If you thought that a Re 1 note or coin has no value in today’s world of luxury cars and penthouses, then think again
Who says Re 1 can’t buy you anything? It just takes a pair of observant eyes to find a number of things that can be bought for this paltry sum.
To begin with, we were able to count at least 50 items that retail for just Re 1 or under. If you think this is interesting, then the amazing part is that there are several industries that thrive solely on these products. Now just imagine that such products not only manage to recover costs, but also make significant profits!
What are the things that come to your mind that sell for Re 1 or less? It could be a matchbox or confectioneries like toffees or chewing gums. These are products that we use daily, but have have ever paused to think how these industries earn profits?
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| Dabur earns more Rs 135 crore a year, selling digestive tablets and candies at a price below one rupee |
The beedi industry
For some, the term beedi evokes a feeling of poor health, but it also true that the tobacco industry is a major contributor to the exchequer. India alone accounts for nearly 85% of the world’s beedi production. Despite being such a big industry, the end product that is one beedi stick costs much less than Re 1! How does it manage to do so? To understand better, we spoke to one such beedi manufacturer, Mangalore Ganesh Beedi, which was started way back in 1940.
“Beedi is basically a mass production business,” says G.K. Prabhu, assistant general manager, “We produce almost 6.5 to 7 crore sticks a day against the industry production of 50 crore sticks per day.” When asked about costing, Prabhu explains that it is done on a per-thousand basis. He says, “In the south daily wages are high. It is almost Rs 80 per 1,000 beedis. The material cost is almost Rs 40 to 50 per 1,000 beedis. Add to this the excise duty and our direct cost comes to about Rs.160. Then comes the overhead costs. Therefore, the total cost is somewhere around Rs 180 to 190 for 1,000. Players generally sell the product for around Rs 220 per thousand to the distributor. The distributor again adds his cost to this amount and sells it to the wholesaler or the retailer for approximately Rs 240. As each packet has a price tag of Rs 7 for 25 beedis, the retailer makes a minimum profit of approximately Rs 40 per thousand beedis by selling it for around Rs 280.”
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| Summer sees refrigrated water pushcarts like these out in bus stands and markets, particularly in North India. Assuming an average income of Rs 300 per cart per day and 20 working days a month for six summer months, this business works out to over Rs 10 crore a year just for a metro like Delhi with 2500 bus stands and a thousand markets |
Distribution plays a key role in high-volume, low-price businesses such as this one. Prabhu explains, “We have a vast distribution process, which is much the same as in any other industry. We have distributors in every area throughout India.” Ganesh Beedi has an early mover advantage with a strong market presence for almost seven decades now, but what about the smaller players? “Smaller players who manufacture maybe 1 to 1.5 lakh sticks daily generally distribute their products directly to retailers,” Prabhu says. “This helps in saving costs tremendously.”
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| In the south the daily wages are almost Rs 80 per 1,000 beedis. The material cost is almost Rs 40 to 50 per 1,000 beedis. Add to this excise duty, and the direct cost comes to about Rs 160. Then comes the overhead costs. Therefore, the total cost is around Rs 180 190 for 1,000 beedis. Players generally sell the product for around Rs 220 per 1,000 to the distributor, who in turn sells it to the wholesaler or the retailer for approximately Rs 240, and the retailer makes a minimum profit of approximately Rs 40 per 1,000 beedis by selling it for around Rs 280. - G.K. Prabhu |
The retailer, on the other hand, makes a slightly higher profit by selling individual sticks instead of a pack. A roadside beedi seller tells us that though this practice does not exist in metros or big cities, in smaller cities and villages this is very common. Showing us different packs of beedis, he says, “Loose beedis are sold mostly in villages and small towns, where you can get four to six sticks for Re 1 depending on the quality. Nowadays, you get a pack of 12 low-quality beedis for as low as Rs 2 in metros.”
The confectionery industry
Next on our list is confectionery like toffees, hard-boiled sweets, chewing gums etc that generally retail for as little 50 paisa or Re 1. Here we take the example of Dabur’s Hajmola that was launched in 1973 as a tablet that aids digestion. Today, the product’s popularity is such that nearly 2.5 crore Hajmola tablets are consumed in India daily. According to Rajeev John, senior manager, marketing, with Dabur, “Hajmola currently holds almost 60% of the Rs 225 crore digestive tablets market in India.” This means that Hajmola earns almost Rs 135 crore by selling digestive tablets and candies priced much below than Re 1!
There are several reasons behind the success of the brand. First, Hajmola was, from the beginning, differentiated from other products in the market due to its unique spicy taste. Second, the brand innovates constantly. This is true not only in terms of bringing out new variants, but also in packet size. According to John, “The introduction of Hajmola in the pouch format in the mid-90s increased the consumption occasions by entering into the impulse purchase market. Earlier, Hajmola was available only in glass bottles and was more of an` in-house, on-table consumption product. But the introduction of Hajmola in pouches gave consumers an option of buying and consuming Hajmola on the go, increasing the product’s penetration manifold.”
What about the distribution setup? “The Hajmola franchise has successfully leveraged the distribution muscle of Dabur to cover all channels and types of outlets in the FMCG space,” says John. “Dabur has also increased Hajmola’s post-meal association with Mumbai’s famed Dabbahwallahs, a string of dhabas on the key highways originating from Delhi and even fast-food retail chains.” Besides these, the brand is also being promoted through activations across schools in India touching almost 8 lakh students.
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| Dabur has also made Hajmola available with Mumbai’s famed Dabbahwallahs, a string of dhabas on the key highways originating from Delhi and even fast-food retail chains to increase its post-meal association. - Rajeev John |
The water business
Summer time is boom time for many businesses—one such is that of selling water. As the summer sun approaches, it is easy to spot water vendors situated at all crowded spots such as bus stops, markets, underpasses and more. Most of us have stopped by to quench our thirst at these stalls, or if not that, at least must have given a thought to where to refill water bottles from. But have you given a thought about the nature of the business? Here are some interesting insights.
Forty-two-year-old migrant worker Anil Kumar is a native of Samastipur, Bihar. Each year he comes to Delhi for six months from March to August and sells water in a pushcart. On being asked about the business, he says, “Each year, I come to Delhi and work for a company Shakti Rajendra located in Central Market [in New Delhi]. The company rents out nearly 60 water vending machines during summers. The agreement with them is that they charge Rs 30 per inch of ‘filtered’ water, and in 1 inch there are 40 glasses. I generally buy 10 inches of water from them. Therefore, my profit by selling water is Rs 100 per day.” Anil also sells lemon soda for Rs 8. He says, “For lemon soda, my cost comes to about Rs 6 so my profit is Rs 2. I sell around 25 glasses of soda a day; therefore, I earn around Rs 50 from it. In a day I earn approximately Rs 150.”
On the other hand, water pouches are also quite popular with consumers who perceive that they are better in quality than roadside pushcarts. During summers even the local kirana store owners stock water pouches that retail for Re 1 for 200 ml. One such retailer reveals, “I have a sale of 100 pouches a day, which I buy from the distributor for Rs 50.” The retailer sells it for Re 1, earning almost a 100% profit if one excludes the electricity cost for chilling the water. On asked about the quality of water, he coyly says, “The person who packs the water makes a profit of at least 25 paisa after covering all his costs.” We get the point.
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written by Rashmi Priya, November 16, 2009
Its really a very good measure taken by companies to increase penetration in to all segments.
written by Prem Parmar, November 07, 2009
I m sending you the old Magazine of DARE soft copy available on net.
waiting for ur reply
Prem Parmar
written by Ankur, July 07, 2009
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