;!d+f*.

-t ;;=*A.*;ryt=+";1;j;

r:

I
I

{tvco-g.\D

lndiqn lnstitute of Manogement

Ahmedqbod

IIMA/BP-25]

Arun lce Cream

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

rhe

1997. it rvas clear to R-G.chandramogan. rbe

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

'";s 'livcrsificatic:i inlc prccucls lhal

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

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

Cfundrqrmg:F, son of a vesetable wholesalcr frc::': gc-rr11\ rpdiTn

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

Abraharn Kosbyaod N- Vcnrireswaran_

Ls preparcd as a basis foi class

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

discussion Cascs are oot dcsierred ,o pr.-t"ni

4'

adTdpistradvq.:problasl.

iiio*i;;il#:.i,f,.,
v' !'u(r

LqIErt ar
.. incorrccr
lncorrttl hafidlrn
rurd'ng of

The suppon rcccived,from Sm:ll lndusu-ics

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

2oll8
IIMA/BPi.
a piece predominantly through street-vendors. Thanks to its prominent location in a busy
locality. Arunl also quickl.v began anracting rvalk-in customers. The fact that one could get
"fresh" ice candies right across the factory counter was a major selling point in promoting inlactory sales. ln the very first year of operations, Chandramogan recalls, Arun clocked a
turnover of about Rs. 150,000 and profit of about Rs.40,000. Over-the-counter sales probably
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
numbr cf flavours in ils offering. A.un ivas able to break into the rough horel mariiei" Whilc
this did help his confidence, it did linle to improve the finances, which conlinucd ro sufler
from serious profitabilitt' and liquidity problems" Chandramogan soon realiscd rhar horels.
'.'..hile oroviding stable r.olume s, s'e re nonctheless prone to imaking ,h*.y dernands, oni theii
su'gPJians'ffid.'aiic iverc. esuernelil.,stow in ..cteasing pay-meurs' I&r; die.nrppr6ge-,snade;..4s" fhe
tlpical hotel custonler \\'as not panicularly, brand-sensitive, hotcls rhemsclves vieu,ed ice
t

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

I

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

J va ro

cream like any other provision in their

rveekly shopping iist and were
not shy of using their
substanlialcIourr.is-a.vistheirsmalltimesupp!iers.

In the next two years or so even as the

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

through triat and error,

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

Marker

for

ice cream in Madras city and Arun,s

search

for a niche

Searching for a suitable slot to position

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

"
.
.

Generar provisions and departmental

store-s .*ith 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 deep
freezers and supplied them to general
stores
,"'"ior.,
extent
hotets
and
restauran*
""0
thereby establishing some kind
of "cold chains" "tro
as dedicared reail outrets
for their brands.
(often these general stores also stocked
a varieqw of other items besides

the ice cream of the

specific principals in the freezers)"
Aware of his own lim
quire surc about the reasib'irv and
appropriareness or this
Arun" At the same time he r'r'as also
?;:
conscious of the fact that thesc
two-the
-deep
so<a*ed
freezer"" segments-represenred
potentially rhe largest and the
most srabre market for his
product' Ice cream supplies to
social cvents likc weddings, whilc
quite lucrarive, were
extremely seasonal and imposed
heavy demand on nruni, rimited
rogistics rnanagement"
Morco'er this se-ement wa: highly
brand<onscious and Arun brandwas
virnrally unknown at
the time' (while the brand narne "Arun"
was used alrnost siiice inception,
chandramoqan
admirred rhar nor much rhinking
had probabry gone into the

lllll ::tTffTH:l

brand_narne decision).

Lcft with limited options, chandramoean

conrinued

his search ror a nichc for

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

that two othcr segmcn* accounting

possibly gave him

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

;;;;l'ri'Ioo.r

-r.r.',.nrffiffioffi;;*-*"

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, flavoursScnsinr: a conrpetitive vacuurn, he stepped in rvith vastly improved service and deliveries they
\\'erc unaccustomed to and steadily caprured bulk of this segment.

Sinrilarly ship-chandlers, rvho procured and supplied provisions ro ships that calted ar the
N'ladras port, were particular about delivery of ice cream just in tirne for onrvard transhipment
to ships. Chandramogan felt that this segment, rvhile fastidious about quality, was nor thzrt
brand{riven. Most leading ice-cream manufacrurers were unsurpdsingly unexcited abour
these supplies in view of the small volumes and the erratic delivery requirement:.
Chandramogan began meeting these agents u'ho were procuring and supplying provisions tc
various shipping lines, understood their special requirements as to packing and delivery anC
quickJy caprured most of this market as rvell. By 1974, Chandramogan recalls that" Arun had
probably caprured 95"/, of the college canteen and ship<bandler sgments. 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 drytce 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.

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

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

rvi-,ir.ttlttl',#:T:

;:ffi:

...1l'

:;:::il:f"T

#:

jJ

i::'..".,#ffi

,":

there were a rew enquiries indicaringinreresr in srccring

(d'

i:.n';ifi

ffi

*",, io,o
:1:o

u.

r, i

that r,rese

""*,h

s, i,

,::::tJf#:
"tr;trff}T,
rree.,,'cn"narzunogan

"T;,'#"il:HT:j#1*-o*'uooii.otheaeef

Initialiy, Chandramogan identifiecl a few

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

unbranded,

pt

in
"

-"uni t tu

i.. .r**

to tt

-a

diners).

.*,offiil;H,U-J;ff ,n';;

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

\*.a_s the L.., colj-^ __ point" Mailers to addressees

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

[J:il";i":n[ffi:J::

The break-through came by chince.

As chandramogan said, ..peopre
see ad*eniscmen.,;
they setdom ..uh ir ca.refully.,.
bur
On rhe appoinred Cays whcn
ice<rcam
was ro bc supplied as
announced in advcnisement
mailers and hoarding" even
those who had aor
creams' came to the prcmises
bookcd ice_
of thc agent whose address appcarcd
in
the adveniserrrurs ror
buving 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 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

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

bunorr'".

oriented market". And he did not have adequate resources

supply them to retail outlets. As it turned out" "there was no invesrment,
no credit, but also no
competition in this market"" And he was implementing the franchisce
concepr without ever
knowing the tenn.

From l98l he began replicating the model by opening, on an avemge, two

such fiznchiseerun parlours every lnonth" with over 700 such outlets in Tamii Nadu.
K-?rnaraka, Kerala and
Andhra Pradesh by early 1999, Chandramogan beli'eved that AruD
franchisee nerwork was
one of the largest in South India.

In appointing his franchisees, chandramogan typically looked ar rhe personal

profile and

business backgroirnd of the potential candidates" Typically,

hc would not offer Arun fiarichise
bi.g time, successful traders or businessmen. He also avoided,
as far as possible, eiclerly

to

persons or highly educated individuals for distributorstiip-

cn the orher hand, hc *.ould pre fer

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

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 lHe sourced other inpurs

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

"r,hol

esa

lcading

erVma nu lacrure rs.

For outward transpon of icc cream to various

fianchisees locared in differenr towns. he
recogrrised

that the lorv r.olumes to

Months

various

dcrtinzrbns di&'not jusrif,y,"rhe,,usc of, erpensivc.

reGigerared transport rhar had to reun cmpr-v
rvith no comparible load. So he rypically took

of the re.qular passenqcr rrain scr,,.ices

of rhe InCian Railrr.avs for dcsparch of icc cream
adr''an13gg

TABLE:

Percentage

of

annual sales

Aprii.J.rme

l$va

July-Septcmbcr

22%

Octobcr-Dcccmbcr
janiary-March

19"/"

25%

8otl8
to various desrinations, For this purposc, ice cream cartons u'ere tiqhtly packed in small
ryooden boxes (Z'x2'x2') rvirh thermacole lining and tilled *'ith dry ice (solid carbon dioxidc) ro prevenr melring. Being a highli, perishable product, ice cream rr"as accorded high
"bo.xes" collected
priority by the Railrvays for rransponation. The franchisees rvould have the
ar their respective destinations. They also rerurned the empty con(ainers by return trains. And
ir was nor unril 1995 that he purchased refrigerated vehicles for delivery of ice cream.
Chandramogan also felt that in the long run transporting lce cream to long distances by train
or by refrigerated vehicles might not be a viable strategy. He also reckoned that a 250 to 300
K.M" radius was probably the 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, 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 presrve 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 HyderabadAnother successful schcme '*'as "slow spced driving compctiriou". From 1993 onwards, Arun
also beqan conducting "'slou'-spced" driving compctitioo for cwo wheelcrs like motor cycles
and scooters. An inlending panicipant typically is rcquircd to purchase ice cream worrh, say,
Rs":: !r1(- asi,':csnrrr f,g-cfr: Gonductcdl).iriras$mi$iffiiwi&rth+rhca!.,rr:Jffri.ipglicrs,:irp:.cinicsr,likq,r

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

*,

*0",,

urin

s'0":l

:;;

; _n,

u,.

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

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

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

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

such

i","-

otu"ci-i schems'
to

Approach

rvp c a

priang

and franchisee

fiancgement
;

of ice cream-

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

Franchisces

wgt

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

..0,,"*,on

65yo ortrre

**t1 ': T";ading icc cr:^T"*^:'::":,:1,:,

*'*':i;r"'o'*
ort:::H"i""'i*-t

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

**:T.f

;;;"'

as prorits-

.11t,

sares.

our,ers

ma

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

ro be sigirificantlY

']r1.,

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

;;0""

otrrr,ufi"l til;;;;,

as

*1.;;tt",'

packagn'timares.

,"

l,ij'_nr),

rhe o*erair
8compared to

Yq:1';;;;;;'u o-",1, manocu\re" Ln rrr:

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

probably

a marsrn

er

of other

t,tRP'

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

c^m rranchisees bv

^,u
seasonat months

phonc' The

numbe:::^T''i.,

Tt::'Hfiitl

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

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

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

depanment
made' chandramogon

Franchrsees

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

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

pac

{,'

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

tne
would bank

xt''i[g'i

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

Mtir
violation of N{RP
for violarion

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

4ludcd
tict distrrbutro

Thc l\\c

*o

stockistr
=

----

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

*ho *ouldhandlc

<

to
ro

chrnncls
rctail chrnncls"

IIMA/BP-253

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

;*

;;

functional
iike

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

"l T:j

:j:.";*

lli

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

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

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

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

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

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

company

^* ,l*nnu**u,

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

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

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

strikeAockout

co m P eanve
E m erging

organised segmenr

rhe

r' a

scefl arl o

or ice-cre":l

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

vadital:t f't'npiuyt" such as Kwality in the South u"' ""tryunder

":'.;.ror
;iiorrg rccir:nai
Anr-n
iater
sclring ice
r"o
.cream
ouruprul
wesr and
"'ri,l.l

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

of ice cream

,o"n",'*tl

was reseryeo

to

(F

necessarly

so*."

specificauy ,o "i-i,

seale industry

ltig"*;iffi

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

their icc cream

thc. ice

"nit'

:
';rr:f
which were

their family

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

often
membcrs" The

in therr
meuopolitan cities

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

had

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

created

also appea"a

rh e
(

BB

IL) :

:qil*"

itself t"as somer'r'hat

;il;

\^?vcnng

rea

ot-t';hires;
"u

be'

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

of consumer

:i'lif,l'.T-.

'

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

?t
bcvcrage compar

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

ice -c

;;;*,

tt'"*

:lTl11;)

"

^o

":".:il

:X. ::'J:

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

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

entcrcd processcd-fruir

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

of the extant restrictions rela -

",**:

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

jjkill
*..l
":tJ

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

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

comprerery re-wrinen.
In February rgg7, the

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

**;m:fljilil

rrom

G*"-rn"n,

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

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

ror excrusrve deveropmenr

in

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

top spor in the four southern

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

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

Ownership structure cnd

finances
Whcn Chandran

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

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

brand name

conccrn

e86, HFPL

ri.'"*'.*hip

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

register rhe brand name

Arun ," ,"
gross ice cream sares
rn Augusr,

the

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

;::1

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

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

In January 1996 m\,{FL

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

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

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

carrv;"g.oor rce cr.4rn:p.rodrr"r*:[lH

markqring company'
Acrual icc cream manufacturing
.
fro,nn,

,,,

rlion of ic: :rqar::

.r'rls

oi r.80 miilion

i:'

:l,y"i

; ;;;;.n jus, a
vear

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

\\,as conrinucd to
be carried our

Ir ma.r.bc norcd rhat

dc_r<tscn

to

annoucccd b-. thc (icvcr:r;ircnt

o.:.!. in

c-k^.-

in

the

!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 "KwaliNI*'alls "
E.rtensive consumer research has provided valuable insights into the developnrent and
applicatien ,of relevant rechnologies in product formulation and relrigerated producr
handling. v'hich have begun Io se( ne\" standards in 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

The

rec.vcle.d packaging.

on brand building and innovation, rchich are the ket;

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

l4 of

tt

J'irst individual brands to be advertised in rhe lce Cream carcgory

brands have registered significanr grov,th in ail the markers

in the counlrv.

These

A major exercise was underlaken lo upgrade the manufacluringfacilities

of your Company,s
Ice Cream sourcing units- Products, marketed under rhe Kwality-walls brand
name, confornt
fullv 16 the stringent standards specified by the Bureau of Indian Standards and alsb to the
nore exacting Unilever norms on producl sa/'ety anC hygiene. This is a major milestone
and a
key diferentiator for the Kwatity-Walls brand -..
For Chandramogan it was 4;s": :hat he iraci to quicicly re';;ork ihe cornpctitive
strategy fcr
Arun- The key question was whether to aggressively reinforce Arun's competitive
profile and
further expand its franchisee nenvork in the face of HLL's competitive onslaughr
or pursue
alternative business opportunities woven around Arun's limited strengths and
competencies.
The latter strategy, he thought, whilaproviding an altcrnative plaform of growth
might also
bc necessary fi'om the point of his abiliry and the nced to givc continucd 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.

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

and Accounrs 1996

15

l_8

of

IIMA/Bp_25:

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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

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Notes on Ice cream menufacturing process

electio n
lvf

of ingrediens :

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

Figuring the mix

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

Making the mk

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

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

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

mk

Homogenisation is to ensure a perrnanent and uniforrn suspnsion of fat by rcducing

the 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, 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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