After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
Amit Kumat laughs: “That’s not happening in the next decade.” The subject of discussion is healthy potato chips. “All that the consumers care about is the taste; this health thing is just a fad,” he says. All ye city slickers may look aghast and consider Kumat’s utterances blasphemous. But think about this: The snack food market in India is worth Rs 10,000 crore with 12,000 tonnes being consumed every year. Ten years ago the consumption number was 1,000 tonnes. Kumat knows what we may not care to admit. That this stuff is sinful and no one can eat just one!
In the last decade, Kumat and partners—brother Apurva and Arvind Mehta—have bootstrapped their way to becoming among the top five snack manufacturers in the country. In just nine years Kumat and company have built the fastest growing snack foods company in the country—Prakash Snacks. Its Yellow Diamond brand has managed to clock a growth rate in excess of 50 percent every year since it started in 2003.
“They have a strong brand with consistent positioning,” says Abheek Singhi, a partner at the Boston Consulting Group, who has spent time studying regional snack food companies in India.
Kumat had tapped Indore’s informal business network to get capital to start his business. His brother Apurva had gone to school with Arvind Mehta who over the years emerged as a significant player in the city’s real estate business. With this introduction, Kumat approached Mehta and got Rs 2.5 crore in startup capital.
The company made Rs 260 crore in revenue last year and is on track to become a Rs 400 crore player this year. And this is a tough market. There is a host of unorganised players. There is a multinational giant Frito-Lay, traditional biggie Haldiram’s and an entrepreneurial outfit out of Gujarat, Balaji Group.
To enter this market is easy, as capital costs aren’t much. But succeeding is very difficult. Parle, Perfetti Van Melle, ITC and CavinKare are all large players who found the market tough going. It is creditable then for Amit Kumat to create one of the largest snack food companies in the country. What sets Kumat apart is that he has managed to expand beyond his home base in Madhya Pradesh. His brand has strong market positions in leading snack markets like Maharashtra, Delhi and Haryana.
Prakash Snacks’ rapid expansion prompted Sequoia Capital to invest Rs 125 crore in April 2010 for an undisclosed stake in the company. Sequoia Capital’s investment will allow the company to scale up faster. Turnover targets have been set and Prakash plans to clock Rs 600 crore by 2014. Earlier, Kumat had planned to expand slowly across the country and ramp up from 500,000 outlets to 2 million in five years. He now plans to do that in three years or so. Sequoia is also investing Rs 70 crore in a new manufacturing line.
So what helped Kumat succeed?
The ostensible factor is taste—though hard to define, how a product tastes is perhaps the most important thing that decides consumer preference. “Mainae bahut paroducts launch kiyae hain jo sirf flavouring ke karan nahi chalae hain [I have launched many products that didn’t succeed only because of flavour],” says Chandubhai Virani, managing director of Balaji Wafers.
Kumat spends a disproportionate amount of time experimenting with flavours. He’s very cagey talking about this. His main testing ground: His family. The flavours are made at home by his wife and a few helpers and then brought to the factory in a concentrate form. “Even my employees don’t know how it is done,” is all he is willing to let on.
RECEIPE FOR SUCCESS
But there are two other factors—falling equipment prices and clever distribution strategy—that have made Prakash Snacks succeed.
First, consider the equipment prices: Kumat’s first challenge was manufacturing. While touring small-town India, he’d seen that large consumer goods companies worked on margins of over 50 percent. There was enough room for a player who was willing to offer similar quality at a lower price. To get that quality he would need the best machines.
He made sure he didn’t go for an Indian line as the difference in quality would have shown up immediately. Japanese manufacturer Ishida was chosen. Kumat’s facility in Indore works with fully automatic lines—potatoes are cleaned, peeled, cut, washed, fried, flavoured and packed. They can churn out as many as 50,000 packets in a day. Along the way, Prakash has been aided by falling prices for equipment. A line now typically costs Rs 60 crore and pays itself off in four years.