IPCSL Case Study Essay

In 1944, Debi Prasad Aggarawal had realized the need for a cold storage facility. Consequently he established a facility with the latest cold storage equipments from the UK which was mainly utilized by the potatoes harvest. Debi’s son, Jadish, succeeded him as Managing director in early 1960. Jagdish had successfully opened new markets and brought new clients when he started promoting the facility to fruits producers. In 1977, Sanjay Aggarawal, Debi’s grandson, joined the company with the task of supervising and the construction of the new 2500 MT facility in Azadpur. Fruits & Vegetables market The growers of fruits and vegetables in India mostly harvest their produce manually, transporting to orchards for grading & packing. Afterwards, the fruits and vegetable are shipped to wholesale markets by road. India being world’s second largest fruits producer with total of 44 mn MT (approx 10% of world’s production) and one of the largest vegetable producers in the world with around 86 mn MT, the new Sabji Mandi at Azadpur is Asia’s and one of the world’s biggest fruits and vegetable market in volume of produce handled contributed to the huge demand for cold storage facilities. Commission agents At the arrival of fruits at Azadpur, the commission agents take charge of the produce by offloading, storage and sale at a rate of 6% of the sale amount. During this process all the expenses involved are borne by the growers. As a way to get business, some of the commission agents offer growers advance loans at the commencement of the fruits season and deduct the same amount when the produce is sold in the market. As the fruits reach the market, some will be sold on the same day while roughly 45% – 60% need cold storage facility to be sold at a later date or at the off-season. Wholesalers Wholesalers buy the produce from commission agents which in turn they sell to sub-wholesalers. Cold storage Industry A conventional cold storage facility can preserve fruits for a period of 10 days to 2 months depending of the type of the fruits while a CA or GC storage facility can double or triple this period respectively. The total capacity of storage facilities available was nearly 10.35 mn MT against total produce of over 130 mn MT, this can demonstrate the very high demand of storage facilities. IPSCL has differentiated itself from the market by upgrading the facility to state-of-the-art Gas Controlled cold storage (3900 MT, around 78% of the capacity), Controlled Atmosphere Cold Storage (100 MT, 2% of the available capacity) and a Deep Freezer storage (1000 MT, 20% of the capacity). Besides, there was a lack of refrigerated trucks to mobilize the produce from the growers’ location to the wholesale markets and from the markets to sub-wholesalers or retailers. The refrigerated trucks play a vital role in ensuring the freshness, quality and firmness of the produce. Government Aimed at encouraging the growing industry, the GoI offered a capital investment Subsidy Scheme for the construction, expansion and / or modification of cold storage units. Competition Besides IPCSL, no other cold storage facility is operating under the GC or GA technology. However due to this technology differentiation, IPCSL was operating at a very high cost in comparison to the other facilities. In fact, the conventional cold storage facilities where offering their clients a price almost equal to IPCSL’s operating cost. Customers IPCSL has two types of customer, commission agents & wholesalers who store their fruits to sell at a later date or off-season. The fruits and vegetables market has seen about 60% growth owing to the increase in income of the middle-class category in India. Observations The cold storage services is a price driven over quality driven market, the cold storage service providers currently in business are not having any points of differentiation which led to a price war and very slim margins. The very low profit margins have restricted the competitors from changing out their old technology storage facilities to an international standard facility. Some of the customers (wholesalers & commission agents) are not highly appreciating the cold storage services especially during the winter season where the fruits and vegetables don’t get affected much due to the very low temperature. In the case of conventional cold storage facility, the only way to make decent profit is by maximizing the sales volume and effectively utilizing capacity available (dynamic facility management system). This would give some cost preference over competitors allowing to capture bigger market share and make higher profit margin. In the case of IPCSL, the GC & CA storage technology is giving them a market edge to charge a premium price. However the customers should value the added services provided over the difference in charges. Other than the limitation in the period fruits and vegetables can be stored in the conventional cold storage facility, there are additional quantities wasted during storage & handling which will not be the case in GC or CA operated facility. This will decrease the cost per kg and increase the wholesalers / commission agent profit margin. IPCSL didn’t focus much on marketing of their new state-of-the-art cold storage facility; instead, they focused on the value they add to the fruits and vegetables industry. As rightly quoted by one of the company’s senior managers to Sanjay, the fruits and markets industry lack formal education. It takes time to show value and build confidence. However, to speed up the learning curve and attract customers, price & marketing strategy can play a crucial factor especially in the introductory stage. Recommendations & Suggestions Marketing: IPCSL should offer the large, large-middle or all clients a free, discounted or at-cost trial to demonstrate the difference in quality between the conventional facilities against the GC & CA operated ones. IPCSL should organize visits / tours for the large wholesalers to the facility to show how differently can they store the fruits and vegetables and exhibit the benefits to the prospective clients. As IPCSL is a high-end cold storage service provider, the marketing strategy should focus on the clients of the same level i.e. the wholesalers and commission agents dealing with organized retail stores, hotels etc. these clients are willing to pay some extra charges for higher quality fruits and vegetables which cannot be matched by any other cold storage facility in the market. Price: IPCSL should strategize a price discrimination based on the volume similar to what the competitors are doing. The price discrimination will attract the large exporters, high volume wholesalers and commission agents towards IPCSL. From IPCSL’s revenue statement; it is obvious that more than INR 6 mn is fixed cost while variable cost is around INR 7.5 per 20kg box. IPCSL priced their services at INR 60 for imported fruits and INR 20 for Indian fruits against INR 10 per 20kg box by competitors for imported and Indian fruits. Alternatively, IPCSL should price their services at the point where they maximally utilize their 5000 MT facility. The determined price along with the 5000 MT sales volume (if achieved) should cover up for the variable cost (INR 7.5 per 20kg box) as well as the very high fixed cost.