Stuck in the deep freeze

When Baskin Robbins, one of the world's best known ice cream brands, came to India it reckoned that it would be easy to melt rival brands.

Instead, its profits are still languishing in the chill tray even after nine years of serving out its ice cream scoops to Indian customers.

What went wrong? The answer is almost everything. The company, which is owned by UK-based Allied Domecq Plc and which has a formidable reputation around the globe, still hasn't turned a profit in India.

Its turnover last year was a piffling Rs 17 crore. That was far short of its targeted Rs 22 crore. In the Rs 700 crore ice cream market, it hasn't managed to boost its market share beyond the 4 per cent it held three years back.

Allied Domecq, which has a 40 per cent stake in the venture, has always seemed a bit lukewarm about its Indian venture.

To remedy that its local partner, the Mumbai-based Ghais who used to part-own Kwality Ice Cream, said they would buy out the international giant. That move was expected to help revive the brand, but it still has not happened.

"The discussion to pick up a stake is still open, but it's a long procedure and hasn't yet reached a conclusion," says Pankaj Chaturvedi, chief executive officer of the joint venture company Maharashtra Dairy Products Mfg Co (MDPMC).

Industry watchers say that while talks have been going on for some time, both sides are arguing over the pricing. However, Ravi Ghai, chairman and managing director of MDPMC denies this saying that negotiations are on and the deal will be through by March, 2004.

At an earlier estimate in September last year, the Ghais were supposed to pick up the remaining stake for Rs 8 crore.

But today, competitors feel that the Ghais, who were selling ice cream to the masses, no longer believe that the premium brand is worth such a high price.

"It's not viable to make a business survive by just selling one product and that too a premium one," says one competitor. Ghai says he still believes in the premium brand's equity.

By upping their stake to 100 per cent, the Ghais could have changed several things.

For one, not only was the company facing competition from Indian players like Hindustan Lever and Amul but other international players like Movenpick and Blue Bunny were also eyeing the Indian market.

Movenpick entered the market through select outlets and departmental stores, only to find that the market was not viable.

There was also talk of Nestlé launching Haagen Dazs, the premium ice cream brand which it acquired from General Mills. All of this altered the scenario for Baskin Robbins.

Baskin Robbins has been a story of almost everything going wrong. The company tried almost everything in a bid to scoop up greater profits. It experimented with parlours, franchisees, flavours and pricing. For instance, three years ago, the brand was sold from 164 exclusive parlours.

However, with dwindling sales, some franchisees began stocking snacks, cassettes and other knick-knacks. Then, to generate more traffic to the parlours, Baskin Robbins also entered into tie-ups for fountain Pepsi, Sony Music (for retailing cassettes) and sale of other desserts.

But the strategy backfired as it altered the look of the parlours and led to dilution of the brand.

"Not many franchisees achieved profitability, so a lot of them signed out," says an industry watcher. To change that, the company tried to turn to a company-owned store model and experimented with three outlets in the country.

"We found that the costs were much higher than franchising," says Chaturvedi. So today there is only one company-managed store, out of 127 outlets.

Nevertheless, the franchisee model still had problems that wouldn't go away. The lack of written agreements between the company and the franchisees led to a lack of control and sales and supply could not be monitored or questioned.

Now, franchisees unwilling to follow the business model have been weeded out. But this hasn't really altered the situation.

Says a Mumbai-based franchisee, "Two years back we were doing sales worth Rs 6,000 per day. Today, it's down to a mere Rs 4,000." Also, from being in 60 cities earlier, Baskin Robbins is now available in only 32.

Chaturvedi and his team of 33 people are now struggling to build a new strategy based on fewer but more profitable outlets. Today the focus is on key metros like Delhi which now has 14 outlets as opposed to four earlier.

Then, in 2002, Chaturvedi, an ex-Domino Pizza employee, introduced the store-of-the -future concept. The earlier parlours took up around 700sq ft to 800 sq ft. Now he is attempting to sell from 250sq ft to 300 sq ft outlets. He's also pioneering the opening of kiosks and carts in the upcoming malls like Nirmal Lifestyle in Mumbai.

"With smaller spaces, rentals and costs can be controlled and break even levels will be lower for franchisees. The mandate now is that each outlet breaks even in six months and is profitable in a year," says Chaturvedi.

Franchisees earn 43 per cent margins, while the cost of setting up an average 250 sq ft store is Rs 7 lakh, and for that, breakeven is calculated at Rs 1 lakh a year.

Initially, Baskin Robbins assumed that being the first foreign ice cream parlour brand to enter India with 31 flavours (ranging from vanilla to exotic macademia nuts) was enough to woo consumers.

At that time it charged Rs 31 per scoop, while the competition sold 100 ml ice cream at Rs 10. Inevitably, consumers thought the brand was too expensive. So most customers tried it out once and never returned.

In order to compete with existing ice cream players like HLL and Amul, Baskin Robbins slashed prices to between Rs 18 and Rs 25. But it was still undecided about how to proceed.

Even last year it slashed prices per scoop to Rs 25 from the earlier Rs 32 in Ahmedabad, only to find that the price reduction had no effect on footfall. So now prices have been increased again to Rs 31 per scoop.

Also, prices of more expensive products like sundaes have been brought down. It also had to rethink its flavour palatte. Indian tastes veered towards the standard alphonso and strawberry, while Baskin Robbins had flavours like English Toffee and Mint Chocolate in its ice-box.

None of these moves have really had any impact. "The change process has been extremely slow and fragmented," says a competitor. But Chaturvedi is still optimistic about the future and believes turnover will touch Rs 40 crore by then.

Other competitors also say that demand could climb swiftly. Says a competitor, "Like the coffee retail chain, the scooping segment will grow tremendously in the near future."

Chaturvedi is also trying to sort out distribution issues and keep a tight check on inventories. On the front end, the company is increasing thrust on institutional sales.

Now, institutional sales contribute to 30 per cent of turnover, up from 16 per cent three years back. Even so, the brand now suffers from poor visibility, thanks to a non-existent mass media presence.

Says Chaturvedi, "The size of the company doesn't justify the spend to create hype around the brand." It still remains to be seen whether the Ghais can change that.