VLC

Foods Group – Very Low Cost Foods’ Operations Strategy and Competitiveness

Rahul Abhay is the chairman of Kerala-based VLC Foods Group, which is a chain of restaurants that
serves meals for less than half the cost charged by other local traditional budget restaurants. When
the company was started, with just one counter, 5 years ago, it became a runaway hit. However, in
a span of 4 years he has established around 20 outlets in Kerala and 30 more outlets in various
places across India.
These outlets do not offer any gourmet fare but they dish out wholesome food at unbeatable
prices. Lunch or dinner can be had for a couple of rupees, with a bowl of rice at INR 3 and a bowl of
boiled dal (a dried pulse) or vegetable curry also priced at INR 3. For innumerable people who
could not afford to go to regular restaurants, these outlets have come as an affordable answer. The
outlets serve around 35,000 bowls of rice each day across all its outlets. Rahul plans to expand the
network further and very soon hopes to serve 1 lakh bowls per day.
Though the motive of Rahul behind opening these counters is to give the poor a chance to buy
wholesome food, this is no subsidised charity. It is purely a business venture with a profit motive,
which is also making profits. Raw material is sourced directly from the farmers, to keep costs as
low as possible. Dal, rice, vegetables, etc., are all brought directly from farmers in bulk quantities at
half that of their market price. The group employs uneducated and unemployed youth and women
to operate these outlets who are paid a commission for each bowl of rice sold. The outlets are also
established in interior places to avoid high rents. Generally, the outlets would have only two
rooms – one for preparation of food and other that acts as a serving counter. Customers pay the
money at the counter, take a token and produce it at the serving counter, take the food, which is
served in paper plates (or takeaway packages) and consume it on the roadside in front of the
outlets or as take away. Moreover, the speed at which the customers are served during the peak
times (lunch and dinner) is also outstanding, with minimum waiting time ranging only a couple of
minutes.
Pitched as a low-cost product – primarily to cater to the poor – the food chain had created a
competitive advantage in the market that is threatening the existence of local tiffin centres and
traditional budget restaurants. However, Rahul observed that his outlets have become equally
popular with the middle class. And since the last 1 year, to cater to this segment – who would be
willing to pay a little extra towards the quality – Rahul began providing a separate section at his
outlets with improved variety and quality of meals along with seating facilities. He had also made
significant investments to add these sections at the outlets. However, this section failed to attract
customers as it was similar to any other local traditional budget restaurants. While the poor still
continued to come to VLC Foods, the middle class was not keen in coming here and preferred to go
to other restaurants, which provided the same facility and quality. As a result, VLC Foods was
losing a segment of customers. Moreover, the chain started incurring losses, as it had to employ
more number of people to serve this section. It also had to hire trained people to achieve the
variety and quality in the food offered for this section. Its operations became cumbersome by
introducing the new facility to produce better quality and variety of food and serve the customers.
The economies of scale that the earlier system provided were no longer valid in this system. As a
result, it could not maintain its competitiveness in the market.

Suggested Questions for Discussion

1. What was VLC Foods’ competitive priority? What was the company’s operations strategy? How did
this operations strategy complement the overall strategy of the organisation? What should be the
major priorities associated with an organisations operations strategy?

2. Why do you think that VLC Foods was losing its competitiveness? What do you think should the
organisation do to ensure its future success?

15ªed PG-DE LGO, 2022