Facts of the case
Kanpur confectioneries Private Limited (KCPL) was started by Mohan Kumar Gupta in 1945 to sell candies under the brand ‘MKG’. However, in the heavy competitive environment he could not compete on costs and in 1954, he set up a candy-making unit at Kanpur, the first in UP. He established dealership, promoted and advertised in vernacular newspapers and on hoardings located at crossroads. By end of 1960s he was able to establish a good dealer network in Bihar and MP and thus became market leader in northern region. Surplus cash, huge growth in biscuits demand(15% p.a.) and attractive margins he decided to diversify himself into glucose and later on in cream, salt and marie biscuits. Business accelerated but was constrained by scarcity of raw materials like maida, sugar and vanaspathi. In 1973-74, Prince Biscuits was the market leader in northern region with 130 tonnes sales followed by KCPL with 110 tonnes sales followed by International Biscuits with 100 tonnes sales. A-One Confectioneries Ltd. (ACPL) was national leader with 900 tonnes sales. However in northern region it was at fourth position. At this point of time only 6 players were present, two national and 4 regional. In 1975-80 unorganized sector also came in the market and enjoyed tax evasion. This made it quite competitive and KCPL got stuck in middle. It could not increase its prices whereas raw materials and labour cost rose and it did not have the national scale to reduce costs considerably. Between 1983-84and 86-87 its sales declined and it incurred heavy losses. By now ACPL had become a leading player with monthly sales of 200 tonnes. KCPL was reduced to fourth position with sales of 120 tonnes. Candy business was on decline and hence was closed.
In due course top management of KCPL was also changed. In 1982, Mohan Kumar, who has six sons handed over the KCPL’s leadership to his eldest son, Alok Kumar. He looked after finance and liaison functions. His second son Vivek looked after Human Resource Management and Manufacturing. Sanjay, the last son was responsible for marketing, logistics and administration. KCPL was associated with Stated Bank of India since 1954.
In 1985, Pearson Health Drinks Ltd. , a Multi National company decided to launch ‘Good Health’ biscuits. For this it outsourced its supply to KCPL by providing technical support and agreed to run its existing line of business. Between May 86-March 87 Pearson relied on KCPL’ expertise and did not provide any technical assistance to KCPL. Biscuits were reviewed by them just before dispatch. Market response to it was lukewarm as they were seen as high priced biscuits without any additional benefits. As a brand, MKG was quite popular in north and was known for its quality, crispness and affordability. Consumers were middle class families in urban and semi-urban areas. In metro cities, ACPL or International biscuits were preferred. Canteen of institutions bought biscuits by floating tenders. Orders were placed to the lowest bidder. In 1986-87 KCPL had sold 360 tonnes to small and medium institutions against the total estimated demand of 2400 tonnes. Large institutions preferred other brands than KCPL. Production capacity of KCPL is 240 tonnes per month. For production KCPL was dependent on permanent and casual workers. On an average, six casual workers were employed to support one tones of production. There were nearly 90 permanent employees with a salary bill of INR 2.75 lakhs. Workers were hired from local region. Absenteeism was as high as 50% and workers used to abstain without notice. Thus production variation was quite high from 2 to 6 tonnes per day. They have bought 50% stock on credit and rest on cash. On September8, 1987 ACPL mentioned in the meeting of Confectioneries Manufacturers Association of India (CMAI) to augment its supply through contract manufacturing Units(CMU) to reduce its manufacturing cost. It has promised to place an initial order of 70 tonnes biscuits per...
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