EASTERN CONDIMENTS

Group 9
Aditya Kwatra
Divya Chaudhary
Ekta Mittal
Pranav Malhotra
Sahil Batra
Vaibhav Maheshwari
 Q1)   What do you think of Eastern’s performance in Kerala? Give reasons for your
opinions.

Eastern has performed pretty well in the state of Kerala mainly because-
• First company to sell powdered product and blended product in spices- Which increased the convenience of
many Households
• Low competition in the market at that point
• Provided high quality and a standardized product
• Was able to occupied a 47% market share in Kerala
• Their hired a local salesforce who had the knowledge about the area
Q2 & 3)What metrics  have you used to reach your judgement? What are the key aspects of
strategy that drove the Kerala performance and its outcomes?  

• Looking at Exhibit 6, we can see that major portion of their revenue came from Kerala(Aproxx 95% in
2002/2003 and aproxx 67% in 2007/2008)
• It also had captured 47% market share of Kerala
• It provided a highly lab tested quality of international standards- Competition could not match this quality- due
to this, company was able to follow premium pricing strategy
• Company had a proper stocking facilities due to which it was able to stock products when prices were low and
sell them when prices were high. Small traders found it difficult to do that.
• Well developed distribution model- was able to provide the products weekly to the retailers, whereas others
couldn’t
• Hired local and a known salesforce- helped in maintaining control over them
  Q4 Is Karnataka a good choice for expansion? 
• Karnataka has the highest population of Malmails after Kerala
• It is a neighbouring state hence goods can move and reach the retailers
easily as compared to other states.
• Low level of competition
• Most of the retailers are Malmails which made it easy to trade.
• Easy to transfer man power from Kerala to Karnataka.
 Q5 How is the performance in Karnataka? What is the basis of
your verdict? Why do you think this outcome has happened?

PROS
• Successful in mainly non-veg segment because it was well established and the competitor dealt only in veg component
• First to enter non vegetarian segment in Karnatka which gave it first mover advantage.
CONS-
• Resistance from retailers from eastern’s cash based sales
• Their strategy of Kerala didn’t work in Karnataka, like employees hiring, relationship with retailers,
etc
Overalll we feel that Eastern sales grew in Karnataka but it couldn’t become a dominant player like it
was in its home state of Kerala.
 Q6) What were the experiences in other cities like Mumbai?  

• Handing over the distribution entirely, for example in Mumbai, did not work for Eastern as they wanted partial
or full control
• The operations in Mumbai were profitable but there was an issue when it came to scaling up the business
• They even tried leasing model but it also didn’t work out for them. It gave them control but still the control
systems remained weak due to low direct involvement of top management and far flung geographies
• All factories were in south, so the supply and inventory management became difficult
• Due to low Malayali population, consumer pull was very low
• Top management was not there to guide the sales force due to which there was no motivation and a lot of
mismanagement. This led to high staff turnover
• Presence of already established brands like MTR, Everest etc
 Q.7) What are the options that Anjan has for Eastern's future in
Karnataka? What should Anjan do in Karnataka for Eastern? Support your
suggestion with analysis of case data
• Anjan has the following options to help Eastern grow in Karnataka region :
1) Company owned model – Eastern can go with company owned model but with keeping the cost low. Such as each van can follow the weekly cycle to bring down
the running cost to INR 3000, Salesmen could drive their own van, inventory carried could be brought down from 60 to 45 days’ sales. However company need to keep
the distribution tightened. For this model, it is equally important to train the salesperson and provide them the efficient training as the did for Kerala’s salesperson.
Maintenance and working capital is to be worked out efficiently.
2) Entrepreneurship model – Another option is to go with entrepreneurship based model as it was successful in Bangalore and kept the cost of the company lower.
This model has its own drawbacks such as lack of consumer pull, low demand for new products, finding new entrepreneurs in different region of Karnataka. But it is more
profitable and the challenges such as low demand for new product can be met by pushing new product, promotion offers, and giving buy back offer for unsold stock.
• Anjan should suggest to go with Entrepreneurship distribution model as it is more profitable to the company as compared to the owned distribution model.
• It is given in Exhibit 2 that company managed to bring down the distribution cost to 10.5% of sales (under entrepreneurship model) from 11.4% (under owned
model). However, it is noticeable that net income growth in not so significant i.e. 23,510 from 17,670
• Company is able to save salesman and drivers compensation and the other running expenses which contributes a lot under company owned distribution channel.
Eastern trained these entrepreneurs and handled them the delivery vans that were almost completely depreciated. That’s how company saved on the depreciation
expense as well (Exhibit 2)
• Since Entrepreneurs invested their own capital, cash and stock leakages disappeared and profitability of the company improved. It kept them motivated to perform
better as their income depended on it and the ownership of the trucks was transferred to them.
Q8) Carry out the Economic comparison of results in Kerala and Karnataka
to support their verdict on Kerala/Karnataka performance

Kerala Performance Karnataka Performance

In year 2002- 03 the revenue percentage from Kerala was 96% In year 2002- 03 the revenue percentage from Karnataka was 4%
In year 2007- 08 the revenue percentage from Kerala was 67% In year 2007- 08 the revenue percentage from Karnataka was 6%
Sales growth rate was 376% from year 2002-03 to 2007-08 Sales growth rate was 792% from year 2002-03 to 2007-08

In year 2007-08 market share was 47% In year 2007-08 the market share was 7%
Inventory holding period is 15 days Inventory holding period was 60 days
Owned model of distribution was success with less commission Even though with high commissions, the owned business model was a
(distribution cost) failure.

Economic
Large market with customer loyalty Large and prosperous market
Relatively low level of competition High Competition from MTR
First mover advantage for vegetarian and non-vegetarian segment First mover advantage for non-vegetarian segment
Highest concentration of Malayali outside Kerala & ECPL brand has
strong recognition with Malayali
 Performance in Karnataka
Owned distribution model was not very successful in Karnataka

Basis of Verdict

By 2008, the company had 30 salesmen generating a sizable turnover of Rs. 9.67 million per month in Karnataka

Revenue Coming from Karnataka was very low compared to the potential market size it has.

Operating Profit was negative

Why it happened

Kerala Distribution channel failed in Karnataka i.e. firm tried to apply the same distribution strategy to each geography which results in huge failure

Brand equity is not there is Karnataka and also the firm was facing huge competition from MTR

Retailers resisted cash-based sales as competing brands offered credit

Sales forecasting is difficult as the firm is under introduction stage in the product development in the Karnataka market

Local hires were joining local distribution unions which act as hinderance
Q9) What are the Financial details for a comparison of the owned versus
entrepreneur distribution models for Karnataka.

Basis Owned Entrepreneur Analysis

Distribution cost as a percentage
of revenue
Inventory cost as percentage of
sales
Net profit as a percentage of sales
Policies
distribution
system
11.4%
6447/322333 = 2%
17670/322333 = 5.5%
• Higher commission 3% to
push sales and create consumer
pull
• Pushing non-vegetarian spices
• Company owned vans first,
then on lease basis from
Mahindra
• Paying through private equity
distribution
system
10.5%
1612/322333 = 0.5%
23510/322333 = 7.3%
• Buy back – to promote sale of
new products
• Recruitment bonus
• EMI based vehicle facilities
This shows that the
entrepreneurial model is best
suited for Karnataka as in the
absence of consumer pull, the
owned distribution system fails
due to ineffective training
programs and management. The
entrepreneur model helps to
decrease inventory cost and
distribution cost.