Swadisth Company Pvt Ltd: A Survival Plan during COVID-19

Discussion Questions

Introduction

On 14 April 2020, Mr A. Balraj Chaudhary sat at his dining table for breakfast and switched on the TV for news updates. India’s Prime Minister was to address the country’s prevailing coronavirus situation. The Prime Minister was to speak about the extension or relaxation of the nationwide lockdown imposed 21 days earlier due to the increasing cases of COVID-19 patients. During this time, no one was allowed to leave their home. The schools, colleges, factories, markets, railways and airports were closed. The people were only allowed to visit the market for essential items.

The pandemic impacted Mr Chaudhary’s nineteen-year career very hard. Mr Chaudhary was heading a Food & Beverage company named Swadisth. He was apprehensive about the declining sales due to the lockdown. The sales of biscuits, cookies, noodles and wafers had declined by more than 90% in the last month. The distributors were not accepting or placing any orders. The Bahadurgarh production unit halted production due to low demand. The cost of manpower, machinery and inventory was piling up.

The trend did not seem well as the COVID-19 cases were exponentially increasing daily. Mr Chaudhary thought there were higher chances that the Prime Minister would extend the lockdown. He also went through some articles on COVID-19 written by some experts and researchers who stated that the vaccine might take 8–12 months to come into the market and till then, the situation will remain the same. Therefore, Mr Chaudhary could not see any solution to his problem in the near future. He estimated that if the company incurred losses like this for 2–3 more months, it would go bankrupt.

On 12 April 2020, Mr Chaudhary attended a board meeting in which alternative business strategies were discussed to successfully sail the company through a crisis (minutes of the meeting are attached in Exhibit 5). In the meeting, Mr Chaudhary directed his Chief Operating Officer, Mr Keshav Rao, to evaluate all the options and present a comparative analysis of distribution strategies on 14 April 2020.

Background of Swadisth

The inception of Swadisth can be traced back to 1996 when Mr Chaudhary started a small manufacturing plant in Bahadurgarh for biscuits. He made an initial investment of 20,548 USD (1 USD = 73₹) and started the production of glucose, chocolate and strawberry biscuits. Mr Chaudhary had 10 years of experience with Parle and was aware of the biscuits’ operations and production process. In the first year of business, the company was barely able to break even, and the cost of operations was just above the industry average. To reduce the high operating expense, in 1997, Mr Chaudhary hired Mr Deepak Shukla for the position of Chief Operating Officer (COO). The Chief Operating Officer’s job profile focused on operational efficiency and product market positioning to strengthen the brand identity.

Mr Shukla worked relentlessly to improve the company’s operations. His business acumen, expertise in the field and need for changes were exemplary. After joining Swadisth, within 2–3 weeks, Mr Shukla observed that the workers were not adequately trained. Even after working for 1 year, they were sluggish. He attributed this problem to the fact that no supervisor had been appointed, and the daily wage for every worker was kept at the same level. No incentives were given for better work, thus making the workplace slow-moving. To improve this, Mr Shukla appointed a supervisor and introduced an incentive system for the workers who were performing well.

Growth Phase and Product Diversification

In 1999, during the initial phase, Mr Chaudhary thought of introducing a new product because of the increasing competition and the thinning margin in the biscuit industry. He decided to venture into the instant noodles market, showing a growth rate of 21% annually. As per the survey conducted by the National Survey Company on the Indian noodles market, it was found that: Indian consumers were not comfortable with substituting lunch or dinner with instant noodles; children liked instant noodles more than adults; consumers were not pleased with outside vendors’ food due to hygiene issues and were also not fond of packaged foods like biscuits and chips. Considering consumers’ requirements and expectations, Swadisth pitched instant noodles as a mid-way solution, that is, snack items. It was packaged and half-cooked, which the customer had to make at home. With an extensive advertisement campaign, Swadisth invested 6,850 USD and expanded its production facility for atta noodles, soupy noodles, etc., in India. Within 1 year, the company was able to build a market share of 7% in the instant noodles segment. In 2001 the company further expanded its product line of biscuits by adding cream biscuits in three flavours: badam biscuits, oats cookies and cream-filled biscuits.

In 2004, Swadisth observed that India’s coffee consumption increased from 60,000 MT to 75,000 MT in the last 4 years (i.e., a 25% growth rate). Looking at the increasing popularity and demand for coffee and chocolates, in February 2005, Swadisth entered this market too. Chocolates were launched in four variants—milk, white, dark and almonds. This time the company promoted the product not only through newspapers and flexes but also through television advertisements because of the increased use of television in India. In 2009, Swadisth launched wafers in five variants chocolate, hazelnut, orange, strawberry, and vanilla flavours.

In 2011, Mr Shukla retired at 65 years after serving Swadisth faithfully for more than 14 years. In place of him, Mr Keshav Rao, a management graduate of IIT Delhi, took over as Chief Operating Officer. Mr Rao had 5 years of experience as a procurement manager in a pharmaceutical company and 10 years of experience in the FMCG sector as a product portfolio manager. The organization hierarchy is shown in Exhibit 1.

In 2015, Swadisth Company had four production plants located in Amritsar, Chennai, Patna and Rajkot, and was headquartered in Bahadurgarh. Its market was divided into four zones, that is, west, east, north and south, and each was supplied by the Rajkot, Patna, Amritsar, and Chennai plants, respectively.

Advertisement at Swadisth

In the initial years, Swadisth did not advertise its products as their primary focus was to develop a strong distribution network to push their products through the supply chain. The organization’s vision was to focus on quality products and high customer service, satisfying 95% of the total replenishment orders received from the downstream players. Then, Mr Shukla took significant steps to make a successful brand image of the company. He started with hoardings on the busy streets, advertisements in the newspaper, short 20 seconds ads for the radio, pamphlets and distributed posters and flexes to retailers.

A market survey conducted by the National Survey Company in 1998 found that 80% of people were aware of Swadisth, but only 20% were interested in buying their products. This low turnover could be attributed to the fact that the market was very competitive, and Swadisth could not differentiate itself from the competitors at large. Thus, Mr Shukla thought of positioning the product as a healthy product in the market, and they started highlighting that the biscuits were made from atta and had low sugar content. This proved to be a success, and the company was able to generate an annual sales turnover of 8,904 USD by 1999.

Production Processes

Biscuits : In Swadisth, for biscuit making, three main parameters were kept in mind, that is, biscuit structure and texture, development of colour and the reduction in moisture content. These changes were made simultaneously during the baking process. The biscuit manufacturing process is shown in Exhibit 2.

Instant noodles : Instant noodles were a type of precooked noodle that was processed using seasoning oil and flavouring powder. The ingredients, wheat flour, palm oil and salt, were blended in the production process of noodles. Then these ingredients were mixed to make a dough, which was rolled out. Then the dough was cut into thin strips. The noodles are first steamed, then dehydrated and, at last, packaged. They were usually sold in small packets, bowls or cups. The noodles manufacturing process is shown in Exhibit 3.

Wafers : In the first step of wafer production, all the raw materials were mixed for 150–720 seconds using high shear mixers to achieve homogeneity. The batter was deposited, usually in lines, all over the lower plate of a heated metal plate oven. It was spread evenly throughout the gaps between the plates due to the fast production of steam. Then cream coated rollers were used to apply the cream to the wafer sheet. In the next step, the wafer was cut down into small pieces depending on the requirement. This was done by pushing them through a pair of taut wires, circular saws, or blades. The wafer manufacturing process is shown in Exhibit 4.

Current Distribution Network

In 1996, Swadisth satisfied the demand of Delhi, Sonipat, Rohtak, Karnal and Ghaziabad from the small production plant located in Bahadurgarh at the time of inception. Initially, they had 25 distributors who supplied to more than 200 small retailers. As the company grew, it kept adding cities and made its presence felt Pan-India. By 2009 Swadisth had a network of more than 200 distributors, which further supplied to around 1,800 small and medium retailers across India. They also established relationships with large customers like supermarkets, departmental stores, wholesalers, etc. The company owned a pool of salespeople who carried handheld devices for order booking and stock keeping. The salespeople visited distributors and large retail stores like supermarkets and hypermarkets. The distributors bought confectionary items (e.g., cookies, chocolates, biscuits, wafers, and instant noodles) from manufacturing plants and sold them to small, independent retailers and wholesalers downstream. Salesperson’s role was to promote new offerings, understand competitors’ offerings, increase sales and target new territories. They spent most of their time with the distributors to understand their requirements and market trends. The company received orders from distributors, on average, every sixth day.

In March 2020, the company had 18 distribution centres and 25 salespersons in Delhi alone. The overhead expenses on each distribution facility were approximately 274 USD per month (including rent, electricity, water and other expenses), and a salesperson’s salary was 205 USD. The company kept its supplies at all these distribution centres and satisfied the demand of the respective geographical area with available inventory. The company mainly sold perishable items. It was calculated that the holding cost of these items in the distribution facility was, on average, 1.4 USD per quintal per day. The company used third-party logistic providers for inbound and outbound logistics. A medium commercial vehicle (MCV) was used from the plant to the distribution centre as the products were supplied in bulk. From the distribution centre to retailers, the light commercial vehicle (LCV) was used as the product was supplied in small quantities. The company had the following transportation options for inbound and outbound transportation.

Introduction of an Online Platform

Due to the spread of coronavirus cases in India, the government imposed a nationwide lockdown on 24 March 2020, for 21 days. The shopping malls, markets, theatres, railways, schools and offices were shut during this time. Many small businesses were on the brink of bankruptcy, and medium ones struggled to survive. Further, during these 21 days, the situation worsened; the number of COVID-19 cases increased exponentially. There were higher chances that the Prime Minister would extend the lockdown on 14 April 2020. During this testing time, only those businesses survived which had an online presence as the people were shopping online.

Swadisth incurred huge losses due to the closed production units, unutilized workers and piling up of costs of land, water, electricity, rent, salespersons’ salaries, etc. The company lost approximately 541,096 USD by the end of March 2020. The company had a traditional network of distributors and retailers spread all over the country. Entering the e-commerce business became crucial for the company to retain its market shares and overcome the challenges.

OPEN IN VIEWER

Table 1.

Plant to the Distributor (Medium Commercial Vehicle).

Transport	Cost/Quintal
Gulab Transport	1.02 USD
Super Transport	1.23 USD
Diamond Transport	0.82 USD

Source: The authors.

Note: 1 Quintal = 100 kg.

OPEN IN VIEWER

Table 2.

Distributor to the Retailer (Light Commercial Vehicle).

Transport	Cost/Quintal
Gulab Transport	0.20 USD
Super Transport	0.34 USD
Diamond Transport	0.27 USD

Source: The authors.

Note: 1 Quintal = 100 kg.

In the 74th board meeting scheduled on 12 April 2020, at the Bahadurgarh headquarters, all the dignitaries in the company unanimously agreed to implement an online platform in a phase-wise manner (MOM attached in Exhibit 5). After deliberation, the board members considered all the possible options for distribution strategies. The key officials directed Mr Rao to evaluate all the alternatives considering cost, service quality and delivery time. He had to present a comparative analysis to Mr Chaudhary on 14 April 2020.