By Ankush Chibber
It is a hot summer afternoon in the dust land that is Palda, just outside Indore, and you can't find one soul that knows where Prataap Snacks is located. You check with the firm's older name, Prakash Snacks, but the daily workers, the tea stall owners, the truck drivers-all give you a slow shake of the head.
But say Yellow Diamond Chips, and a hundred arms go up pointing towards a large gated complex not too far off the main highway. That's just how the founders of Prataap Snacks, probably India's fastest-growing snack food manufacturing firm, prefer it.
Amit Kumat, CEO and one of the three founders, tells us that he simply does not believe in traditional marketing and advertising. For him, there are just two right ways into a customer's shopping basket-taste and value.
We are no savory experts. But like any other self-respecting Indian who has plopped himself in front of a TV for a movie or a match, we can claim the bare minimum of authority on chips. On the taste front, the firm has got it fairly spot on with flavors-they are tasty, as some Yellow Diamond buyers attested at the local store.
Kumat says that all the recipes to his chips and flavors are prepared and closely held by his family. Not even the line manager, who we met, knows the exact recipes of any of the flavors. The flavors come directly to the production facility from Kumat's home. "The customer first and foremost understands taste. Baaki sab secondary hain. [Everything else is secondary]," he says, scoffing at my follow-up question about baked, healthy chips. "All nonsense. Waste of time and energy."
The crux of Prataap's success however has been the value it has been offering its customers. Apurva Kumat, Co-Founder at Prataap Snacks, says 99 percent of their products are in the Rs. 5 to Rs. 10 range. Its entire success has been in the Rs. 5 packet segment, which drives almost 80 percent of the company's sales. Kumat tells us of how he cracked the market as a new entrant. His strategy was to give substantially more grammage in his packets than the market leader. In a Rs. 5 packet of Yellow Diamond chips, you initially got 22g of chips, much higher than the 16g that Frito-Lay was offering, he says. At first, this was not a great economic bet but with scale and consumption, it unraveled to be a winning one. Traction is increasing in the Rs.10 segment as the company refocusses and the purchasing power of its customers go up.
Even though Prataap no longer offers 22g (20g in some markets, 18g in others) it has bitten off a huge chunk of the value segment from the incumbents. In the Rs. 5 to Rs. 10 segment, Kumat says that they now enjoy a 30 percent market share in the regions they operate in-Mumbai, Delhi, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh, and Haryana. "They have forced the incumbents to take a relook at the value segment. A lot of the new product launches have been in this segment. In some cases, they have re-launched older brands that once signified value to Indians," a product manager from a major food maker says on the condition of anonymity.
In Delhi and Haryana, they are the undisputed market leader, Kumat says confidently. Along with Mumbai, these three regions account for 50 percent of sales. In Delhi and Mumbai, Kumat says, the company does Rs. 10 crore of sales monthly, a figure that is only growing.
Spreading the bets
The Delhi and Mumbai sales figure can lead you to assume that Prataap Snacks is striking it big in urban India, but that would be reading it all wrong. The company does not really care much about urban India, which shops at what are called A Class outlets.
"This 2 percent is worthless to us," says Kumat. What Kumat and Co. aim at are B, C, and D Class outlets. These outlets typically are in the lower class neighborhoods, where the consumption patterns did not merit the attention of larger players. These were underserved and Kumat went directly to these markets rather than the wholesale route. He talks of lower class neighborhoods in Delhi, where his maal is taken to shops on cycles-so narrow are the bylanes.
The distribution model Prataap has is slightly different from other players-instead of hiring their own staff, Kumat inked deals with 'super stockists.' These are distributor-entrepreneurs who can not only distribute, but also market the products in their region. They also pay upfront and Prataap offers no credit. "It saves costs and we also benefit from their ownership of our products...25 percent of our revenue now comes without any sales support from our side," says Kumat. Prataap Snacks is also infamous amongst its peers for not resorting to some of the advertising and marketing tricks they play. They do none or very little advertising in stalls and do not pay for better product placements. Only recently have they pushed advertising on children's channels, and giving product offers.
'Banaate gaye, badhte gaye'
The company has roots in entrepreneurial doggedness. By his own admission, Kumat, an engineer by training, was a 'Trier.' He tried many a thing before he landed into the business of chip making. In 2003, Kumat and his brother Apurva approached Arvind Mehta, the latter's classmate and one of the more known faces in what is a small, informal network of businessmen in Indore. The three formed what would be known for many years hence as Prakash Snacks, with Mehta putting in the initial capital of Rs. 15 lakh, though progressively more capital was added. At first, they took the contract manufacturing route even as they bought a pellet making line. In 2004, the first of Yellow Diamond products came in to the market. Within a few months, the team realized that the real pie was in the potato chip market. "Worldwide, potato chips account for 70 percent of the snack food market. The same is true of India too," says Kumat.
The company then got hold of a second, used line for Rs. 60 lakh and took a rented premise in the area the company is located now. In July 2004, the first chips started rolling off that line. "After that, everything just clicked. Banaate gaye, badhte gaye. [We grew as we made]," says Kumat. More lines were added. More states were entered.
Faster and wider
About four years ago, the company's founders came in touch with Sequoia Capital. Since then, Sequoia has invested more than $30 million for an undisclosed stake-funds that are being put to use to grow the firm faster and wider. VT Bharadwaj, Managing Director, Sequoia Capital, says that they are helping the firm with recruiting high quality talent as well as specific marketing and branding initiatives in line with what the company needs.
The firm has now moved into many other products like namkeen, pellets (remember Fryums?), rings and puffs. Production capacity has also grown towards Rs. 700 crore in value terms and two tons for chips in real terms. For other products, it has one ton production lines. Kumat now wants to go to Eastern and Southern India. Here, he expects strong competition from regional players, but is not too worried. He knows the market is shifting from to organized players. And there are not enough of them.
"India's 120 crore people are being served by just six snack food companies-Frito-Lay, Balaji, ITC, Parle, Haldiram's, and us. There is so much scope. So much demand. My biggest problem right now is that my distributors say that I am not supplying them fast enough!" Kumat tells us. A good problem to have, this.
The article was first published in the Entrepreneur magazine
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Updated Date: Dec 20, 2014 22:05:28 IST