Arun Ice Cream Situation Statement

COMPETITIVE STRATEGY

ARUN ICE CREAM Submitted to: Dr. Abrar Ali Sayied

Kaushal Shah AU1814012 Shrushti Shah AU1814032 Pankti thakore AU1814033 Disha Tulsani AU1814052

This document contains the cost-benefit analysis of the three options available to Mr. chandramogan for Arun Ice cream. 1

Situation Analysis Arun Ice cream being one of the leading Ice Cream manufacturers in the southern part of India was under strategic dilemma to find the niche segment. Mr. Chandramogan started Arun with a capital of around Rs.36000 in the year 1970 and strengthens its position with Rs.107 million in the year 1996-97. Over around 25 years the company had passed through various changes in the market. From the development of business with hotels, than converting it into the franchise model also tied up with the college canteen and the ports with sales through interior cities to more developed cities. He also established his brand and focused advertisement campaigns, setting up the formal organisational structure with internally grown employees. The experts have made the brand Arun Ice Cream sustains in the edge. With changes in the industry structure, development of rivals, changes in legal environment has lead the management of Hatsun Milk Food Limited the owner of Arun Ice Cream brand to re-work its competitive strategy. The alternatives that Arun has are as following: 1. To aggressively reinforce Arun’s competitive profile and further expand its franchise network to stand in the competition of national-multinational organisation. Advantages

Disadvantages

Arun is following the franchise model since Franchise model may create distribution of its initial stage. The model has provided the control over operation, decision making brand vast geographic coverage in the power which can adversely impact on Tamil Nadu, Karnataka, Kerala and Andhra service to end consumer as well brand Pradesh along with reach to district regions.

image.

In franchise contract, the condition to In franchise model, Customer relation is purchase and maintain deep freezer facility depending

upon

the

approach

of

the

by the franchisee can reduce the storage franchisee towards the brand which varies cost at retail outlet.

with shop to shop i.e. lack of standardisation.

Arun started its operation with franchise In the period of high competition with the model and by 1997 it has more than 500 nationalfranchises covering more than 50% market Franchisee

multinational may

share of south India. Many of these commission/payment

organisation,

ask to

for

higher

maintain

the

franchisees have firm relationship with Arun sustainability with Arun brand.

2

and

changing

the

operational

model

altogether can break these relationships with selling points can negatively impact on image of the company. By selling the product through franchise Arun has franchisees who are family model, cost control is possible by setting up members or friends; these can create union the retail unit and employing the staff for its in a particular region and generate pressure operation as these tasks are generally for higher payment. performed by the franchisee. If Arun continue with its franchise model and Continue with the franchise model with the with that increase in storage centres and target of expansion of market can have manufacturing plant can serve the customer higher logistic cost. need at the expanded geography. Franchisee being a localite can better Risk of violation of Maximum Retail Price interpret the consumer preferences and (MRP) guideline or payment terms is help company understanding the market attached with franchise model. movement well. Arun has strengthened the shareholders’ fund To develop the franchise network of Arun, by Rs.95.9 million within the short span of 4 the Brand image must be strengthened with years-1994 to 1997 which has profit before additional advertisement expense. tax of Rs.118.5 million. This provides the backbone to the growth of franchise model.

2. To pursue alternative business opportunities by utilising Arun’s available resources and competencies. (Diversification) Advantages

Disadvantages

For Arun, alternative business opportunity Diversifying the business of Arun into the with diversification can enhance the product alternative opportunity can break the focus portfolio and cater the different need of the on the core product-Ice cream and this can customer under the similar brand head.

impact on quality as well as production.

3

Development of production capacity with Taking up the alternate opportunity can new

business

opportunity

can

provide require the additional capital involvement

maximum utilisation of financial as well as in production capacity as well as skilled manufacturing resources.

human resources.

Profit before taxes of Rs. 184.1 million in the Finding

new

year 1997 can frame capital base for the new understanding

opportunity of

consumer

requires preferences,

opportunity and lead to organisation’s competition in new segment, government growth.

policy, etc. This process is time consuming and can require new strategic decisions. To compete with immediate action in short run, complete diversification of whole business is a risky decision.

Adapting the new opportunity at the early stage can improve the position and create the image of dynamic organisation with time in the public at large.

3. Sale the business Advantages

Disadvantages

Sell of the business to the other company in Decision making authority at Arun Ice the similar operation can provide maximum Cream, Mr Chandramogan, founder of the utilisation of resources and help to generate organisation, has made the company sustain the efficient output to all stakeholders.

in various market trends and is personally not intending to sell the business with such high net worth like any other entrepreneur. (Specifically to MNC)

Also can earn royalty through the selling the Selling of the business without implementing already established brand.

the revised strategy can undervalue the strength of human resource and newly gained capital from the market. It cannot generate value to the high advertisement expense.

4

Recommendation: After evaluating the pros and cons of various alternatives, Arun Ice Cream should take the market dynamic as the challenge and should aggressively reinforce Arun’s competitive strategy with due focus on product portfolio diversification. This decision can create loss in short run but provide the sustainability for the long run and has high chance of growth as well. Following steps should be considered during diversification while adopting the franchise model. Product portfolio and customer base development should be through, 

Adding new flavours with natural elements,



Developing the new high end products to cater the need of exclusive market segment



Develop the new product segment utilising the milk base such as butter and variety of cheese. This can increase the purchase and help in satisfying the suppliers’ demand.



Arun Ice-cream can diversify into Bakery product market by utilising the milk and butter base.



Contracting with new corporate offices for serving in the corporate-commercial events



To enter into the North and West India market



Franchise model can be restructured by redefining the terms and condition which help in maintaining the power with the central organisation and bring the standardisation in customer dealing.

The above strategic decision can increase the following costs, 

Improvement in logistic model



Enhancing the production capacity and storage capacity



Getting fix with the stringent government guidelines of operating at large scale



Constant analysis of the new market and consumer preferences



Development of new product may require additional human skill with higher payment



Continuance check of quality standard and compliance of MRP guidelines of Government

5

Thus, we concluded that to continue with the revamped franchise model and expanded portfolio shall provide the sustainability in the competitive edge and growth in long run. The available resource can be optimally utilised by redefining the strategy rather than closing or entering into altogether new opportunity.

6