CASE STUDY: RASHMI GARMENTS

Mrs. Rashmi Aggarwal, who is a post graduate in Economics, has established Rashmi
Garments, in May, 1987, by installing two machines – one her own and the other
purchased from a local dealer, with a total investment of Rs. 20, 000/=. The idea of
starting her own business came in 1984, when she saw an advertisement in the newspaper
for a one month Entrepreneurship Development Programme (EDP) being conducted by
the Small Industry Service (SISI), Okhla, New Delhi. She learnt how to start her own
venture.

Feeling encouraged, she decided to start a garment unit as she had learnt something about
garments during her school days. In order to add to her technical know-how, in 1985, she
enrolled herself for a two-year part time course in Fashion Designing with the Young
Women’s Christian Association (YWCA), New Delhi and completed the course in 1987.
In the meantime, on the advice of her husband, she applied for a shed to the Director of
Industries (DI) Delhi. The shed was allotted to her in Oct, 1986 at the Flatted Factory
Complex (FFC), Jhandewalan, New Delhi. Due to lack of sufficient space, Mrs. Rashmi
Aggarwal, who had been earlier living in a joint family, had shifted to her newly
constructed house at Vikaspuri 25 km away from her unit.

Mrs. Rashmi Aggarwal, has two school going children – a girl and a boy aged seven and
four years respectively, and they were admitted to a school in Karol Bagh near her unit,
so that she can take care of them after they returned from the school to her unit. Mr. A.K.
Aggarwal is a Post graduate in M.Sc (Chemistry) and working as a Circle Officer with
the Delhi Administration. He had witnessed an event in his neighborhood, where a young
widow had been ill-treated by her in laws. This had left a great impact on him and his
interest to see his wife Mrs. Rashmi Aggarwal, do something outside home turned into
his determination to make her economically independent. During the initial stages, since
Mrs. Aggarwal’s unit was not in full production, workers were unwilling to join as they
were unsure about the units’ survival. After a great deal of effort she was able to get
through the local machine dealer, one worker at Rs. 1,000/= per month.

Mrs. Aggarwal’s initial strategy was to approach the customers in the local market with
sample pieces of her items. The response was not encouraging, despite her offering 10%
less than the market rate, the dealers and shopkeepers were unwilling to purchase her
items. Mrs. Aggarwal, then decided to supply the items at cost price. This proved
successful to get an entry into the market. In the next month, she was approached by
three dealers who placed orders with her. Thereafter, she was approached by three more
dealers. Taking this an opportunity, Mrs. Aggarwal had decided to sell her items at 10%
-15% profit. This was acceptable to her old as well as new customers. She then employed
three more workers and added two more machines to her unit for meeting the demand of
her customers. In the initial couple of months it was difficult for her to cope with the
customer’s requirements regarding the type, size and the quantity of the items.

In the month of April 1988, she was approached by two customers from Jammu &
Kashmir land Allahabad (U.P.) with orders. When the items were supplied through a
bank, the customers refused to accept then. Then, her husband had to go to get the items
back.

Mrs. Rashmi has reinvested more than 70% of the profit into her venture. Gradually, her
total investment rose from Rs.20,000/- to Rs. 40,000/- and the turnover also increased
from Rs. 5,000/- to Rs. 60,000/- PM during the same period. She now had eight workers
including one cutting and designing master and eight machines in her unit and there were
more than ten customers in the local market. She always took care of her workers and
was ready to help them any time, however, she did not get their help at the time of her
need. The workers would always turn up late for work even when the customer’s demand
was high. This created tension in her mind. Her workers said that she was always ready to
help them at the hour of their need and that was why they used to work till late in the
evening and some times even on weekly holidays, however, at the same time, they also
had their personal problems and limitations.

Mrs. Rashmi thinks that her total involvement with the unit had left little time for her to
look after her children properly. Mrs. Aggarwal used to participate with her husband in
the discussions with the customers. This increased her confidence in the marketing
activities. In the absence of her husband, she had begun to take the decisions. Thought the
market demand for Rashmi Garments, is increasing, yet Mrs. Rashmi Aggarwal is finding
it difficult to cope, due to lack of space and manpower. She thinks of expanding her
business and at the same time she would like to spend more time at home with her
growing children. She is to decide which way to go first?????

QUESTIONS:

Q1. Critically evaluate Mrs. Rashmi Aggarwal as an entrepreneur, on the basis of

the information given in the case.

Q2. What were the key factors responsible for the initial growth of Rashmi
Garments?

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 PEPSI’S FAST-FOOD TROIKA

The mid-1990’s were not particularly kind to Pepsi Co. Its flagship Pepsi product was
losing ground to Coke in the United States and abroad, and Diet Pepsi had slipped to
fourth among soft drinks (behind Coca-Cola’s Sprite citrus soda). Even the fast-food
chains that had provided Pepsi with substantial revenue growth over the prior two
decades – Pizza Hut, Taco Bell, and Kentucky Fried Chicken – were experiencing
declining revenues. Only the Frito-Lay snack division continued to outperform its rivals.
In 1997 Pepsi spun off its fast-food operations into an independent company called
Tricon.

When it acquired Pizza Hut and Taco Bell in the 1970s, Pepsi seemed intent on becoming
the world’s largest fast-food vendor. After it successfully digested the pizza and taco
chains, it was widely expected to further expand its fast-food empire. By the mid-1980s,
Pepsi’s next target was rumored to be Wendy’s (Pepsi and Wendy’s executives were seen
sharing meals at numerous golf clubhouses.) But RJR Nabisco was eager to leave
retailing, and it set an appetizing price for its Kentucky Fried Chicken unit. Pepsi eagerly
gobbled it up.

Business analysts praised the deal – Pepsi Co’s stock price rose 5 percent when the deal
was announced –citing the potential for numerous synergies. Pepsi would bring its
vaunted expertise in marketing and new product development to Kentucky Fried
Chicken. It would have the potential to create one-stop shopping for fast food. Finally,
the deal would enhance Pepsi’s share of fountain beverage sales as Kentucky Fried
Chicken franchisees switched from Coke to Pepsi.

Pepsi failed to deliver on many of the promised benefits of the acquisition. Kentucky
Fried Chicken trailed the market when competitors, including Boston Market and grocery
stores, successfully introduced healthier roasted chicken. At the same time, Pizza Hut
struggled during the decade-long “Pizza war” that its principal rivals – Domino’s and
Little Caesar’s-seemed more intent on winning. (Some analysts question whether Pizza
Hut has the stomach to win the pizza war). Pizza on the temporary success of new-
product launches (such as the stuffed-crust pizza). Taco Bell’s new-product launches
have also met with mixed success, and its attempt to attract price-conscious customers
with 59-cent tacos failed when McDonald’s and Burger King engaged in a bitter price
war of their own. Overall, the profitability of Pepsi restaurant division has trailed that of
its soft drink and snack food divisions.

To make matters worse, the acquisition of Kentucky Fried Chicken not only failed to
enhance Pepsi’s fountain beverage sales but also drove potential customers to choose
Coke. Wendy’s switched its fountain purchases from Pepsi to Coke only months after
the Kentucky Fried Chicken acquisition, and for the past decade, wherever a consumer
has bought fast-food hamburgers and a cola, that cola has almost surely been a Coke,. At
the time of the Tricon spin-off, Pepsi’s share of the fountain beverage market – just on-
third that of Coke-was at its lowest since the Kentucky Fried Chicken acquisition.
As its woes mounted, PepsiCo CEO Roger Enrico decide to focus the company’s efforts
on its core business of soft drinks and snacks. Enrico also believed that Pepsi’s fast-food
businesses needed an injection of entrepreneurial spirit, even though Pepsi had allowed
them to operate with near total autonomy. Ironically, the market responded to the spin-
off with the same enthusiasm that it showed when Pepsi made the acquisitions: Pepsis
stock shot up 11 percent when it was announced. Tricon’s first boss, David Novak, now
faces many challenges in the fiercely competitive fast-food market, including helping the
firm realize the synergies that eluded its parent.

Questions:
Q1. Why did Pepsi not succeed even after diversifying into the fast- food sector?
Discuss.

Q2. When Pepsi decided to focus on its core business of soft drinks, it showed
signs of recovery with stocks rising. What can be the reason(s) to this effect?
 CASE ANALYSIS
TITLE OF THE CASE LET: “PEPSI’S FAST-FOOD TROIKA”

FACTS GIVEN IN THE CASE-LET:

1. The mid-1990’s were not particularly kind to Pepsi Co. Its flagship Pepsi product
was losing ground to Coke in the United States and abroad, and Diet Pepsi had
slipped to fourth among soft drinks (behind Coca-Cola’s Sprite citrus soda).

2. Even the fast-food chains that had provided Pepsi with substantial revenue growth
over the prior two decades – Pizza Hut, Taco Bell, and Kentucky Fried Chicken –
were experiencing declining revenues. Only the Frito-Lay snack division continued
to outperform its rivals.

3. In 1997 Pepsi spun off its fast-food operations into an independent company called
Tricon. When it acquired Pizza Hut and Taco Bell in the 1970s, Pepsi seemed intent
on becoming the world’s largest fast-food vendor.

4. After it successfully digested the pizza and taco chains, it was widely expected to
further expand its fast-food empire. By the mid-1980s, Pepsi’s next target was
rumored to be Wendy’s (Pepsi and Wendy’s executives were seen sharing meals at
numerous golf clubhouses.)

5. But RJR Nabisco was eager to leave retailing, and it set an appetizing price for its
Kentucky Fried Chicken unit. Pepsi eagerly gobbled it up.

6. Business analysts praised the deal – Pepsi Co’s stock price rose 5 percent when the
deal was announced –citing the potential for numerous synergies. Pepsi would bring
its vaunted expertise in marketing and new product development to Kentucky Fried
Chicken.

7. It would have the potential to create one-stop shopping for fast food. Finally, the deal
would enhance Pepsi’s share of fountain beverage sales as Kentucky Fried Chicken
franchisees switched from Coke to Pepsi.

8. Pepsi failed to deliver on many of the promised benefits of the acquisition .

Kentucky Fried Chicken trailed the market when competitors, including Boston
Market and grocery stores, successfully introduced healthier roasted chicken. At the
same time, Pizza Hut struggled during the decade-long “Pizza war” that its principal
rivals – Domino’s and Little Caesar’s-seemed more intent on winning. (Some
analysts question whether Pizza Hut has the stomach to win the pizza war).

9. Pizza on the temporary success of new-product launches (such as the stuffed-crust

pizza). Taco Bell’s new-product launches have also met with mixed success, and its
attempt to attract price-conscious customers with 59-cent tacos failed when
McDonald’s and Burger King engaged in a bitter price war of their own. Overall,
 the profitability of Pepsi restaurant division has trailed that of its soft drink and snack
food divisions.

10. To make matters worse, the acquisition of Kentucky Fried Chicken not only failed to
enhance Pepsi’s fountain beverage sales but also drove potential customers to choose
Coke. Wendy’s switched its fountain purchases from Pepsi to Coke only months
after the Kentucky Fried Chicken acquisition, and for the past decade, wherever a
consumer has bought fast-food hamburgers and a cola, that cola has almost surely
been a Coke,.

11. At the time of the Tricon spin-off, Pepsi’s share of the fountain beverage market –
just on-third that of Coke-was at its lowest since the Kentucky Fried Chicken
acquisition.

12. As its woes mounted, PepsiCo CEO Roger Enrico decide to focus the company’s
efforts on its core business of soft drinks and snacks.

13. Enrico also believed that Pepsi’s fast-food businesses needed an injection of
entrepreneurial spirit, even though Pepsi had allowed them to operate with near total
autonomy.

14. Ironically, the market responded to the spin-off with the same enthusiasm that it
showed when Pepsi made the acquisitions: Pepsis stock shot up 11 percent when it
was announced.

15. Tricon’s first boss, David Novak, now faces many challenges in the fiercely
competitive fast-food market, including helping the firm realize the synergies that
eluded its parent.

IDENTIFICATION OF THE PROBLEM IN THE CASE STUDY:

1) What is the Reason behind the failure of Pepsi’s newly acquired fast food
business “Kentucky Fried Chicken”?

2) What factors contributed for Pepsi’s success, when it concentrated in its core
business of soft drinks in this competitive world?

ASSUMPTIONS MADE IN THE CASE:

1) PEPSI HAD NOT ANALYSED THE COMPETITION PREVAILING IN THE

MARKET, FOR THE FAST FOOD SECTOR.

2) THERE IS LOT OF POTENTIAL BUSINESS IN THE FAST FOOD SECTOR

FOR EVEN NEW ENTRANTS IN THIS MARKET.
ALTERNATIVES AVAILABLE TO PEPSI:

The following are the alternatives available for Pepsi for diversification: -

a) Diversification into related business

b) Diversification into conglomerate or unrelated business

ANALYZING EACH ALTERNATIVES:

a) Diversification into related business:

The diversification strategy of a company should mainly focus on their core business.
This means the company has to give top priority for the diversification into related
business where the company has already generated surplus revenues in the
competitive world.

PEPSI has a strong presence in the West and all other parts of World with only one
competitor, which is not engaged in PRICE WAR. This means PEPSI even if it
diversifies into manufacturing of ‘SNACK’ products it will be sure of gaining
‘competitive advantage’ in this competitive environment.

Therefore any diversification strategy should focus not only the profitability of the
new business, but also the competition prevailing in the new business areas, number
of firms competing, growth of the market, profitability of the firms competing in the
market, etc.

Till now PEPSI is facing stiff competition from only one competitor ‘Coke’ in the
Soft Drink market in USA and other parts of the World. But when PEPSI had taken a
decision to diversify into fast food sector, it had not analysed completely about the
prevailing competitors, their pricing, marketing and promotional strategies.

Since PEPSI had entered (FAST FOOD) into a business which is supported with 59%
of customers who are price conscious.

b) Diversification into unrelated or conglomerate business:

PEPSI can also diversify into unrelated or conglomerate businesses, if it analyses any
potential business in the conglomerate business. This will be handy when PEPSI is
gaining in core business and wants to diversify its surplus funds into conglomerate
which is equally profitable.

The examples of this type of diversification can be well understood by considering

the following examples in Indian context.

1) RELIANCE INDUSTRIES LIMITED:

The Reliance Industries Limited, which was founded by Late. Dhirubhai Ambani
needs no introduction to the people of India. Reliance Industries Limited (RIL’s) core
 business was textiles and Petro chemicals. The famous brand of Textile is only
VIMAL, which was attracted in the premium class at par with Raymond’s.

Recently, after the expiry of its founder Anil Ambani and Mukesh Ambani had
successfully diversified Reliance Group into conglomerate diversification (unrelated)
into Telecommunication industry with its brand “RELIANCE INDIA MOBILE” –
kar lo duniya mutti mein, as its caption.

Reliance India Mobile (RIM) was successful in the initial stage of its entry itself. It
has attracted new class of customers with its finance options and different schemes,
and posed a threat to the competitors.

2) TATA GROUP OF INDUSTRIES LIMITED:

TATA group of industries limited, is one of the most successful enterprises in the
India, and its reputation is spread across international borders. The TATA group
is known for decades in Steel, Automotive, Steel Bodies, Steel Rigs, and
Locomotives etc. You name the business; they have the stake in starting the firm
that’s the initiative taken by Mr. Ratan Tata.

Around five years back Tata had diversified into Telecom sector in competition
with BSNL. It is first to start limited mobility services in Andhra Pradesh. It was
successful in diversification into telecommunication sector, as it crossed over 5,
00, 000 loyal customer base.

TATA is first to start its limited mobility services in Andhra Pradesh with its
brand “TATA INDICOM-MOBITEL”. TATA is also having a joint collaboration
with AT & T, BIRLA and had launched IDEA-cellular services which is
also doing good business in the Cell Phone category.

Therefore the above two examples of RELIANCE AND TATA supports the
success story of diversification of business.

CHOOSING THE BEST ALTERNATIVE:

In the view of the above case study it is evident from the facts presented, PEPSI will be
gaining only if it concentrates into its “CORE BUSINESS” rather than diversifying into
unrelated or conglomerate diversification.

The reasons being: -

1) PEPSI is having fewer competition in its CORE sector, i.e. only with
“COKE”.

2) PEPSI is well versed with the CORE sector where its presence is
challenging and leading in the market.
 3) PEPSI is new to the conglomerate business of Fast Food, where there are
major Giants who are adopting to PRICE WARS in the present market.

4) It cannot compete with market leaders, who are posing a new challenge
for PEPSI in the FAST FOOD CATEGORY.

Questions given in the case & Solutions:

Q1. Why did Pepsi not succeed even after diversifying into the fast- food sector?
Discuss.

Ans. As per the facts given in the case study and the subsequent analysis of the case
presents the following reasons for the failure of PEPSI in FAST FOOD sector: -

1) Pepsi is new to this business, which it never analysed perfectly with regards to: -

a) No. of competitors prevailing in the market.

b) Pricing strategies
c) No. of outlets currently handled by the competitors world wide.
d) Whether there is presence of price war among the competitive firm in the
fast food market.
e) Promotional campaigns undertaken by its near competitors. etc.

2) Pepsi had over estimated the current potential for the FAST FOOD SECTOR and
had tried to boost the sales of its CORE business ‘FOUNTAIN PEPSI’.

3) Pepsi is unable attract the majority of the customers who are price sensitive and
could not target those people with its price range.

4) Pepsi failed to deliver on many of the promised benefits of the acquisition.

Kentucky Fried Chicken trailed the market when competitors, including Boston
Market and grocery stores, successfully introduced healthier roasted chicken.
When ever the promised benefits were not delivered to the end customers the
customers will shift to their own brand preferences, that were evident from the
given case let.

5) At the same time, Pizza Hut struggled during the decade-long “Pizza war” that its
principal rivals – Domino’s and Little Caesar’s-seemed more intent on winning.
Which some of the analysts question whether Pizza Hut has the stomach to win
the pizza war.

@@@@@

Q2. When Pepsi decided to focus on its core business of soft drinks, it showed
signs of recovery with stocks rising. What can be the reason(s) to this effect?
Ans. As its woes mounted, PepsiCo CEO Roger Enrico decide to focus the company’s
efforts on its core business of soft drinks and snacks. Enrico also believed that Pepsi’s
fast-food businesses needed an injection of entrepreneurial spirit, even though Pepsi had
allowed them to operate with near total autonomy. Ironically, the market responded to
the spin-off with the same enthusiasm that it showed when Pepsi made the acquisitions.

Pepsis stock shot up 11 percent when it was announced. Tricon’s first boss, David
Novak, now faces many challenges in the fiercely competitive fast-food market,
including helping the firm realize the synergies that eluded its parent.

From the above it is evident that when the PEPSICO has miserably failed to win the
expectations of the customers and deliver the promises made during the launch of the
product, it had taken a decision to concentrate more on their core business, which is cola
beverage “PEPSI cola”.

This decision of the company had once again resulted in PEPSIS stock shot up to 11
percent when this was announced. Since, the fast-food market is facing with stiff
competition by the McDonald’s and Burger King, which are engaged in a bitter price war
of their own.

When Taco Bell’s new-product launches have also met with mixed success, and its
attempt to attract price-conscious customers with 59-cent tacos failed the overall
profitability of PEPSI restaurant division has trailed that of its soft drink and snack food
divisions, to regain the profitability the PEPSICO has learned a lesson not to try out with
unrelated diversification, unless they are prepared for it.