Q) Do local companies have capabilities to fight against national companies?
The MKG case study is an eye opener. A local brand, MKG under KCPL was doing rather well and was numnber two in 1973-74 in biscuit industry. It's profitablity was also moving up as per figures till 1983-84 despite increased competition between 1975 and 1980 when 70 units came up in the unorganised sector. However, there were disturbing signs thereafter and between 1983-84 and 1986-87 its sales declined, capacity was rendered surplus and it incurred a loss.
Being a local brand that now faced increased competition from other local brands in the area of operations, MKG faced a twin blow when it got out competed by national brand (A-One confectioneries private limited in particular). The market share of A-One was far more than MKG.
In this case had MKG been able to spearhead the biscuit industry by its dominance in terms of geographical coverage with its sales volumes, the story could have been different. That it did not and had to play a secondary role not only to A-one but also another big regional payer (International Biscuits Ltd) that had a capacity of 800 tonnes per month compared to 1200 tonnes of A-one is a story of an opportunity lost.
Since success or failure of a local brand to emerge as a national brand depends upon several issues--- product, cost and pricing of the good and how it appeals to the people --- the question is an open-ended one. The answer cannot be generalised, for it is case sensitive.
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Q) Do MKG fall in the trap of tagging as a local brand or they have competence to be a National Brand?
MKG is a sandwiched case. It is neither at the top nor at the bottom. It's market share compared to the national brand is a pittance even though the share in the north where MKG sold biscuits was 120 ton against 200 ton of APL. But APL had 1200 ton of sales every month and a bigger name in the country even as it operated from the south.
In the present instance with surplus capacity and it inability to sustain leadership as a national brand (Maharashtra company being a major contributor), MKG's falls in the trap of being categorised as a local brand as APL is enjoys the top position. The gap in sales volume and market reach is rather huge for MKG to bridge.
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What should MKG do?
MKG needs to weigh its options and therefore has to don the several hats of management --- starting from the red one. Truly, not being in the market with its own brand is an emotional issue. The family name is at stake and the future prestige of the business family.
But would mere being emotional help? Well, the white hat of facts suggests it has options of both joining Pearson and opting out as well. Pearson like APL would purchase the product sold to them and reimburse the raw material cost and also offer a conversion charge of Rs 3 per kilo against Rs 1.50 per kilo of APL. The conversion charge works out in KCPL's favour. But the other issue between the two bigger brands is that APL has a price advantage over Pearson besides APL biscuits having a greater appeal.
Other comparative facts include Pearson offering 100 to 125 ton load but initial agreement of 50 ton per month against 70 ton per month from APL to manufacture Glucose biscuits. While Pearson relies on the expertise of KCPL, APL would supply ``APL secret ingredient.''
With APL the biggest player and customers preferring its biscuits, and issues of how KCPL's arrangement of contract manufacturing with Pearson would be looked at , MKG brand is advised to tie up with APL.
However, KCPL still has the yellow and green hats hat to wear (positive & creative thinking) and in this regard can look at its surplus capacity with APL share in the north at 200 ton compared to its 120 ton. MKG has a market share and can continue to count on it. The company can piggyride the big brand as one that has the potential to cater to quality, and price it along with packaging to suit the local market.
Why so? The fact sheet states canteens of institutions bought biscuits by placing on lowest bidder and in 1986-87 KCPL sold 360 ton to the small and medium sized institutions. There is a big market in this segment as the total demand from these institutions was estimated to be around 2400 tonnes. With ``large institutions preferring the other three brands,'' KCPL's MKG brand has the potential and can be a winner.
KCPL requires to look beyond the black hat (impossible; too good to be true) and concentrate in its core areas of benefit.
For the company to be in a commanding position (blue hat), the members of the business family ought to look at the different levels of its own product and innovate, for there is a market share.
