CHIP EMPIRE

With a packet full of small-town India’s tangy flavours, Prataap Snacks is taking on multinationals

Quartz india
Quartz india

Prataap Snacks has come a long way from the narrow bylanes of Indore.

What began as a small-town venture has now evolved into India’s fifth-largest salty snack maker in terms of market share, according to data from Euromonitor. Some of its most popular products come under its Yellow Diamond brand: potato chips, the Motu Patlu rings, and tangy snack Chulbule.

Loyal customers have helped turn Prataap into a national snacking brand and a name to reckon with in India’s Rs19,000-crore salty snack market. The company clocked a turnover of Rs757 crore and a profit of Rs20.8 crore for the year ended March 31, 2016. The icing came when in 2016, Bollywood star Salman Khan agreed to endorse its chips.

But just like its spicy snacks, there is never enough.

Prataap Snacks’ has even bigger plans: an initial public offering that could raise up to Rs500 crore, helping it step up the game in a market traditionally dominated by foreign firms.

Not bad for a company that started out with a 40-year-old equipment.

Savoury success

The story of Prataap Snacks began under the name of Prakash Snacks, and with a packet of cheese balls.

By 2003, Indore-based engineering graduate Amit Kumat had learnt the tricks of the trade in the four years he worked for packaged-food company Vardhaman Snacks. Key among the lessons he learnt was to manage a wide distribution and wholesale network.

When Vardhaman shut shop, Kumat decided to enter the fray. He roped in his brother, Apoorva, and their school friend Arvind Mehta who brought in the initial funds of Rs15 lakh.

Prakash Snacks began functioning out of a tiny 10X10 office in Indore’s Navlakha locality in 2003. Looking to replicate the success of the Peppy brand of cheese balls popular in western India, the trio decided to launch its own version and called it Glow Fun. It focused on north and south India, though, where Peppy had limited presence.

Initially, Prakash outsourced production to local contract manufacturers but built a strong distribution network quickly. In the first year, it sold Rs22 lakh worth of Glow Fun cheese balls in Indore and beyond.

“It is then that we realised that there was potential; we should do something bigger,” 47-year-old Kumat, now the managing director and CEO of Prataap Snacks, told Quartz.

Left to right: Arvind Mehta, Apoorva Kumat and Amit Kumat.
Left to right: Arvind Mehta, Apoorva Kumat, and Amit Kumat. (Prataap Snacks.)

The team then decided to take on India’s massive potato chips market, created and dominated by food and beverage giant PepsiCo India through its flagship brands, Lay’s. So, two years after being founded, Prakash bought its first piece of equipment: a 40-year-old production line for Rs60 lakh in 2005.

“People thought we (had) bought junk,” Kumat recalls, “They told us it will never work.”

But the trio had its own secret mix of masala, created by a team of employees and family members right in Kumat’s kitchen, to make it all work. So, the Yellow Diamond brand of potato chips was launched in 2005. It gradually added more sub-brands like Chulbule, similar to PepsiCo’s Kurkure, and corn rings.

A brand for the masses

By 2010, Prakash Snacks was the go-to brand among the masses across west and north India, thanks to smart pricing.

The company sells 24 variants of snacks, all priced in the same range as the competition. However, Prakash offers 20-30% more of the snack for the same price. So, the Rs5 packet of Chulbule weighs 28g, while other brands in the category only offer 22g. That made a big difference in the value-conscious markets of small town India. These Rs5 packets now contribute over 80% to the company’s turnover.

Kumat says Prataap Snacks follows a bottom-up strategy, targeting small households in small markets.

“When we start a city, we start with a B-class place,” Kumat explained. “For instance, you will find us everywhere in a place like Najafgarh, (a suburb on the south-westernern outskirts of Delhi and home to a semi-urban and rural population).”

Industry experts say that small-town brands that focus on the low-to-middle income population are typically led by strong distribution in local markets. “Local brands achieve 80% of their success from the fact that they have strong micro-market distribution and offer better value as opposed to large national brands,” said Shripad Nadkarni, a marketing veteran and former founder of MarketGate consultancy who is now investing in food start-ups. “The rest is a combination of taste and branding.”

By 2011, the company’s turnover had reached Rs150 crore. Today, it has a close to 5% share of the salty snacks market, Euromonitor data shows. While it pales before PepsiCo’s 49.9%, the company has managed this without splurging on marketing and advertising.

However, as demand soared, the company’s limited capacity resulted in a supply lag.

Enter Sequoia

Mid-tier packaged food firms in India are expected to grow twice as fast as their multinational rivals by 2020, a 2014 report by credit rating firm Crisil shows. So it wasn’t surprising that Sequoia India, managing a venture capital fund of $920 million in the country, smelled an opportunity in Prakash.

In 2011, Sequoia invested $30 million in the company for an undisclosed stake, dubbing it an effort to help small-town brands achieve national prominence. “Our focus at Sequoia is all about the Indian domestic market, and such businesses are coming from non-metro areas,” VT Bharadwaj, MD at Sequoia, said then. The company declined to comment for the story.

The funding helped Prakash Snacks ramp up its distribution network, especially in India’s northeast, a region that companies and their brands usually don’t focus on due to its distance from mainland India. Kumat and his team took a calculated risk to scale up quickly in the market with a manufacturing facility in Guwahati. Today, it has three plants, one in Indore and two in Guwahati, Assam, and works with contract manufacturers in Bengaluru and Kolkata.

Following Sequoia’s entry, a separate entity, Prataap Snacks, was established by Prakash’s founder. Prataap then went on to acquire Prakash Snacks in 2012.

It was also 2012 that Prataap added a new product to its portfolio, the corn-based Motu-Patlu Rings, which is now the company’s fastest-growing brand, benefiting from a franchise agreement with a Nickelodeon show of the same name. The packet also carries miniatures of the two cartoon characters, i.e. Motu and Patlu, making Prataap India’s largest buyer of toys, too.

The partnership has helped boost the Motu-Patlu brand franchise and helped Prataap drive sales while facilitating a deeper engagement with kids, Nina Elavia Jaipuria of Viacom18 told Quartz. Jaipuria is business head, kids entertainment, at Viacom18, which owns Nickelodeon. Last year Prataap even sponsored the Nickelodeon Kids Choice Awards, reflecting its strong market among kids.

The company is now shifting gears, adding larger pack sizes and clutching deals with large supermarket chains previously considered too premium for the brand.

Spend money, make money

In 2016, Prataap Snacks finally decided the time was right to invest big in advertising. It spent Rs24 crore on marketing, focusing on kids’ and general entertainment channels and tied up with Salman Khan for its “Dildaar Hai Hum” campaign. These ads are designed by advertising agency Lowe Lintas and attempt to take on bigger rivals like PepsiCo’s Lay’s and Kurkure and ITC’s Bingo.

“Everyone was eating Yellow Diamond, but people were not talking about it. The ads should make customers feel proud and part of the brand,” Kumat said.

The company has also clinched a deal with the Reliance Retail’s supermarket stores, marking its entry onto supermarket shelves after years of being sold primarily through small shops in tiny streets.

However, it won’t be easy fighting the behemoths in larger cities, Nadkarni said. “When smaller brands grow and expand to larger markets, that is when they meet the giants who have a much bigger distribution and bargaining power with shopkeepers.” Costs rise, too, as they expand their distribution, adds Nadkarni.

Nevertheless, this is only the beginning for the founding trio which is now charting a major expansion into confectionaries.

Kumat, whose favorite packet of chips is the Teekha Tadaka-Chulbule never thought a packet of chips would make him so popular, but he’s ready for more. “When we sold products worth Rs100 crore we thought that would be the upper limit, but now we are wondering when Rs2,000 crore will happen,” he said.

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