A recent article in BusinessLine (June 29, 2015) spoke of the optimism of makers of ‘idli and dosa’ batter, about business and expansion plans. There was also an earlier report which said that private equity investor Sequoia Capital was eyeing this space for possible investments.
None of this is really surprising. Incremental value can be created from soaking four parts of rice and one part of black gram (urad dal) in water for an hour; grinding the two to the required consistency and texture; forming a batter; fermenting it for 10 hours and then either steam-cooking the product to make ‘idlis’ with the softness of jasmine petals or spreading it on a heated griddle to turn out ‘dosas’ of a burnished golden hue.
But, between the raw ingredients and the ultimate delicacy (idli/dosa) served up on the breakfast table, the options for configuring value with a commercial possibility are many.
Turnkey solution
There is, for instance, the full turnkey solution in value creation: namely, set up a restaurant to offer a full menu of meals including idlis and dosas. But that is not really a scalable proposition when you consider the number of idlis or dosas that are consumed in homes on an average day. A back of the envelope calculation shows that this could be anything in the region of 250 million idlis or its equivalent in dosas.
Don’t be overwhelmed by the number. It only requires that South Indians consume on an average one idli or its dosa equivalent a day to make up this number. Not even all the Saravana Bhavans, and the Udipi eateries across the country muster up numbers anywhere close to this. Past attempts to penetrate the restaurant space with novel solutions to cater to the consumers’ palate have failed.
This writer, very early in his career as a journalist, became familiar with the effort of one such entrepreneur who had come up with a contraption where you input these ingredients at one end of the tube (as it were) and out come crisp ‘dosas’ at the other end. He wanted only a small piece of the market action in ‘dosas’ that he estimated at 50 million pieces a day, or roughly five times the global sales of McDonalds’ burgers.
Alas, the market place is such an unforgiving creature. Not long after he had launched the contraption, he was left in no doubt whatsoever that he couldn’t have been more wrong about his solution to reach the Indian home. Of course, he converted that experience into a larger insight about nurturing start-ups through initial trials and tribulations that they are prone to. But that is another story you could read about, in the archives of BusinessLine (BL, January 7, 2013).
Another entrepreneur came up with the idea of a centralised kitchen turning out ‘dosas’ by the thousands (automated or otherwise) and vacuum packed to be delivered to fast-food joints where it can be heated and delivered to customers. That too failed to take off.
Manual labour
But long before such turnkey solutions were thought of, entrepreneurs had conceived of another approach to address this market. It began with the belief that the ‘value’ lay solely in the elimination of manual labour involved in grinding the soaked rice and black gram to get the batter. Eliminate this, or so they reasoned, and ‘value’ can be captured for sure.
Thus, the initial model consisted of installing a mechanised heavy duty wet-grinder that customers can take their soaked rice and black gram to, which can then be converted into a batter for a nominal fee. But this didn’t prove to be all that successful, either.
The elimination of manual labour in grinding was replaced by the effort of lugging the ingredients to the shop, the time spent awaiting one’s turn at the wet-grinder, the opportunity cost stemming from the lack of multi-tasking opportunities in the arrangement (the housewife, for instance, can oversee children’s homework even as she works the grinder), all of which are ‘value’ destructive.
Throw in the possibility of a power failure at the wet-grinder shop, meaning even more delay, and the ‘value’ equation might well be negative, even without the grinding charges being factored in.
Hereabouts, a domestic appliance that could handle a small quantity of soaked rice or black gram for making batter entered the scene. But this too hit the wall of space constraints in most middle and lower income homes (bulk of the market) and the opportunity cost of investing in an appliance that could be used, at best, for an hour every other day.
The greatest drawback of the outsourced grinding function to a third-party vendor or in the in-house preparation of batter is that they ignored the greatest scope for innovation in creating ‘value’. Neither of these two approaches did anything to eliminate the tyranny of the housewife having to plan her breakfast menu a day in advance. If she needed to serve ‘idli’ at home on a certain day, the effort had to begin the previous day.
Management theory tells us that for a new product to capture the public imagination, it is not enough if it only represented a marginal improvement over the existing one. It needed to dramatically alter the paradigm of existing functionalities or create new ones.
Capturing value
The stage had thus been set for capturing ‘value’ by focusing on mass manufacturing of the batter, packaged in standardised pouches (1 kg) and delivered to neighbourhood grocery stores for sale to customers. This business model also leverages another feature of modern households, namely the presence of a refrigerator, even a small one.
If the batter purchased one day cannot be consumed in full, the remainder can be put away in the refrigerator and used again the next day. But even this may not be the most perfect solution to creating ‘value’ that endures in the marketplace. There could be two drawbacks with this.
One, the mass manufactured batter from a central location requires heavy investment in logistics. It is a lot easier to transport dry rice or black gram than wet batter.
Second, the model requires that the product must remain fresh for a minimum of two-three days between production and eventual sale to a consumer. For retailers to stock a particular brand, the producer must expend money in building the brand. There is no guarantee that any of that expenditure incurred in brand-building results in ‘brand equity’. At its core, dosa batter has features that make it a commodity. We are not dealing with an Apple iPhone or a Toyota automobile.
In the event, an alternative model that involves distributed production close to the point of consumption (in contrast to large centralised processing) lends itself to greater success. Such a system has the added advantage of selling the product in smaller unit sizes — just like shampoo sold in sachet for single use.
Value added
The cost of raw ingredients in an idli may be less than one rupee. The value-add (based on restaurant price, as a proxy), could be four rupees. What portion of this value can be successfully abstracted from the consumer and what are the contours of configuration of that ‘value’ is the question. The jury is still out on what will succeed in the marketplace, in the long run.
But the broader lesson is this. The traditional approach to business innovation is either product-centric (think Sony Walkman) or process-driven (as in the case of Dell’s model of distributing PCs). But it need not always be so. Innovation is also possible in identifying that precise configuration of the gross embedded ‘value’ that could be successfully abstracted from a consumer.
The many gyrations that entrepreneurs have gone through in extracting ‘value’ from the consumer to satisfy his need for a plate of idlis or a dosa exemplifies such a view of business innovation.