I can do a blind tasting and tell you the tomato ketchup brand,” says Vijay C, director of Bengaluru-based Indira Foods. He’s pointing to the stack of tomato ketchup bottles and packets arranged neatly on his table along with an assortment of processed food packets. After all, tomato ketchup was Vijay’s first offering when he set up a few machines in 2001 to sell to local hotels and food services clients.
Today, Indira Foods makes tomato and tamarind paste, tomato ketchup, pickles and jams, and ready-to-cook dosa batter for in-store brands of retailers such as Future Group’s Food Bazaar, Aditya Birla group’s More and Auchan (formerly, Spar), and institutional clients such as Pizza Hut, and also sells them under its own brands, Splitz and Indira’s. It is also the biggest exporter of tamarind concentrate from India, selling close to 1,500 tonne of the sour pulp, annually. Of this production, 50% is exported to countries in West Asia, the US, Europe and Australia as a bulk supplier.
Private labels bring in nearly a third of Indira’s revenues. Sales from Vijay’s own brands make for about 10% of the business. Exports contribute 20% while the rest comes from bulk buyers in the food services industry. Sales of Splitz tomato ketchup and paste, and tamarind concentrate have been growing, though mainly in South India. “We currently sell it in Karnataka, Tamil Nadu and Andhra Pradesh and plan to expand to more states,” informs Vijay.
Vijay launched the firm when he was a full-time student union worker in his late 20s, with a seed capital of ₹12 lakh. “We took a loan from the bank and bought a few machines. My brother too had a similar business so I had some idea about the business,” he says. As demand increased, he took up more loans, amounting to ₹3.6 crore by 2007. Today, Indira employs 250 people and Vijay expects FY13 revenues to hit ₹36 crore, up 50% from the previous year’s ₹24 crore. “Growing the business has not been easy. For the past 10 years, I used to pick up the phone on the first ring even if I was fast asleep. Now things have stabilised and we should hit scale,” he explains, referring to a ₹200-crore target he’s set for the business over the next four-five years.
Most of this will come from new products such as Splitz’s tomato paste. A 60 gram packet is equivalent to half a kg of tomatoes and priced at ₹12, so it should be a value proposition for the consumer. Contends Vijay: “No one has ever tried to sell tomato paste in India. At most there have been purees that are much more diluted and priced very high.” Tomato paste and puree are both made by boiling tomatoes and straining them. But the paste is cooked for much longer. As a result, it is three times as concentrated as puree and tastes much richer.
Building an appetite
Vijay’s excitement is a bit measured when it comes to the private label business, though. “It has been growing at 5-10% and we don’t expect the FDI deregulation to do any wonders in the short term,” he says, adding that the market for private labels will grow as retailers gain scale, but sales will go up significantly only after three or four years. He points out most retailers in India still do not have well-formed private label strategies. “They know they can make more money on selling private labels than on [manufacturer] brands so they want to do it. But they are not very sure of what branding and positioning they want to give to such store-owned brands,” he says.
He recalls how executives from one retailer insisted they wanted only the best quality premium pickles under their private label brand, but balked when told about the costs involved. They then asked Indira to procure medium-quality ingredients that would be less expensive. Another problem is that retailers sometimes discontinue their private label brands for one reason or the other. “We have to be careful about planning our inventories. For instance, we may have printed labels in advance, and then suddenly find ourselves saddled with them,” says Vijay.
One reason for such inconsistent strategies, Vijay points out, is the constant churn in the top management of modern retailers as well as managers dealing with third-party manufacturers like Indira. “We have to start the entire process again, as a new person often comes in with new ideas of how he wants to do business,” he says. A major grouse of private label manufacturers is the thin margins that retailers offer. “They insist on the lowest margins, even lower than FMCG companies we sell to.”
Technopak’s vice president for retail and consumer products, Ankur Bisen, explains that this is because unlike in the West, retail is just an 8-10 year old concept in India. After furious expansion and new store openings in the initial years, retailers now have a number of problems on their plate — how to make operations profitable, which formats work and which stores they need to shut down. “The private label part comes after that,” says Bisen, adding that retailers will eventually get their act together. “This is the phase of transition in India. And most retailers and private labels have realised that they are going through a necessary learning curve, and this cycle cannot be cut short,” he says.
Vijay, however, is bullish on private labels for the expertise and processes they bring. When Future Group began sourcing from Indira a couple of years ago, it insisted on clear guidelines on cleanliness, quality and deadlines being followed. “Till then, we had been somewhat informally organised. We were forced to put in processes and pay greater attention to detail,” says Vijay. For instance, for the requirement that people wash hands before touching food, Indira installed foot-operated soap dispensers and automatic water dispensers, and educated its workers. As a result, Indira’s plants are now even certified for export of food items to the US. “We are the only people who are allowed to export tamarind pulp calling it tamarind pulp out of India,” he beams.
The main thrust in Indira’s future growth will be on products under the Splitz brand — tomato paste, tamarind pulp, tomato sauce, jams and pickles, and ready-to-eat ragi products. These are already available in markets near Bengaluru and have been well received, says Vijay. Now he wants to take his business to other parts of India. For this, he’s busy arranging capital and looking for an investor through a stake sale. This money, he says, will be used to grow pan-India distribution and beef up the brand. “Our businesses have now stabilised and have the necessary scale to get into the next level. Now we want to build on the hard work we have done,” he sums up.