Hot Soup For The Soul

In his spacious first floor office overlooking the Bombay Gymkhana swimming pool, Salil Punoose is literally in the thick of things. January is smack in the middle of the soup season. And with two more months to go before the season ends, Corn Products Co. (India) chairman and managing director is hoping that Knorr can swing the soupstakes in his companys favour. At Rs 32.89 crore, the odds are loaded against Corn Products Co (CPC), simply because competitor Nestle is around 30 times bigger.

Clearly, it isnt just the results of the soupstakes that Punoose is worked up about, as much as what the brand can do to CPCs fortunes in India. Since 1992, CPC is yet to wipe out the spectre of losses that have haunted the company. Despite a clutch of well-known brands like Brown and Polson custard powder, Glucovita glucose powder and Rex jelly crystals, CPC was somehow never able to get its act right. So much so, that the company nearly became a sick company under the BIFR norms.

Almost like Humpty Dumpty, several groups of managers tried their hand at putting together things at CPC. In the middle of 1996, CPC International selected Punoose, who had 22 years of experience with Levers behind him, to clean up the act at CPC.

Punooses inheritance is nothing much to be written home about. On the platter were the three mature brands which had stopped growing. They generated cash, but not enough to even cover the fixed overheads of the company. There wasnt much that Punoose could do to reduce overheads, since his predecessor, Tapan Chakrabortys main agenda had been to reduce fixed costs.

Now, it didnt make sense in pumping in money behind the three cash cows, because given the nature of the category, none of them would boost volumes appreciably. New brands were the crying need, but the criteria was stiff. They would have to yield volumes quickly and not demand too much money to build.

It was a delicate balancing act. But today, for the first time in its 67-year old history, CPC seems poised to come out of the rut. Suddenly there is a buzz of activity in the otherwise sedate work environment at CPC. Much of it has to do with the market performance of Knorr, which in the 14 months since its launch, has rekindled hope among CPC managers. Although CPC is expected to report a loss in March this year, by September (when its parent consolidates its accounts) it hopes to return to the black.

It isnt an achievement to be scoffed at. In many ways, when new entrants in the Indian foods market are grappling with ways to navigate through the maze, CPC stands out as an interesting case of portfolio management.

But lets see how the company got into a soup in the first place.

Cup of woes

The unsuccessful search for new products began since the late eighties. In a bid to widen its portfolio, CPC launched several brands in the late eighties, like Trinka soft-drink concentrate, Rex jams and squashes, Rex sandwich spread (mayonnaise), Mazola corn oil and Rex gulab-jamun mix, kheer mix and pickles. Each of these activities meant an investment in all the associated activities of manufacturing and brand-building. But the brands never did take off because of careless planning or changes in the business environment.

A few examples. Rex sandwich spread had a short shelf-life of just a month, which demanded quicker distribution and replenishment, which the company was simply not equipped to handle. The squash market was squashed by synthetic products like Rasna. Stocks of Trinka CPCs weapon for taking on Rasna worth Rs one crore were withdrawn from the market because of the BVO scare. The quality of Rex jams and Mazola oil were dismal, as CPC had outsourced manufacturing and there were no conscious quality checks carried out.

Finally, in 1991, the company decided to manufacture jams and other wet products by itself and set up a plant 800 kms away at Dharwar in Karnataka at a cost of Rs 80 lakhs. But the companys profitable industrial division which manufactured starch-based adhesives used in beer and pharma industries was steadily being besieged by the small-scale sector which did not come under the excise umbrella.

Together with poor planning, CPC had to contend with slack financial controls. As a result, its accounts receivables were around 144 days. Inevitably, by the end of September 1992, the company had totalled losses up to Rs 3.94 crore, on a turnover of Rs 21.72 crore, ripe to be referred to the BIFR.

Wielding the scalpel

Enter CPC International. With liberalisation, CPC International revived its interest in India. Around the end of 1992, the New Jersey-based $7 billion company hiked its stake from 40 to 51 per cent, bringing in a much needed one million dollar interest-free loan. An expatriate Indian, Tapan Chakraborty was sent down to clean up the operations.

Chakraborty had his work cut out. First, commercial controls were established. For instance, blank cheques were taken in advance from dealers a normal practice of finance management in FMCG companies but the first ever attempt by CPC.

VRS was introduced, bringing down the workforce from 160 to 26 people, at a cost of Rs 4 crore. Better co-ordination was established between departments, R&D activities were beefed up, and the focus shifted to brands rather than products. The sales force was pruned, and job descriptions altered. Schemes and promotions pampering dealers were disbanded in favour of merchandising. The company also drew up a plan to invest Rs 10 crore in the expansion and modernisation of its plant at Kalwa, close to Mumbai.

Around that time, with a view on the future of the market, CPC International increased its stake again, to 74 per cent. But in spite of all these cathartic efforts, the company did not show operating profits.

The cash reserves and the loan was utilised in the VRS scheme, in the expansion of the Kalwa plant and in wiping off old debts. But for growth, the company could not rely on its portfolio of brands. Besides, the three main brands Glucovita, Rex jelly and B&P custard were summer products and therefore the company would be starved for cash during the winter and the monsoons.

This was the setting when Punoose stepped into the shoes of the CMD.

Food for thought

Punooses brief from New Jersey was simple: You have a year to turn around the company. Their faith in Punoose was not misplaced. At Lipton, he was part of the team that turned around the company, and at Egypt, he managed to develop a level playing field for Levers against P&G, which was eight times bigger.

After taking over the reins at CPC, he called for a meeting of his senior management team. It was evident that the companys three pillar brands were ticking along merrily. But when plotted on a growth chart for the future, it was clear that they wouldnt provide a remarkable source of income in the short to medium term. Glucovita, in the glucose category was up against the wall put up by urban consumers, and rehydration was not a winning saleable proposition anymore. Jelly and custard, both categories were perceived fuddy-duddy by the evolved consumer who was accustomed to desserts like ice-creams (see box.). The first option was to trim the variable costs. But that would yield merely moderate savings.

None of the brands would give him a sizeable jump in turnover, even if supported by mass media advertising. Increasing margins was ruled out, because it would cut into volumes.

What then were the options? One, reduce fixed costs as far as possible. Two, actively look for new products. Use the contribution from the existing brands to build a new brand that would help balance the portfolio in the future. But that was a tough task, and investing in a new brand would mean choking up the contributions from the existing brands.

But first, cutting costs was paramount. The first cost cutting exercise was done at the plant at Dharwar. Punoose reasoning: Dont take on the big boys in their greatest areas of strength. The jam category had a big player like Levers Kissan and Sil from Marico. Pitting against these savvy marketers would have been an uphill task for CPC.

CPCs Mazola corn oil would have been a promising brand. But again, Punoose reasoned that the market for cooking oils was extremely over-crowded, and getting to the consumers top-of-mind would have been an expensive proposition. So the wet products plant was shut down. The machinery was accommodated in the Kalwa plant and the workers were amicably retrenched.

The advantage for Punoose of having a pruned portfolio meant that the attention and skills of his managers would be focused.

Tasting the waters

Now, he had to search for a growth engine. If the companys growth had to come from a new product, which brands of CPC Internationals 3,000-strong portfolio could satisfy Indian tastes? The answer seemed to be Knorr. One of CPC Internationals global powerhouse brands (worth $3 billion), it was inherently a flexible brand. Which meant that across countries, the brand could be adapted to local tastes.

But the Knorr brand name was too westernised, to launch any Indian products like garam masala, etc. So any product with the Knorr name had to be initially western in nature, but have Indian acceptance. Soups fitted the requirements perfectly. Also, the advantage of soups was that the housewife knew what to expect in terms of the product promise, so category education could be ruled out.

But in India, according to Punoose, many FMCGs had deemed the soup category to be moribund. Nestles Maggi, and Gits, on a smaller scale, had launched soups but the category did not achieve the desired volumes. In spite of huge advertising and marketing spends, Indians were just not drinking Maggi and Gits soups.

Four months before Punoose took over, Knorr had been soft-launched in Bangalore in November 1996. The product met with the normal success associated with a new product launch. But by then, the winter of 1996-97 was coming to an end, which meant that soup consumption would also be reducing to a trickle.

All the same, CPC found an interesting feature during its launch research. It noticed that soups in India were not generally prepared at home, but were generally consumed at restaurants. The company decided to benchmark Knorrs taste with that of a restaurants. CPCs confidence was further boosted with Knorr scoring over other competitive brands of soups in blind tests. The company then decided to get ready for the winter of 1997-98 by spreading on a steady pace the Knorr message nationally.

The great white hope

Putting advertising spends at the beginning of the financial year (October-September) was a risky gamble, but Punoose was pinning his hopes on Knorr to open a road for CPCs recovery. The company went the whole hog in sampling exercises at fairs, festivals, shops and offices.

The comments from the consumers was heartening. Knorr was launched first in six flavours two Chinese, two Western and two Indian compared to Maggis five. Of the two Indian flavours, the taste of Rasam was not new for the Indian palate, but Curried Vegetable, according to Samar Nagarsekar, general manager, marketing, CPC, has been a slow starter. He reasons that once the brand name came to be known and the consumer developed confidence by using the regular favours, the consumer would start experimenting.

Other than offering an excellent product, the strategy of engulfing the consumer with popular and new flavours has helped Knorr prise open the market and attain leadership status. The company has since launched four new flavours Mushroom, Hot & Sour Vegetarian, Hot & Sour Chicken and Mulligatawny. By introducing new flavours, we are keeping the consumer excited, the dealer happy and the competition guessing, says Punoose.

Another thing that was going for CPC was that its chief competitor, Maggis packaging was the bag-in-box variety, whereas Knorr packs were plastic packets with bright four-colour printing on them. This made Knorr stand out better at the retail shelves, vis-