Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

‘ I N D RA P RA S T H A I C E A N D C O L D S T O RA G E LT D ’
C A S E A N A LY S I S A N D
R E C O M M E N D AT I O N S
( C A S E A N A LY S I S )

Prepared by:
Alok Sinha (Roll No: ePGP-03-095)
Nitin Jaiswal (Roll No: ePGP-03-139)
Nitesh Kumar (Roll No: ePGP-03-138)
Sharon Selvaraj (Roll No: ePGP-03-167)
Sreeramana Gadhamsetty (Roll No: eMEP-10-064)
Yeshaswini GR (Roll No: ePGP-03-193)

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

Introduction

Sanjay’s company Indraprastha Ice and Cold Storage Ltd (IPCSL) was in the cold storage
business serving the fruit and vegetable markets.
IPCSL realized that cold storage business in India is becoming a commodity and to remain
profitable in market-
i. They need to differentiate themselves
ii. They should not get into price war.

Hence IPCSL commenced on a major technological modernization and expansion. After the
upgrade it had - Controlled Atmosphere (CA) and Gas Controlled (GC) cooling units – and a
total storage capacity of 11.0 million pounds.
The total investment for this modernization was 60 million Rs, with major portion of it
coming from loans given by NABARD and nationalized banks.

The company began losing money steadily in the next four years. The slew of problems it
faced after the upgrade were-
a. Loss of customer base-as IPCSL’s storage capacity was affected by the ongoing
reconstruction work. They also lost the direct export business that had been cultivated
with customers in the Middle East.
b. Competition-competitors’ aggressive pricing
c. Fixed Cost Increase- as better trained and higher paid staff were required to operate
modern equipments.
d. Debt of Rs. 55 million

Problem Definition

Even though the revenue of the IPCSL is increasing it was still below the threshold
necessary to cover the financial and operational cost of the company.
While the storage space demand for the imported fruit was steady the demand for storage
space for domestic fruits declined.
In addition to these two problems there was price-cutting in the market as well from
competitors. Their competitors resorted to arm-twisting ways with their customers with
“complete lot order only” deals.
The repayment of the loan and the high interest rates was eating into company profits.

A fundamental change in company strategy was essential to turn IPCSL around-the two
important questions those need to be answered-

α. Is the Pricing of IPCSL correct to attract customers to make it profitable?

β . Should they diversify into buying fruits from growers and selling it to
retailers in off-season?

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

Analysis Summary

Pricing
Strategy-
IPCSL was determined not to get into price wars- they wanted to
differentiate themselves by offering highest quality product and
service and for that they wanted to charge a premium- their objective
was clear- their price quality strategy was of premium value.

Demand-
India’s annual fruit production is around 97 billion pounds, commonly produced varieties are
apple, mango, banana, pineapple, chikoo and grape. Fruits like mangoes, bananas and grapes
perish faster - ten days from harvest in ordinary cold storage - while in a gas controlled
storage, grapes could last for two months, and apples can be stored for much longer up to two
months in ordinary storage, four months in gas controlled storage and even six months in
controlled atmosphere storage.

Most of the apples harvested in India come from Himachal Pradesh (HP) and Jammu and
Kashmir (J&K) which annually produce 1.1 billion pounds and 1.9 billion pounds
respectively. Local fruit consumption in both these states is estimated at less than 2% of its
harvest. All excess production therefore, is transported to Delhi Azadpur Mandi where
IPCSL is located.
Producers ship their produce in bulk and not all of it is sold the day it reaches the market.
Usually only 50% of the fruits are sold the same day while 35-40% is sold within a month
thereafter and a small percentage (10-15%) is kept in cold storage to be sold up to six months
later. Sometimes, producers deliberately store some of the produce for sale off-season.

So even if 10% of this volume is to be stored in cold storages - translates to 300 million
pounds of apples- which is a huge demand- this is however possible only if growers
understand the economies of off season sale.

The below table gives an indication of the demand category wise for IPCSL product
offerings- some categories like the foreign fruit storage saw a demand increase of whopping
~7000%

CUSTOMERS Total Volume Total Volume in % Increase

in 2001 2002 (Pounds)
(Pounds)

Large customers
Imported Apple 31064 2,147,864 6,814
Kiwi and Imp. Grapes & Pears 7248 501,168
6,815
Indian Apple 2,607,897 3,725,568 43
Other fruits 1,043,159 1,490,227 43
Vegetable (IMPORTED) 2,608 37,255
1,328
Total 3,691,976 7,902,082 114

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

Medium
Imported Apple 6,213 429,573 6,814
Kiwi and Imp. Grapes & Pears 1,450 100,232
6,813
Indian Apple 521,579 745,113 43
Other fruits 208,632 298,045 43
Vegetable (IMPORTED) 522 7,450
1,327
Total 738,396 1,580,413 114
Small
Imported Apple 3,106 214,786 6,815
Kiwi and Imp. Grapes & Pears 725 50,117
6,813
Indian Apple 260,790 372,556 43
Other fruits 104,316 149,022 43
Vegetable (IMPORTED) 260 3,726
1,333
Total 369,197 790,207 114

So demand is huge both for the domestic fruits (market needs to be developed though) and
foreign fruits (market is already there).

Costs

Fixed Cost
Quantity(mi Fixed
llion Cost(million
pounds) RS)
0 to 5.5 6
5.5 to 11 12

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

So at full or half utilization the fixed cost is minimum and translates to

1.1 Rs per pound or Rs 48 per box of 44 pounds per anum which is Rs
4/- per month.

Variable Cost
Rs 7.5 per box

Total Cost
Rs 11.5 per box

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

Analyzing Competition

Following table gives the direct competitors of IPCSL in NSM

Capacity in millions of Number of Storage Facilities

pounds
4.4 – 7.5 million pounds 10
7.6 – 10.0 million pounds 9
10.1 – 18 million pounds 7

None of the competitors however operated gas controlled technology

or controlled atmosphere technology. Some had introduced a 24-hour,
24/7 cold storage service to cater to traders. However none come close
to IPCSL in quality.
Clearly IPCSL had a big advantage over its competitors in terms of
quality of the offering.

Diversification

Even the product offer price of Rs 20/- is not affordable to IPCSL in long
run- as their cost per kg is Rs 51/- so reducing the price further is not
an option.
It is imperative that if they have to achieve the desired sales then they
need to first integrate- backward or forward.

The below table corroborates the backward (buying from growers) and
forward integration (supply to retail) strategies as profit margin are
huge in both spaces.
Description Rs. Per box of 44 Pounds
Cost break down Total
Expenses incurred by the grower 175*
Net price received by the grower 280
Wholesaler‟s purchase price 455
Expenses of wholesale trader 6
Market charge @1% 4.5
Handling and carriage 1.5
Wholesale trader's margin 90
Sub-wholesaler's purchase price 551
Sub-wholesaler's margin 100
Retailer's purchase price 651
Retailer's expense 65
Carriage and handling 5
Produce waste 60
Retailer's Margin 224
Consumer's purchase price 940

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

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 Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

Relationship
With IPCSL owners family was into cold storage business for long and
also earlier they were mainly into vegetable cold storage business-
they are always close to growers- they have natural advantage for
backward integration.

Value proposition of IPCSL

Name of Diameter Wholesale Storage Wholesale Profit Retail Retail price Profit if Number
grade of Fruit at Rate in Cost for rate in off (min) to price in in off season diversify of
base. season (Rs) max of 4 season customer season (Rs) into apples
months@Rs (Rs) availing (Rs) retail in each
20 IPCSL box (Rs)
facility
Extra large 3.0 inch 730 80 930 120 1,340 1,730 920 80
(special)
Large (fancy) 2.7 inch 630 80 780 70 1,090 1,430 720 100
Medium 2.5 inch 530 80 630 20 890 1,180 570 125
(selected)
Small 2.2 inch 480 80 580 20 790 1,080 520 150
(commercial)
Extra small 2.0 inch 380 80 480 20 590 880 420 175
(janta or
mass market)
Average 550 680 940 1,260

As clear from above table that on an average any customer can get at
least an additional profit of Rs 50 per box using IPCSL facility with
no additional cost of thereof. This value needs to be communicated to
customers- some promotional schemes may be adopted- like payment
for the storage cost only after the sale in off season etc.

At a later point in time they should diversify into retailing of

fruits.

Recommendation

Pricing Recommendation
a. Should not worry about price cuts by competitors- should not
lower their price as they are providing a quality offering. They
have a robust growth in foreign fruit segment. To incentivize
the domestic fruit –promotional pricing can be offered- like
taking the payment only after sale for fruits in off season. The

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Indraprastha Ice and Cold Storage Ltd- CASE ANALYSIS AND RECOMENDATIONS

value proposition as discussed above should be

communicated to customers.
b. Should not be offering the product below cost price. Should
maintain a healthy margin.

Diversification
a. Buy from growers and sell in off-season to retailers( backward
and forward integration)
b. Venture into retailing of fruits and vegetables through their
own outlets in 5 years for further growth.