Success Story Of Lijjat Papad

Published Date: 23 Mar 2015 Last Modified: 27 Apr 2017

Apart from production, the branch is also responsible for marketing its products in the area allotted to it. The wide network of dealers and the goodwill that Lijjat products enjoy with customers make the marketing relatively easy. To maintain the high quality and standard of Lijjat products and uniformity in taste for the same product from different branches, the central office supplies the raw material - mung and urad flour -- to all its branches. This remains the only involvement of the central office in the entire production and marketing exercise of the branch office.

The distributors pick up the quantity of papad they require and pay cash on delivery because Lijjat pays their bens (members are called bens, or sisters) every day. Since they have an estimate of the quantity each distributor takes, they produce accordingly. This ensures that they neither stock inventory nor pay heavily for storage.

They have about 32 distributors in Mumbai. Each distributor picks up an average of 100 boxes per day from the depot. This is where their job ends. They are not involved in how and where a distributor delivers as long as he stays within the area they have marked for him.

Generally each distributor has his three-wheeler and about eight to ten salesmen to deliver to retail outlets within his territory.

To select a distributor, they first give an advertisement in newspapers for the areas they have marked. Members from their marketing division personally go and check the godown facilities and only on their approval do they appoint distributors.

A distributor pays us Rs150000 as deposit. They make it clear to them that they must pay on delivery if they want their distributorship. This system is followed all over India and it works well for them.

When they discover that there is demand in a particular place, they open a new branch, like they recently opened one in Jammu and Kashmir. Whether or not they have a centre in an area, their goods reach there.

For example, they do not have any centre in Goa, but they have appointed a distributor for that area to ensure that Lijjat papads reach Goa. Their communication with distributors is regular through monthly meetings where they discuss their problems and also the issues that they may have about quality, price, reach, etc.

Lijjat's Ranchi branch was established in November 1997 bifurcating it from the only branch in Bihar at Muzaffarpur. It pays Rs 11,000 per month as rent for the building that houses its office and workshop. A "trekker" (thirteen-seater passenger vehicle) has also been purchased for the conveyance of sister-members from home to the Lijjat office and back.

This branch has 165 sister-members and sold papad worth Rs 0.65 million in November 2002. Vanai charge is Rs 14 per kilogram of papad and each sister was paid Rs 250 as extra vanai charge on Dipawali. The Muzaffarpur branch, according to Lijjat sources, paid Rs 2,500 as extra vanai charge to its sister-members. Similarly, the Mumbai and Thane branch distributed gold coins of five grams to each of the 4,056 sister-members a couple of months ago. The branch averages around four rupees as gross profit and one rupee as net profit from per kilogram of papad.

"As an experiment, Lijjat has insulated its sister-members from joblessness. These women also work from their homes, where help from other family members not only adds up to the income but also makes the work more enjoyable. At the workplace they are self-respecting, hard-working and sisterly to one another. More importantly, besides the strength of womanhood, Lijjat is also an experiment in the restoration of the essence of womanhood. The Lijjat women offer an alternative to the highly competitive and stressful work environment defined and dominated by men in which a woman competes with a man more as a man than a woman," says an elderly Gandhian, TK Sumaiya, of Bombay Sarvodaya Mandal.

They do not have individual door-to-door salesmen or women selling from homes -- only the appointed distributor for the area. The same system is followed for other products, but they may have different distributors and depots for different products.

Shri Mahila Griha Udyog Lijjat Papad has a policy of not allowing any sales to be made on credit terms. All sales are made on cash-at-delivery or advance payment basis.

A close check is kept on the distributors to make sure that the products reach every nook and corner of the cities. They make sure that every retailer, no matter what size, stocks their brand of products if they are stocking any other brands of the same product.

Promotions

At Shri Mahila Griha Udyog Lijjat Papad, they believe that the best promotion they could possibly receive is by word of mouth. Therefore they concentrate more on cost effectiveness and quality rather than on more expensive modes of promotion like advertisements.

Therefore their annual expense on advertisements and promotions amounts to Rs. 60 Lakhs, a mere 0.2% of total turnover. The extremely famous 'Bunny rabbit' campaign continues to be aired on specific regional channels. For e.g. Alpha Gujarati, Alpha Bengali, Sun etc. They also advertise in English and regional newspapers.

The distributors also need to be motivated properly, so that they in turn make a greater effort to sell large volumes of the products to the retailers. Targets are set quarterly for the distributors. Should they exceed this target, the distributor will receive a further 1% discount.

Sources Of Capital

Shri Mahila Griha Udyog Lijjat Papad secures its funding only through Banks. Their main bank is Bank Of India, followed by Bank of Baroda and Dena Bank.

The bank interest charges are generally at 16%. Lijjat pays the interest to bank at this rate. Since Lijjat is registered under the KVIC Act, they receive a subsidy on this interest paid. Therefore at the end of the year, after procuring the necessary certificates from KVIC, 12% of the interest paid is reimbursed to Lijjat.

Thus, in actuality Lijjat pays interest at the rate of 4%.

Working Capital Management and Tax Benefits:

The working capital for PCPI (Processed Cereals and Pulses Industries) amounts to Rs. 790 Lakhs. While that of Detergent amounts to Rs. 80 lakhs.

As per the notification issued by the State of Maharastra sale of Papad by Shri Mahila Griha Udyog Lijjat Papad is exempt from the levy of sales tax for the period upto 31st March, 2002.

Shri Mahila Griha Udyog Lijjat Papad was granted exemption from the State of Maharashtra from the sales tax on sale of detergent products up to the financial year 1994-95. Shri Mahila Griha Udyog Lijjat Papad has made an application for getting appropriate exemptions under Sales Tax Act under the subsequent years. Furthermore, based upon a decision in the similar case, Shri Mahila Griha Udyog Lijjat Papad is contending that, it being a charitable Institution, is not a 'Dealer' within the meaning of Sales Tax Act and not liable to be assessed under the Bombay Sales Tax Act.

Recently the Government has passed a new provision, which does not include detergent in the PCPI list of products. Therefore, Shri Mahila Griha Udyog Lijjat Papad is liable to pay the Sales Tax for their Sasa Detergent Powder. Negotiation is currently being carried out with the government to exempt this product from Sales Tax as well.

Exports

Their exports alone account for Rs 10 crore (Rs 100 million).

Shri Mahila Griha Udyog Lijjat Papad started exporting in 1980. At that time they, directly exported the products themselves. However, this endeavor was shot lived and they stopped direct export in 1982.

Today they export through Merchant Exporters, as they do not have the required skilled manpower. All export sales are made on advance payment basis. The merchant exporters provide the cartons with the delivery addresses printed on them. The papads are packed in these and returned to the merchant exporters.

When the papads are exported to countries where languages other than English are used, then inserts are added in the packets with all the details given in that local language.

They export to:

 United Kingdom

 United States of America

 Middle East

 Thailand

 Other European Countries

Problems

1) Previously Detergent, along with all the other products of Lijjat was exempt from sales tax. Recently the Government has passed a new provision, which does not include detergent in the PCPI (Processed Cereals and Pulses Industries) list of products. Therefore, Shri Mahila Griha Udyog Lijjat Papad is liable to pay the Sales Tax for their Sasa Detergent Powder. Negotiation is currently being carried out with the government to exempt this product from Sales Tax as well.

2) The rolled papads need to be dried for a certain number of hours. This entire process is done in the 'bhagini's' homes. Therefore in the monsoon when it rains it is difficult to dry the papads outdoor. This now has to be indoors. The 'bhaginis' stay in small houses and space is a constraint hence fewer papads are produced during the monsoon season. This is the reason that Lijjat does not export in monsoons.

The solution adopted by Lijjat is to provide extra money to the bhaginis during monsoons to purchase kerosene lamps to enable faster drying of papads. Our suggestion is to hire an additional space during monsoon in a central position near the depots, with kerosene lamps where the bhaginis can come and dry their papads. This will lead to higher production which can be exported.

3) Another problem expressed by them is competition in sales of their detergents (Sasa) from established brands like Nirma. We feel one of the reasons for this problem is lack of advertising, as compared to the advertising executed by their competitors. As stated earlier, Lijjat spends only 0.2% of their total turnover equal to Rs. 60 lakhs on promotions. They need to increase their investment in advertising through electronic media and print media, which will create greater awareness about their detergents and increase sales. Also, currently they don't use direct selling to sell their products. They rely mainly on word of mouth which has been successful for their papads but has not worked so well for their other products like detergents. We feel they should adopt direct selling as it involves low cost and it will definitely widen their reach and create more awareness about their products.

4) Lijjat currently exports through merchant exporters and does not involve itself in direct exporting. We feel they can save on the margin that the merchant exporters make, by appointing their own distributors in the main countries and this will enable them to reduce cost and increase profit margin.

Conclusion-

Can the formula work again with another product and in another region?

Says Dr Suresh Kumar Agarwal, a Ranchi-based doctor with MBBS, MS degrees, a herbal medicine practitioner, a researcher and leading supplier of medicinal plants, who has also experimented with the running of a co-operative hospital for five years, ``Ninety per cent of health problems do not require a visit to a doctor or the consumption of allopathic pills, but can be prevented, checked and treated with locally available medicinal plants in the house itself by informed family members or local vaids for no money. But the fact that there is no money to be made from it has resulted in the poor growth rate of home-grown medicine systems."

The same is true about the Lijjat experiment. It makes almost equal money for all its people and makes just enough money. No one would become a millionaire by setting up another Lijjat. If this aspect of Lijjat's operations is not very good news for machine and money-driven corporates owned by tycoons, the essential message that Lijjat's success conveys has definitely fired the imagination of women and rural folks. In many parts of Maharashtra and Gujarat, locally manufactured and marketed eatables are catching on. There is hardly any NGO or voluntary organization nowadays which does not try to create employment and funds, small or big, along Lijjat's line.

As a business house, Lijjat itself has been trying to rewrite its own success with another product with varying degree of success. Grounded spices, khakhra, black pepper powder, detergent powder and cake, vadi, bakery products, wheat filthier are on Lijjat's menu but papad with a sales figure of Rs 288 crore remains at the top. Among similar ventures which came a cropper are incense sticks, leather bags, tiffin boxes and matchsticks.

But most promising among them is the chapati division with six branches in Mumbai. Here, the women come in to work at around seven in the morning and make chapatis as they are prepared in homes. Packed Lijjat chapati, ftheir for Rs five, are available at retail shops in Mumbai. These centers also procure orders from hotels, office canteens, etc. and the clientele in Mumbai includes some big names from the hotel and catering industry. "As the pace of life increases, little time is available to most people in metros like Mumbai to cook their own food. There are good prospects for women forming small groups and catering to the local demand for homemade chapatti or similar products," says Ashok Bhagat, a leading social worker engaged in tribal welfare activities in the Gumla district of Jharkhand.

Next time there is Lijjat pappad on the table, you sure can see a Chandralekha or Suja's dimpled fingers deftly roll out the crisp pappad. It is made with love and care, just like from their mama's kitchen.

FAILURE OF APPLE IPHONE IN INDIA

Lost Opportunity: How Apple got its strategy wrong:

It wasn't just the pricing that did iPhone in. Apple got everything--starting with marketing communication to the sales and distribution model--wrong

IPhone's launch in India has been dubbed the biggest failure of a top-notch brand from a well regarded company in recent times. Two months after the dust over the launch and the subsequent wave of disappointment has settled, it's time to take an objective look at what actually went wrong with iPhone in India, given that it has been a runaway success in most other markets it was launched in.

Unlike the initial argument that it was the steep price tag that queered the pitch for iPhone in India,there is more to the debacle than just the pricing.Besides a very high price tag, one main reason behind iPhone's failure in India is that there was a very weak link as far as consumer confidence was concerned.

Apple's rivals in India, industry observers and analysts say that a flawed sales and distribution model and communication failure were the biggest reasons behind iPhone's debacle.The company failed to strike a connect with Indian consumers.

India not a priority market?

Selling huge numbers in India was not even Apple's game plan, it seems. Around the time of its launch, the company had said it hoped to sell 10 million units

Not good enough:

While Airtel ran commercials outsourced from Apple for four weeks on a few TV channels,Vodafone used the envelopes of the mobile phone bills sent to its customers to apprise them of iPhone's launch in India.Globally by December, whereas in India, it would ship 100,000 phones by December 2009.

Clearly, Apple wasn't expecting big sales from the market.

Yet, what is surprising is that the company didn't even manage to achieve this target.

Apple had imported around 50,000 phones at the time of the launch but had only managed to sell around 11,000 units so far.

Analysts argue that by downplaying India, the world's second largest and fastest growing telecom and handsets market, Apple may have missed not only a big opportunity to sell one of its blockbuster brands but also to lay the ground for its future products. "Around 120 million handsets are sold in India every year and, of these, almost 4% to 5% are smartphones. Nokia has around 60-70% share of this market.

Clearly, Apple had a big opportunity to establish itself in this market and, if not break market leader Nokia India's monopoly, then at least give it a tough fight. It's an opportunity that is now being assiduously chased by rivals such as Samsung Electronics Co. Ltd and Research in Motion Ltd, or RIM, the makers of BlackBerry.

It's not about price:

IPhone's comedown in India has been described as a pricing failure by most. But on the face of it, it doesn't seem logical. Priced at Rs34,999, Nokia N96 costs around Rs4,000 more than iPhone's 8GB handset and Rs1,000 less than its 16GB model. IPhone's other rivals, such as Samsung's Omnia and BlackBerry Bold, are priced even more steeply .

"More than the price, it was the pricing communication that hurt iPhone in India.

Apple CEO Steve Jobs had made a public announcement that iPhone would be priced at $199 globally (about Rs9,490).This built a false hope in the minds of those consumers who wanted to buy it and turned away those who could have actually bought it.

Apple had to tag the product with its real price because its licence holders in India, Bharti Airtel Ltd and Vodafone Essar Ltd, couldn't have subsidized the price. "The reason why the price of an iPhone seems so high (in India) is because it is not sold on a contract. This selling process has not yet caught on here.

The two service providers, however, are providing finance options for as low as Rs2,600 a month to make it easier for those who want the product. But this hasn't helped much.

Some market observers argue that Apple's distribution and sales strategy in India was flawed from the word go. To begin with, the company licensed the iPhone to two service providers (Airtel and Vodafone) who didn't have any experience in the retail selling of handsets, which is a complex business in India involving different strategies for different income groups.

Second, these service providers decided to sell the handset only at their outlets, thereby limiting its availability. Also, they antagonized the big organized retailers in the process (the Top 10 organized retailers are estimated to have a 50% share in total sales). Third, selling not being their core area of expertise, these companies couldn't pitch it to the potential consumers aggressively.

The service providers' strategy to sell it with a lock-in clause may not have gone down well with consumers. This meant iPhone buyers cannot retain their handset should they wish to switch operators despite having paid the cost of the handset upfront. This condition was a big dampener, especially because from next year, Indian consumers will have the freedom to change service providers without having to change their number or handset.

The other most evident flaw was its inability to strike a connect with consumers. Unlike in the US, where a month-long marketing and advertising blitz preceded the debut of the iPhone, Apple didn't run any of its own campaigns in India. All the marketing communication was left to the two licence holders. What consumers saw was a round of print advertisements on the launch date that announced the arrival of iPhone and a few billboards in key cities.

While Airtel ran commercials outsourced from Apple for four weeks on a few TV channels, Vodafone used the envelopes of the mobile phone bills sent to customers to tell them about iPhone's entry into India.

Even if you're selling a niche product, the communication needs to be there on what's on offer and to get (make) people curious. Otherwise buyers won't be enthused.

People who buy high-end products buy them either for their technological advantage or to enhance their status. So, marketers promoting a high-end product must bring out the technology and exclusivity factors in a vibrant manner.

Ambiguous positioning:

Some advertisers say iPhone's positioning in the market was ambiguous. "IPhone was positioned as a lifestyle product but in India, the company or its licence holders did nothing to make it seem aspirational.

On the contrary, Nokia did a smart thing by positioning N96 as a convergence product. It immediately struck a connect with its target consumer for the communication was focused on its attributes.

Airtel spent only around Rs3-4 crore on iPhone's advertising. On average, they spend around Rs14-15 crore on their new launches. The licence holders, however, argue that they were discreet in advertising for strategic reasons.

Apple's strategy was not to sell a million phones in India. It only wanted to establish a presence in the country. Customers who were interested in buying iPhone were already aware about iPhone's launch in India.

To be sure, some of iPhone's rivals also went for a low-key entry into the market at the time of their launch but now, with the market heating up, they are pulling up their socks.

Its own failure notwithstanding, iPhone managed to stir the smartphone market in India quite successfully. To pre-empt its success, Nokia launched its N96 series, Samsung came out with its own version of the iPhone, and RIM is set to launch its BlackBerry Storm model soon. Google Inc. has also come out with its Android mobile phone software that can help Apple's competitors better many of the iPhone features.

Apple refused to share its future strategy for India. Analysts, however, say the company will have to plug many gaps in its distribution and marketing and most importantly, open a direct communication channel with consumers, if it wants a meaningful presence in India.