Demand Forecasting_ a Case of Two Minute Ready to Eat Snacks

8/12/2019 Demand Forecasting_ a Case of Two Minute Ready to Eat Snacks

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Demand Forecasting: A Case of Two-Minute Ready to Eat SnacksDr. C.S. Adhikari

In this VUCA (Volatilile, uncertain, complex and ambiguous) world, most of the businessesare facing great amount of risk and uncertainty about the future demand In the midst of the

uncertainty they businesses are forced to risk of taking optimum decisions about how much to

produce which in!ol!e planning and scheduling production, ac"uiring inputs, making

pro!ision for finances, what price to charge (formulating pricing strategy), how much to

spend on ad!ertising, how much discount is to be gi!en, which markets to tap and what

product to launch All these decisions re"uire some kind of forecasting model based on

certain processes and assumptions about !arious economic decision !ariables and arri!e at

some conclusion #enerally, forecasting the demand and sales of the firm$s product begins

with the macroeconomic forecast about growth rate of #%& and !arious other macroeconomic

!ariables such as sa!ing rate, in!estment rate, per capita disposable income, employment rate,

exports, inflation and interest rate All these macroeconomic !ariables gi!e certain sense of

direction and benchmark to the producers to take decisions about !arious issues mentioned

abo!e

'ubse"uently, industry or sectoral analysis is done in terms of growth of the sector, maor

firms in the sector, their market share, go!ernment policies regarding the de!elopment of the

sector etc ext to the sectoral analysis, comes the '*+ analysis of the firm and

accordingly business decisions are made

Ashok the C-+ of .ealthy food limited has been with the company for last /0 years and o!er

the years he has made significant contribution to the company in terms of launching a new

brand of $C1I'&2$ 3iscuit and a retail chain of outlets named as $.ealthy 4ood$ in /0 leadingcities of India he total turno!er of healthy food in 50/06// accounted for /78 crs and the

3iscuit di!ision accounted for 58crs Ashok is curious to di!ersify his business into wo6

9inute 1eady to -at 'nack and asked his #eneral 9anager 1adha Iyer to prepare a report on

the new business 1adha is ready with the business plan and is !ery confident about the

success of the new !enture According to 1adha there are as many as 5: crs households in

India of which :crs household are middle income group households and 5 crs households

belong to .I# group +ut of a total population of ;0 crs 9I# people< 5; crs people li!e in

urban India, of which /5 crs people ha!e 5 earning members (husband and wife) he

concentration of about : crs two earning members population is confined to : maor cities=

%elhi, 9umbai, >olkatta, Chennai, 3angalore, .yderabad, Ahmedabad and ?ucknow In

addition the economic growth of per Capital income and o!erall growth of : @ B per annumgrowth during last one decade till 50/06// has helped change the lifestyle of young as well as

middle aged people in terms of their spending habits. he trend is reflected in the rapidly

changing consumer preferences 'ocio6economic trends such as rising discretionary incomes,

urbaniation, increasing number of working women and people on the mo!e are some of the

key factors that ha!e changed the way customers dine todayhe roughly 1s 7006:00 crore

con!enience packaged foods market is said to be growing at /8650B per annum Although

home deli!eries from D'1s and other restaurants are said to ha!e gone up, Vikran 'abherwal,

V& (marketing), 91 4oods, said the bigger re!olution which is taking place at a faster pace

is home makers mo!ing to packaged con!enience foods E.ouseholds are increasingly

looking at outsourcing menial tasks such as making masala or idli batter 'o they are taking on

packaged products, which brings them con!enience and reduces their effort for non6!alueadded work in the kitchen,E said 'abherwal, while adding that consumers may order in food,

say, twice a week, but the rest of the fi!e days they are eating home6made or con!enience


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packaged food he y6generation now spend much more on non6food items 4ood items used

to account for more than F0B of total monthly budget in the past which has dropped to about

G0B now &eople are spending more on commuting, entertainment tours and tra!els, outside

food, fast food, clothing, health and fitness his so called fast life of the big cities has made

people to eat anything which is a!ailable in the shortest span of time 9aggi, op 1amen,'mith H ones, 3ritannia IC6sunfeast yippee, Adani 4ood products, 3andia products are

catering to a potential market of 1s /500 crs instant noodles his market is growing it /8 @

50B year6on6year and has a limited competition set at the moment his lea!es a great scope

for ready to eat snacks

Ashok listened !ery carefully to 1adha and asked about the competition of 1eady o 1eady

o -at 'nacks with traditional Indian snacks such as J sand6wich, 'amosa, Idly, Uttappa,

%osa, Upma, &oha, &oratha, 3ada, 3ade &a! bhaia etc, which are easily a!ailable at any

food oint he only difference is that when you prepare it at home all items are time

consuming whereas at outside outlets hygiene could be big negati!e factor

All these factors seem to suggest for a big scope of 1eady o -at 'nacks 3ut merely relying

on secondary data and information sometime may be misleading his happened with >ellog

*ay back when they entered into Indian 9arket with conflaxe on the assumption that India

has a huge middle class and its product will capture a huge market .owe!er, it did not turn

out the way they thought 9ohan 9eakins and other brand of Corn flakes continued to

dominate the market In U' corn flakes is consumed with cold milk and when the same

product was launched in India it turned out to be a cropper because Indian always preferred

corn flakes with hot6milk his lack of understanding of cultural di!ersity was a big lesson for

>ellog Ashok was aware of the case of >ellog and asked 1adha whether she has conducted a

thorough study of tastes and preferences of Indian 9iddle class in terms of breakfasts

refreshment and eating habits

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This case was prepared for PGDM Program, June Sept. 2011 and has een re!ised in 201"#

1$ to e discussed with the PGDM %atch 201"#1&, 'TM %usiness Schoo(.

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1adha took note of the same and promised Ashok that she will come out with a

comprehensi!e demand forecasting plan for the new product within G @ ; month time period

ext day 1adha called a meeting of her marketing team to discuss the modalities of the

proect he main points of discussion of the meeting were to =

/) Identify !arious substitutes and complimentary products of $1eady o -at 'nacks$ andtheir prices

5) Identify the tastes and preference of middle income group with two earning members

G) Identify the potential market for 1eady o -at 'nack !is @ !is the existing market

ow the "uestion was who will conduct this market sur!ey .ealthy 4ood had hired the

ser!ices of +1#69A1# to conduct the sur!ey when they launched crunchy brand of biscuit

and the estimates gi!en by the market research firm pro!ed "uite good +b!iously the

marketing team thought to hire +1#69A1# to conduct the sur!ey and estimate the potential

demand

he V & of +1#69A1# 9r Atul Chauhan was called and after due deligence 9+U between

two firms indicating the terms and references was drawn he forecast of demand for 1eadyo -at 'nacks was to be undertaken in two phases In the first phase the sur!ey was to be

carried out in : 9aor cities mentioned abo!e and the second phase of the study was to be


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carried out in centre urban6India later he first phase of the sur!ey was to be carried out in ;

months

+1#69A1# eam responsible to carry out the sur!ey was to be lead by V & 9r Atul

Chouhan assisted by : members (one person for each city) he @ member +1#69A1#eam had a couple of brain storming sessions to work out the modalities of demand

forecasting for 1eady o -at 'nacks here was no clear cut data a!ailable on the research

problem '' data on consumption expenditure also does not gi!e the break up of

consumption on food consumption by breakfast, ?unch or %inner In this situation there was

no option but to conduct primary sur!ey of demand forecast either by census or sample sur!ey

or through expert opinion poll Census sur!ey in : maor cities would be too expensi!e both

in terms of money as well as time .ence sample sur!ey by selecti!ely selecting the target

group of 9I# households with two earning members would be the most feasible one, the

group opined

'ince +1#69A1# had already done a sur!ey of double income and o kids (%I>)families in four 9etros, the study group decided to take help of CA-1 sur!eys of

distribution of households by income groups from time to time All these sur!eys helped the

team leaders to identify the target groups

In addition to the primary sur!ey some secondary information on the existing consumption of

noodles is already a!ailable by region through !arious companies engaged in the business

he directory of 1eady o -at food is also a!ailable

he group also decided to get in touch with the distributors of noodles in each region and

elicit as much information as possible in terms of growth of noodle market, maor players,

prices of the existing products as well as potential demand in the next 5 @ G years his expert

opinion by op distributors will pro!e !ery important opined V & 9r Atul Chauhan he

combination of primary and secondary sur!ey would definitely help arri!e at demand

forecasting

At the end of the primary sur!ey the following findings emerged prominently=

6 Among the se!en maor cities lifestyles differs In cities like ?ucknow, Ahmadabad and

.yderabad in that order 9I# families lead relati!ely easier life as compared to

9umbai, Chennai, 3angalore and %elhi 9umbai, 3angalore, .ydrabad and Channai

had a relati!ely fast life

6 &er household consumption of existing 1eady o -at 'nacks such as 9aggi, op

1aman, 'mith one etc, was found to be between 8 kg to /0 kg per month preparing itbetween two to three days in a week at home

6 he working class people in the age group of 50 @ G8 years consumed ready to each

snacks much more than the older group of people

6 he children of nuclear families tend to consume more maggi and the like as compared

to families ha!ing oint families with grand parents

6 1eady to -at 'nacks has become almost a life style of younger lot especially children in

almost all cities It suggests towards pan India con!ergence of testes

6 9aximum commuting time takes place in 9umbai, 3angalore, .yderabad and Chennai

in that order and this phenomenon is responsible for consumption of noodles to a greatextent

6 +nly 80B of the potential 1eady o -at 'nacks, market demand has been met and


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another 80B market throws great opportunity for entrepreneurs to enter into the market

6 As regards the pricing of the new product, the study suggested to charge almost the

same price as charged by the competitors but differentiate the product by imparting

different testes and fla!ours to different !ariety of noodles not only across !arious

regions say orth, 'outh, -ast, *est but also by localities by identifying the maor

ethnic groups inhabiting the localities

6 he Channels of distribution could be similar to that of competitors

4inally the market research identified the following main determinants of 1eady o -at

wo minute 'nacks= 1ising Indian 9iddle class, changing life styles, 3usy schedule,

both husband6wife working, long hours commuting, changing tastes and preferences of

younger generation, rising income, prices of related products, competition from home

deli!ered food ser!ices market crossing o!er /000 croreL etc

he annual demand for 1eady o -ach 'nacks was estimated at /500 crs of which 80B

is already met and out of the remaining F00 crs demand, the demand for the $wo9inute 1eady o -at 'nacks$ of .ealthy 4ood was estimated at /00crs which is

expected to grow at the rate of /8B year6on6year basis

he entire report was presented to the board and the board consented to go ahead with

the launch of the product

L.ome deli!eries bite instant food=+I 9umbai, uly 5/, 50/;

9U93AI= he con!enience packaged foods business is facing stiff competition from an

unlikely ri!al6home6deli!ered food *ith the !aluation of home deli!eries in the

organied food ser!ices market crossing 1s /,000 crore and thus grabbing a larger share

of the consumer$s mind space, con!enience foods are feeling the heat

Con!enience food, which includes ready6to6eat, instant or ready6to6cook !arieties, by its

!ery definition le!erages on the opportunity of con!erting consumers who are strapped

for time to opt for easier food options 3ut with restaurants, both big and small,

increasingly resorting to home deli!eries, consumers ha!e yet another con!enient option

to satiate their appetite Duite naturally, con!enience food makers aren$t too happy about

that

E-!ery single restaurant does home deli!ery today A consumer can get a lot of things athome much faster than anywhere else in the world he con!enience factor in packaged

foods comes when people don$t want to order and want something "uick and hygienic

3ut the fact is that home deli!eries are growing at a faster pace than con!enience foods

here$s no hard data, but estimates suggest that the number of people ordering in has

probably doubled in the last few years,E said >urush #rant, executi!e director (49C#

business), IC, which competes with #its 4ood &roducts and 91 in the con!enience

packaged foods industry

According to 1anit &aliath, V& (business operations), .ardcastle 1estaurants6

9c%onald$s India *est H 'outh operations, the home deli!ery segment is expected to

grow G06;0B o!er the next fi!e years to o!er 1s F,000 crore Ehis reflects the need forcon!enience, especially in larger cities where distance is a prime issue,E said &aliath,

"uoting ata 'trategic numbers


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he trend is reflected in the rapidly changing consumer preferences 'ocio6economic

trends such as rising discretionary incomes, urbaniation, increasing number of working

women and people on the mo!e are some of the key factors that ha!e changed the way

customers dine today

Ehe challenge now is how can we make a person when he or she is hungry pick our

ready meals pack from the other options a!ailable from nearby restaurants, or D'1s

("uick6ser!ice restaurants), which deli!er food,E said 'ahil #ilani, director (sales H

marketing), #its 4ood &roducts, which is re!amping its strategy to see how its products

can appeal to the younger generation who may prefer risotto o!er biryani

he two key factors con!enience food makers belie!e would bring them up to speed

with home6deli!ered foods are pricing and "uality E*e are looking at gi!ing

con!enience to consumers at a !alue that is cheaper than the nearby restaurant 'o if a

G00gm (ser!es two6three persons) $dal makhani$ costs around 1s /50 in a roadside dhaba

and 1s :00 in a fi!e6star hotel, we are looking at offering a fi!e6star "uality packaged$dal makhani$ that costs less than the dhaba price his is achie!ed by gaining economies

of scale and lower costs compared to a typical restaurant,E said #ilani

he roughly 1s 7006:00 crore con!enience packaged foods market is said to be growing

at /8650B per annum Although home deli!eries from D'1s and other restaurants are

said to ha!e gone up, Vikran 'abherwal, V& (marketing), 91 4oods, said the bigger

re!olution which is taking place at a faster pace is home makers mo!ing to packaged

con!enience foods E.ouseholds are increasingly looking at outsourcing menial tasks

such as making masala or idli batter 'o they are taking on packaged products, which

brings them con!enience and reduces their effort for non6!alue added work in the

kitchen,E said 'abherwal, while adding that consumers may order in food, say, twice a

week, but the rest of the fi!e days they are eating home6made or con!enience packaged

food

Documents

Demand Forecasting_ a Case of Two Minute Ready to Eat Snacks