Over a Cup of Tea

15 years ago, Nitin Ashar backed his entrepreneurial skills to start his own company in the service sector. Now he is the CEO of Truevalue Marketing Services, a private company engaged in the commerce of ready to drink beverages and vending machines. Currently his business caters to the corporate sector on a local and national level.

Under Mr. Ashar, Truevalue has expanded its horizon in terms of competitiveness, quality and growth. He has carefully monitored movements in the sector to take advantage of changing customer needs to expand his business. For example a major secular shift in the sector would be a transition from premixes (powdered tea and coffee) to fresh milk, which is now widely consumed. Additionally, cyclical booms in the economy have also benefitted the company. Increasing growth within all companies has led to even small local offices demand for machines. As a result there are more customers to provide to. However, following growth there is dip, which hurts expansion. For example during the 2008 financial crisis, the company suffered with reduced demand and loss of existing customers. In on case, Infosys, a major tech company, closed down its contract leading to removal of 480 machines (leased) from their offices. Mr. Ashar also complained that several customers made late payments, which led to cost cutting within the company. Consequently, workers had to be laid off. However, being knowledgeable about the downturns of the economy, Mr. Ashar adapted. He spotted shifting consumer demands to make changes for the survival of his company. During a tough phase from 2008-2011, Mr. Ashar improved on his distribution channels, so that he could target small clients as well. Additionally, he was also willing to consolidate with large clients who would provide him a contract on a pan India basis. Lastly, ever since, Mr. Ashar believes in diversifying to minimize risk. This strategy helped his growth, as expanding into different cities would provide cash inflow when one channel would fail.

Truevalue - MMM 469

Given the importance of the two crops, tea and coffee, raw material prices have a major impact on business operations. An increase in prices of dairy products would lead to increase in business cost. Given that the firm cannot proportionately prices to remain competitive, the company would suffer from losses. “Despite the current raw material prices in India falling, the company must offer discounted prices to customers to remain in the market”, Mr. Ashar. Additionally, infrastructure also has a significant role in the business. Given governments investment in infrastructure, it is estimated that there will be an increase in the number of companies in the coming years, which would provide more customers to cater to. Summing up, high inflation and increase in infrastructure would both serve to reduce unemployment, thereby more mouths to feed, which would promote growth for the business.

By operating in the service sector, the major challenge faced by the company is manpower. This includes technical and operational activities. Besides, there is a great demand for customisation to satisfy customer demands. For example companies such as Vodafone and Cap Gemini had requested to obtain customised machines to suit the demands of their employees. Lastly Mr. Ashar complained about the unpredictable weather being an important challenge. He said, “The presence of drought in New Zealand couple of years ago had raised the prices.” Given certain varieties of tea and coffee are imported from New Zealand, an unpredictable change in weather affected his business negatively.

It seems that the previously mentioned factors were not the only challenge Mr. Ashar faced. An important component of the business was access to capital. Although interest rates played minimal role, capital dictated the operation of his business. He said that given the recent boom in the economy there is more access to capital which makes it easier to have more machines available for customers. However, on tracking back to 2011, where the economy was still recovering minimal capital access meant that Mr. Ashar could not execute orders from major companies such as Wipro and Deloitte for 500+ machines.

An hour into the interview with my uncle, I asked him about the competition existing in the segment. He mentioned that even though his company was one the top 10 companies operating in the western region of India, there was increased competition from local firms operating in each city. Major competitors included Nestle and Cafe Coffee Day. In terms of the competitive landscape, more companies are offering fresh milk, which is the preferred option over premxes. Given that it is the “healthier and fresher” option, there is increasing pressure on companies to provide high quality fresh milk. An increase in competition has hence led to the company providing reduced prices to maintain its competitive adavantage. Additioanlly, the company provides discount on larger volumes. For example, last year the compan secured a contract with Vodafone on an pan India level leading to reduction in the prices charged.

After having completed my interview I believe that I have gained enough knowledge about the company as well the industry. In order to gain more knowledge about the market it make sense to talk to customers since they set the trend. Knowing their perspective can help me understand what the future holds for this segment. Also speaking to competitors would also give me a better understanding their operations and outlook. However, my uncle being their competitor I doubt I will get a few minutes of their time. Lastly there is one macroeconomic data that I have observed. For example there has been an increase in demand for tea and coffee over aerated drinks. This goes back to argument of switching towards a healthier living. Hence demand for tea and coffee is definitely on the rise opening up great potential for this segment to grow with my uncle ready to take advantage of it.

 

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