Entrepreneurship Total Marks 100 This is not a Open Book Exam Kindly study the following case and

d answer the questions posted at the end. Southern Savouries Private Limited (SSPL) Ashvin belongs to a wealthy family with more than a centurys tradition in businesses ranging from trading, exports and marketing of branded coffee powder. The family owns coffee estates. But now the members of the family have diversified into real estate, property development, electronics and snack foods. Ashvin is the eldest son of Krishnamurthy who successfully promoted a real estate and property development company called the Majestic Group in Bangalore. Even while studying for his Business Management Programme (MBA) in Bangalore, Ashvin was always enthusiastic about retail food products and foresaw tremendous potential for them. Soon after his college, he joined the familys coffee business, but at heart, he always wanted to move out into the snack food business. He noticed that there was a very good demand for South Indian fried savouries and, unlike for the North Indian savouries, there were no organized players in the market. He also observed that the South Indian fried savouries like Chakli, Kodubale, hulimuruku, Nippattu, etc were equally enjoyed by the rich and the poor. Ashvin launched Southern Savouries Private Limited (SSPL) in 1997 in partnership with his father Krishnamurthy and his younger brother Vishnu who had just finished his MBA at that time. The vision was to make SSPL a world-class snack food manufacturer. However, the initial product offerings were restricted to South Indian savouries and spice powders. SSPL was a great leap away from the familys traditional commodity business. The commercial production started in October 2001 and even though the sales were sluggish initially, there was steady improvement. The idea of starting SSPL was inspired by the observation that the eating preferences of South Indians are centered on fried savouries, irrespective of their religion, caste or economic class; everybody likes to have savouries along with lunch and dinner. The more popular among these savouries are Chakli, Nippattu, Papad and Sandige. These products are currently being manufactured by the unorganized sector where there are no brands or big players. Multinational companies as well as big Indian companies have also ignored these products. This was seen by Ashvin as a big opportunity to create a branded mass-consumption product group of savouries, as there were no such brands in the market at all. The existing manufacturers were not professional or organized, and hardly offered any varieties. Besides, the hygiene and quality of their products were questionable. Moreover, the players in the field did not use modern food technology, and there was hardly any research and development going on in any of these companies. Thus, the situation was quite favorable for the launch of SSPL, which wanted to bring out good quality branded savouries into the market. SSPL contracted M/s Malcom Consultants to plan a state-of-the-art factory with global manufacturing standards. An important feature of the proposed plant was a Hi-Tech System to remove nearly 75% of oil from the finished products and thus could offer products with very low oil content to consumers. Use of this technology is intended to attract the health-conscious consumers. SSPL, thus, installed completely automatic

microprocessor-controlled machines with automatic frying system. These machines were developed and installed in-house with a view to saving Capital investment. For the packing of its products, the company used multi-layered laminated pouches that would help in extending the shelf-life of the products from the current life of 45 days to a much longer period of 6 months. The market for savouries was then dominated by small manufacturers supplying to fragmented segments of the market. The packaging used by them was of inferior polypropylene covers with paper labels inserted inside. Since SSPL had superior products and packaging, they thought their products would easily be accepted by the market. However, there was stiff resistance from the distributors, probably because of the higher prices. So, they had to establish their own distribution network. This strategy paid off, and eventually within a few months the distributors came forward to take up SSPL products. Within a year, SSPL appointed four distributors in Bangalore and six distributors in other major towns of Karnataka. Now the company has nearly 600 outlets in Bangalore and 300 in other towns, which is comparatively low as per industry standards. The SSPL products are promoted mainly through press advertisements with bi-weekly insertions in a leading Kannada daily. Additionally, they use to distribute attractive leaflets in retail outlets and handouts in markets, bus stands and other places frequented by people. The marketing efforts were showing results, and the sales figures were steadily improving. However, the growth in sales was not large enough to cover the companys fixed and variable expenses (See Table-1). Table-1: Financial Data of SSPL for the First Three Years 2001-2002 Capital investment (Rs) Sales turnover (Rs) Profit margin on sales Expenses per month (Rs) Term loan (Rs) Working capital loan (Rs) Rate of interest Taxes 1,450,000 150,000 10% 60,000 1,000,000 500,000 15.50% 10% 2002-2003 2,500,000 1,150,000 20% 80,000 1,000,000 500,000 15.50% 15% 2003-2004 (Up to July) 550,000 23% 90,000 1,000,000 500,000 15.50% 16%

Reflecting on the performance of SSPL so far, Ashvin feels that the company has to tackle a few problems urgently: 1. Though the sales revenues are steadily increasing, the expenses are increasing at a faster rate. In fact, the revenues are barely able to catch up with the expenses. 2. The products are not able to penetrate beyond Bangalore city and a few other towns in Karnataka. It may be because SSPL is selling its products through the very same distributors who carry the low-quality/low-price products from the unorganized sector, which gives a definite advantage to the latter in the priceconscious market segment targeted by such distributors. One obvious solution to this problem is to approach the up-market distributors. However that would involve a much larger investment on the marketing front.
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3. There is stiff competition from the local players and resistance from their distributors to SSPL products. Since they are competing on a relatively low price for a product that is perceived to be the same, it is turning out to be an unequal game. 4. Ashvins flamboyant and highly expenditure-oriented strategies for SSPL were being opposed by the family members, who were conservative and traditional with a commodity-marketing mind set. Further investments on the project were being met with disapprovals by his father. 5. There has been a poor perception in the market about packaged fried food products in general, as the market has been dominated by unorganized players, and had no respectable brands to mention. Such perceptions have come in the way of SSPL getting any outside investors. The higher risk involved and the unglamorous nature of the product thwarted any external funding, especially those from venture capitalists. 6. Faced with the difficulties in marketing and the high investments required for the same, the initial enthusiasm of other directors started waning, and there was lack of understanding among the directors, which led to disputes and self-doubts about the potential of the products and the business model. 7. Promoters lack of experience in retail marketing coupled with the inadequate market research led to the use of trial and error methods in marketing, which has caused heavy expenses to the company. Ashvin is thinking hard to find ways to solve these problems and take his venture forward to new heights. Questions: 1. Do a thorough critique of SSPLs strategies, with special reference to: (a) the choice of product, (b) business model, (c) marketing strategies, and (d) familys involvement. Should he continue with this business or think of exit strategies? If you were to start the same business, how would you have gone about it? 2. In case you are of the view that Ashvin should continue with this business, please help him to develop suitable strategies and action plans to ensure the survival and growth of his venture. Assuming that there is a possibility of getting venture capital funding, prepare a brief business plan (based upon the current position) for submitting to a venture capitalist.