
.*._..1^,",,,i.Jsizes.
tne
would bank Franchrsees
depanment
ttton=.Jir."" "i,l:;"*
*tilt**ti*o :11:0,.'in o,rr"r.nt
made' chandramogon
1:,"1. rist issued by Arurr.
*"0' i""ltlr';;;i*r, ,n._.:'].r,rn,
rermrnared
s have bcen
*' nr
* ;, ; ::;,,'.1 *n
pac k n'ls
xt''i[g'i :l: X*": !i:r"
#tr *o

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

gutdelurLr
Mtir
violation of N{RP
su'e-'- chrnncls
rctail chrnncls"
for violarion . .. --,rrp -r- disrnbulion
' rhc
rrc 'ticrrib'Jlion
<
to
ro

stockistr
*ho *ouldhandlc
4ludcd
tict distrrbutro
Thc l\\c = ----
 IIMA/BP-253

Managetttent and
Organisatiort functional
a group iike
had recruited "t:'^l-"-'.T:::T:i:t-;::'sation
over the years
o,i ti oo, H.
chandramosan
*u, oi ;;
ttrat ;*
f1r,:ff :1
"l T:j
lli ;::::^;:!: Ti:
f, :j:.";*

;:"::.,::l'il:"",:T;*;:.ffi
[,"rffi
ilil*..:'J".|*j::"'i^i,,"'.**f ;ff
go ';''[,"'i']:l,;,.,
#"*#l{i:li'*dru;*i':::
durin3 Arun's B)i -'i::il;; R.'chandraT.'t'.::-::::
record time'
sc:en project in
in key functronul positions' These
tn,n
*o as Markettng
^* ,l*nnu**u,
Manager. ^":":r:
wi"'h most
company ,."r",u,i]'t--i"gunutttu,.,"='',fi-::,rTa" ; adequatelv stalTed-

Ir t"^W;$# **:;* '**"i

Hi# dT #*Hirew davs'r
*: hr
"[in'*ould defrnitelY
t'=
need to str:
r' a
p
H[iliH;:*;lx' :**;*:.*".::*fi.":I[;;;';';
in i995' employec rela
strikeAockout

scefl arl o
E m erging
co m P eanve

rhe organised segmenr

or ice-cre":l T:'['ii:ITrt:r:
t:::ilTr**u"'
Xl 5:U:ilT:*lii 'l:
tntre were
piuyt" such as Kwality in the South u"' ""try- vadital:t f't'n-
;iiorrg rccir:nai r"o iater Anr-n ":'.;.ror sclring ice
under
.cream
wesr and ouruprul "'ri,l.l
[::T*stilr'trffi rti;*it;f ltig"*;iffi :
flavours in-house
of ice cream
for thett
seale industry t"':].:.f,:"j'l'#1";;i ';rr:f
which were often
was reseryeo ,o"n",'*tl "nit' membcrs" The
so*." their icc cream their family
to necessarly
thc. ice
::Ht".T"h;:. meuopolitan cities
in therr
(F specificauy ,o "i-i, :::::,"'.;,Tff1."#f,o-the

fu:T*i;*::,'"'-".il:ll'"'-;ruru:::U*"'."":'"#i.;Tli
"".,liu*,
-.r,.
rvide presence
in Gujarat
,n,rtl-national
fairly :lTl11;)
:qil*"
had of consumer

*il.ll;.'Ji:l:":':i"::1,'fui::f
bv its launch' DolloPs
:i'lif,l'.T-. '
;;;;;t" created \^?vcnng
tt'"* ;il; itself t"as somer'r'hat
.
also appea"a

rh e ice -c ream marker n rn

dia
i
"': J': illi-:K: i:f" Tt:i]':
;;;*, gianr unilcrer.
through
;
tfi
"'r",:'[:'X and t"coffcc
"\,""Jr; ?t
bcvcrage compar
r''$a'd;,"J;
( BB IL) :
"u
ot-t';hires; be' " ^o
":".:il : :X. ::'J:
 l2oft8

ice c:-eam and other food

products as thr
scsmenr (such as jam and [t
;':H::":'il: j:ff o"saucei
;,".':1,
".",l,tl,lj11lll,Tt,tl-*l_
#H::::,;;ilT::::,'j,:flffi
j;"[:1,1xff entcrcd processcd-fruir

",**:
,1,lli;illl;::;:';ll"1:I,:',):lf,,;.Tff
several of the extant restrictions rela - tli:,':*'[::'.-.T":,lJ;:lTHi
rs rve re be i n g p h a s ed
sec ro

Limited (HLL) undertook

o u r or ..,
"i
;J ;"u?il;*','.x',
a series of transactions ":tJ *..l jjkill
group's presence in several to consoridate and strengrhen
product-markets- Having the unirever
identified frozen d.ra..r,
as qy3r.14i.,

fi?;;:;':;,,;:T';,,;'fi :T#**"m,.,":'.-rndiaand.,r,..r..io*;;:?
in its oo.,-.,,o. BBrL ..*r.o'
::J#_::..: ;:J.,,,:rt market overnight' with "l:':l:: ft::JfiJ:r;::
deep pockcrs an6 the .nry"t r un int.-utio,.,", ioo ,gianr
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
rrom ,i. ,t* ornroducl **i.a
G*"-rn"n, ;;ff,.rrff",:::::_:."r:#:
;:'::;:'.::ffi4'*e ror excrusrve deveropmenr
in

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

top spor in the four southern Even as Arun emerged
dynamics and re-work
srares, .n*l'0"*"j;1T::TT:'
llao to contend with the
ro the
his orrn rr.ur.*-"-'ctrrv5drr neriv c6s1-1ps1i1iyg

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, r e86, HFPL
brand name conccrn ri.'"*'.*hip
"*;T;i':[T:Til""fr]*:ffi
register rhe brand name
Arun ," ," T::,: :iereby,
or
ff:"* the company *.as ailowed the
to
gross 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 i.- ;.i,ed comp v
puu r r
a n

In January 1996 m\,{FL

w.as taken public
shares ar an issue
through an inirii public
;':;:::":t^l,an.tnttt1l. offbring oi r.80 miilion
pa i d -u p cap i,a
r'
".:.:::,",:T; Tj .T, i |"T'# ::::: i:. :3 *T x'
;:1TTi1:'-'"ffI:::JIj: *; :...1x;
i:' : :l,y"i
precluded HM,FL, *:*:::"
carrv;"g.oor rce cr.4rn:p.rodrr"r*:[lH
fro,nn,
t , ; ;;;;.n jus, a
vear

.
markqring company'
Acrual icc cream manufacturing ::, J_T::l;_il:::
\\,as conrinucd to
be carried our in the

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^.-
 !3ofl8
IIMA/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 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 "KwaliN-
I*'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 terms 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 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 Creant
pt'€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 Cream carcgory in the counlrv. These
brands have registered significanr grov,th in ail the markers

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 support
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,,--,;. Rcpon and Accounrs 1996

 15 of l_8
IIMA/Bp_25:
==:=::-
Exhibit- I

Slqbta

\ ruuru

au"Lgo{a I
rai*r,)
:4, I
Sirira::
OIKE
I

Ir
:.t
am
lo

.lror( P6do
Pok &a-v

T}iAPt'Rh{ .

C'nlf of Mqwr
 l6 of l8
!!MA/BP-251
.:i

Exhibi12
ice Cream Manufacturing Process

ELECTION OF INGREDIEN

MAKJNG THE M

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 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), 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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