-artIy bx sSwan, vpur, Ahmdabad 380 015

Indian Institute of Management, Vastrapur, Ahmedabad 380 015

*
Foodkraft International Limited
1. Introduction

Foodkraft International Limited (FIL), a firm based in the United States of

America (US) appointed Mr. Aniruddha Shah as its Marketing Manager for its South
Asia operations. Aniruddha had done his MBA in marketing from a reputed business
school in US. A family man in his early thirties, he was a US citizen brought up in an
Asian Indian immigrant family. FIL felt that Aniruddha had the right combination of
professional and ethnic background for the South Asia job. FIL was one of the largest
food companies with its annual worldwide sales exceeding 34 billion US dollars in
2000. In its product range, cheese and other dairy products such as butter and
margarine constituted a significant share with sales exceeding 25 percent of the total
worldwide revenues. From Switzerland to South Korea, the companys products were
sold in 145 countries. Up until recently, it did not have a market presence in India due
to Indian governments close-door trade policies. In the post-WTO era, however,
things had changed for good. Indian government had removed quantitative
restrictions on imports of food products and customs duties were lowered quite
substantially.

FILs mission was to aggressively pursue growth where opportunities existed.

With middle class consumers of more than 250 million, and the open door policy of
the government, FIL saw India as a potential market for its growth. The signs of this
potential were already apparent. In 1999-2000, India had imported fruit juices worth
Rs. 20 crores, and chocolates and confectionary imports exceeded Rs. 26 crores. In
the same year, imports of milk powder exceeded Rs. 100 crores. In fact, US
government had identified prospects of exporting butter and margarine to India. FIL
was known for introducing innovative, geographic extensions of their products in new
markets. For the dairy segment, it realised that there was tremendous potential for the
ethnic Indian dairy product, ghee (clarified butter). In this context, FIL wanted to
introduce the best quality ghee in the Indian market which would incorporate Indian
consumers perceptions about ideal quality attributes of ghee.

Therefore, it was felt that before entering into the Indian ghee market, a study
be conducted on understanding which are the better ghee brands in India, what are the
various quality attributes of ghee, and, importantly, understand consumers
perceptions about the quality attributes. Given his professional and ethnic

*
Case prepared by Satish Y. Deodhar, Assistant Professor, Indian Institute of Management,
Ahmedabad, 380 015. Assistance of Mr. Vijay Intodia, Research Associate, is acknowledged.
We are grateful to Consumer Education and Research Centre, Ahmedabad, for providing
information for the case. Case is prepared as a material for classroom discussion. It is not
designed to present either correct or incorrect handling of administrative problems. Copyright
2002, Indian Institute of Management, Ahmedabad, India.
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background, senior management felt that Aniruddha was the logical choice for this
assignment. Accordingly, he was asked to conduct the study at the earliest.

2. The Ghee Market

To gather information about ghee, Aniruddha searched secondary data

sources, contacted consumer organizations and even read Indian scriptures. Ghee was
used as a cooking medium for times immemorial in the Indian subcontinent. Its
traditional importance could be realised from the words of Charvak, an Indian
philosopher, who in one of his Sanskrit writings had said, As long as one lives, one
should live a good life. One must relish ghee even if he/she is required to borrow
money. For, after consigned to flames, one cannot return (to relish ghee).
Aniruddha found out that India produced about 900,000 tonnes of marketed ghee,
valued at Rs. 85,000 million in the year 2001. The market penetration of ghee was
about 37% in urban areas and about 21% in rural areas. Lower penetration was
explained by the fact that a significant amount of ghee was still produced as a routine
household activity. Moreover, purchasing power of the households was lower in rural
areas than in urban areas. Although the share of branded ghee was little more than
5%, the competition within this segment was intense. Many companies had started
manufacturing ghee under their own brand names. Corporations such as Nestle and
Britannia, and co-operative brands such as Amul and Verka were already in the
market for quite sometime (Exhibit 1). Corporate and co-operative ghee brands were
sold in attractive tetra-pack packaging (See Exhibit 2).

3. Information on Ghee Quality

The degree to which a firm engages in branding and the degree to which food
regulatory authorities control food quality depends on the nature of quality
information available to the consumers. Aniruddha wondered whether ghee was a
Search good, Experience good or Credence good in the quality information based
scheme of classification (See Exhibit 3). He visited Consumer Education and
Research Centre (CERC), an Ahmedabad based consumer organization equipped with
a laboratory to conduct product testing. He collected information on analytical
standards for ghee quality. Prevention of Food Adulteration (PFA) Act and the
international organization called Codex Alimentarius Commission had defined the
maximum permissible limits for various chemicals, heavy metals and pesticide
residues in ghee. No standards were laid down so far by Indias trading partners such
as the European Union and the US.

Presence of copper in ghee could cause dizziness, headache, and discomfort in

the intestines. Therefore, for the presence of copper, PFA act had set a limit of 30
parts per million (ppm), while the Codex had a stringent maximum limit of 0.05 ppm.
Aniruddha was intrigued by this divergence in the tolerance limits. Similarly, Longer
exposure to pesticides could affect the nervous system and movement of the muscles.
PFA and Codex both had set a maximum limit of 1.25 ppm for DDT. He wondered
why even such a small level was permitted. Ghee if it is old or is not stored properly
its peroxide value rises, indicating rancidity, which gives off flavour. Bureau of
Indian Standards (BIS) had set a maximum level of 0.8 for rancidity. There were also
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other irritants in ghee such as presence of free fatty acids which could cause irritation
on the tongue and throat and would give a bad smell to the ghee. The information on
standards that Aniruddha could collect is provided in Exhibit 4.

To compare these regulatory standards with the actual industry norms,

Aniruddha also got hold of analytical tests for 15 ghee brands and 2 ghee samples sold
loose in the market (See Exhibit 5). While analytical parameters of quality were
important, there were other important attributes as well. Consumers could not
identify analytical attributes by themselves, but could certainly rate brands based on
organoleptic or sensory characteristics. CERC had also done sensory tests on the
above mentioned ghee brands which Mr. Shah was glad to go through. The data as
reported in Exhibit 6 included information on price and a score for flavour, colour and
texture for each of the ghee brands. The scores ranged from 1 to 10, 10 being the best
possible score for a given sensory attribute. What intrigued aniruddha was that while
CERC had identified creamy as the ideal colour for ghee, the description of colour
on ghee packages varied from brand to brand (Exhibit 7).

4. Issues to be Analysed

Studying carefully the information he had collected, Aniruddha tried to

answer many questions that had come in his mind. What kind of food ghee was?
Was it a search good, or an experience good or credence good? Did the ghee brands
confirm to the regulatory standards? Which brands were the better ones in terms of
analytical and sensory attributes? He also recollected the classification of quality into
1
various dimensions by Garvin , and wondered if he could classify the ghee quality
into these dimensions. If Foodkraft had to offer a new ghee brand in the Indian
market, it had to offer dimensions/attributes that were relatively more important to
consumers. Aniruddha felt that the data he had gathered was sufficient to find out the
relative importance consumers attached to sensory attributes, although he did not
know how exactly he would do it. He also wondered whether or not corporate ghee
brands earned a premium over the co-operative ghee brands and the loose samples.
Based on his findings, Aniruddha had to prepare a comprehensive report for
discussion in the FIL headquarters.

1
Garvin identified 8 dimensions of quality. They are: Performance, Features, Reliability,
Conformance, Durability, Serviceability, Aesthetics, and Perceived Quality. Sometimes,
improvements in one dimension can be achieved only at the expense of other dimension(s).
Hence, strategic food quality management should give priority to improving those quality
dimensions that are considered important by the consumers.
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Exhibit 1: Corporate and Co-operative Brands

Corporate Brands Co-operative Brands
Anik Amul
Devi Goa Dairy
Everyday Nandini
Farmfresh Sagar
Gayatri Verka
Gits
Milkman Loose Ghee Samples
Nova Naranpur, Ahmedabad
RKG Kalupur, Ahmedabad
Vraj Gopi

Exhibit 2: Major Ghee Brands in India

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Exhibit 3: Food Product Classification Based on Quality Information

Classification of Food Products

Perfect Information Imperfect Information

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Search Goods Experience Goods Credence Goods

Repeat Purchase One-time Purchase

Imperfect Imperfect
Information Information
to Buyers to Buyers
Sellers have Imperfect
Information Information
Hide Side- to Sellers
Reputation Reputation Not
Effects and/or
Established Established
Adulterate
 Exhibit 4: Quality Standards for Ghee

S.No. Food Copper Total Fat Moisture Free Fatty Peroxide Value DDT
Standards (max ppm) (min %) (max %) Acids (max Meq/Kg) (max ppm)
(max %)

1. Codex 0.05 99.3 0.5 - - 1.25

2. PFA 30 - 0.5 3 - 1.25
3. IS - 99.5 0.5 0.3 0.8 -
4. Agmark - - 0.3 3 - -
Source: CERC (2001), Ahmedabad.

Exhibit 5: Analytical Scores for the different Brands of

Ghee

Brand Total Fat Moisture Free Fatty Peroxide Copper DDT Lindane
Acids value (Max.) (max.
(Max%) meq/kg ppm)

Everyday 99.6 0.1 0.1 0.63 X 0.2 X

Milkman 99.5 0.1 0.3 0.3 X 0.2 X
Sagar 99.7 0.1 0.2 1.2 X 0.3 0.01
Verka 99.6 0.1 0.3 1.5 0.5 0.4 X
Gits 99.8 0.1 0.4 1.3 0.3 0.2 0.01
Amul 99.6 0.1 0.2 0.98 1.1 0.3 0.01
Nova 99.7 0.3 0.3 0.8 0.1 0.2 0.01
Farm Fresh 99.7 0.3 0.2 1.6 0.5 0.6 0.01
Anik 99.5 0.2 0.6 0.4 0.2 0.8 X
Nandini 99.6 0.1 0.3 1.3 0.2 0.2 0.01
Gayatri 99.5 0.1 0.4 2.1 0.4 0.3 0.01
RKG 99.7 0.2 0.7 1.1 2.1 0.3 X
Vraj Gopi 99.6 0.1 0.3 1.8 5.7 0 X
Goa Dairy 99.5 0.3 0.3 0.7 0 0.1 0.01
Devi 99.5 0.3 1 0.9 0.7 0.5 X
Loose samples
LG I 98.7 0.1 0.2 2.9 X 1 X
LG II 98.3 0.1 0.5 2.4 X 0.2 X
Source: CERC (2001), Ahmedabad. X: Absent
 Exhibit 6: Price and Sensory Scores Data for Ghee

Brand Price / 500 gm Flavour Texture Colour

Everyday 80 9.60 7.77 9.80
Milkman 88.53 9.20 7.80 9.80
Sagar 77 9.60 7.63 9.10
Verka 75 9.60 7.83 9.40
Gits 102.78 9.40 7.83 7.50
Amul 77 9.40 7.50 9.50
Nova 90.2 9.40 7.60 10.00
Farm Fresh 89.09 9.80 7.97 10.00
Anik 95.21 9.20 7.77 10.00
Nandini 72.8 9.60 7.77 8.30
Gayatri 73 8.80 7.80 10.00
RKG 104 9.00 7.80 7.50
Vraj Gopi 78 8.80 7.83 8.70
Goa Dairy 67.5 9.40 7.83 9.50
Devi 95 7.00 7.80 5.00
Loose samples
LG I 70 9.40 7.77 9.80
LG II 66 9.60 7.77 8.80
Source: CERC, Ahmedabad.

Exhibit 7: Ghee Packs Announcing the Right Colour of Ghee

References
CERC (2001). Ghee, Insight: The Consumer Magazine, Vol. 21, No. 4, July-
August, published by Consumer Education and Research Centre, Ahmedabad.
pp. 6-13.

Garvin, D.A. (1988). Managing Quality: The Strategic and Competitive Edge. The
Free Press: New York.

Deodhar, S.Y. (2002). Technical Note of Hedonic Price Analysis, IIM-A Technical
Note No. IIMA/CMA-807TN.