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Case Analysis

Submitted By

Team Blitzkreig
IIM Lucknow

Member Details

Pushpak Goel PGP25034@iiml.ac.in +91-9794908593


Lavina Malani PGP25305@iiml.ac.in +91-9559284406
Case Objective
XYZ Frozen Foods Ltd
Company’s Objective

Supplementary Objectives
Proposed Strategy

XYZ should focus on the Domestic Retail Division


Phase wise plan in the following areas
Domestic Retail – Backend Infrastructure & Product Portfolio
§Identify : skill-set required
§Innovate: new products - frozen green peas &
E – I ( 1-2 years)
variety of green peas dishes
§Invest: On logistics infrastructure , procuring
green peas
§Increase: Product portfolio
Domestic Retail – Backend Infrastructure & Product Portfolio
§Identify : skill-set required
§Innovate: new products – frozen chicken (and
E – II ( 4-5 years) traditional Indian chicken dishes)
§Invest: On the technology and
infrastructure
§Increase: product portfolio
Distribution Strategy
Following options FAIL the objective to make EBIDTA positive in 2 yrs
Distribution Strategy

Recommendation:
“RapidBuy” Online ordering system


R rders
A Retail O
Retailer
P
I

Plant D
B
U
Y Direc
t orde
rs

Customer
RapidBuy Advantages
• No intermediary distributor or warehouse
required
• Can keep giving high margins to retailers
• Savings on Warehouse costs will bring Gross
Margin up
• Assuming this cost = 9% of Revenue (equivalent
average of competitor’s margin to distributors)

• Evidence of Viability
• Rapid technological development/stability in
India
• Retail purchase – Higher margins incentivize
retailers
• Direct Purchase - NRIs & convenience oriented
(upper mid class)
• Can make direct bulk orders
• Cost less to customer even on paying transport
& logistics cost

Short Term Objective Realised

Replacing Warehouse model with the “RapidBuy” Online


ordering system:
• Positive earnings by the end of Year 2 (Appendix 1.4 for
detailed table)
 Assumptions

• Retailers margin constant to 10.8% of revenue (2009-10)


• Rapidbuy cost i.e. 1crore is amortized over 2 years
• Cost of running Warehouse = 9% (Average competitors
margin to distributors)
• Gross margin goes up by this much, with “RapidBuy”
 All calculations in table are with reference to 2009-10 data provided
Long Term Production Strategy

Proposed Production Plan:


• Plant 1 (East India) - Additional Frozen “Green Peas” production


• Estimated demand in 2011 – Rs.300 crores (Appendix 1.1)
• Assuming XYZ’s market share of Green Peas = 5% (15 crore)
• Turnover in running year (5th year) = 230 crores (appendix 1.2)
• Plant 2 (North India) – With frozen Chicken processing capacity
• Takes 2 year for setup, production starts in 3rd year (appendix 1.2)
• Caters to North-West demand (60% of original sales)
• UP has highest no. of freezer space in India (appendix 1.3)
• Vicinity to North & West India => Less Logistics cost, more margin
• Turnover in running year = Rs.215 crores (approx.)
 Total turnover by end of year 5 = Rs. 450 crores*

 *Please refer Appendix 1.2 for yearly calculations



2009 - 10
Years 0 1 2 3 4 5
           
         
     

  Plant 1 at present
  Green Peas start in plant 1
  Plant 2 Total Turnover Rs . 450
= Crores

Assumptions
• CAGR of 30% (average of current & market growth)
• XYZ will gain 5% market share in “Green Peas” in 1st year of
Green Peas production
• Rs.30 crores for Plant 2 will be funded through Loans / family or
Angel investment
• Plant 2 will be ready for production in 2 years
Limitations

• Cannibalization of East plant share by new plant


• Narrow focus on Domestic retail market may forego institution
& export growth opportunities


Domestic retail -Branding and Promotion
Marketing Objective

Advertisement Objective

Communication Strategy

Packaging Promotion
Domestic Retail-Branding and Promotion
Target Segment

Age Group : 22-35 years


Demographics Population: Urban ( see Appendix 1)
30 million Income Level : Middle, Upper Middle
upper and
middle class
Indians
consume
frozen/packaged Busier and Nuclear lifestyle
food & 200 Demand for convenience
million Psychographics
Willingness to pay
projected in 
next 3 yrs

Growth of organised retail(sales


Growth increased by 108% in 2008 alone)
Drivers Increase in freezer space ( see
Appendix 1.3)

Domestic Retail-Branding and Promotion
Packaging
Domestic Retail-Branding and Promotion
Media Selection Proposed Strategy

Internal promotion of Frozen Vegetables (XYZ’s share - 1% of market size with Frozen Indian br
Tie-in Promotions
(Package Deals)

Direct Marketing
Personal emails, online Ads –Target NetSavvy consumers, Attractive Online

Print Media &


Pamphlets and video screen displays in targeted localities, bookstores, offices,s
OOH Media

Promotion
Social Media and using facebook, twitter, orkut and even linked-in – tagging to “Rapi
Social Networking
Appendix 1.1

YoYgrowth rate for demand for green peas in Asia ~ 5%. Assuming the same for Indian
markets, latent demand for frozen green peas in India in Us $ mln and Rs cr(exchange rate : 1
US $ = Rs 48).
Year 2006 2007 2008 2009 2010 2011
US $ mln 48.57 50.9985 53.54843 56.22585 59.03714 61.989
Rs crore 233.136 244.7928 257.0324 269.8841 283.3783 297.5472

Source: The 2006-2011 World Outlook for Frozen Green Peas by Professor Philip M. Parker, Ph.D.
Eli Lilly Chaired Professor of Business, Innovation and Society INSEAD
Appendix 1.1 ctd
Using the data given, finding the market size of each product segment:
Prod Category Share of Revenue XYZ Market Share Total Market Size

Breads 45 42 107.14
Snacks 25 5 500
Non V Snacks 15 2 750
Frozen vegetables 5 1 500
Others 10 5 200

From previous table, market size of green peas in 2010 = Rs 283.38 cr.
Market Size of Frozen vegetables in 2010 = Rs 500 cr.
Percentage share of green peas = 56.67%

Appendix 1.2
Rs . Crore year -> 0* 1 2 3 4 5
Plant 1 Original Sales @ 100.00 130.00 169.00 219.70 285.61 371.29
30% growth yoy

40% of orig. sales  - - - 109.85 142.81 185.65


(Non-NorthWest
market)

GreenPeas  - 15.00 19.50 25.35 32.96 42.84


   Total  100 145.00 188.50 135.20 175.76 228.49

               
Plant 2 60% of orig. sales   - - 131.82 171.37 214.21

North-West market            

             
  (40%) + GreenPeas +   Total sales from both
  plants
442 . 70
(60%)
  All Figures in Rs . Crores * Year 0 = 2009 - 2010
( reference year )
Appendix 1.3
Projected Growth in Freezer Space in India

Source: http://www.technopak.com/Perspective/vol3/Opportunities%20in%20the%20Packaged
%20Food%20Market%20in%20India.pdf
Appendix 1.4
 All figures Year 0 Year 1 Year2 Year3
in Rs. Crores
  Warehouse RapidBuy      

 Revenue 100.00 100.00 125.00 156.25 195.31


 Gross 25.00 34 . 00 42.50 53.13 66.41
Margin
 Logistics 16.50 16.50 20.63 25.78 32.23
cost
 AD spend 1.50 1.50 1.88 2.34 2.93
Employee 6.20 6.20 6.20 6.20 6.20
cost
Retailer 10.80 10.80 13.50 16.88 21.09
margin
"RapidBuy" - - 0.50 0.50 -
amortized
cost
 EBIDTA =  -10.00  -1.00  -0.20  1 . 43  3.96
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