Chandramogan started Arun Ice Cream in 1970 in Chennai with Rs. 15,000 capital. It grew successfully initially due to its location. However, Chandramogan's strategy of three-fold expansion in the second year led to problems with off-season sales and higher costs. His second strategy of moving upmarket and targeting hotels marginally improved finances but caused liquidity issues. Arun then focused on ignored segments like college canteens and steadily captured these niche markets. It also broke into upcountry markets and used a franchise model for distribution. While growing, Arun faced challenges like seasonality, competition from large entrants like HUL, and developing strategies to sustain its growth.

1. Arun Ice Cream
Group-2:
• Ashutosh Pandey 006/2019
• Ansal Gupta 007/2019
• Arpit Jain 016/2019
• Yashika Dudeja 031/2019
• Arjun Arora 049/2019
• Anmol Sehgal 057/2019
• Yojit Rajput 037/2018
SM-1: Case Study Assignment

2. EARLY HISTORY
• Chandramogan, son of a vegetable wholesaler from South Indian state of
Tamil Nadu, set up ‘Arun Ice-Cream in 1970 in Chennai
• Invested ₹15000 as his own capital and raised ₹21000 by way of a
bank loan, to set-up a small ice candy unit in a rented premise adjacent
to his uncle’s textile outlet
• Prominent location in a busy locality along with availability of ‘fresh’ ice
candies right across the factory counter, enabled the business to clock a
turnover of ₹150000 and profit of ₹40000

3. EARLY STRATEGY-I
Based on the success of its first year operations, Chandramogan decided to
adopt a strategy of- three-fold expansion in the second year of operations.
But this strategy led to numerous problems:
• Selling the hugely expanded capacity during offseason was quite tough
• Inconspicuous location of the new factory in a rather low traffic area was
also found to be inappropriate for over the counter sales
• Higher capacity meant higher fixed costs
• Stagnating volumes and low profitability made the business outlook
unattractive

4. The outcomes of implementing the first strategy were –
• Across-the-counter sales dropped precipitously
• Never regained the sales to original volumes
• Increased the financial pressure due to rise in fixed cost

5. EARLY STRATEGY-II
After the failure of first strategy, Chandramogan decided to adopt another
strategy- to move up-market into ice cream and increase volumes through
bulk institutional sales.
This led to certain requirements –
• To upgrade the existing product quality
• To supply homogenised ice cream by acquiring equipment worth of
₹7500
• To increase the range of product offering and flavours
• Recruitment of qualified and experienced person with a higher salary

6. The outcomes of implementing the second strategy were-
• Arun was able to break into the tough hotel market
• Marginally improved the financial position
• Late payments led to serious profitability and liquidity problems
• Realized lower bargaining powers of suppliers due to low brand-
sensitivity among hotel customers

7. MARKET FOR ICE CREAM
IN CHENNAI • Educational Institutes
• Ship-Chandlers
5%
• Stores with deep freezers
• Hotels and restaurants
• Social events
95%

8. ARUN’S SEARCH FOR A NICHE
• When Arun trying to expand his firm then initially, he looked at
the 95% segment but failed to achieve.
• Intensely price-sensitive commodities market
• Highly fragmented competition
• Cold-chain Model: Most stable market
• Dasaprakash, Joy and Kwality
• Social Events: Extremely Seasonal
• Highly brand conscious
• Imposed heavy demand on Arun’s logistics management.

9. • Arun’s Niche - Ignored segments by leading
brands
• College canteen and the hostel mess segment
• Orders from institutes like IIT, Madras
• steadily captured a bulk of this segment
• Ships-Chandlers at the Madras port
• Small volumes
• Erratic delivery requirements
• Not Brand Driven
• Quickly Captured 95% of the college canteen and ship-
chandler segments
ARUN’S SEARCH FOR A NICHE

10. • Arun went on to approach college canteens in
the interior district of Tamil Nadu.
• Virtually 100% of the small but growing
upcountry college market.
• The business was slowly entering into a phase of
stagnation , so he began looking out for new
markets in which he could grow.
ARUN’S SEARCH FOR A NICHE

11. BREAKING INTO THE UPCOUNTRY
MARKET
• Due to stagnation in demand from Chennai market, they
started looking out for new markets.
• Absence of any serious competition.
• Saw opportunity of supplying ice cream at weddings and
other important social events in upcountry towns.
• Chandramogan advertised through banners and hoardings in
the selected towns that ice cream from Chennai would be
supplied on certain pre-announced days and that those
interested could book their orders with Arun agents either in
person or by phone.

12. ACCIDENTALLY HIT THE RIGHT BUTTON
• Implementation of franchisee concept.
• Unique way of distributing franchisee.
• Allotment of franchisee to the relatives, friends of existing
franchisee holders resulted in making the task easier.
• Chandramogan began aggressively attacking the Chennai
market initially by establishing the successful sit-and-eat
parlors in the city suburbs.

13. OPERATIONAL CHALLENGES
• Extremely short shelf life
• Seasonal demand and supply
• Procurement of milk: Peak season of ice
cream sales- lean season of milk supplies
MONTHS PERCENTAGE OF ANNUAL SALES
April-June 34
July-September 22
October-December 19
January-March 25

14. OPERATIONAL STRATEGIES
• Procured milk directly from dairy farmers
• Collection centres in major milk producing villages close to ice-cream
plant (procured milk reaches plant within 2-3 hours of collection)
• Sourced other inputs and ingredients such as fruits, packing material etc.
from leading wholesalers
• Later, realised that delivery of low volumes with expensive refrigerated
transport wasn’t justified
• Took advantage of regular passenger train service- small wooden boxes
with thermocole lining & filled with dry ice to prevent melting
• 1995- purchased refrigerated vehicles for delivery of ice cream

15. EXPANSION
• New ice-cream plant set up in Salem, heart of
Tamil Nadu’s milk belt which facilitated
procurement of high quality milk at
competitive prices
• Plants were designed for peak seasonal
production, during off season plant utilisation
was partial
• 30-35 flavours were offered
• Chennai plant started requiring upgradation

16. REVAMPING THE DISTRIBUTION
LOGISTICS
• Relieving factories of responsibility managing the direct
distribution to various distributions
• Set up a depot in Madurai in 1995 with adequate cold
storage facilities and required administrative personnel to
handle distribution to franchisees
• The depot would be responsible for sourcing from Arun
factories, inventory, cold storage management, order taking,
executions and collections

17. PRICING STRATEGY
• Cost Plus Approach
• Franchisees were given at 20-25% of MRP depending on
their location and the costs borne by them
• Single tier distribution strategy
• The overall distribution costs of Arun Ice Cream was about
3-4% of Sales, compared to 8-9% of competitors
• Such measures resulted in high profitability as
compared to its competitors.

18. FRANCHISEE MANAGEMENT
• Single tier distribution
• Direct order on phone from the franchisees
• Advance payment from franchisee located in small area
• Franchisees were required to display the price list issued by Arun
• Product sold in pre-packed factory packs with MRP marked
• Membership of 60-70 franchisees were canceled for violation of norms
• Franchises allotted only to
• Youth
• Average income individuals
• Those who have failed in business
• Franchises not allotted to highly educated and elderly

19. MANAGEMENT AND ORGANISATION
• Arun, The CEO, was actively involved in the HR
management function and was directly in contact with the
managers
• The key management team had employees which was from
the inception or the growth stage of company
• The employees and company’s grew simultaneously, hence,
all the employees relation was cordial

20. EMERGING COMPETITIVE SCENARIO
• Till late 1980s, ice cream companies had strong regional players
and were small scale industries
• India’s economic reforms of 1991 relaxed the entry, capacity and
size barriers for the Non-Indian Companies
• HUL and BBIL entered in the ice cream sector aggressively by
acquiring big brands like Kwality, Dollops, Cadbury India etc
• In 1997, the Indian Government de-reserved ice cream
manufacture from the list of products earmarked for exclusive
development in the SSI sector.
• With the entry of HUL and BBIL in the ice cream business and
change in Indian policies, Arun Ice creams market share started
decreasing

21. OWNERSHIP STRUCTURE AND
FINANCES
• In 1970, established as a partnership firm Chandramohan &
Co.
• In March 1986, a private limited company by the name of
Hatsun Foods Private Limited (HFPL) was incorporated in
Chennai and took over its business on April 30.
• In August 1995 was initially converted into a public limited
company, Hatsun Milk Food Limited (HMFL).

22. OWNERSHIP STRUCTURE AND
FINANCES
• In January 1996, HMFL was taken public through an initial public
offering of 1.80 million shares. Following this IPO, by March
1996, HMFL paid-up capital increased to ₹38.4 million from
under ₹0.50 million and its net-worth including share premium
account to ₹84.0 million from about ₹11.0 million just a year
before.
• Due to aggressive franchise expansion and strong promotions the
financial performance of Arun brand reflected a sharp growth.
HMFL’s spending on advertisement, promotion and related items
amounted to ₹21.7 million in the year to March 1997, nearly 12
per cent of its fiscal 1997 sales of ₹184.1 million. The spending in
rupee terms represented a near 100% increase over the previous
year.

23. STRATEGIC CHALLENGES AND
DILEMMAS
• The aggressive entry of UNILEVER group in ice-cream and
frozen market with acquisition of well-known regional
brands (BBIL).
• They were the giants into the market with wide variety of
product portfolio and financial resources and can sustain
into the market for a long time even without making
profits.
• HLL announced strategies and were aggressively penetrating
in the market to be the market leader.

24. STRATEGIC CHALLENGES AND
DILEMMAS
• The key question was whether to aggressively reinforce
Arun’s competitive profile and further expand its franchisee
network in the face of HLL’s competitive onslaught or pursue
alternative business opportunities woven around Arun’s
limited strengths and competencies.
• Chandramogan was certainly determined that unlike several
other Indian entrepreneurs in the FMCG sector, he would
not sell-out to the MNCs.

25. AVAILABLE OPTIONS
• Broadening Product line
• By having better portfolio of products like milk products, milk supplements and sweets Arun
ice cream can strengthen and improve it’s product offerings
• Expansion through –Current Franchisee model
• Arun ice cream should expand in other states of India by using the successful sit and eat
parlor strategy. It should increase their brand value by different advertisement campaign in
order to create brand awareness so as to penetrate in the new market
• Expansion – through takeovers
– Arun ice cream should try to takeover different local ice cream SSIs in order to expand their
reach in different states
• Merger With an international company
– Arun ice cream can go for merger with an international brand
• Backward integration
– Arun ice cream can do an agreement with the farmers or can open and operate a dairy
farm so as to help their supply chain free from any disruption by fluctuation in milk supply.

26. OPTION EVALUATION

27. RECOMMENDED OPTION
• Expansion – through gift Franchise system
• Arun frozen dessert is following its current strategy by enlargement of franchises
in different states. Sales per franchise is increasing through out the year (except 1991)
• As stressed just in case Chandramogan believes in investment in folks therefore this
strategy can facilitate him expand his network slowly in several states
• Now this feature ought to be enforced with aggressive promotional material and
campaign to increase whole awareness in new states
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28. Thank You!