EFL’s Summer of 2006
December 13, 2014 22 Comments
The summer of 2006 was one of trial. Like the good and bad times indicated by the Quran, I had run into serious bits of difficulty that summer. On the one hand my fathers deteriorating health was well advanced and at work the worldly battle of commerce was reaching epic proportions.
To explain the above, one has to recount some history. We were working in Engro Foods at a very early stage of inception. I had joined the company when Sukkur factory was a hole in the ground. By March 2006, however, defying all odds, we had commissioned the factory in 8 months, collected enough milk for production, created the sales and distribution infrastructure and lastly found a name and launched a brand. All this was done on the back of a most driven bunch of people, who seemed to treat Engro Foods as their piece of the promised land. Precious and worth fighting for,
Olpers! Now what sort of name is that? Is that a milk? What does it mean? A red packaging in a blue/green industry; strange slim packaging and then those advertisements, they just did not show any dairy functionality. These were the barrage of criticism we faced in the first few months. We were firmly established as a challenger mentality brand and even some of my well wishers were looking doubtful.
To top it all, along came the launch of another new milk, with a catchy old jingle and a lot more money to spend in May 2006. They negated the innovation space we had created for Olpers, and were spending lots more money and operating in almost the same fashion, plus they were located slap in the middle of the milk shed, unlike us who were down south and far away.
Life was tough through late April and May. Our advertising funds were exhausted by now and the sales after the early days were bordering on 20k litres a day. This small sales was supporting a factory and other infrastructure. Worse still, raw milk prices had increased to the extent, that the low production and high costs meant that by June, we were facing negative contribution margins. For the uninitiated, this meant that for every litre of Olpers sold, our loss would increase. We were better off shutting the plant down, rather than selling. In short we were looking down a barrel of possible failure and like in all commercial enterprises, failures eventually find their source. Typically, it is the head or near it. So the reality was quite clear to me, I was standing near the edge of a precipice.
In that rather apocalyptic situation, a silver lining appeared on the horizon, when the two largest dairy players announced price increases in the trade. This meant we could now make a reasonable margin and at least reduce our losses, till we could somehow increase our sales. The Management Committee meeting to discuss what to do and when to increase our prices, was considered a foregone conclusion. It was just a question of when. Except that the oddest idea had lodged in my brain that particular day. It came on the back of a discussion with the Sales Director, who had wistfully mentioned that he would love to sell at lower prices for a couple of months, to get our volume going. When I mentioned this particular idea in the MC, quite predictably and justifiably, the ceiling blew away. But the more the discussion went on, the more I became convinced and later one or two of the other members too, that we needed to stay with the same price. When it was conveyed to our Chairman, he asked me if I knew what we were doing, because it was the oddest decision he had heard of; “that we were ready to sell at a contribution loss, rather than a margin”. To his credit, once convinced, he backed us to the hilt with the Board of Directors.
That decision of keeping Olpers price at negative margins, was the turning point in EFL. Next month in July we jumped to 130k litres a day sales and in August it went to 150k. By September when we finally took a price increase, we had grabbed significant share from our competitors. So much so, that in December 2006, not only did we deliver a much higher sales figure, but our bottom line performance versus plan was much better. By then we knew EFL had arrived, Alhamdulillah.
In the long years of my career, one cannot remember as crazy a move. Infact, I explain it to people, that had I been at a MNC, I would have probably been summarily removed from my position, but to EFLs credit, they allowed a totally left field decision to prevail and the risk paid off.