Abstract
RB is a premium ice cream retailer which has become one of the world’s largest chains of ice cream specialty stores with more than 5,800 stores throughout the globe. The company set up its operations in India in 1993 with its own manufacturing plant near Pune; it operates through 100 per cent franchisee parlours and modern food retail channels such as hotels, malls and restaurants. However, despite a huge potential, the sector is fairly competitive and tough to crack, for majority of consumers are still unfamiliar with the concept of premium ice creams and purchase local brands from unorganized players. Even with the growth of parlours, majority of volume sales happen via impulse purchase and take-home products. Given the presence of a multitude of players in the Indian ice cream market, most of them through multi-brand outlets and vending carts, RB faces a tough situation due to its business model and franchisee operations. Also, RB needs a further boost to develop the brand to ensure strong association to an innovative ice cream store that would cater to the neighbourhood families in an environment of fun, personalization and frolic. Thus, there is a need for RB to strategize in order to engage consumers and maintain profitable operations in India.
Introduction
RB Ice Cream’s chief operating officer (COO) (India) Mr Mukherjee, sitting comfortably in the office, was discussing the situation of RB in India with his subordinate Marketing Manager Mr Ramesh, ‘We are a very affordable brand when brands like Movenpick which cost Rs 150-plus a scoop have come up, it has made life easier for us. RB is perceived as excellent quality at a lesser price.’ He adds,
We are slightly more expensive than our nearest competitor; however, we are confident that the value the customer gets out of a superior product along with our healthy portion sizes makes it great value. Today, hygiene and quality are critical to the customer and that is where RB scores over others.
However, Mr Ramesh is concerned that even though RB counts its positioning as an advantage, it might be beginning to lose out on its differentiating factor in the price-value sensitive Indian market. He feels that in spite of its huge potential, the sector is fairly competitive and tough to crack, for majority of consumers are still unfamiliar with the concept of premium ice creams and purchase local brands from unorganized players. Also, ice cream’s demand has traditionally been driven by seasonal demand with typical peak sales during months of March–October in India. Considering positives and negatives, both of them think that RB needs a further boost to develop the brand to ensure strong association of an innovative ice cream store that would cater to the neighbourhood families in an environment of fun, personalization and frolic. Their attempt to provide a unique experience to their customers began with the idea of unique flavours, which went on to become an integral part of the company.
The Beginning
‘Each flavour is someone’s favourite’, the premise on which RB was created, is on its way to realize its mission of being the premier franchisor in the ice cream segment. RB has earned several accolades and has gradually grown to become the world’s largest chain of ice cream specialty stores with more than 6,433 stores in over 42 countries throughout the globe. RB has been consistently named among the top US ice cream and frozen desert franchise, and is recognized as the top player in hard scooped ice cream segment, claiming over 300 million customers worldwide.
Realizing the necessity of maintaining the high standards, the owners recognized the importance of inculcating ownership interests of their store managers in entire operation. They decided to transfer the ownership of the stores to individual owners, thus, pioneering a franchising model for the ice cream industry and becoming one of the first franchised food service businesses. The 100 per cent franchise model established by the founders is still used by the firm, with each owner having a stake in the success of the business, while the product development and merchandizing being handled by the headquarters. This granted the local franchisees a degree of flexibility in creating personalized experiences to their regular customers and helped establish a strong presence in local communities.
Scenario in India
Looking at the growth potential of ice cream industry in India, estimated to be ₹ 3,000–3,500 crores, and an expected year-on-year growth of 35 per cent (Food and Beverages Review, 2013) as well as forecasted retail volume and constant value sales with Compounded Annual Growth Rate (CAGRs) of 10 per cent and 8 per cent, respectively (Euromonitor, 2014), RB started its business in India in 1993 and has completed nearly 21 years. A part of Gravis Pvt. Ltd, an exclusive franchisee for SAARC region, RB now has more than 420 franchised outlets across 100 Indian cities. As a ready-to-go/impulse purchase, ice cream holds potential in terms of consumption demand and has driven up to 68 per cent sales in 2013 (Research and Markets, 2013). Favoured by children as well as adults, ice cream is beginning to be acknowledged as an around-the-year indulgence and has emerged as the fastest growing category in packaged foods. Approximately 50 per cent of the chain’s turnover in India comes from the parlour segment with the balance coming from modern trade (15 per cent), food services (25 per cent) and exports to other South Asian countries (10 per cent). The franchisee operates via stand-alone stores, express stores (200 square foot venues designed for on-site use such as college campuses and airports) and through other channels such as malls, premium hotels, airports and multiplexes. The brand is available at about 600 hotels and restaurants and at about 600 modern-format retail stores across 95 cities and 1800 touch-points across the country.
RB’s initial strategy was to target only upper-income strata of customers in order to establish a premium brand image between mass brands such as Amul, Vadilal and Kwality Walls, and super premium brands such as Häagen-Dazs and Movenpick. It faces competition from several fronts including numerous unorganized/local players, operating via kiosks and mobile push carts, alongside the brands (organized sector players) available at channels, such as, hotels, restaurants, kirana stores, modern retail stores as well as stand-alone parlours. To stick to its premium brand image, the distribution channels initially used by the chain were targeted at high-end locations, which helped establish the image, but it did not help the retailer in building profitable operations and struggled to achieve sales. At the time when RB entered India, the Indian customer was used to the products offered by the unorganized players, mass brands and individual restaurants such as Nirula’s in New Delhi. The customers were neither familiar with the concept of premium ice cream, nor with the concept of ice cream parlours. For the price-sensitive Indian customer, ice cream was seen either as a treat at the end of a dining experience or as a ready-to-go, impulse buy. Consequent to realization of this fact, the retailer then decided on a forceful sales and distribution strategy to target the burgeoning Indian middle class with growing aspirations and utilize modern retail formats, which grew after the liberalization of the economy. The distribution channel then saw an aggressive rollout of stores and the company achieved a profitable turnover after 11 years of operations in the Indian market. Since then, the retailer has created a strong base and foothold in the competitive ice cream parlour segment and has grown close to 25 per cent in the years 2009–2010.
The COO shared his expansion plan with the marketing manager, to grow further via an increment in the number of outlets in established cities as well as an aggressive rollout in a larger number of tier I and II cities. The current targeted growth is 30 per cent and the chain is looking forward to activating 80–85 ice cream parlours each year. He says,
In cities we are already there, we want to cover the entire geographical spread. For instance, in Mumbai, we have 92 outlets, but there are pockets where we are not there. In and around Delhi, we have 45 outlets, but I see potential for at least 200 outlets. They (tier I and tier II) are yielding excellent results. We’ve seen some startling trends; for instance, parlors in cities like Nagpur and Guwahati have been our top grosser. These cities have got a lot of money with not many places to spend. They are certainly a key growth driver. While we’ll enter newer markets in Tier II and III cities, we’ll also explore opportunities in Tier IV cities.
To support its expansion drive, RB is engaging in promotional support through its website, radio, print and outdoor advertising, kids’ camps as well as sampling camps in school and colleges.
The retailer still has a tough task ahead given the tough operating conditions of the Indian ice cream and retail industries as well as the changing customer demographics. There are certain other costs inherent to the company which also gets transferred to the customer. Among these are the high overhead and logistics cost which the company incurs due to its single point of distribution in Pune. Since RB operates mainly via a franchisee model, it also faces lower volume of sales than its competitors. The lower volumes of sales render the company incapable of benefiting from economies of scale, which also transfers to the customers’ costs.
The tough operating conditions for players in this industry are made tougher by the changing customer demands. The ice cream industry in India has grown in the last decade in tune with the changing customer consumption patterns. Treated as a luxury item in India, ice cream was originally seen as an indulgence to be partaken at special occasions which changed with the shift in customer values and with the advent of conspicuous consumption as a status symbol. Ice cream, especially by premium retailers like RB, has become a part of ‘fun and fulfilling lifestyle’ of the current generations.
In India’s organized ice cream retail market 60 per cent of volume sales are impulse purchases, usually from vending carts and mobile kiosks. 35 per cent of volume sales happen through large packs for take home use or via modern food retail, hotels and restaurants. With such consumption patterns, it is a tough proposition for RB to sustain its turnover and profits on the basis of the parlour segment and brand image becomes a vital ‘pull factor’ for attracting customers. Another concept that has begun to significantly shape the concept of a holistic retail experience is retail entertainment or ‘retail-tainment’ that includes the ‘fun’ factor in the retail mix. Life style changes have also contributed in customers seeking leisure and entertainment in their consumption environments, a factor which may have contributed in driving the growth of ice cream parlours in India. RB is making strides in this direction and has adopted a global re-positioning exercise of ‘Indulging customers for their happiness’. An attempt to engage customers, the exercise is an approach to making the RB parlours livelier along the lines of product line-up of unique flavours. It includes facelift for the stores with walls and windows adorning messages/graphics showcasing happy moments and backlit menus. Changes are also underway in the 400 plus stores in India to increase footfalls and the investments are being borne by the company which is planning to implement a loyalty programme in select cities. RB has also made efforts to revamp its digital platform in India and has incorporated elements evocative of the brand, fun and happiness via its website design.
Promotional campaigns to support its re-positioning drive based on its flavours included the launch of special flavours for a televised series in India and promotion of a Bollywood fantasy adventure movie, but, was somehow lost in the midst of the other sponsor and promoter brands. This however may have been a blessing since the image of RB did not fit the fantasy adventure projection of the movie.
Though RB is endeavouring to engage customers and evolving in the process, whether these changes will be able to attract customers’ remains to be seen. The Indian customer is a complex individual driven by socio-cultural norms and symbolic requirements. Adding to the woes of the ice cream industry, the customers have also become health conscious.
They have started preferring quality food intake and are becoming more conscious in terms of nutritional diet, health and food safety issues driving the need for pro-biotic, fat and sugar-free products. Given the multifaceted environment of the Indian ice cream industry, its various factors and the needs of the targeted customers, RB has a challenging time ahead. All that remains to be seen is whether its attempts will help the retailer in establishing itself as the premier ice cream retailer in India.
Teaching Notes (Instructor’s Manual)
The case is intended for the MBA students who have opted for marketing as a specialization and have studied branding and retail.
To discuss the importance of retailing experience for consumers and the utility of designing strategies for customer engagement, specifically in the context of the business model used by the company in discussion.
To discuss branding strategies used by the company to initially establish its presence in face of the competition in the Indian market.
The necessity of refining brand positioning and differentiation platform in tandem with changing customer profile.
To discuss the viability of depending on a single retail channel to sustain a profitable business operation in the intensely competitive, complex Indian market.
The case is intended to provide students with an opportunity to discuss franchising strategies in India, the suitability of this strategy as well as the concept of a brand and retail mix. The case is intended to convey the importance of providing consumers with a positive retail experience in order to engage them and create an emotional bond. This relationship is vital for a brand in the competitive scenario and the case is intended to communicate the importance of strategizing retail experiences which establish an emotional connection with the customers. The case may be used as a tool for discussing the importance of analyzing the consumption patterns/behaviour of target audience and designing brand strategies according to the requisite needs of the customers.
The data sources used to prepare this case include secondary publications, observations and personal experience. The use of secondary data includes data from Government of India websites, annual reports of companies and articles from various periodicals and newspapers. The authors have also used their observations and experiences with regard to the company’s product offerings and retail mix.
The case may be used via group discussion to illustrate theoretical application in class or may be delivered to students in advance to analyze with instructions to prepare for a group presentation.
Do you think the franchisee model and forceful sales and distribution strategy of RB to target the Indian middle class will help it to maintain its premium brand positioning?
Since RB is also a service-oriented organization, the franchise model would work in its favour. This model along with RB’s flexibility in allowing individual store owners to leverage their own strengths could help them attract more customers. While the brand itself is a ‘pull factor’ for aspirational consumers with a growing purchasing power such as the Indian middle class, allowing individual store owners to use their local knowledge would further help the brand build relationships and gain loyal customers. With the growth of the brand, it has become easily available for a large cross-section of customers. However, there has not been a significant change in product price and the brand has to rely on an aggressive sales and distribution strategy to further attract customers from the aforementioned cross section.
Furthermore, the Indian middle class is also a value conscious customer and the use of localized ‘after marketing’ strategies by the franchisees would enhance individual customer experience and perceptions of value gained in the consumption process. Such localized marketing strategies would be especially useful for the current and projected expansion plans for tier II, III and IV cities of India where customers are especially value conscious.
Which points of differences from that of competitors can RB develop to create differentiation in minds of price conscious Indian consumers?
With the frequent introduction of new flavours and add-ons like take-away packages, RB needs to further leverage its intrinsic strengths to develop differential positioning platforms. The first and foremost point of differentiation among RB and its competitors rests in RB’s unique product range and variety. Where most other ice cream brands have a limited range of flavours and textures, RB boasts of being able to provide a different ice cream flavour for everyday of the month. For the value conscious Indian customer, this could be an irresistible draw. The brand could also leverage its steadfast reputation for quality and the equity it has built in its numerous years of global as well as local operations. Also, RB’s strong presence and popularity in the parlour segment could be leveraged to create and attract those customer who would appreciate the experience of consuming an impulse purchase product such as ice cream in leisure. The behavioural intentions of such customers may be influenced with the help of experience management strategies and support of frontline staff.
Discuss various tangible and intangible aspects RB may use to develop the identity for its re-positioning drive.
RB may use the elements of brand imagery and performance for its re-positioning drive. RB has a significant presence in the Indian market via ice cream parlours/kiosks with a considerable product range which reflects RB’s image of being an ice cream retailer with a unique variety and product range. Since the brand is identified with quality and credibility, RB may reinforce this association with the help of a well-formulated promotional strategy integrating these tangible, performance-based aspects of the brand.
RB’s positioning would be further strengthened by polishing the psychographic profile of its ideal user personifying the actual brand values. In this case, the ideal user would be unconstrained by age, perceiving fun and enjoyment in everyday moments of life, who expresses this attitude through impulse purchases, such as RB ice cream, which give him/her enjoyment. Such a profile can be used to build/reinforce the premium positioning for actual and targeted users. Also, the RB could leverage its history to build an identity which resonates with the traits of ‘excitement’ and ‘imaginative’ which caters to the likes of a varied cross-section of consumers through its varied offerings of premium flavours.