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In a nutshell
Old timers will remember the time one would buy an unbranded packet of potato wafers at a cinema hall's "canteen" during the interval. There were no big brands in the market for potato wafers until the 1990s - it was a cottage industry, entirely local, and dominated by small businessmen. Then came the likes of PepsiCo (Lays, Kurkure), ITC (Bingo) and other large national and MNC players, and the business changed completely. Local and regional players disappeared as the big brands used their marketing muscle to steam-roll local players out of the market.
Not all local players however fell by the wayside. This is the story of one such local wafer business from Rajkot, Gujarat, who thought BIG, played to their strengths, adapted their game where change was needed, and won BIG, despite stiff competition from national and MNC players. A journey that started in 1974 by selling potato wafers in Aston Cinema in Rajkot, has today blossomed into a Rs.1200 crore turnover business, valued at Rs.4,000 crores, with a 70% market share in Gujarat, a 60% market share in Maharashtra and growing rapidly in neighbouring states. This is the story of Balaji Wafers - a story that should inspire thousands of our industry's small IFAs spread across the country - who sometimes worry whether "organized sector" competitors will overwhelm the so called "unorganized sector" of the financial advisory and distribution business.
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Selling wafers in a cinema canteen
Balaji Wafers had very humble beginnings in Gujarat and was started by the Virani brothers - Bhikhubhai, Chandubhai and Kanubhai. They were farmers with a primary education who migrated from a small village in Jamnagar district to Rajkot, Gujarat. Their father sold their ancestral agriculture land and gave them Rs. 20000 to his sons to venture into business in 1972. However, their first venture into the business field did not meet with success. They started with a fertilizers and farm implements business but it failed as they lacked experience and were supplied with duplicate fertilizers.
Starting at zero once again, they found themselves working in the canteen at Aston Cinema, Rajkot in 1974 to make a living. Even as they worked in the canteen, the hardworking brothers helped out with tickets and manning the entrance hall. Impressed by their will, the owner gave the contract for the canteen in 1976 and thus began the seed for Balaji Wafers.
In the beginning, they sold the cinema hall patrons local brands of potato wafers and toasted sandwiches made by their wives at home. Noticing that 80% of the refreshment sales by the patrons at the cinema was for potato wafers, they saw an opportunity to tap. They decided making their own chips and selling them would expand their marginal return from the canteen. They started the business with one tawa and soon, saw the potential for sales beyond the cinema hall to other shops in the city.
From tawa to hi-tech fully automated plants
They hired a cook to make the wafers, but found themselves doing the cooking on many days, as the cook would absent himself frequently. As demand expanded, they understood that they needed to leverage technology, without which they would always remain a bit player. They bought potato peeling and cutting machines, which allowed the business to produce 10-20 kgs per day. Demand outstripped this capacity soon.
In 1989, Balaji invested in their first automated potato wafer plant, armed with a bank loan. Total cost: Rs.50 lakhs, which was a huge risk for a business that was still making wafer thin profits. The plant was supposed to have a capacity to produce upto 250 kgs of chips per hour. It however kept breaking down, and it didn't help matters that the Virani brothers didn't know too much about how to fix it. That however did not daunt them - they knew that they had to master technology for scalability and that without scalability, profits will always remain dangerously thin. They worked diligently on mastering their machines and over time gained confidence in going in for even more sophisticated high tech machines that enabled them to meet the ever growing demand for their wafers. In 1999, they installed Gujarat's first fully automated potato chips plant and in 2008, they set up another manufacturing plant in Valsad. From a humble beginning of one tawa, the company had now 85,000 sq metres of manufacturing facility to make their potato wafers and namkeens.
Chandubhai Virani flanked by his brothers
What drove demand?
"Value for money" - good quality wafers at great prices - that was the simple proposition that drove consumer demand. In the initial years, the Virani brothers made next to nothing as profits, due to their "value for money" pricing. As the kept investing in technology, it helped drive down production costs, to make the business profitable despite low product prices. The 5 rupee price point was hugely attractive for many consumers. Over time, the company expanded its product suite, with price points from Rs. 5 to 30, catering to diverse customer needs.
Unlike large national and MNC players who invested crores of rupees in building their brands through advertisements, celebrity endorsements etc, Balaji chose to focus on spending in distribution. They built and nurtured an extensive distribution network in Gujarat and Maharashtra, which has enabled them to grow from strength to strength in these markets.
The bottom line
Balaji's success got MNCs like PepsiCo and Kelloggs interested in buying into the company. But the Virani brothers didn't finally go ahead with any deal after initial discussions, since they were not interested in selling out a majority stake, which is what the potential buyers sought. Balaji Wafers remains a private limited company, with the next generation of Viranis now actively involved in the business. With a business valuation of Rs.4,000 crores, the company has now announced plans to sell 10% of its shares in an IPO in 2016, to fund expansion in Central and Northern India.
Balaji Wafers could well have been one of the thousands of local wafer businesses that folded up, unable to compete against big national players with huge marketing muscle. They didn't, because they understood that rapid growth is the best way to tackle any competition, any obstacle. Growth is the ultimate solution. They knew they had to change their ways to grow rapidly. A couple of more tawas were not going to get them anywhere. They thought BIG. They invested in technology. They ensured they delivered to customer expectations of "value for money". And they built solid distribution relationships. The rest, as they say, is history.
Content is created by Wealth Forum and must not be construed as an opinion by Reliance Mutual Fund.
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