Staying In The Race

Sourav Chatterjee

If you thought that the entry of foreign brands into India would leave domestic competition battered and bruised, consider the case of Mohan Meakin's cornflakes. Ever since the entry of Kellogg, the giant from Battle Creek, Michigan, most market analysts were ready to write its epitaph. After all, Kellogg was ready to wait 10 years for its business to break-even.

But barely three years into Kellogg's entry, the market statistics make for curious reading. Kellogg and Mohan's are neck-and-neck in the flake-stakes. Mohan's, which had been chugging along at the rate of less than 10 per cent every year, is now clipping at a brisk 25 per cent every year for the last three years. What's more, all that Mohan's has spend on market development is a mere fraction of what Kellogg has done.

 

With a contribution of less than 2 per cent to the company's turnover, Mohan's breakfast cereals was never a priority item. But Kellogg's entry changed all that. Today, it furiously trying to gain as much as it can from the unexpected business opportunity.

The company is reworking packaging, extending distribution, offering smaller packs but what it certainly isn't planning to do is to follow its global competitor's market development strategy. "We never tried to change the customer's eating habit. Kellogg's came and educated the customer and brought about a large change," says Vinay Mohan, manager sales and marketing, Mohan Meakins Limited (MML).

Would that be a short-sighted strategy? The jury is still out on that one but meanwhile, Mohan's is clearly making hay while the sun shines.

The Indian scenario

Cornflakes was introduced in the Indian market by Mohan Meakin Ltd way back in 1963. The rationale was to simply integrate forward rather than any solid business logic.

Mohan Meakin had their own corn mill. And the company thought they could take advantage of that.

But the market remained as small as 5,000 cases annually, without much scope of growth. Mohan's breakfast cereals were never a priority area for the company, so the inclination to sink in funds to grow the market.

So in 1994, when the $7 bn brand Kellogg, strode into the Indian market, Mohan's was yet uncertain of the future course of action.

Surprisingly, things changed for the better for the company.

The first thing Kellogg's realised was that the market for cornflakes was minuscule. The per capita intake of the Indian consumer was only two gms per annum. The corresponding figure for the US consumer is 5 kg. And it came as no surprise that the market penetration was as low as three per cent only.

That made one thing clear for Kellogg's. It had to take the responsibility of developing the market. And it lost no time investing in market development activities.

It started educating the customer, as it had done deftly in the other parts of the world. The real challenge was to convince customer about the benefits of switching from traditional foods to breakfast cereal which was both convenient and fulfilled the daily calorie requirements.

Surprisingly enough, Kellogg's market development initiatives galvanised Mohan's sales. In '95-'96, the company's sales almost doubled to 1,20,000 cases. In the following year, it sold 1,50,000 cases.

What did Mohan's do to snatch the initiative?

The two-pronged attack

Kellogg came in and changed the benchmarks of quality in the market. But right from the beginning, Mohun's knew that if breakfast cereals were to emerge as a daily-usage product, the outlay that consumers would be prepared to make for quality would be a critical factor for success.

The high visibility that Kellogg generated during the launch helped bring in many new consumers into the market. But retention proved difficult. Willy nilly, most families balked at the prospect of forking out Rs 64 for a 500 gm Kellogg pack, which did not last a family more than a week.

On the other hand, a 500 gm Mohan's pack cost Rs 37. As a result, dipstick research done soon after the launch revealed that many families would buy a pack of Kellogg during their monthly buying cycle, but when that pack needed replenishment in the middle of the month, they would settle instead for the lower priced Mohan's.

But early on, Mohan's knew that it would have to work on bridging the perceptual gap in quality with Kellogg. The first area where there was a tangible difference was packaging. Mohan's attempted to make its product more appealing and visually attractive, making the brand more compatible to today's market.

Earlier, the product was available in three different pack size 200 gm & 500 gm. The company also used to sell 100 gm packs in North Eastern region because of its unique demand pattern.

Mohan's realised that with the influx of new consumers into the category, it made sense to scoop up consumers with a smaller pack size, where the outlay was lower. Besides, initially the frequency of consumption would not be daily but more occasional. Therefore, a large pack size once opened tended to leave the product stale. That prompted MML to introduce a 30gm pack in 1995, followed by a 300gm pack for institutional segment.

Mohan's began to examine the option of improving its product quality. Since Kellogg's cornflakes were perceived to be crunchier, Mohan's claims they tried to make their product more thicker and crunchier but the negative consumer feedback halted their plans. The reason?

This could have much to do with the unique eating habit of the Indian consumer. Cornflakes is usually mixed in cold milk so that the product remains crunchy. But in India people don't have faith on the quality of packed milk. As a result, consumers usually boil the milk before drinking it.

In India, cornflakes is usually mixed in hot milk, thereby making the product soggy.

Around the same time, Kellogg found that given the profile of its category, it made little sense to gun for blanket coverage, as its distribution cost kept soaring. Instead it sought to limit its distribution coverage and focus on key outlets. Confirms a market analyst, " More it expanded the width of distribution, the servicing frequency began to suffer." To top it all, out of the three stock-keeping units the cornflakes moved faster than the others. As a result, it became difficult to replenish stocks without adding to manning cost. Instead selective distribution made more sense. That way it could rein in the cost per call and also maintain its merchandising drive in those selected outlets.

But that presented another opportunity for Mohan's. Sensing that Kellogg's strategy of reducing distribution width would simply lower the consumer's opportunity to buy, MML knew that it could take care of the spill-over demand with a beefed up distribution network.

Using its strong base in the north and the east, Mohan's decided to ramp up coverage. It set up depots local storehouses- in all the states and major cities and distribution network of 300 distributors all over India. Today Mohun's New Life cornflakes is available in all A class and B class and also a few C class cities.

And it took into account the amount of demand generated in each of these regions when deciding on the number of depots. To meet high demand in cities like Mumbai it set up two depots. On the other hand, due to low thorough-put in Bihar it decided to depend on stockist only, instead of setting up a depot over there.

Soggy flakes?

Where does Mohan Meakins Limited go from here? During the heady growth rates of the last two years, keeping pace with the market will not be easy.

The main threat comes from its constrained capacity. Although the surge in demand came as a manna from heaven for the company. But company is not very well prepared to meet that demand.

It still uses outdated plants at its Mohan Nagar plant. As points out a company insider, the plant is running three shifts to meet the market demand. There are plans to add to the production capacity.

But if the company hopes to be a long-term player, it will have to seriously look at a more serious brand building effort. The launch of Kellogg's Choco is a clear pointer that the global leader is well on course in expanding its portfolio with newer variants and flavours.

As market observers affirm, Mohan's will have to keep pace by systematically investing in the business, rather than merely relying on its price value equation.

So will Mohan's New Life need a fresh lease of life?