Chitale Bandhu – A Local Success Story “Have you been to Chitale Bandhu Shop in Pune?”, First day, first class in B School, our marketing teacher asked us to check whether we are familiar with Pune or not. Few hands went up, “Sir it’s a very famous sweets shop in Pune”, one of the students replied, “Sir they have RFID System in their shop and their Bakarwadi is a hot selling item”. I was surprised to hear that whether it is regarding a Sweet shop or something else? We heard this name “Chitale Bandhu Mithaiwale” from our faculties while telling us about success story. It created a curiosity and we could not resist visiting Chitale Bandhu Mithaiwale shop. We (Deepak Mehta & Abhinav Mishra) planned to visit the shop. We were not familiar with Pune, so we had to ask for direction at many places. We were amazed to see that almost everyone knew the address to this shop. Finally we reached the shop; it was like any other simple shop from outside. When we reached the main entrance of the shop, we had to stand in queue. At the entrance a security guard gave us a plastic card (RFID Card) and instructed us to carry this inside. Inside the customers were ubiquitous. It took us some time to understand the contour of the shop. We approached one counter and asked for different variety of sweets available. We were bewildered to know the varieties they had. We went ahead to the Bakarwadi counter. There was big queue and we thought if we do not purchase now, it might get over. When we reached the counter, man behind the counter asked for the plastic card and we gave it to him. Next question,” how much do you want?” we said,” 500 gm”. He put the card on a machine which was kept behind, pressed few buttons, packed Bakarwadi and gave it back to us along with our card. Next we bought amba katali and cornflakes chivda. Then we approached the counter person and asked if we could meet the manager. He took us to the manager who was sitting behind the counter with computer and in front of CCTV. We introduced ourselves and requested him if we could know about the insight of the operation. He introduced himself as Kedar Chitale, one of the proprietors of Chitale Bandhu and told us to call Mr. S. R. Chitale and fix an appointment to get the insights. We thanked him and reached the exit where we were asked for the card, the cashier put this card on machines and told us to pay Rs. 200. Next day we called Mr. S. R. Chitale and fixed an appointment for Thursday Afternoon. We reached the shop on time, asked for Mr. S.R. Chitale and we were taken inside and introduced to a very simple gentleman. Mr. S. R. Chitale offered us seats. 1
Mr. Chitale started unwinding the secret of Chitale Bandhu’s Success. Background: Mr. B. G. Chitale started dairy business at Bhilawadi in the Sangli district of Maharashtra state in 1939. Late Shri. Raghunathrao (Bhausaheb) Chitale, his eldest son, promoted the firm of Chitale Bandhu Mithaiwale in 1950 in Pune, Maharashtra. The firm began its operations in the heart of the Pune city at Bajirao Road. One more principal outlet at Deccan Gymkhana, Pune was opened. The inspiration behind venturing into a dairy based food products business was of course, Shri. B. G. Chitale. When they started this business, prime focus was on quality product and fair price. Gradually people started liking the products of Chitale Bandhu, especially Bakarwadi and Peda and became habituated. Customer started flowing in and Chitale Bandhu realised that they could not meet the demand of few products like Bakarwadi. Another problem was no. of customer visiting the shop was quite high. To solve this they stated with Chit system and increase the production of Bakarwadi. But the two problems instead of getting solved became complicated. To solve this problem, they did in-house R&D and travelled to various exhibitions abroad (Holland & Germany). They saw a machine for Cream Roll production in Food & Beverage Exibition, Anova, Germany. They checked with suppliers for designing a similar automated machine for producing Bakarwadi. One of the suppliers showed interest and visited their factory in India. Finally with lots of changes German supplier could develop one for producing Bakarwadi at Chitale Bandhu. In 1980 the automated machine was imported to India and spent around Rs.10 Million., which was a huge investment. Mr. S. R. Chitale when asked about this investment responded: “It was high investment, but as per our financial planning we were sure that breakeven point will come within a year & that’s what happened.” This machine could produce 350kg of Bakarwadi per hour, which was sufficient enough to meet the customer demand. Later in 1995, they were first to implement RFID System in their shop, which could control the transactions and made billing process easy. Under this system small machines were kept near every counter, where RFID plastic card of customers were fed with the price of sweets
2
bought and finally this card was read at cash counter, where customer could pay the full amount. These innovations created curiosity. Chitale Bandhu products were of high quality, better priced and now were integrated with technology thereby creating huge success. Today: From a very small beginning which saw food items being produced manually with domestic help under a limited physical space, Chitale Bandhu Mithaiwale today boasts of state-of-the-art use of technology in production and end-cycle management of business. A comprehensive infrastructure, in terms of skilled manpower, automated manufacturing units situated at easily accessible points, distribution hubs at key locations and a wide & strong agent & distributor network in place to take care of all the business needs of concern. There are a total of 6 different manufacturing units owned by the firm that supply the food products. Of these, the unit located at Ranje, Shivapur near Pune has two automated manufacturing lines specifically devoted for manufacture and export of ‘Bakarwadi’, the unique and monopoly food snack item from Chitale Bandhu Mithaiwale. Sweet items like the ‘Gulabjamuns’, the ‘Pedhas’ and the ‘Rasgullas’ are also manufactured on machines imported from Japan. Besides manufacturing, Chitale Bandhu Mithaiwale owns two huge and modern shops at key locations in Pune city. It has appointed 10 franchisees within the city and plans to increase this number to 15 shortly. Besides Pune city, a wide network of authorised agents and distributors is placed all over Maharashtra and outside states. Chitale Bandhu Mithaiwale provides employment to about 300 people at all its establishments. Today they have grown into Rs. 5 Billion business, and are ably handled through a strong distribution and franchisee network in Pune and across the country. Having built a brand identity for itself through the sheer range and quality of food products over the past five decades & more, Chitale Bandhu Mithaiwale today is a household name associated with the eating habits, for not just the residents of Pune but all over Maharashtra. Chitale Dairy produces about 200,000 litres of milk per day and manufactures products such as cream, butter and yoghurt.
3
By establishing and operating through various corporate and non-corporate entities, this business today is a major supplier of food products all over India and is also slowly but surely establishing itself as a major exporter of its products abroad. Its present exports are to countries like USA, Singapore and Israel. Chitale Bandhu Mithaiwale acquires all its dairy supplies from its Sangli dairy farm. Besides this, it has three main manufacturing concerns with multiple units in and around Pune, where state-of-the-art machinery is in use for production of various types of sweets, salted and ready-to-eat food products. These manufacturing units are: •
Chitale Sweets & Snacks Pvt. Ltd. – 4 units
•
Shrikrishna Food Industries – 1 unit
•
Chitale Bandhu Mithaiwale – 1 unit
The quality of food products of Chitale Bandhu Mithaiwale is strongly looked after and the business activity is (Hazard Analysis Critical Control Points) HACCP certified. Chitale Bandhu Mithaiwale is also up-to-date in the use of computer systems and modern technology in all its business activities. Being a family owned and managed business; Chitale Bandhu Mithaiwale has evolved and developed through the sheer grit, determination and efforts of four generations of the Chitale family. Mr. S. R. Chitale Says: “Current annual turnover is $ 5 Billion, $ 4 Billion from Dairy business where the profit margin is only 2% and rest $ 1 Billion from Sweets business where profit margin is 12 to 15%.” He continues: “60% of the entire sweets sales happen during festival time. Currently about 56 varieties of sweets and 31 varieties of Namkeens are being sold.” New product development started from home, where family ladies develop new product. Then new product is sent for testing to customers and other family members, once approved it is introduced in the system. Chitale Bandhu uses only one source of advertisement and that is through local newspaper. Logistics and Technologies: Entire transportation is been looked after by Chitale Bandhu only. They have 13 small to Medium vehicles, which carry out the entire operations in Pune. All shops have to send next
4
day demand based on the forecast by 5pm (evening). Accordingly next day morning at 5 am products are sent to the respective shops. With the business operating 10 physical servers across two data centres in a town 500 kilometres from the nearest large city, Chitale Dairy found it expensive and hard to source qualified IT support staff .This posed a significant risk to its operations. In 2005, Chitale Dairy began evaluating ways of streamlining and enhancing its technology environment. The business decided to implement VMware server virtualization to provide the required availability and disaster-recovery capabilities. “We determined that if a server became corrupted, we would need six or seven hours to fully restore it,” said Vishvas Chitale, Director, Chitale Dairy. “Using VMware High Availability (HA), we could reduce this to just 10 minutes.” In June 2007, Chitale Dairy consolidated its environment to three physical servers operating in one data centre. These 20 host virtual servers running multiple production applications and operating system, including 64-bit Microsoft Exchange Server 2007. “Our environment is highly scalable,” says Chitale. “We can easily support another 20 virtual servers on our existing hardware to service our growth of 15 percent year-on-year and expansion into new lines of business.” Chitale Dairy is also evaluating VMware Desktop Infrastructure (VDI) for deployment. Results • Reduced server hardware acquisition costs by 50% • Cut software acquisition costs by 75% • Reduced server deployment times from three weeks to three hours • Gained the ability to restore a corrupted server in 10 minutes rather than six to seven hours • Eliminated second data centre, with consequent 50% reduction in power, cooling and real estate, by consolidating from 10 physical servers to three • Reduced storage costs by 25% • Gained the ability to seamlessly migrate virtual environment to new physical node • Delivered flexibility by supporting a range of storage options
Chitale Group: Chitale Bandhu Mithaiwale is a part of the large, diversified and prestigious Chitale Group. Apart from the milk and dairy products business which is the foundation of the food products business, the Group is into digital services and agro businesses. Various companies and firms look after the diversified interests of the Group. These are: 5
•
B. G. Chitale (Chitale Dairy)
•
Chitale Bandhu Mithaiwale
•
Chitale Foods
•
Chitale Agro Industries Pvt. Ltd.
•
Chitale Digitals
Each of these businesses has its own separate production, marketing and distribution network. While using this network, the dairy, food and the agro industries businesses also efficiently put to use their internal synergies to minimize costs and adhere to strict and high quality of products.
Sweets and Snacks market In India: According to Dairy India 2007 estimates, the current size of the Indian dairy sector is US$ 62.67 billion and has been growing at a rate of 5 per cent a year. Both production and consumption of milk and its derivatives are traditionally high in the country. The dairy exports in 2007–08 rose to US$ 210.5 million against US$ 113.57 million in the corresponding period, in the last fiscal, whereas the domestic dairy sector is slated to cross US$ 108 billion in revenues by 2011. Probiotic dairy products, which contain live organisms, build immunity and help in digestion, are an emerging category in the Indian food market. Along with domestic dairy majors like, Amul and Mother Dairy, global players like Nestle have made significant investments to capitalise the potential of the segment. The latest entrant is Yakult Danone with its investment worth US$ 28.3 million and an additional US$ 20.8 million on the cards for the next 2–3 years. According to the latest report on Indian Functional Foods and Beverage markets' by Frost & Sullivan, the market of nutraceuticals and probiotics earned revenues of over US$ 185 million in 2007 and is projected to touch an estimated US$ 1,161 million in 2012. Although the segment in its nascent stage currently, it is poised for an upswing. A healthy domestic 6
economy and awareness of health products are expected to give a boost to the segment. (Ref: www.sweetsnackfactory.com) Market Structure The organized sector is focusing on new product development, packaging, retailing and export orientation for its further expansion. The organized sector's stress on quality has also been noticed. Both the K.C. Das and the Ganguram groups have quality control laboratories. Haldiram's are known for aggressive marketing, and their distribution network has helped them attain leadership within the organized sector. In 2007, in the overall Retail pie Food and Grocery was the dominant category with 59.5 per cent share, valued at Rs.792, 000 Crore (USD 198.2 billion). In the organised retail segment, the picture is quite different. Food & Grocery (F&G) is the second largest category accounting for 11.5 per cent of the organised retail market at Rs.9, 000 Crore (USD 2.3 billion). The food & grocery retail categories achieved 55.2 per cent growth in 2007.
INDIAN RETAIL (SHARE IN 2007)
At constant prices, the overall F&G retail market grew slightly higher at 2.3 per cent in 2007, compared to a 2.2 per cent annual growth in the previous two years. But the organised retail segment in this category is simmering in the true sense – a 50 per cent growth in 2007 as compared to 42.9 per cent in 2006, and lot more fireworks can be expected this year and the years ahead. Valued at Rs.9, 000 Crore, this organised market constitutes barely 1.1 per cent of the total food & grocery retail market. The Indian retail industry will touch Rs 18, 10,000 Crore by 2010. Organized retail will be about 13 percent of the total market at Rs 2, 30,000 Crore. Food and grocery dominates the retail segment with 59.5 percent share valued at Rs 7, 92,000 Crore. This is followed by 7
clothing and accessories with a 9.9 percent share at Rs 1, 31,300 Crore. Out-of-home food (catering) services at Rs 71,300 Crore have overtaken jewellery Rs 69,400 Crore as the thirdlargest retail category, with a 5.4% market share. Consumer durables at Rs 57,500 Crore are the fifth-largest retail category. At sixth place is health and pharmaceuticals at Rs 48,800 Crore. At seventh place is entertainment at Rs 45,600 Crore. At eighth place is furniture, furnishings and kitchenware at Rs 45,500 Crore. This is followed by mobiles and accessories at Rs 27,200 Crore. Leisure retail at Rs 16,400 Crore. Footwear at Rs 16,000 Crore. Health and beauty care services at Rs 4,600 Crore. Watches and eyewear at Rs 4,400 Crore.
EXPECTED INDIAN RETAIL (SHARE IN 2010)
Product Profile In terms of regional preferences, the khoa-based mithais are more popular in northern, western and southern parts of the country while chhana-based sweets are popular in eastern India. The growth of cultured products like shrikhand in western India and chhana-based sweets in northern and southern India is levelling out the regional preferences for traditional sweets. Market Opportunities Multinational companies like Nestle had introduced innovations of blending product design of Western pastries with khoa-based sweets marketed as "Mithai Magic" and position it for corporate gifting. Instant-mix Sweets the 'instant mix' market in India was estimated to be around Rs 1,000-1,250 million in 1998. The most popular 'instant mix' so far is that for gulabjamun which is available in a number of brands, including Amul, Nestle and Gits. The other traditional products introduced in the 'instant mix' product form are kalakand, kesar kulfi and shahi rabri by Nestle under the brand name 'Milkmaid'. (Ref: www.indianmilkproducts.com) Competitor Analysis: Mr. S. R. Chitale says: We do not have competitor in Pune as all other sweets shops are working on different parameters.”
8
But, in Pune there are lots of small sweets shop, few among them are very famous as well. Like •
Kaka Halwai Sweets
•
Karachi Sweet Mart
•
Mithaas Sweet Shop
•
Purohit Sweets
•
Mithai Ghar
•
Prabhat Farsan & Sweets
•
Mamta Sweets
Future Plans of Chitale Bandhu: •
Chitale Bandhu Mithaiwale is focusing on packaging and online selling.
•
Franchisee outlets in Maharashtra.
•
Retailing in International market.
But they are not focusing on large expansion. Indian Food Industry: The Indian food market, according to the 'India Food Report 2008' by Research and Markets is estimated at over US$ 182 billion, and accounts for about two thirds of the total Indian retail market. In fact, the year 2008 has been a record year for India’s food grain sector with increased production, acreage under cultivation and record procurements. Further, according to an Economic Times analysis, one out of every five listed companies in India confirmed higher profits during the first half of fiscal 2008–09, with farm inputs and farm machinery companies achieving the biggest profits. According to Mr Subodh Kant Sahai, the Union Minister of State for MFPI, the food processing industry in India was seeing growth even as the world was facing economic recession. According to the minister, the industry is presently growing at 14 per cent against 6–7 per cent growth in 2003–04. Foreign direct investments (FDI) totalling US$ 143.80 million was put into the food processing industry in 2007–08 against US$ 5.70 million in the previous fiscal. Future Growth of Indian Food Industry:
9
According to consultancy firm McKinsey & Amp. Co., the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025, accounting for a large chunk of the world food industry, which would grow to US$ 400 billion from US$ 175 billion by 2025.
Retail Landscape: Food Chains and Restaurants
10
The food and grocery market in India is the sixth largest in the world. Food and grocery retail contributes to 70 per cent of the total retail sales. According to industry estimates, the segment is growing at a rate of 104 per cent and is expected to grow to US$ 482 billion by 2020. According to a BMI forecast, India is likely to see a huge 443 per cent increase in mass grocery retail (MGR) sales during the 2007–2012 period. The sector has recently attracted UK retail giant Tesco, which plans a partnership with the Tata Group. Ninety nine per cent of this segment is unorganised, and therefore, there is immense scope for growth for the organised sector. The organised food retail sector is largely dominated by restaurants, fast food outlets, and coffee joints.
Major investments:
11
Private investment has been one of the key drivers for growth of the Indian food industry. The 'India Food Report 2008', reveals that the total amount of investments in the food processing sector in the pipeline for the next three years is about US$ 23 billion.
•
The government has received around 40 expressions of interest (EoI) for the setting up of 10 mega food parks (MFPs) with an investment of US$ 514.37 million.
•
Conglomerate Reliance Industries Ltd has invested US$ 1.25 billion in a dairy project. In August 2008, Reliance Industries was reported to be mulling a partnership with UK-based supply chain solutions provider, Wincanton, for its efforts focussed on India’s mass grocery retail (MGR) sector.
•
According to Business Monitor’s Q108 India Food & Drink Report, dairy major and ice cream specialist, Amul Dairy, has announced plans to enter India's US$ 500 million snack food market.
12
•
Future Group and its private equity arm, in division India Partners, have acquired a controlling 50 per cent plus equity stake in the multi-cuisine lifestyle restaurants’ chain, Blue Foods. Blue Foods’ flagship brands include Noodle Bar, Gelato Italiano, Spaghetti Kitchen, Copper Chimney, Bombay Blue, Cream Centre and a franchisee agreement with the California-based coffee chain, Coffee Beans & Tea Leaf.
•
The world's third largest pizza chain, Papa John's, plans to open 100 outlets in different parts of the country with an investment of US$ 51 million.
•
Fast-food chain McDonald’s is pumping in US$ 83.4 million on increasing its footprint in India.
•
ITC is planning to set up a world-class processing infrastructure in Rajasthan for an integrated 'cleaning-cum-sorting' facility for spices like cumin, coriander and pepper. Moreover, ITC is also planning investments to automate the different operations in its supply chain. It is planning to set up a pepper garbling and steam-washing facility in Kerala, apart from a 'blended spices' facility over the next two years.
•
Sapat International, a Mumbai-based tea company, is reportedly in talks with EPIC, a private equity firm in the UK, for the acquisition of its stake in Whittard, an upmarket tea and coffee retailer in the UK. 13
•
Cafe Coffee Day is planning an investment of US$ 24.68 million - US$ 30.86 million for expanding its number of cafes to around 1,000 from the current 700, over 2009.
Questions: Q1. What constrains do you see in Chitale Bandhu Success story? Q3. Do you feel Chitale Bandhu is optimizing its resources? Justify your answer? Q5. Who are Chitale Bandhu’s Competitors? Q6. Why Chitale Bandhu is not expanding all over India when all other players are on expansion drive? Q7. Do you see the need of expansion? What will you suggested strategy for Chitale Bandhu? Q8. Should Chitale Bandhu rebrand itself for international look? Q9. What lesson do you learn from this case?
Ref: •
Personal Interview of Mr. S. R. Chitale.
•
www.chitalebandhu.in
•
www.sweetsnackfactory.com
•
www.indianmilkproducts.com
•
http://www.ibef.org/home.aspx
•
Indian Retail Report
•
International food policy research Institute
(This Case Study is prepared by Deepak Mehta and Abhinav Kumar Mishra, Students of Balaji Institute of Modern Management, Pune under guidance of Prof.Srini.R.Srinivasan.)
14
