Arun Ice Cream

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   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.

xas 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 xithin a year registered a turnover of Rs. 15,000 and made a profit of Rs. 40,000/-

The first year¶s 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. 0    1. ^elling 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. xas 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 r Deep freezers supplied by ice cream majors who maintained a cold chain r Too high an investment for Arun Ice Cream ii. Hotels and restaurants r Made heavy demands on suppliers r ^low to release payments r ‰sed their substantial clout with small time suppliers iii. ^ocial events, mostly parties and weddings r 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. ‰p 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. ^easonal demand-supply imbalance r 0eak season for ice cream ± summer ± lean season for milk and vice versa ii. ^hort 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 MR0 guidelines by franchisees 14. Ice cream manufacture reserved for ^mall ^cale Industries (^^I) 15. Emerging competition from ‰nilever, 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 ^
   1. *ocused on educational institutions ± students prepared to experiment with new brands andflavours:

i. College canteens and hostel mess segments ii. Bagged order from IIT, Madras iii. Included college canteens in interior districts Tamilnadu 2. ^upplied to ship chandlers. ^pecially packed to cater to erratic delivery schedules 3. ^upplied ice cream at weddings and important social events in up country towns 4. ‰sed local telephone directory to obtain addresses and mailers posted to potential up market customers 5. ^upplied ice creams within 4 to 5 days of booking 6. ‰nknowingly set up a chain of franchisees who: i. Invested in their own freezers ii. ^tarted ice cream parlours iii. xere supported in promotions and advertising by Arun Ice cream iv. By early 1999, 700 franchisees in Tamilnadu, Kerala, Andhra 0radesh and Karnataka 7. *ranchises allotted only to i. Youth ii. Average income individuals iii. Those who have failed in business 8. *ranchises not allotted to highly educated and elderly 9. Milk procurement: i. Directly from dairy farmers i. ^et 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. 0ayments made once in 3 days 10. ^ourced other ingredients like sugar, fruits etc. and packing materials from leading wholesalers and manufacturers 11. Transportation of ice cream within a radius of 250 ± 300 kms was done with ice boxes ± insulated boxes cooled with dry ice ± on trains. 12. Built a new plant at ^alem i. Close to Karnataka and Kerala borders ii. xithin Tamilnadu¶s milk belt 13. ^et up a new plant at Madras ± at Red Hills i. 15,000 litres capacity, costing 45 million, and operational in July 1995 ii. ^et up as a separate firm µHatsun Milk 0roducts¶ to circumvent restrictions on ^^I units 14. Relieved factories of responsibility of daily direct distribution i. ^et 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 15. *airly expensive and innovative sales promotion programme. E.g. ³Eat All you Can´ programme, ³ ^low ^peed Driving Competition´ and ³0hone and Have an Ice Cream´, particularly intended to introduce customers to the high-end flavours 16. Approach to 0ricing: i. *ranchisee given 20 ± 25 % of MR0 depending on location and costs ii. ^ingle tier distribution strategy ± supply directly to the point of retail sale to the customer iii. ‰p country franchisee to make advance payment by demand draft 17. MR0 control: i. 0roduct sold in pre-packed factory packs with MR0 marked ii. 0arlours to display price list prominently iii. Violation of MR0 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. Arun¶s strengths are acknowledged to be limited and this would result in spreading his limited resources rather thin. 0ursuing an aggressive reinforcement of Arun¶s competitive profile and further expanding its franchisee network will likely pay more dividends and help stave off the threat of selling out to MNC¶s. Also Arun Icecream has a large market share in the up towns into which the competitor HLL under brand name Kwality xalls with its frozen desserts is unlikely to penetrate now, when no other ice cream major has done it before.