Hokey Pokey is Born in India

It was a foggy Monday morning in early February 2008. As Rohan walked into the breakfast cafe of the Leela Hotel in Bangalore, he was deep in thought about the email he had just received from his boss back in the United States. He had been in Bangalore, India for a week and was conducting due diligence for an investment in a recyclingfactory in the outskirts of town. He gazed at the email on his laptop. The email and an attached report were from Raj, The Ross Group's Chief Operating Ofcer and Rohan's boss: "Please pack up and get on the next ight to Mumbai."

To: Rohan From: Raj

Subject: Hokey Pokey ice cream

As a private investment group, you know that we have been actively lookingto pick up a stake in the IndianFood & Beverage(F&B) sector. I went throughthe research report on the Indian F&B sector compiled by our colleagues in Mumbai. The team had also analyzed a businessplan by a local Indian Chef's new start-up companythat would focus on opening up ice cream parlors all over the nation. The goal is to establish outlets throughout a metropolitan city and then rapidly expand all over India. I see this as a valuable opportunity to enter this segment. I'm sure this opportunity to enter into the F&B sector would not only provide an excellent ROI possibility, but also enable us to diversify into the other product categories within the F&B sector. As of now, the recycling project in Bangalore has been put on hold. Please pack up and get on the next ight to Mumbai. I'll expect a memo with concrete suggestions within a week.

Even in his previous job, Rohan had always wanted to see how new products are developed and launched. With The Ross Group being one of the leading private equity rms in India, and with operations across several countries, he got hooked onto this challenge as he knew this would be a good canvasto see how things work. However, he didn'tknow where to get startedfrom. He then turned his attention to the attachedreport.

Food & Beverage Industry Background

The Indian Food & Beverage sector is an estimated Rs. 4.66 trillion market (US$105 billion), of which the ice cream industry is an estimated Rs. 22 billion market (US$500 million) growing at a rate of 12 percent since 2001. Ice cream consumption in India is much lower than other countries with a yearly per capita consumption of 0.12 liters. However,the majority of growth is attributed to an emergingmiddle class equipped with spending power. The industry is divided into an unorganized and organized sector with 50 percent attributed to each. Within the industry, there are two types of models, wholesale boxed and parlor retail,of which wholesaleboxed makes up the majorityof the organized sector. Amul, Kwality, and Vadilal are the three brands that dominate the fragmented wholesale boxed sector, which has yet to see an international player successfully enter. The parlor retail model is divided amongst neighborhood parlors like Bachelor's ice cream in Mumbai, comprising the unorganized sector and international chains such as Baskin Robbins.Pricing in the parlor retailmodel varies drastically as the unorganized parlors tend to price their product at a very cheap price due to lower quality in the range of 10-15 Rupees. On the other end of the spectrum, offering higher priced items due to better quality are gelato parlors, some of which are organized chains, and Baskin Robbins. Initially, when Baskin Robbinsentered the marketplace, their price point was averaging 80 Rupees. However, due to lack of success, they have revamped their pricing structure to now average 55 Rupees.

Key Product Attributes

Product quality was a key focus and the goal was to make super premium ice cream locally.Ice cream qualityis primarily characterized by the percentage of fat content and percentage of overrun that exists. Overrun is dened as the amount of air that is trapped within the ice cream during the production process. When more air is trapped, there is more overrun and the quality of ice cream is lower. The four main categories of ice cream quality are economy, standard, premium, and super-premium. Economy brands tend to have minimal fat content, in the range of 8-12 percent fat, and very high overrun (larger amount of trapped air), around 120 percent. On the other end, super premium brands have average fat content in the range of 15-18 percent and overrun that ranges from 25-40 percent.

The Business Plan

The business plan stated that there was great potential for growth in the India nice cream industry, specically in retail parlor outlets. The USP (unique selling proposition) was to offer high grade super premium ice cream in a distinct fashion from the way it had been traditionally served in the country. The ice cream would be mixed at the parlors on a frozen stone with mix-ins (assortments of nuts, candy bars, cookies, brownies, fudge, etc.) and customers would have the option to design their own creations. This concept had seen success in international markets such as the United States and even other countries with similar spending habits, such as the United Arab Emirates and Singapore. Additionally, the concept would be served in a new age "lounge-like" atmosphere. During the recent growth in the economy, Indian consumers have spent more of their disposable income towards eating out than ever before. "Lifestyle concept" eateries such as coffee shops were gaining in popularity and catered to the new emerging middle class. The business plan focused on creating lifestyle parlors where a family or group of young adults could "hang-out." This type of lifestyle parlor did not exist in a multi-chain format.

The Product Launch

The business plan called for the parlors to launch in Mumbai and then rollout to the rest of the country. As part of a brand building exercise, the cosmopolitan city of Mumbai was chosen due to its signicance as the source of trendy and high quality products in India. Many brands are viewed upon as favorablewhen they have success in Mumbai. Therefore, it was imperative that the brand be "born" in Mumbai. Hokey Pokey was selected by the Chef in a brief survey he did with industry peers. He came up with a list of numerous names and asked his network of associates within the F&B sector to vote. The winner was "Hokey Pokey," inspired by a slang term used in several areas of the United States and parts of Great Britain in the 19th and early-to-mid 20th centuries, to describe ice cream sold by street vendors. Ice cream street vendors were colloquially referred to as "Hokey Pokey Men." As Rohan sat wondering about the efcacy of the business plan, a lot of questions emerged. For his memo to Raj he knew he needed answers to the following questions what is the current competition in the Indian ice cream industry? Is this an industry that can be penetrated?