Kanpur Confectioneries
Private Limited (A)
CASE
5
On september 0, 1987, Mr. Alok Kumar Gupta,
7, Chairman and Managing Director of Kanpur
Coafecionerics Private Limited (KCPL), was in a meet-
ng with his rothers, Vivek, 42, and Sanjay, 33, to decide
their response to the proposal of AOne Confectioneries
Private Limited (APL) that KCPIL might consider becom-
ng its coniract manufacturer. API. was a leading national
player in the confecuonery industr. It had des ired to ex-
ancd its suppl: to the market by subcontracting orders
o othcr manufacturers. It had also cesired to retain full
control over the quality and production processes. It had
promised to the subcontractors that it would compensate
them adecuately in terms of volume of business and con-
version charges. To KCPL the avan ages were in getting
an assured return oa is investment and access to APLs
manufacurirg expertise bur the disadvan:ages were in
the possble loss of inciependence in decision making,
cilution of company's own brand, "MKG", and family
prestige.
KCPL AND ITs BacKGRoUND
KCPL was started ir. 1945 by Mohan Kumar Gupta, then
28, in Japur, Rajas than to sell sugar candies under the
brand MKG". Earlier, he was a worker in a candy urit in
2 0by he In:dia1 Insatute of management, Almedaba Revised2001
P-epared b Professor Makund Dixit and Mr: Vandan.: Dixt. The names of places. products and people are dsgised. The case writers ex-
rets their gratitude to the nembers of the famil: that co operated with them in wriung this case.
each matcnal of the Indian instiute of lanagemernt, Ahmedaha4 i prepred as a basiS fur class discussion. Cases are ot designcd to
rese1: ilus: ons of cther cortect or1. handing ofadminisra
Mukund Dixit and Vandana Dixit
Jaipur He started his own business with the dealership of
cancdies produced by others. With the experience gained
he se: up a producion unit in Jaipur in 1946. Berween
1946 and 1950 thirty units were set up in the unorganised
sector in Rajasthan to sell a variety of candies. As the
Competion increased the margins came down. KCPI.
could not compete on costs as its costs were higher than
the other nanufacturcrs. Mohan Kumar faced a financial
crisis. He decided to shift the production to another state
and reduce costs. In 1954, he bought one and a half acres
plot in Radha Industrial Estate, Kanpur, Uttar Pradesh
UP) and set up a candy making unit. He became the first
entrepreneur to set up a candy making unit in UP. He
appointed three sales representatives to cover the enire
state, establish dealership, and promote "MKG" as a lead-
ingbrand. He adverised "MKG" in the vernacular news
papers and on hoardings located at crossroads. To build
furher on his success, he established a dealer's nerwork
in the neighbouring states of Bihar and Madhya Pradesh.
Byr the end of 1960s he was a market leader in candies in
the northern region. He decided to invest his surplus cash
to diversify into making glucose biscuits and selling them
under the "MKG" brand. In 1970, there were two
national and six regional manutfacturers. The demandlarge
was
growing at more than 15% per annum. The marg1ns were
oblems.
462 Stråtegic vianage mani

ITtTaCUC. Fle s.aW the bIseuits C i r C 28 m

es teiiio S
te: and hcaung the solutlon. i he hot solution
dic
Caniy busness. The proces was and the
smple a Colea o room
cquipments were available indigernously. Sugar vas the temperarure and stored in crlinders
The sTup was mixcd with maida and
common rar material. Howerer, he had to arringe for vanaspai in small
mixerS. The mxed dough was ted to the
regular supply of other raw materials like maida (retined stamping unit
wheat Hour) and and the stamped wet biscuits were ted to the oven for
vegetable oil (vanaspati). He tied up with ba king. T'he
temperature necded tor baking varied from
local merchants and commenced
rented depots in key towns for
producion in 1970. He stage to stuge. The quality of biscuits depended on the
stocking the biscuits. He care with which the
temperature was maintained at dif-
conunued to advertise the brand in vernacular
newspa
pers. He also adverised the brand at Ietail shops. The
teren phases ot baking. The ready to eat biscuits were

business
sen to the packing departiment. T he biscuits were
manu
was
prohtable
but the acceleration of
produc- ally packed in pickets of 100 grams
tion was constrained
br the scarcity of ingrecients like In 1986-87 the average
maida, sugar and vanaspati. He extended his monthly production of
range and IKG" biscuits was 120 tonnes. KCPL
on depended
offered cream, salt and Marie biscuits under the
"MKG" both permanent and cas ual workers tor its operations. In
brand. ll there e r e niney'
In 1973-74, KCPL reached the number two permanent employees. The monthly
tion in the market with a
posi salary bill was R2."5 lakh. Casual workers were emploved
monthly sale of !10 tonnes (1 on
daly basis to support activities in the packing and
tonne=100) kg). Prince Biscuits,
promoredbr Ghanshyam material-handling department. The size of casual work
Das in 1960, was the leader with a
monthly sale of 13i force depended on the volume of production. On an av-
tonnes. His
plant, located at Agra, Uttar Pradesh,
had a erage, six casual workers were
employed to
monthly capacity of 150 tonnes. International Biscuits support one
tonne ot
Ltd. ineld the third posiuon with a sale ot 100 tonnes production. The daily wage rate was R50. The
per workers were from the local region. The
month. Its plant Iocated at Mumbai, prime problem
Maharashtra, had a in operations was absenteeism. The workers used to ab-
capacity of 800 tonnes per month. It was a leading plarcT Siuin from work without nouce. The absentcCism wa_ as
in western and eastern
regions. A-One Confectioneries lhigh as fiftr percent. This had led to uncven production.
I imited, an overall national leader with
a otal
capacity The dail producti on varied betwcen 2 tonnes
per day
of 900 tonnes per month, did not have a
signihcant pres- to 6 tonnes
per day. The company sought the advice of
ence in the North.
Howerer, it had a leading position
in technical consuitants on issucs
the South. relaung to cx- capacity
pansion, cquipment selectuon and producuviy' improve
In 1980-31, KCPL.s turnorer in biscuits busincss was ments. The orerall operauons were supervised by Arun
R2 crore, an incrcase of l5
per cent ovcr 1979-80. Its net Kapoor, Manager ((perations). He was a
graduate in sci-
profits wvere 20lakh, an increase of 12 per cent orer the encefrom a local college.
previous year. In 1980-81, KCPL doubled its capacity KCPL bought maicda in bags of 50 kg, sugar in bags
from 120 tonnes per nonth to 240 wnnes
per nonth. In ot
100kg and vanaspati in tins of 15 kg, from local sup-
985-84, its sales increascad tc K3 crore and net proits plers and stocked therm ncar the m1sing unit.
to25 lakh.

NDUCTION OF FAMILY MEMBERS

TECHNOLOGY AND OPERATIONS IN 1987
ohan Kumar had six sons. \lok Kumar. the eldest son,
Biscuit making involved preparation oi dough b! mixing onced the business in 1960 atter compleing his gradu-
maida, sugar sy'rup, vanaspat and certain preservatives ation in conmerce. V'irek, the second son, joined the
in agiven proportion, stamping the dough to get various company in 1965 after completúng his graduation in me
shapes and sizes, and baking the shapes to get ready to cat chanical engineering. Sanjav, the yungest son, joined the
iscuits. It is the proportion of
ingreclie nts that enabled bus ss in 1974 after
ine completing
his graduation
in arts
the company to dcvelop a sccret fornmula. The qual1ry ot The o ther threc sons started their own trading concerns
materials receiwed was checked in a
lalboratonr tor impu- to trade in metal parts and containers. In 1982, Mohan
itics ancd exis tence of metal particles. Maida was clcaned Kumar handed rer the leadership of KCPIL to his eldest
and fed to the mixing unit manually. The sugar crys tals scon. The sons of Alok werc stuclying in school.
Were converted into sugar syrup by dissolving the cry's- The allcation ot responsihilities ameong the tamily

menbers was clear. Alok Kumar looked atr fFinance
and haison funcaons. Virek looked after human e
source management and manufacuring, and Sanjay was
responsiblc tor marketing, logistics and administration.
They did not interiere in each others arcas. The fanily
members met on the fifth of every month to review the
operations and performance of the busincsses, and think
throughthe issues for the future. Decis ion making within
the family was secn by them as participauve. The farnily
members could disagree on issues without disespect to
the fraternal hierarchy.
The managerment principles laid down by thefarmily
were:
respecting the laws of the land, not cxploiting la
bour, running business on ethical lines, treaung thec con
sumer as
ing, and not evading taxes.
Funds Management
Thebanker to the company was Sute Bank of india.
KCPL was associated with this bank since 1954. The
companybelieved in the polcy of ploughing back the
surplus. The family members earned a salary
"MKG" BRAND
"MKG" ras a popular brand in the nor thern region. creased compeuuon trom both organized and
"MKG" biscuit. were known for their quality crisp nized players the margins were under pressure. The busi-
ness and affordable price. The brand was adverised in
the vernacular dailies and weeklies. It was also adver
Kanpur Confectioneries Private Limited A) 463
Confeectioneries Private Limitednd International
Biscuits limired, dominated the industry. Ilwever, com-
netiion increased with the setting up of seventy unite in
the unorganized sector between 1975 and 1980. Sone
ot them were set up in the backyards of entrepreneurs
under less hygicnic production conditions. They either
sold unbranded biscuis or sold them wih brand names
souncing similar to the leading brands. They even imi-
tated the packaging style of the leading brands. It was ap-
prehended by the industry that the units in unorganized
Sector avoIded payment of taxes. The manufacturers had
to pay an excise duty of 15% and sales tax of 7%% of sales
value. During the same period 8 nc units were set up in
the organized sector in Uttar Pradesh.
In the new competitive environment, KCPL got stuck
in the middle. It couid not increase its prices to take care
of rising costs of labour and material. It did not have the
national scale to reduce costs considerably nor did it have
the premium image to get a higher price. It could not
withstand the competitive pressure. Between 1983-84
and 1986-87 its sales declined. Its capaciry was rendered
surplus. It incurred a loss. See Exhibit 1 for details of
monthy operating performance of "MKG" operations
in 1986-87
The candy business was on the decline. Owing to in-
unorga
ness had become unattractive and uncompetitive. The
amily members decided to close the candy line.

tised on hoarding on crossroads and at the point ot sale

Exhibit Details of MKG's monthly operations in 1986-87
n "Kirana" shops locatcd in residential colonies. The
biscuits were available in standard packs of 100 grams. Dimension "MKG" APL
Sale Per Month (Tonnes) 120 1200 National
KCPL did not sell loose biscuits. The Kirana shop own
ers broke the pack and sold them loose whenever necd- (200 North)
Price Per Tonne () 18,100 19,000
ed. The consumers were middle class familes in urban
Consumption of Maida per tonne (in Kg) 750 700
and serni urban areas. The families in metropolitan cities
Consumption of Vanaspati per tonne (In Kg) 150 140
preferredA-One or International. Consumption of Sugar per tonne (ln Kg) 200 190
Canteens of insitutions bought biscuits by foating Price of Maida per bag of 50 Kg. 500 490
competitive tenders. They placed orders with the low- Price of Vanaspati per tin of 15 Kg 520 500
est bidder. In 1986-87 KCPL had sold 360 tonnes to Price of Sugar per bag of 100 Kg9 1200 1150
small and medium sized instituions. The total demand Preservatives and Packaging costs per tonne 1,000 1,000
from these insututions was estimated to be around 2400
Casual Labour cost per tonne () 300 400
tonnes. The large insututions preterred the other three Wage Rate 50 80
brands. Permanent Salary Bill Per Month (7 lakhs) 2.75 NA
Interest Per Month () 10,000 NA
Other fixed Commitments
COMPETITION AND KCPL's PERFORMANCE 60,000 NA
The data relates to "MKG" biscuits operations. They do not cover the
In 1973-74, glucose biscuits were a growing segment of impact of Pearson contract.

the biscuit industry. Only two national players, A One Source: Discussion with company executives and trade.
 454 Trategic Man agement

ARRANGEMENTS WITH PEARSON HEALTH market icader 1T

DRINKS LTD. Teputation oí
cuallt and price
compeuureness. i: iad not
changed it> pices n the last
three years. Ît kad its
in 1985 Pearson Health Drinks
Limited
plants in Chennai, lamil Nadu.
multinatonal compan: selling "Good Health"
(Pearson, a ts monhly capacity in
1936-8 was 1200 tonnes. It
nourish- aad mechanized most of its
ing health drink, decided to drversify into health biscuits operauons and reaped ben-
efts of large scale economies. It had
br building on its gooci will in health drink market. It inroduced qualiry
con roi
also decided that it would not set procedures based on
Japanese practuces. These
up its oun nanufac- pracuces had en2 bled the
ruring facility. It would outsaurce the supply from smali compan to minimize wast
and medium scaie units 1ge and improve responsiveness to customers
by providing technical support. it compered with both national and orders.
Mr. Ramakant Joshi, a consultant to KCPL ecom- raious biscuit
regiona. plarers in
It had
segm.ents.
mencied KCPLs case to Pearson. He had
woked wth
or
aspirauons becoming
aleader in each of the
Pearson betore starung his regonal segments. It had entered
consulung cornpan Pearson he northera
regon in 1973-74. By 1986-87, it had
promised a load of 100 to 125 tonnes per month and a be
conversion rate ot R5
come a
leading player in the segment with a monthly sale
per kilo afrer reimbursing full the of 200 tonnes.
cost of naterials. It also
agreed to allow KCPLL 1o run
its existing line of business. KCPL saw an
to utiize its opportuniy The Proposal
surplus capacity. It also
hoped tolea:n ne
skils of quality managernent. It dic rot sce Pearson as a APLOtered to place an iniual order tor
competutor to kCPIL. The agreemnent with Pearson was producing ser
en tonnes or glucose biscuits per month. It also of-
signed at irs corporate oifice in Paris in Mar 1986. The tered
ini ual order from Pearson was for 50 tonnes per month
to
supply
the pre
printed packing material with
IPI. It would inspect the
name.
between May 1986 and March 1937. Pearson relied on of KCPI. and recommend
production processes
the expertise of KCPI. It did not provide ant technical equipments, it needed. The changes in processes and
changes needed to be car
guidance. Iis ofiicers inspected the qualiry of the biscuitsned out by KCPI. at its Own cost. API. would
before dispatch. post
The market response to Good Health biscuits was nut CPL to adh
qualiy coatrol! oificers at KCPL
wo
plants and enable
cre to
quality prucedures. it would supply
very encuraging. The: were seen as high biscuits the iPL secret ingredient" to KCPL but KCPL would
priced
without any addiuonal beneits. The customers had be required to
per bur the other ingredients ike sugar, mai-
cived the A-One biscuits as health and
energy providing da and vanaspati ol trom one of the authorized
biscuits. The price of A-One biscuits was wo-thirds ot sup.
piers ot APl.. lt ottered to reimburse the material raw
"Good Health" bis cuits. APIL had strssed in its acver-
expenses as per its aorms and pay a convers:on charge
Isemcnts that its biscuits contained milk solids. of T1.50
per kg to corer the
expenses on labour, orer-
heads and depreciation.
The initial contract r a s to be
tor three years. Shah had hinted that the of
OFFER OF APL be increased if KCPI. rose to the
take would
expectations of APL
I n terms of control, KCPL would be required to send
On Sepiember 8, 1987 Nr. Bharat Shah, Chairman ot
P , nenuoned in the mecting ot Contecioneries daily producion and raw material
consumpuoa report
Jarutacturers Åssociati n of India (CMA) that his com- toAPI
an vas interested in augmenung its supply'ng capaCiT
iy promoting contract manufacruring uni ts {CMC) that DisCU SSION
made biscuits for API.
IN THE FAMILY
according to the speciications
ievelopcd by APL. He also mentioned that his comp1n Alok Kumar presented the propOsal or APL to is
wuld provide technical guidance to the C\IU's and brothers. There were both
of advantages and disadvantages.
fer fair conrersion charges. Mr. Alok Kunmar Gupta nei A clear drantage was in
of avoiding marketing.
terms
. Shah after the coníu rence and
enquired
wlhether he brand building and distribution
expenses and minimiz
as serious in his proposal. ir. Shah answered in the
af 1ng he business risk. It would also hclp them utulize the
tirTatirc. surplus capacit. The disadvantage was in the possible
To PI, CMU route was an
attempt o reduce its oss of
rof
ndependence. It was als feared that they might
ist
manufacturin API. was an "erall aar1onal 1ot ibe able tn coneentrate on
strengtl:ening the "\IRG

brand built over the years. In tact, the family name was
dependent on the success of the biscuit line. In the early
years ot its growth, Mohan Kumar had the vision of
emerging as a leading national brand and compeing suc
cessiully with APIL
There were also anxieties in terms of how the re-
lauonship with APL would work out and how APL's
experience of managing large plants in Chennai would
help in running a small plant in Kanpur. Would there be
interference? Would they be asked to make additional in-
Kanpur Confectioneries Private Limited (A) 465
vesnents in manufacturing? Was the conversion charge
fair? How would Pearson view the venture was another
iss ue.
The other questions were: What did the family mem
bers want from their business ventures? What would they
like to give to their sons when they grew up? They had to
decide soon as they were not sure whether other biscuit
manufacrurers were also interested in the opportunity
and would out beat KCPL in approaching APL.