Arun Ice Cream

Chandramogan, son of a vegetable wholesaler from Chennai, set up Arun Ice Cream in 1970 in Madras with an investment of Rs. 15,000/- of his own capital and another Rs. 21,000/- borrowed from the bank. i. ii. iii. Was one of about 350 small-time ice candy manufacturers competing in the low end of the market He sold ice candies for 10p and 15p a piece mainly through street vendors and over the counter sales Within a year registered a turnover of Rs. 15,000 and made a profit of Rs. 40,000/-

The first years success emboldened him to go in for a three-fold expansion in the second year. As the existing locale was cramped, he chose to locate the new factory in the outskirts of the city. Problems: 1. Selling the expanded volumes proved quite difficult, particularly during the off-season. 2. Inconspicuous location of new location, inappropriate for across the counter sales 3. Expansion resulted in higher capacity related fixed costs 4. Was now competing with the majors Dasaprakash, Joy and Kwality 5. Bulk of ice cream purchases accounted for by 3 categories: i. General provision and departmental stores with deep freezers  Deep freezers supplied by ice cream majors who maintained a cold chain  Too high an investment for Arun Ice Cream ii. Hotels and restaurants  Made heavy demands on suppliers  Slow to release payments  Used their substantial clout with small time suppliers iii. Social events, mostly parties and weddings  Highly brand-conscious Arun virtually unknown 6. Educational Institutions and supplies to ships were ignored by ice cream majors due to small volumes and erratic demand 7. Up country mofussil towns ignored due to logistic problems 8. Initial absence of franchisees led to adopting fixed-day selling i. Left out a large number of customers from places contiguous to selected towns ii. Left out walk-in customers indulging in impulse purchases 9. Did not have a significant presence in Madras City 10. Cost-efficient procurement of milk i. Seasonal demand-supply imbalance  Peak season for ice cream summer lean season for milk and vice versa ii. Short shelf-life iii. Refrigerated transport of milk expensive 11. Transporting ice cream for long distances by train and refrigerated vehicles not viable at that time 12. Increasing number of franchisees and flavours, took a heavy toll on the factories 13. Violation of MRP guidelines by franchisees 14. Ice cream manufacture reserved for Small Scale Industries (SSI) 15. Emerging competition from Unilever, an international giant, through Brooke Bond India Ltd (BBIL) and Hindustan Lever Ltd (HLL) 16. HLL not content with anything less than leadership position in every market Solutions 1. Focused on educational institutions students prepared to experiment with new brands andflavours:

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i. College canteens and hostel mess segments ii. Bagged order from IIT, Madras iii. Included college canteens in interior districts Tamilnadu Supplied to ship chandlers. Specially packed to cater to erratic delivery schedules Supplied ice cream at weddings and important social events in up country towns Used local telephone directory to obtain addresses and mailers posted to potential up market customers Supplied ice creams within 4 to 5 days of booking Unknowingly set up a chain of franchisees who: i. Invested in their own freezers ii. Started ice cream parlours iii. Were supported in promotions and advertising by Arun Ice cream iv. By early 1999, 700 franchisees in Tamilnadu, Kerala, Andhra Pradesh and Karnataka Franchises allotted only to i. Youth ii. Average income individuals iii. Those who have failed in business Franchises not allotted to highly educated and elderly Milk procurement: i. Directly from dairy farmers i. Set up collection centres at milk producing villages close to ice cream plant ii. Milk brought to factory within 2 3 hours of collection ii. Offered guaranteed procurement in lean season iii. Offered higher rates for additional supply in peak season iv. Payments made once in 3 days Sourced other ingredients like sugar, fruits etc. and packing materials from leading wholesalers and manufacturers Transportation of ice cream within a radius of 250 300 kms was done with ice boxes insulated boxes cooled with dry ice on trains. Built a new plant at Salem i. Close to Karnataka and Kerala borders ii. Within Tamilnadus milk belt Set up a new plant at Madras at Red Hills i. 15,000 litres capacity, costing 45 million, and operational in July 1995 ii. Set up as a separate firm Hatsun Milk Products to circumvent restrictions on SSI units Relieved factories of responsibility of daily direct distribution i. Set up depot in Madurai with cold storage facilities ii. Responsible for distribution to franchisees in southern Tamilnadu iii. Responsible for sourcing produce from Arun factories Fairly expensive and innovative sales promotion programme. E.g. Eat All you Can programme, Slow Speed Driving Competition and Phone and Have an Ice Cream, particularly intended to introduce customers to the high-end flavours Approach to Pricing: i. Franchisee given 20 25 % of MRP depending on location and costs ii. Single tier distribution strategy supply directly to the point of retail sale to the customer iii. Up country franchisee to make advance payment by demand draft MRP control: i. Product sold in pre-packed factory packs with MRP marked ii. Parlours to display price list prominently iii. Violation of MRP guidelines and payment terms led to termination of franchise

18. Recruited competent senior management The aggressive entry of HLL into the frozen desserts and ice creams industry, would require Arun to rework their competitive strategy. May not be very wise for Arun to pursue alternative business opportunities with the hope of supporting the ice cream business. Aruns strengths are acknowledged to be limited and this would result in spreading his limited resources rather thin. Pursuing an aggressive reinforcement of Aruns competitive profile and further expanding its franchisee network will likely pay more dividends and help stave off the threat of selling out to MNCs. Also Arun Icecream has a large market share in the up towns into which the competitor HLL under brand name Kwality Walls with its frozen desserts is unlikely to penetrate now, when no other ice cream major has done it before.