Sugandh Shoppe: A Small Entrepreneur’s Forward Integration Strategy
India has been witnessing a vast change in entrepreneurial landscape. There is heightened sense of awareness about this change among young entrepreneurs. They are taking risks that are enabling them to leapfrog into the next level of business transformation. Small entrepreneurs from India have tremendous opportunities both in terms of resources and diversity of deployment of those resources. Electronic commerce (E-commerce) is opening new gateways for many forms of enterprises. There is a lot of enthusiasm and willingness to support innovative forms of doing business from the Government of India. The Union Budget for financial year 2014-15 earmarked INR10,000 crores (over $2 billion) fund to accelerate and incubate new ventures in the country.
Traditional small entrepreneurs had relatively fewer opportunities for experimentation. Their next generation in the family on the other hand has many forms to choose from in doing the same old business. One such example of business model innovation in a small traditional venture is that of Sugandh Shoppe Pvt. Ltd. (Sugandh Shoppe). It serves as an example of how modern approach of running an age old business not only leads to better financial gains but also helps in building better customer value in a short span of time.
Sugandh Shoppe, promoted by Deepak Thakral (Deepak) of Nagpur, transformed a traditional family owned incense stick manufacturing business into modern stores selling all kinds of fragrances and products used in religious ceremonies............
The Genesis of Thakral Family’s Traditional Business
Shree Sawaram International Pvt. Ltd. was an age old famous agarbatti or incense sticks manufacturer located in central India in the city of Nagpur. It was established in the year 1950 by Ratilal Kanji Thakral, a skilled artisan of handmade agarbattis who migrated from Gujrat to Nagpur, which was then the capital city for the state of Madhya Pradesh. The company started mainly with production of incense sticks and dhoop which is a form of wet incense clay...........
The Incense Stick Industry in India
Incense sticks, popularly known as agarbattis in India, have been in use right from ancient times. They are known for their fragrance and also for purifying the environment. Many ancient Sanskrit scripts describe occasions and festivals where incense sticks are lighted. Apart from fragrance, agarbattis are also used for healing in aromatherapy. Theses sticks are made using a typical wood termed as “Agarwood” derived from trees grown mainly in Northeast India. The chip of agarwood is known as agarbatti. Other raw materials used for making incense sticks are charcoal, bamboo sticks, Halmaddi (Ailanthus malabarica), Jigat (adhesive made from bark of Maclilus Makarantha tree), Frankincense (derived from the plant of Boswellia Serrata), Sandal wood, Patchouli (Pogostemon cablin), Rose, Myrrh (resin derived from commiphora species), vegetable musk (Ambelmoschus moschatus), Iris Concrete (Iris Pallida) and mosses like oakmoss (Evernia prunastri).............
Transformation of Traditional Business into Sugandh Shoppe
In 2005, Deepak arranged a distributor conference for the first time in order to strengthen the relationship with existing distributors. For this event, all the distributors were invited with their families. It was more than just a business meeting. During this event, Deepak had extensive discussions with distributors. This conference proved to be a turning point for the group as for the first time they announced their plans of entering retail business...............
Years of Rapid Growth and Business Model Innovation
By the year 2009, Sugandh Shoppe had grown into 10 franchised outlets. During the same year, the group had a distributor conference with a theme name “Sankalp”. In this conference, the distributors showed their scepticism and asked several questions related to Sugandh Shoppe’s business model. They questioned Deepak and his brother for maintaining two distinct brands for same products and started protests. One was Jalaram Fragrances Pvt. Ltd. that sold only via wholesale channels and the other was Sugandh Shoppe of Deepak using the new format of franchised stores. It was after lot of debate and discussion that the distributors were convinced about the change.............
Assignment Questions
I. What was the core competence of family business inherited by Deepak from his father along with his brother Ghanshyam? How did it help company to sustain in an unorganised incense stick market for long number of years?
II. What are pros and cons of business model innovations proposed by Deepak? Is the new model adopted by the company likely to sustain in future profitably?
III. .............
Exhibits
Exhibit I: Typical Cost Structure of Incense Stick Industry
Exhibit II: Region-wise Export Markets (in %) for Indian Companies
