eastern condiments private limited (a) -...

Eastern Condiments Private

Limited (A)

06/2014-5981

This case was written by Indira Pant, under the supervision of Paddy Padmanabhan, the John H. Loudon Chaired

Professor of International Management, Professor of Marketing, both at INSEAD. It is intended to be used as a basis

for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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On a hot Sunday morning in July 2008, Anjan Dasgupta, Sales and Marketing Head of Eastern Condiments Private Limited (Eastern) pulled into the parking lot of the company’s headquarters in Kochi, a major port in India’s southern state of Kerala. It had only been three months since he joined Eastern and already he was confronted with the biggest challenge of his career. He hurried to his desk and turned on his computer. He knew the numbers for the first quarter of 2008-09 would be waiting for him. He needed them for his meeting with Navas Meeran, Vice Chairman of Eastern, on Monday morning.

Navas’ father, Mr M.E. Meeran, Chairman and Managing Director of Eastern, had built the company into one of India’s leading branded spice producers. In 2008, Eastern’s workforce of 1100 – employed in four factories and 12 locations in India and overseas – generated a turnover of INR11.95 billion2 and operating profit of INR 167 million.3 The company dominated the spice trade in Kerala and had begun expanding into other parts of the country as well as overseas (see Exhibit 1). Navas, who joined the company in 1995, had personally spearheaded Eastern’s national and global expansion.

The most promising new market for Eastern was the neighbouring state of Karnataka. That was five years ago. Despite favourable market conditions, profit numbers from Karnataka were disappointing. Of greater concern were the operational shortcomings. Stock pilferage, irregular accounts and high salesperson turnover were daily irritants. Navas felt certain that the Karnataka market had huge potential and had hired Anjan to turn the situation around. As Anjan scrolled down the numbers flickering before him, his worst fears were confirmed. Far from any improvement, the Karnataka numbers had deteriorated further. At Monday’s meeting, Navas would expect Anjan to spell out a course of action to put Karnataka back on track. It was going to be a long day.

The Indian Spice Industry

In 2008, the Indian spice industry produced almost 4.4 million metric tons of spices for the domestic as well as global market. In fact, India was the largest producer and exporter of spices in the world, with the top 19 players selling just under INR 120 billion worth of spices and spice-related products.4

The use of spices goes back thousands of years to the world’s earliest civilizations. As far back as 2600 BC, labourers building the great pyramid of Cheops were given spices as it was believed that they provided strength. India’s role in the spice trade was central even then. The country’s climate was ideally suited to spice cultivation and there was an abundance of spices in its cuisine as well as in its traditional medicines and cosmetics.

Since the early 1990s India had experienced rapid population growth, urbanization and rising disposable incomes. This led to an explosion in demand for value-added staples such as spices. With production trailing demand, spices were one of the more profitable agricultural commodities in the country. The spice industry in India was dominated by thousands of small,

1 INR stands for Indian Rupees. US$1=INR 41.87 on July 27, 2008 2 For financial year ended March 31, 2008 3 Company documents 4 Spices Industry Report 2012, Dun & Bradstreet India Services


local players selling loose, unpackaged spices. Gradually, a few companies created a market for packaged and branded spices. In 2008, one of the largest was Eastern.

Early Years (1968-2003)

Kerala was India’s top producer of pepper, cardamom and ginger owing to its favourable climate (see Exhibit 2). It was in this spice-rich southern Indian state that M.E. Meeran started the Eastern Trading Company in 1968 to distribute a wide range of consumer products including whole spices. A man with sharp business instincts, Mr Meeran realized that he needed to focus on products that had perennial demand and the potential to add value. Spices, which found their way into every Indian meal, seemed to be the ideal product.

At the time, consumers bought whole spices from small neighbourhood stores called provision shops and ground them into powders in their homes – a laborious and messy operation. Recognizing the opportunity this presented, Mr Meeran drove his truck to wholesale markets in Kochi and bought whole spices at competitive prices. He invested in a small grinder and began making turmeric, chili and coriander powders – the three most widely used spices in Indian food. He packed the powders in small plastic bags and sold them to provisions shops in his district. With steadily growing sales and healthy margins, he acquired two additional distribution trucks and began supplying the neighbouring districts as well.

In 1983, Eastern set up its first full-fledged spice factory with 35 employees in Adimali, a small town in Idukki which was the leading spice growing district in Kerala. In the same year, also in Adimali, the company set up a coffee powder manufacturing facility (see Exhibit 3). Eastern Condiments Private Limited was incorporated in 1989.

Following his success with “straight” or single spice powders, Mr Meeran set his sights on the next value-adding innovation. He knew that customers bought straight spices and then blended them at home. So in 1987 he began selling three blended spices – chicken masala5, meat masala and sambar6 powder, catering to the tastes of the local Malayali7 population. All three were hugely successful so he developed several more blends, patented his recipes, expanded his truck fleet, and was soon covering a third of Kerala’s 14 districts.

From the very beginning, Mr Meeran realized that product quality would be crucial to success. The company’s manufacturing facilities were designed to ensure high levels of hygiene, freshness and consistent flavour. In 1992-93, Eastern set up its first lab to test quality. The lab was later upgraded to conform to prevailing international standards – it was the only such lab in Asia.

Navas joined the business in 1995. Father and son decided to focus on establishing production capacity rather than chasing turnover growth. Despite repeated expansions at the Adimali plant, the company faced severe capacity constraints, particularly for straight powders. So in 1995, Mr Meeran set up a new factory in Theni, a small town not far from Adimali, in the adjoining state of Tamil Nadu (see Exhibit 4). Over the next decade, Eastern expanded both its production capacity as well as its product line to cater to the growing demand for value-added food

5 Masala, a word common to several Indian languages, meaning a blend of spices. 6 A lentil and vegetable hot and sour curry eaten all over South India. 7 Native inhabitants of Kerala speak the language Malayalam and are called Malayalis.


products. The new products include more blended powders, pickles and rice-based instant mixes (see Exhibit 5).

In Kerala, Eastern single-handedly created the market for branded spices. It was a high-risk move, as it required a shift in deeply entrenched consumer habits. Consequently, the company faced virtually no competition until the early 1990s. Then, drawn by Eastern’s success, several small players entered the fray. However, their products were confined to straight powders that were ground in small home-based machines and packed in unbranded plastic bags that were sealed manually with candle wax. They could not match the quality and range of Eastern’s products. Eastern’s revenues grew steadily from INR 100 million in 1991 to INR 286 million in 2003.8

Taking Kerala (2003-2008)

In 2003, the Meerans felt the company’s production infrastructure was ready to support rapid growth. Eastern began its campaign in its home base and strongest market – Kerala. Over the next five years, Eastern’s revenues grew almost seven-fold to INR 1.95 billion.9 Straight powders accounted for just under 50% of revenue, although blended powders and other value-added products gained prominence. The export market also grew at an impressive pace (see Exhibit 6). During 2007/08, in Kerala alone, Eastern generated sales of INR 1.3 billion and had a market share of 47% (see Exhibit 7).

The race to the top was not without a struggle. Eastern’s pioneering efforts threw the spotlight on the size and profitability of the packaged spice market. The Indian Government reserved this industry for small-scale manufacturers, which kept the big national and multi-national food industry players at bay. However, hundreds of small traders entered the market, attracted by what now seemed like a low-risk business opportunity. Only a few survived and none of them came close to replicating Eastern’s success in Kerala.

Eastern’s bold pricing philosophy played a big part in its success. The growing season for most spices was typically three to four months in the year. Being a large player with deep pockets, Eastern was able to stock up during the harvest periods when prices were at their lowest. Smaller players who had to buy off-season could not match Eastern’s prices. Eastern astutely priced its products slightly higher than commodity prices, allowing them to rise and fall in tandem with them. This strategy made it easier for consumers to switch from unbranded products – they had to pay only a little more to get a more hygienic, well-packaged product. Once they tried Eastern’s product, their consistent freshness, flavour and colour kept them coming back for more. Several of Eastern’s competitors tried to copy this strategy but met with limited success. They lacked the single most significant competitive advantage that lifted Eastern to the top of the pack – its distribution system.

Eastern’s Owned Direct Distribution Model

Mr M.E. Meeran’s association with distribution dated back to the late 1960s when he distributed spices and lentils to the small provision stores that dotted most of rural and urban India. Typically, these were tiny shelf-lined spaces crammed with a broad range of food essentials

8 Figures for financial year ending on March 31st. 9 For financial year ended March 31, 2008


with barely enough space for one person – usually the owner. In larger urban centres, retailers spanned the entire spectrum from small mom-and-pop stores to large self-service grocery chains (see Exhibit 8). Mr Meeran recognized that the distribution business could yield substantial profits – only if it was run efficiently. In the 1970s, only the large multinational corporations (MNCs) had understood how to profitably manoeuvre India’s complex web of wholesalers and retailers. In order to learn how they did it, Mr Meeran convinced several of them, including Nestle, Britannia and Unilever, to appoint him as their distributor. Over the years, Eastern had built a small fleet of trucks, a pool of experienced staff and a rich understanding of the territory. Since these MNCs did not have any existing distributor in the area, Mr Meeran was able to secure their business.

The MNCs were demanding in terms of the service and data they required from distributors. A quick learner, Mr Meeran picked up the procedures and control systems they used to plan truck routes and inventory, optimize product placement at the retailers’ premises, reconcile stocks and manage cash. So successful was he that by 1986 Eastern distributed the brands of most major MNCs in Kerala.

The first Eastern spices rode on the same trucks as Nestlé’s milk powder and Britannia’s biscuits. As the spice business grew, Eastern spun off its MNC clients to a separate company and the trucks now carried only the company’s own spices. By this time Mr Meeran had acquired a deep understanding of the distribution business. He knew that he had to keep tight control over working capital – a task made more difficult because of the limited shelf-life of Eastern’s spice range. Under Mr Meeran’s watchful eye, Eastern successfully adapted its understanding of direct distribution to the nuances of the spice trade and in a few short years evolved a disciplined and profitable distribution system.

Every Monday morning the Eastern truck fleet headed out of the Adimali factory fully loaded with a carefully selected inventory of products. Carrying a salesman,10 a sales assistant and a driver, the trucks followed a fixed route selling stock for cash. Approximately half the trucks returned to the factory by Thursday evening and the rest arrived a day later. Each week on Friday and Saturday, Mr M.E. Meeran and his Kerala sales manager would personally conduct a day-long sales review. Over 10011 Kerala salesmen, sales assistants and drivers, who had returned to Adimali the day before, attended this review. Product-wise and retailer-wise sales were analysed, cash and stocks reconciled, routes and schedules adjusted, and fresh plans made for the following week. At Adimali, the company had its own truck workshop and diesel pump, so repairs and refuelling were also closely supervised.

The close involvement of the top management meant that distribution operations were efficient and well managed. Mr Meeran was able to communicate his knowledge and experience to the sales team who gradually acquired the necessary skills to forecast demand and plan weekly inventories. His expertise in this process was without equal. Anjan recalled:

“Stocking trucks was an art and a science and Mr Meeran was the best at it. On one occasion he felt very strongly that fish masala ought to sell very well in the

10 Eastern had an all-male salesforce. 11 In 2008, Eastern operated 75 trucks in Kerala, each carrying a minimum of 3 people – a salesman, a sales

assistant and a driver. Approximately half returned on Thursday and the rest on Friday.


Kozhikode12 market – that it could become the anchor product in that market – but the salesman wasn’t pushing it. So during weekly review meetings Mr Meeran focused on fish masala alone – for six months. The salesman realized he had no choice but to push fish masala, which soon became a best seller.”

The routes were developed one at a time. Care was taken to understand what each truck would carry, which shops would be covered and in what sequence. Initially, they carried virtually the entire product range, which was later pruned, as the salesman developed an understanding of what each retailer would buy. In fact, Eastern was remarkably astute in building its formidable retailer network. They made sure their retailers wanted to push the Eastern product range just as much as they did. As Mr Sivanandan, Eastern’s Company Secretary, explained:

“Our disciplined distribution reach meant that retailers were confident that the Eastern truck would show up in their shop every week at the scheduled time. So they needed to carry only one week’s stock and could turn around their inventory 52 times a year. Weekly deliveries meant the spices remained fresh. Competitors just could not do this and their sales suffered.”

The success of this approach required a highly disciplined and experienced sales force. Navas and his father only recruited salesmen from the local community around Adimali. Being a relatively non-industrialized area, job opportunities were limited, so Eastern had no difficulty finding salesmen. Furthermore, they only hired family members of people they knew personally. This gave them a measure of control over the sales force, which helped the company to implement its highly regimented approach.

Each salesman was trained intensively. A key objective of the training was to ensure that salesmen knew precisely what was expected of them. The company achieved this by thoroughly researching the sales potential of every retailer on a salesman’s route and setting sales targets accordingly. The company would also focus on a few products every week and hone the sales pitch using scripts. But the central theme to all training was instilling discipline and persistence in the distribution team, as Anjan explained:

“Every week we hammered into the sales team a simple message – come rain or shine they had to show up at the door of a retailer at the same time on the same day of every week. We called it the “permanent journey”. They had to make the call even if they came away empty-handed. We had an 11-week call model. Even after 11 consecutive zero-sale weeks, the salesman had to persist. However, on the 12th visit his supervisor would join him to help him bring the retailer on board. But in most cases the toughest of retailers were made productive by the ninth call.”

The weekly sales review meeting helped the company’s management reinforce this message and keep a firm grip on the distribution reins. They also served another valuable purpose. Every week, in the presence of top management and peers, each salesman had to report on how he had fared in the week gone by. If a salesman excelled, Mr Meeran would reward him instantly with a small sum of cash. This proved to be a great motivator. The reaction of the rest of the sales team was equally important and followed a rather curious path, which Anjan described:

12 According to the 2001 Census of India, Kozhikode was the second largest city in Kerala after Kochi.


“If a salesman performed well, he would be given a “rain clap” – all the salesman and the managers would start clapping softly like a “drizzle” and build up to a thunderous “downpour”. Poor performers got a “slap clap” – a single clap that was like a slap in the face – actually over a hundred slaps in the face, all at once. It was brilliant! You had to see it to believe it. For example, when it was the turn of the salesman who failed to sell fish masala, since Mr Meeran only asked about his fish masala sales, he got a slap clap – virtually every week till he achieved his targets. He got the message.”

A typical Kerala salesman earned a salary of INR 5,500 per month, a daily allowance of INR 200 and a commission of 1% on sales in excess of targets. On average, the commission cost the company about 0.1% of turnover. Sales assistants and drivers earned less – a monthly salary of INR 4,500 and a daily allowance of INR 100. Sales assistants also received a smaller commission of 0.75%. Other running costs, including fuel and repairs, amounted to INR 20,000 per month. Depreciation and insurance charges added INR 15,000 per month to distribution costs13 (see Exhibit 9). At these cost levels, the company’s margins were healthy. The company also now had the production capacity to support strong growth. However, Kerala was a relatively small market – which Eastern already dominated. Navas, who had begun to assume a more central role, realized that Eastern’s continued growth had to come from outside Kerala. Starting in 2003, he trained his sights on the adjoining state of Karnataka.

Karnataka and Beyond (2003-2008)

To keep logistics simple, Eastern first looked at the adjacent states of Tamil Nadu and Karnataka – both large and relatively prosperous states. Since the Eastern brand appeal was strongest among the Malayalis, Navas chose to pay greater attention to Karnataka, which had the country’s highest concentration of Malayalis outside Kerala – 30% of the state’s population (see Exhibit 10). With this core of Malayali consumers, Eastern soon gained a foothold in the Karnataka market.

Eastern benefitted from a relatively low level of competition in Karnataka. There were several small, localized brands with limited appeal. The only major competitor who was doing well was MTR – a premium brand with products in the vegetarian segment14 catering to the palate of the local Kannada population.15 Eastern knew that its vegetarian spice blends, which had been developed for Kerala cuisine, would find limited success in Karnataka. It therefore pushed its straight spices, keeping prices close to commodity prices – much as they had successfully done in Kerala. Gradually, even in this highly competitive segment, Eastern gained traction as a value-for-money alternative to MTR. However, it was in the non-vegetarian segment that Eastern really made its presence felt in Karnataka. Eastern’s non-vegetarian product-line was well established. Products like chicken masala and fish masala accounted for 40% of turnover in Kerala. More importantly, they were less differentiated than the blends for vegetarian dishes – the same blends worked all over the country. Eastern was the first to enter the non-vegetarian segment in Karnataka and captured it effortlessly (see Exhibit 11).

13 Company sources 14 With a sizable vegetarian population, Karnataka was a major market for blended spices for vegetarian dishes.

While there was considerable overlap in the vegetarian dishes eaten in the four southern Indian states, there was a subtle, but important difference in their flavours.

15 The native inhabitants of Karnataka speak the language Kannada and have their own distinctive cuisine


In the initial stages, Eastern focused its efforts on Karnataka’s capital Bengaluru, a large and growing metropolis with a population of 6,532,000.16 Bengaluru also had the largest concentration of Malayali people in Karnataka. The market was therefore large enough to warrant distribution infrastructure and Eastern located its warehouse in Bengaluru. Trade acceptance was high because most small retailers in Bengaluru were Malayali.

With a small, contained territory, Eastern decided to replicate its highly successful Kerala distribution model in Bengaluru. Senior management, including Mr Meeran and Navas, personally helped set up operations. They transferred a sales manager from Kerala to co-ordinate distribution. Locally hired salesman were given slightly different terms. While their salary remained the same, their daily allowance was lower (INR 100/day) and commissions were considerably higher at 3% of total sales.17 Drivers’ compensation was marginally lower at INR 4000 per month with INR 70 as the daily allowance.

Eastern’s top management wanted tight control over operations so salesmen had to report back on a daily basis unlike the weekly cycle followed in Kerala. The company used smaller distribution vans with a capacity of 600 kg,18 which were better suited to shorter, urban routes (see Exhibit 12). With the smaller vans, no sales assistants were needed. Smaller vans also meant that Eastern’s depreciation and insurance charges dropped sharply to INR 2,500 per month, as did running costs, which were about INR 4500 per month. Despite this very conservative approach, a lower cost base and meticulous planning, the Karnataka operations proved problematic from the very beginning (see Exhibit 13).

To begin with there was a lack of consumer pull. The brand was not very well known in Karnataka so retailers resisted Eastern’s insistence on cash-based sales as competing brands offered credit. Furthermore, many of the new local hires joined local distributor unions that began causing trouble for the company. This was uncharted territory for Eastern. With personal ties with all their employees in Kerala, the management diffused the threat of industrial action. In fact, Eastern was the only non-unionized company of its size in Kerala, a state known for intense trade unionism.

Being a new market, sales forecasting was difficult. The salesmen, most of whom were new, did not have the expertise to stock their vans and Mr Meeran and Navas were not on hand to guide them. To counter this, the company decided that the Karnataka operations would carry 60 days’ sales as inventory compared to 15 days’ sales carried in Kerala.19 Despite this, stocks ran out periodically, adversely affecting sales. Also, the top management could not conduct the personal weekly sales reviews in Karnataka that were so important for managing operations in Kerala. Anjan highlighted their challenges in Karnataka:

“Our absence meant that decision-making got delayed. The sales team was also under huge pressure to meet sales targets, as they had to report every evening with their numbers. This led to high staff turnover and, more worryingly, to mismanagement. Salespeople strayed from their earmarked territories and routes trying to drum up business, and both stocks and cash went missing.”

16 Census of India, 1991 17 By contrast, in Kerala, salesman commission was paid on sales in excess of targets – typically 10% of sales 18 In Kerala the company deployed trucks with a capacity of 6 metric tonnes. 19 With interest rates at 12% pa, the inventory-carrying cost for a Karnataka van was substantial.


Anjan and the Eastern top management were most concerned about the cost implications of the mismanaged Karnataka operations. Anjan highlighted some of these:

“If distribution was handled efficiently, each van could follow a weekly cycle, bringing running costs down to INR 3000 per month. Salesmen could drive their own vans, cutting out driver-related costs altogether. Inventory carried could be brought down from 60 to 45 days’ sales.20 Distribution had to be tightened.”

However, tightening up operations required top management oversight. It was clear that Eastern could not replicate the closely supervised distribution model outside its home base. Navas, however, remained keen to expand the brand nationally. The company therefore tried a new “hands-off” approach in another high potential market – Mumbai, India’s commercial capital. In 2005, Eastern outsourced distribution for Mumbai to a partner for a margin of 20%. While the operation was profitable, it soon ran into trouble on scale up issues. As Anjan explained:

“The Meeran family was deeply wedded to the distribution end of this business. It was ingrained in their DNA. Eastern was not a brand and marketing-driven company. It was distribution that excited them and so they were uncomfortable giving it up. A year later, in 2006, they took back distribution for Mumbai.”

Following the Mumbai experience, Eastern acknowledged that, at the very least, they needed to retain partial control over distribution. However, they did not have the funds to buy a fleet of trucks to cover the country. They decided to tie up with Mahindra Logistics,21 from whom they leased 450 trucks and drivers, paid for with private equity funds. During the period 2006-08, the company entered every major state excluding those in Eastern India.

This strategy did not work either. While Eastern did not own the trucks, they still had to pay a fixed rental per month. So the model remained very similar to the Kerala model that had already been unsuccessful in Karnataka. In fact, the Karnataka problems were amplified in the northern and western states. All of Eastern’s factories were in the south, so supply and inventory management became more difficult. Control systems remained weak, so managing operations was even harder because of the far-flung geographies. Consumer pull was worse in these states than in Karnataka as the Malayali population, Eastern’s core consumers, was small. This negatively affected revenues. At the same time the company had to pay Mahindra Logistics lease rental for its trucks. This placed great pressure on the sales force and attrition rates were very high.

Meanwhile, management challenges in Karnataka continued to intensify as revenues grew. By 2008, the company had 30 salesmen generating a sizable turnover of INR 9.67 million per month in Karnataka.22 Anjan knew that the Karnataka market was too big to fail. He also knew that the owned distribution model was not working. Handing over distribution entirely to a distributor had not worked in Mumbai. The leasing model adopted in the rest of India had not succeeded either. Anjan considered continuing with the existing owned model while increasing commissions to 7% and reducing salaries by INR 500 per month. But he was concerned that the

20 30 days’ sales would ride on the truck and 15 days’ sales would be stored in company warehouses 21 Mahindra Logistics was the logistics arm of Mahindra & Mahindra, one of India’s leading multinational

industrial groups 22 Company documents


fixed salary component of the salesman’s compensation remained too high. He described his unease with this option:

“Even under the new terms, I didn’t think a salesman would shed his “employee” mind-set. So if a better opportunity presented itself he would move. As a result, the retailer would see a new face every few months. Also, the stock and cash pilferage problem would remain unresolved. The vehicle and inventory still belonged to Eastern so the challenges of supervising maintenance, controlling costs and managing working capital also remained.”

Anjan had to come up with a proposal to revamp distribution in Karnataka. It had to be profitable and scalable – and he had less than 24 hours to figure it out.


Exhibit 1

Financialsa for 2002/03 and 2007/08 (INR millions)

2002/03 2007/08 Sales 286 1,949

Other income 13 54

Operating profit/(loss) 21 167

Interest & bank charges 3 59

PBT 18 108

Net profit 11 59

Shareholder’s funds 54 752

Loan funds 27 729

Fixed assets 57 994

Current assets

o Cash 20 218

o Trade receivables 48 204

o Inventory 35 256

o Loans and advances 5 267

Current liabilities & provisions

o Current liabilities 35 65

o Provisions 42 161 aFinancial year-end March 31

Source: Company documents


Exhibit 2

Kerala – Facts and Figures

Formed in 1956 by amalgamating the Malayalam language-speaking people, the state of Kerala (derived from Keralam, the land of kera or coconuts) lies along the south-western coastline of the Indian peninsula. Spread over 38,863 sq. km. (15,005 sq. mi.), Kerala is flanked by the Arabian Sea on the west and the mountains of the Western Ghats on the east. The state is divided into 14 districts with Thiruvananthapuram as the state capital and the port city of Kochi as the state’s commercial centre. With its palm-fringed beaches, lakes and rivers, tropical rainforests and rugged mountains, Kerala has often been called “God’s own country”. With a population of 31.84 million in

2001,23 Kerala is one of the most densely populated states in the country, with most of its residents living in the fertile Western coastal strip. It also has the highest literacy rate – 90.86%, the highest life expectancy – 74 years, and the highest sex ratio – 1,091 women per 1000 men among the Indian states. As a result, the state has consistently scored among the highest of all Indian states on the global Human Development Index rankings. The principal religion is Hinduism practiced by 56% of the population, followed by Islam (25%) and Christianity

(19%). Unlike some other Indian states, Kerala has experienced relatively little communal or sectarian conflict.

With a GSDP (Gross State Domestic Product) of approximately INR 1.75 trillion24 in 2007-08, Kerala’s growth rate exceeded the national average. The economy of Kerala has transformed from being heavily dependent on agriculture to one driven by the tertiary sector. In 2007-08, the tertiary sector accounted for 64.4% of GSDP, followed by the secondary sector (22.1%) and the primary sector (13.5%)25. Kerala is a leading player in agricultural products including rubber, pepper, coir, spices, coffee, tea, coconut, bamboo and cashew nuts. The unemployment rate exceeded the national average and was as high as 25% in 2005.24 A survey in 2005 by Transparency International ranked it as the least corrupt state in the country.

23 Census of India 2001 24 Economic Review 2007, Government of Kerala 25 Study on Kerala done by Frost & Sullivan for the Associated Chambers of Commerce and Industry in India in

2011

Adimali

Kochi


Exhibit 3

Mr M. E. Meeran, Navas Meeran and the Adimali factory

Mr M. E. Meeran (seated) and Navas Meeran

Adimali factory in 1983

Adimali factory in 2008


Exhibit 4

Timeline for Manufacturing Facilities

Year Nature of facility Location 1983 Straight powder factory Adimali - Kerala 1983 Coffee production facility Adimali - Kerala 1995 Straight powder factory Theni - Tamilnadu 1995 Pickle Adimali - Kerala 2002 Masala powder Adimali - Kerala 2003 Rice powder Adimali - Kerala 2004 Export packing division Okkal - Kerala 2005 Theni cold storage Theni - Tamilnadu 2005 Tea factory Kavalangad - Kerala


Exhibit 5

Photographs of selected Eastern products



Exhibit 6

Revenue Breakdown in 2002/03 and 2007/08 (INR millions)

By geography

By product group


2002/03 2007/08

Kerala 96% 67%

Karnataka 4% 6%

ROI 0% 5%

International 0% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total revenue:

INR 286 million

Total revenue:

INR 1.95 billion

2002/03 2007/08

Straight powders 64% 47%

Blended powders 28% 39%

Pickles 0% 2%

Rice-based products 0% 3%

Others 8% 9%

0%

10%

20%

30%

40%

50%

60%

70%

Total revenue:

INR 286 million

Total revenue:

INR 1.95 billion


Exhibit 7

Operating Statistics in Kerala 2002/03 and 2007/08

2002/03 2007/08 Sales (INR millions) 274 1,304

Operating profit (INR millions) 19 191

PBT (INR millions) 15 139

Number of vehicles 35 75

Number of salesmen 112 238

Number of retailers 32000 40000

Market share of major brands in Kerala 2002/03 and 2007/08


2002/03 2007/08

Eastern 28% 47%

Melam 8% 6%

Nirapara 0% 5%

Brahmins 0% 3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total market:

INR 900 millionTotal market:

INR 2.6 billion


Exhibit 8

Photographs of Typical Indian Retailers

“Mom and pop” shop (less than 50 sqft)

Traditional provision store (less than 500 sqft)

"General" store – an urbanized provision store

(less than 1000 sqft)

Urban supermarket (more than 1000 sqft)


Exhibit 9

Distribution Data for Kerala in 2007-08

Turnover (INR) 1,304,000,000

No. of vehicles 75

Salesmen 119

Sales assistants 119

Drivers 75

Salesman compensation

- Salary (INR/month) 5,500

- Daily allowance (INR/day for 25 days/month) 200

- Commission* (% of sales) 0.10

Sales assistant compensation


- Daily allowance (INR/day) 100

- Commission* (% of sales) 0.075

Driver's compensation


- Daily allowance (INR/day) 100 Running expenses including depreciation, insurance, fuel & repairs (INR/month/vehicle) 35,000

No of days inventory carried by company 15

Interest rate on inventory (%/year) 12

* In Kerala, salesmen earned commissions of 1% (sales assistants 0.75%) of sales in excess of targets. On average, the commission cost the company about 0.1% of turnover.



Exhibit 10

Karnataka – Facts and Figures

Originally known as Mysore, this south-western state of India was renamed Karnataka in 1973. Occupying 191,976 sq km, Karnataka is bound in the west by the Arabian Sea and surrounded by five Indian states, namely Kerala, Tamil Nadu, Andhra Pradesh, Maharashtra and Goa. The centre of several powerful empires in ancient and medieval India, Karnataka’s archaeological and cultural heritage is rich and diverse. The state’s geography is equally varied: the arid Deccan plateau, the lush and hilly Western Ghats, and the fertile coastal region with the deltas of two major river systems – the Krishna in the north and the Kaveri in the south. The state is divided into 29 districts with Bengaluru as the capital city. It is the largest city in Karnataka with a population of 6.5 million, making it the third largest city in India.26

Karnataka is the eight largest state in India with a population of 52.9 million,26 of which 50.9% are male and

49.1% female. Literacy rates hover around the Indian average at 66.6%, being higher for men (76.1%) and lower for women (56.9%). Kannada is the official language of the state, which is native to about 65% of the population. The average life expectancy in 2001 was 64 years. About 83% of the state’s population is Hindu, with much smaller numbers of Muslims (12%) and Christians (3%).

Karnataka’s Gross State Domestic Product (GSDP) was about INR 2.5 trillion in 2008-09,27 with the tertiary sector’s share at 54.4%. The secondary and primary sectors were considerably smaller at 29.1% and 16.5% respectively. The key drivers of the Karnataka economy are the technology and tertiary sectors, resulting in one of the country’s highest per capita GSDP. Karnataka has emerged as a key state in the area of knowledge-based industries such as IT, biotechnology and engineering as well as a centre for science and R&D.

The capital city, Bengaluru, already a culturally diverse metropolis, is one of India’s fastest growing cities. It is a hub for the IT, defence, aerospace and telecommunications industries. With several well-regarded higher education institutions, the city has a large pool of skilled manpower that attracts businesses – both Indian and foreign-owned.

26 Census of India 2001 27 Indian Brand Equity Foundation report on Karnataka, 2010. Exchange rate used: 1US$=INR 41.87


Exhibit 11

Operating Statistics in Karnataka 2002/03 and 2007/08

2002/03 2007/08 Sales (INR millions) 13 116

Operating profit (INR millions) (2) 1

PBT (INR millions) (2) (6)

Number of vehicles 16 30

Number of salesmen 16 30

Number of retailers 5000 11000 Market share of major brands


2002/03 2007/08

Eastern 2% 7%

MTR 35% 32%

Everest 15% 10%

Sakthi 5% 9%

Aachi 0% 5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Total market:

INR 550 million

Total market: INR

1.7 billion


Exhibit 12

Photographs of Distribution Vehicles

Trucks lined-up outside Adimali factory

Kerala distribution truck Capacity 6MT

Karnataka distribution van Capacity 600 kg

Mumbai distribution van Capacity 1000 kg


Exhibit 13

Distribution Data for Karnataka in 2007-08

Turnover (INR) 116,000,000

No. of vehicles 30

Salesmen 30

Sales assistants -

Drivers 30

Salesman compensation


- Daily allowance (INR/day for 25 days/month) 100

- Commission (% of sales) 3

Sales assistant compensation

- Salary (INR/month) -

- Daily allowance (INR/day) -

- Commission (% of sales) -

Driver's compensation


- Daily allowance (INR/day) 70 Running expenses including depreciation, insurance, fuel & repairs (INR/month/vehicle) 7000

No of days inventory carried by company 60

Interest rate on inventory (%/year) 12


eastern condiments private limited (a) -...

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