Kwality Seeks Economies Of Scale Via Rejig

Realising the need for economies of scale in a new era, the Kwality group of companies is planning to restructure manufacturing operations across the country.

Under a plan being chalked out with the help of Hindustan Lever, with which it has a marketing joint venture, Kwality plans to close small, uneconomical plants and expand capacity at the larger plants. The number of plants in each region will be cut to reduce overheads and operating expenditure.

Top Kwality sources told Business Standard- that these plants were set up when government restrictions were in force, and ice-creams were still reserved for the small scale sector.

 

Today, most of the restrictions are gone, and ice-creams have been dereserved. We dont see any reason for three plants in the same area or state. We have started a process of consolidation through which we hope to reduce our overheads costs, they said.

For example, the northern faction of the Kwality group, led by the Lamba family, has three plants in Punjab. The western faction, led by the Ghai family, has two plants in Maharashtra (in Mumbai and Pune) and one in Goa. There is also another factory in Ahmedabad controlled by the Ghai family

The Kwality group is divided into four factions for the four different zones. In 1993-94, Hindustan Lever signed four joint venture agreements with each faction.

Under these agreements, Lever took over the marketing and distribution of these companies brands, and formed a strategic alliance for the manufacture of ice-creams under the Kwality-Walls brand name.

Lever has a frozen desserts plant at Nashik, Maharashtra. However, a good portion of Levers ice-cream sales comprise purchases from the Kwality group.

Kwality sources said Hindustan Lever is helping them out in forming a strategic plan for the operations.

One would like to have just one large plant for each region. But we will have to decide keeping the ground realities in view, sources said.

For example, a single plant for the western region would find it difficult to service the entire Maharashtra and Gujarat which are two of the biggest ice-cream consuming states in the country.

The Kwality group is also preparing to move out of its Mumbai factory, housed in Worli, in south Mumbai. Sources said it is an expensive location, and the company is looking for a place either in the suburbs or in Pune.

Under a plan being chalked out with the help of Hindustan Lever, Kwality plans to close small, uneconomical plants and expand

capacity at the larger plants. The number of plants in each region will be cut to reduce overheads and operating expenditure