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ASIAN CASE RESEARCH JOURNAL, VOL.

10, ISSUE 2, 219247 (2006)

ACRJ
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Sainand Beedis
This case was prepared by
Professor
Sanal
Kumar
Velayudhan of the Administrative Staff College of India,
Hyderabad, as a basis for
class discussion rather than
to illustrate either effective
or ineffective handling of an
administrative or business
situation.
Please address all correspondence to Professor Sanal
Kumar Velayudhan, Administrative Staff College of
India, Khairatabad, Hyderabad-500 082, India, E-mail:
sanal_kumarv@hotmail.com

Sainandish, the proprietor of Sainand Beedis, had to decide


on the marketing approach for the year 2001. Sainand Beedis
had a 5% growth in sales in the year 2000. Sainandish was
not condent of maintaining the 5% growth for the coming
year. Intense competition and stagnant sales in the industry
were the reasons for the lack of condence. His efforts to
increase sales in new areas last year had not yielded the
desired results because of competition from established
brands. He was not sure about the approach used to
promote Sainand Beedis in the new markets. In addition
to reviewing the promotion strategy he was also interested
in examining product strategy options. The option to get
smokers of both cigarettes and beedis to smoke more beedis
in its existing areas of operation did not appear to be very
attractive as most of them were smokers of beedis and
not many smoked cigarettes. To help him in his decisionmaking, he got outside assistance to put together all the
available data. A quick survey was also performed in the
rural areas where he desired to establish the brand.

THE SPIRIT OF ENTERPRISE


Satyanarayana, father of Sainandish, started Sainand Beedis
in the year 197980. While working for a large beedi manufacturer Satyanarayana identied an opportunity for a new
brand of beedis. He observed that the wholesalers in the
town of Bhadrachalam were dissatised with the supply of
beedis in this market. The supply of beedis was irregular.
He started the business of manufacturing and selling beedis
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with an initial investment of Rs.5,000 (1 US$ = Rs.47


approximately). He rented a small building in Hyderabad, the
capital city of Andhra Pradesh for manufacturing beedis.
The members of his family along with a few workers rolled
the beedis and Satyanarayana sold them in Bhadrachalam. The
beedis sold were similar to PVS Beedis, the largest selling
brand in Bhadrachalam. He sold the beedis directly to the
retailers (paan shop: small shop selling beedis, chewing
tobacco, cigarettes and sometimes a few other packaged items)
and collected money from the retailers after they sold the
stock of beedis. Later he also persuaded a few wholesalers
to stock the beedis. The product was sold under the brand
name of Sainand Beedis. The small manufacturing facility
was sufcient to meet the demand for Sainand Beedis.
In 1983 PVS Beedis, the leading brand of beedis in
Bhadrachalam was in short supply. Satyanarayana used the
opportunity created by the short supply of PVS beedis to gain
market share. The quality of Sainand beedis was considered
similar to the quality of PVS Beedis but Sainand Beedis
had a lower price than PVS Beedis. Sainand Beedis gained
market share to become the leading brand in Bhadrachalam.
In 1985 it experienced difculty in meeting the growing
demand. There was insufcient stock of leaves and tobacco
to increase the production level. Satyanarayana therefore
strengthened the production operation at Hyderabad and
improved storage facilities at Bhadrachalam. He rented a
place to stock beedis in Bhadrachalam. In addition to this,
stocks were also placed with wholesalers to avoid stockouts. He appointed his brother to look after the sales in
Bhadrachalam and he himself shifted to Hyderabad to
strengthen the production operation. The production and
sales increased and by 1988 he employed about 300 beedi
workers who were paid according to piece rate. In the
same year there was a strike by the beedi-rolling workers
in Hyderabad. The beedi-rolling workers demanded a hike
in the piece rate. The strike continued for about three
months. Satyanarayana procured beedis from places outside
Hyderabad, including the nearby district of Warangal to
meet the demand. Beedi rolling was resumed in Hyderabad
after the strike. As a result of the strike, another center

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to manufacture beedis was established at Koratla in the


Karimnagar district of Andhra Pradesh in 1989.
Sales of Sainand beedis extended beyond Bhadrachalam
and as a result the physical distribution of the product
outside Bhadrachalam became difcult. In 1989 a van was
purchased to supply beedis to the villages surrounding
Bhadrachalam. It covered the villages surrounding Bhadrachalam up to a distance of 60 km. In the same year a
house was purchased at Bhadrachalam to serve as a warehouse for the beedis. In 1991, an employee was appointed
as a salesman to help Satyanarayanas brother. In 1992
a building was purchased in Hyderabad to store leaves,
tobacco and manufactured beedis. It also had ofce rooms.
Satyanarayana died the same year. His brother who looked
after the sales in Bhadrachalam left Sainand Beedis and
started his own brand of beedis with the brand name
Shyam.

CHALLENGES AND STRATEGIES OF THE


SECOND-GENERATION ENTREPRENEUR
Sainandish, the eldest son of Satyanarayana, succeeded his
father. He was 24 years old at that time. He had to take
immediate steps to the meet the threat from Satyanarayanas
brother. Satyanarayanas brother supplied the wholesalers
with Shyam beedis in place of Sainand beedis. To
deal with the situation Sainandish stationed himself in
Bhadrachalam.
Sainandish persuaded the wholesalers in Bhadrachalam to stock Sainand beedis with a message that
focused on the long-standing relationship. He also introduced a special 10% discount scheme for the retailers.
Sainandish made regular sales calls on the retailers in
and around Bhadrachalam. In a years time the sales of
Sainand beedis not only reached the previous level but
also exceeded it. In 1992, the peak season sales used to be
120 bags per month. The peak season was from January to
June, with the lean season from July to December. According
to Sainandish, the lean season sales were 15% lower than the

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peak season sales. The sales during the peak season of 1993
touched 140 bags per month. The sales, however, dropped
to about 105 to 110 bags per month during the lean season
and did not recover even in January 1994. In February 1994,
Sainandish introduced a consumer promotion scheme for a
period of three months. The word Sainand in Telugu (the
local language) was to be formed by consumers by collecting
letters placed inside the packs. Each pack had a letter and
if the consumer could form the word Sainand in Telugu
the consumer gets a 5 gm silver coin. Forming the word
Sainand Beedilu in Telugu the consumer gets 10 gm of
silver. The sales regained the level of 140 bags per month by
March 1994.
A distributor was appointed at Cherla and another
at Bhadrachalam in 1995. This improved the servicing of
wholesalers and retailers in these markets. The distributors
were required to deposit Rs.75,000 each. They were given
15-days credit on the condition that they extend a oneweek credit to wholesalers. The Bhadrachalam distributor
was given space to stock beedis in the building owned by
Sainand beedis. This distributor covered about 60 villages
around Bhadrachalam. The distributor in Bhadrachalam used
the van owned by Sainand beedis for servicing the market.
The distributor paid for the fuel and employee costs of the
van. Cherla was located about 65 km from Bhadrachalam.
The territory covered by the distributor in Cherla was
compact and therefore did not require a van. This distributor
in Cherla had a place for stocking beedis.
In 1998 there was an increased supply of duplicate
(counterfeit) PVS Beedis in the market. The image of PVS
Beedis suffered because of the duplicates. Some consumers
shifted to Sainand Beedis and as a result its sales increased
by about 10%. The following year, Sainandish perceived
a threat from S beedis (a brand that had acceptance in
the adjacent markets). He expected S beedis to enter the
Bhadrachalam market. The S beedis were longer beedis
and therefore called as big-sized beedis. In addition to its
greater length the leaves in big-sized beedis were thicker
and this gave stiffness to the beedis. The big-sized beedis

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was therefore convenient to light. The S beedis also had a


sticker on each beedi, which gave it the twin advantage
of preventing sale of duplicates and better appearance.
Sainand beedis introduced big-sized beedis with the brand
name Farmash Sainand Beedis to preempt entry of
S Bedis in Bhadrachalam. The Farmash Sainand beedi
was priced at Rs.2.75 per packet of 20 beedis compared
to Rs.3.60 per packet of S beedis. The retailer was given a
bundle of 24 packets at Rs.59 and he sold this for Rs.66.
This gave the retailer a margin of Rs.7 per bundle. The
wholesale rate was Rs.58 a bundle. To get the product
on to the retail shelf, a bundle of Farmash Sainand
Beedis was given free with every bag of Sainand beedis.
Sainandish tested the new brand of beedis with about
20 smokers by giving it free. The sample of smokers liked
the new big-sized beedis. The consumers however did not
buy the new brand despite its lower price compared to
S Beedis. The Farmash Sainand beedis was discontinued,
as it did not gain acceptance in the market. S beedis had
also not entered the Bhadrachalam market. The sales of
Sainand beedis grew on an average at approximately 10%
a year, during the ve-year period from 1995 to 2000.
Sainandish was keen to continue the growth rate and
towards this objective was keen to enter the adjacent
markets of Palawancha and Kothagudam.

CURRENT SITUATION
Market: The market for beedis in India was about Rs.120
billion in value (Chennai Interactive Business Services (P)
Ltd. 2004) and in units it was 700 billion sticks. The number
of beedi smokers was estimated at 100 million in the
country (International Labour Ofce, 2003). The market for
Sainand beedis included parts of the districts of Khammam
and Hyderabad, in the state of Andhra Pradesh. (A state
was divided into districts, which was further sub-divided
into mandals for administrative purpose. A mandal had
within its territory a few towns and a number of villages.)

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Andhra Pradesh state had 23 districts. Bhadrachalam Mandal


in Khammam district was the major market for Sainand
Beedis.
Khammam district covered a geographical area of
16029 sq km. There were 46 mandals in Khammam district.
The district had a population of 2.2 million with the average
population of a mandal working out to be 48,000. The male
population in the district was 51% and the population
growth was 2.65% per annum. The urban population in
the district was 20% and the rest was in the rural areas.
The literacy level was 40%. Working population was 46%
with agriculture and allied activities employing 77% of the
working population (Government of Andhra Pradesh).
Sainand Beedis served the Bhadrachalam mandal. It
also launched its brand in the Palawancha and Kothagudam
mandals. The mandals of Bhadrachalam, Palawancha
and Kothagudam in Khammam district were contiguous.
Palawancha is 20 km from Bhadrachalam and Kothagudam
is a further 15 km from Palawancha. The population in
Bhadrachalam, Kothagudam and Palawancha were 77961,
184415 and 99597, respectively. The ratio of male to female
was 50.32 in Bhadrachalam, 50.22 in Kothagudam and 51.47
in Palawancha. Bhadrachalam had a famous religious place
and therefore attracted a number of visitors (Department of
Collectorate, Khammam).
Sainand Beedis was the leader in the Bhadracham
market. It captured the leadership position in the
Bhadrachalam market when PVS beedis was in short
supply. It capitalized on the erratic supply of PVS beedis
by maintaining a regular supply. The quality of Sainand
Beedis was similar to that of PVS Beedis but was priced
lower. It sold 150 bags per month through the Bhadrachalam
distributor. Sainand beedis did not sell much in the adjacent
mandals of Palawancha and Kothagudam, in Khammam
district (Annex 1). It had launched the brand in Hyderabad
in 1998. Sainandish found the Hyderabad market
unattractive because of the severe price competition from
a number of small brands and also because of competition
from large established brands. It sold just 10 bags per

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SAINAND BEEDIS 225

month in Hyderabad. Sainandish perceived the size of the


Hyderabad market to be large but had no estimate of the
demand potential in this market. He had estimated the
potential demand for the other markets (Table 1).

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PRODUCTION

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Light air cured tobacco was used in the manufacture of


beedis. The ue cured Virginia tobacco was mainly used
for manufacture of cigarettes. Andhra Pradesh, Gujarat
and Karnataka accounted for a major portion (80%) of raw
tobacco production in India.
The tendu leaves used to wrap the tobacco were
wild growth in forests. The tendu leaves were mostly
from Madhya Pradesh and Orissa and to a limited extent
from Maharashtra and Andhra Pradesh. The tendu leaves
available in and around Bhadrachalam forests were used
by Sainand beedis. The purchase of tendu leaves was from
auctions of the forest department. Sainandish sometimes
went to Maharashtra for procuring tendu leaves. Tobacco
was procured either from Gujarat or locally. In the beedi
industry workers were generally independent and worked
from their homes. They were supplied with leaves and
tobacco and for rolling beedis were paid on the basis of a
piece rate.
Sainand beedis was manufactured in Hyderabad and
Koratla in Karimnagar district. In Hyderabad production
was scattered at different locations and also not many
workers were available for rolling beedis. In Hyderabad
the unit directly dealt with beedi workers. It stored leaves
and tobacco in rented premises at different locations. From
these centers the material was given to the workers and
the nished beedis collected. The supply of materials to the
centers and the collection of beedis from the centers were
carried out using a van. The van made daily calls for most
locations but for some locations the call frequency was once
in two days. Initially a clerk was appointed to manage these
centers but later in many locations one of the workers was

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entrusted with the responsibility for distribution of material


and collection of beedis. The worker was compensated for
the above responsibility of distribution and collection.
In Koratla (Karimnagar district) the production centers
were located close to one another and therefore transport
and supervision costs were low. Agents called takeadaar
handled the supervision of production. These agents
received leaves and tobacco used for rolling beedis once in
two months. The material arrived in trucks directly from
the supplier to the agents. The agents stocked the material
and regularly handed over the leaves and tobacco to the
beedi workers and collected the nished beedis. The agents
supervised the production and maintained the quality of
the beedis. The agent was given a commission of Rs.2.80 for
1000 beedis. The wage rates differed for the beedi workers at
the two locations. The wage rate in Hyderabad was Rs.29 for
1000 beedis, while it was Rs.46 per 1000 beedis in Koratla.
Though the wage rate was higher in Koratla, the quality of
the beedis was superior and there was lesser wastage. The
operational expenses compared to those at Hyderabad were
also lower. The cost difference was therefore not more than
Rs.8 per thousand beedis. Labour costs were the largest
component of the cost of beedis (Annex 2). The current
production in Hyderabad was approximately 150,000 beedis
a day and about the same number was produced in Koratla.
There were constraints in increasing the production at
Hyderabad as availability of workers for rolling beedis was
limited and their number was reducing.

COMPETITION
The industry was highly fragmented with no beedi manufacturer having a share of more than 5%. Most brands had
about 1% share. Major beedi manufacturers included Pataka
Beedi Manufacturing Company Limited manufacturing
100 million beedis a day with their leading brand called
502 Pataka Beedi, Bharat Beedi Works manufactured
60 million beedis a day and their leading brand was called
Thirty Brand Beedis, Kerala Dinesh Beedi Workers

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Cooperative produced 30 million beedis with their leading


brand called Dinesh beedi, and Mangalore Ganesh Beedi
Works produced 20 million beedis and their leading brand
was 501 (Zora Milenkovic, 2004). In addition to this, there
were many other regional and local brands. Mangalore
Ganesh Beedis was one of the largest producers with
head ofce in Mysore city, in the state of Karnataka. Its
501 Ganesh beedi was promoted for its unique aroma and
distributed through 30 branches and 300 distributors. It
supplied to distributors from its branches and gave 15 to 20
days credit. Its sales declined by over 16% from 19891990
to 19981999 (Annex 3). It had investments in packaging,
printing and transport. Bharat Beedi had a brand called
Thirty beedis. It had both big size and normal size beedis.
It sold its products in soft pack, hard pack and plastic packs.
It produced on an average 60 million beedis a day.
As the competition for beedis was regional in
nature, in addition to the small local brands the only large
competing brand for Sainand beedis in Bhadrachalam was
from PVS beedis. PVS (Pattu Vaikunta Seth) beedi was an
80-year-old brand and claimed to be the best among the
beedis. Its head ofce was located in Mangalore, a town
in the southern state of Karnataka. It manufactured about
25 million beedis daily. It sold mostly in the southern states
of Karnataka and Andhra Pradesh. In Andhra Pradesh, East
and West Godavari districts and Kakinada were its major
markets. The message used for promoting PVS Beedis was
the award of a gold medal in 1956 for quality. Though
the brand had not been promoted in the last three to four
years, the retailers still remembered the message award
for quality. The price of PVS beedi was higher compared
to Sainand beedi. 2 beedis of Sainand sold loose was priced
25 paise (1 rupee = 100 paise) while 3 beedis of PVS was
sold for 50 paise. Sainandish considered the quality and size
of PVS and Sainand beedis to be similar.
PVS beedis had a distributor covering Kothagudam
mandal, Palawancha mandal and Bhadrachalam mandal.
This distributor serviced 200 wholesalers. These wholesalers
served about 1000 retailers. The distributor had a van to
cover its territory. There was no credit either from the

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company or from the distributor to the wholesalers. This


distributor located in Kothagudam was also the distributor for ITC cigarettes (the largest cigarette manufacturing
company in India). This distributor wielded considerable
inuence in these markets. The distributor threatened to
stop supply of all its products to wholesalers that stocked
Sainand Beedis. This threat did not impact the Bhadrachalam
market but affected the markets in the surrounding mandals.
Some retailers from Palawancha and Kothagudam mandals
however purchased Sainand Beedis from wholesalers in
Bhadrachalam.
S beedis was a competitor in Palawancha and
Kothagudam markets. It manufactured and sold big-sized
beedis. Its head ofce was located in the southern state
of Tamil Nadu. It manufactured 30 million beedis daily.
The S beedis had a sticker on each beedi. This gave a
better appearance and also prevented duplicates. Its
major markets were the states of Tamil Nadu and Andhra
Pradesh. In Andhra Pradesh its main distributor was
located in Vijayawada city. A sub-distributor was located at
Kothagudam. The sub-distributor did not extend credit to
wholesalers.
Manufacturers of big-sized beedis including S Beedis
had in the last few years introduced normal-sized beedis.
The manufacturers introduced normal-sized beedis because
of difculties in procuring leaves for big-sized beedis. The
type of leaves required for preparing big-sized beedis was
sometimes in short supply and this increased costs, which
was difcult to pass on to the consumer in a price sensitive
market.
Dost beedis was relatively a smaller competitor. It
produced about 400,000 beedis a day. It was located in
Warangal city in Andhra Pradesh. Its market extended to
parts of Andhra Pradesh. They did not have a distributor for
the Kothagudam and Bhadrachalam markets. They supplied
through vans, which usually visited once a month. This
supplier sometimes extended credit to the wholesaler.
In addition to the regional brands Sainand beedis
faced competition from small local brands and also imitation
brands. Kismat Beedi was a local brand of beedi and it

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SAINAND BEEDIS 229

sold on price. Imitation brands of Sainand beedis included


Manoj and Ujwala. The packaging was similar with
the same color pack and picture similar to that of Sainand
Beedis. The quality of the imitation beedis was poor but
price was very low. In the manufacture of beedis the
practice was to provide tobacco and tendu leaves to beedi
workers who then were paid on a piece rate. The beedi
workers rolled out the contracted beedis but would be left
over with some tobacco and leaves. The beedi workers used
the left over tobacco and tendu leaves to roll out additional
beedis. The blends of these additional beedis were not
consistent and therefore of poor quality. These additional
beedis were collected, packed and sold by the suppliers of
these imitation brands. The steps taken by Sainand beedis to
meet the challenge of imitation brands were:
To raise the issue with the beedi manufacturers association
To give trade schemes as and when the impact was
considerable
To ensure that there was no short supply of its brand
In addition to imitation brands the presence of
duplicates was a problem for Sainand Beedis. The Bhadrachalam distributor of Sainand Beedis detected the existence
of duplicates around Bhadrachalam. With the help of the
local police the warehouse where the duplicates were stored
was raided and the stocks destroyed.
Comparison of the price to the retailer for the major
brands selling in and around Bhadrachalam indicated that
Sainand Beedis was priced lower than large regional brands
but higher than other local brands and imitation brands
(Table 2).
The channel incentive for Sainand Beedis was higher
than the leading brands but less compared to other local
brands (Table 3).

CONSUMERS
In India tobacco was consumed in different forms and
included chewing products and smoking products. Smokers

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formed the largest category of tobacco users and this


was mostly in the form of beedis. Some users shifted
consumption between product categories. Distribution of
tobacco users in India was as in Table 4.
One of the main reasons for the high usage of beedis
was the low price. Manufacturing tax on beedis was
signicantly lower than the tax on cigarettes. The rural
population smoked mostly beedis. 10.65 per cent men were
smokers and 14.07 per cent men chewed and smoked
tobacco. It was also established that tobacco consumption
was highest among daily wage earners and lowest among
the salaried (International Labor Ofce, 2003).
Sainandish had developed an understanding of the
beedi smoker and the beedi-smoking habits during the last
eight years. Most of the consumers were agricultural laborers
and farmers, with monthly income averaging about Rs.1000
a month. Most consumers purchased beedis loose instead of
buying in packs. They bought beedi sticks for Rs.1 or Rs.2.
These consumers were also price sensitive. Consumption
behavior was inuenced by region and also season. Consumers in hot regions like Bhadrachalam preferred strong
beedis compared to Hyderabad. In summer months the
consumption increased. One of the reasons for this was that
in summer they had a lot of time on their hands and with
nothing much to do. The season was from January to July
with the consumption reducing during the remaining ve
months. The consumption usually decreased by about 15%.
In cases where the consumer had less disposable income
then the consumption reduced too.
Quality was a consideration in preferring a brand.
Consumers looked for stimulation from smoking beedis and
therefore preferred beedis with strong good quality tobacco.
Good quality beedi did not leave a bitter taste. If the curing
was not done properly or the quality of tobacco was poor
then it left a bitter taste in the mouth after smoking and
consumers disliked it. The poor quality of the leaves also
inuenced the quality of beedi. The consumer perception of
the quality of beedi was based on taste and also by the type
of ash that was produced. The good quality tobacco and
proper curing of tobacco produced white colored ash when

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the beedi was smoked. The ash had a dark color when the
quality was not proper.
A beedi was not consumed at once but in installments
and therefore beedi consumption was of much longer
duration than a cigarette. Some beedi consumers also
smoked cigarettes. Reasons for preferring beedis were:

price of beedi was low compared to cigarette;


it was possible to smoke beedis while working in water;
beedi gave better stimulation;
Consumers perceived beedi to be natural compared to
cigarettes.

Studies on smoking habits also provided an understanding of a consumer of beedis. The average smoker
smoked 4 beedis a day (Table 5). Compared to the younger
generation it was the older generation who preferred beedis.
One of the reasons for taking up beedis smoking by young
boys working in agriculture was because of peer group
pressure. Another reason for taking up smoking was that
employers in shops gave beedis to young boys to attract
them to work in their shops. Gossip groups that were
common in rural areas were also conducive to smoking. In
rural Andhra Pradesh it was observed that friends of young
boys who do not smoke, coax these boys into smoking.
Many young boys believed that smoking while watching
a play or movie added to the fun of watching it. Fellow
workers told young boys who went to work that to relax
one needed to smoke (Cecil Ray, et al., 2003).

PRODUCT
Beedi was a hand-rolled, leaf-wrapped country cigarette.
It had blended tobacco wrapped in tendu leaves, cut to
size, tied up with a thread, roasted in an oven to remove
moisture and given avor (Chart 1). The skilled worker
rolled the beedi, at at the smoking end and round at the
other. It was tied at the at end with a cotton thread of a
particular color chosen to identify the manufacturer. The
quality of a beedi was inuenced by the quality of the

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232

00083.indd 232

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tobacco, the curing process and the quality of the leaf. The
poor quality of tobacco or leaf affected the taste of the beedi.
The quality also depended on the blending of tobacco and it
was as such treated as a trade secret.
Beedis were manufactured and sold in two sizes, bigsized beedis and normal-sized beedis. In addition to the
size the blend used and the strength of the tobacco varied
by brands. Sainand beedis was sold in only one form. It
was sold in normal size with medium strength tobacco. The
product came in a pink pack with the picture of the founder
Satyanarayana along with the name Sainand Beedi.
Twenty beedis tied with a thread were wrapped
inside a pink color paper wrap with distinctive markings to
make the basic pack. 20 packs in a separate color wrapper
denoting the brand name made a bundle. 10 bundles tied
with a jute thread made a unit of 4000 beedis. 10 such units
of 40,000 beedis were put in a jute bag, sealed and stenciled.
As the blend of tobacco was important Sainandish specied
the blend. Sainand beedi had a blend of about 70% high
quality tobacco and 30% tobacco of slightly lower quality.
This blending allowed to maintain quality comparable to
the leading competitors brand and at the same time to sell
at less than the competitors price. Sainandish tested the
blend quality himself and also checked the same by offering
to others including visitors and distributors. This method
of testing was given considerable importance when a new
blend was tried out.
Sainandish considered the option of having on each
stick of beedi a paper ring (sticker) with the brand name
printed on it and also a second option of introducing a small
pack of beedis. The use of a paper ring with the brand name
had the advantage of improving the appearance. As beedis
were purchased loose, the ring would identify the brand
and prevent duplicates of the brand. The cost of paper
and of labor for sticking the ring was approximately 3.6%
of the sales price. The second option of reducing the pack
size was not possible with paper packing as the workers
found it difcult to carry out the operation for less than 20
beedis. The option then considered was the use of a plastic

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SAINAND BEEDIS 233

pack. The manual packing for smaller packs using plastic


increased the cost by approximately 4% of the sales price.
Sainandish explored the possibility of using machinery
for packing but this was not available at a price that he
considered viable.

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CHANNEL

00083.indd 233

The channel included distributors, wholesalers and retailers.


Sainand beedis had a distributor each in Bhadrachalam
and Cherla. In Hyderabad, beedis were supplied directly to
wholesalers.
The channel incentives were as seen in Table 3.
The distributor was provided at Rs.39.00 a bundle, which
allowed a margin of about 2%. In addition to the regular
channel commission retailer promotions was introduced
once in a while. Retailer promotion was introduced usually
when a decline in sales was noticed. The items given as
part of the earlier trade-promotions included canvas bag,
calculators and wall clock. The latest trade schemes were
also based on sales volume (Table 6). The gifts provided
as part of retailer promotion was worth Rs.2.60 a bundle.
Sainand Beedis offered trade schemes to retailers but not to
wholesalers.
The brand was promoted largely through the
channel. Sainandish made sales calls on retailers. In case the
brand was not in stock with the retailer he left a bundle with
the retailer at the same price as offered by the wholesaler.
As an incentive to stock he generally gave a small gift to the
retailer. He gave a small gift like a key chain along with the
bundle as an incentive to stock, instead of giving a discount
on direct supply to the retailer.
The building owned by Sainand beedis in Bhadrachalam was used to store beedis for distribution in and
around Bhadrachalam. The distributor there managed this
storage point. The beedis were shipped to the distributors
through transport operators. The Bhadrachalam distributor
in turn used one of the three modes for distribution:

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use of motorized two wheeler by distributor himself for


small volume and nearby locations;
cycle-rickshaw for within the town of Bhadrachalam, up
to 10 km distance;
auto rickshaw or van for nearby villages for more than
10 km but less than 60 km.

00083.indd 234

The company used van distribution to reach dealers


in the rural areas. The van ensured regular supply of the
product to the channel members and usually the stocks were
replenished once a week. The regular servicing ensured
availability of the brand with dealers. Regular servicing was
also an incentive for the channel members who then needed
to carry less stock.
Retailers were rarely provided credit directly by
manufacturers. This was because the large organizations
operated through dealers. It was the small organizations
that directly promoted to retailers and extended credit to
introduce new products. The retailers were usually reluctant
to stock new products and brands. The retailers stocked new
products or brands only when credit was extended. Some of
the retailers did not pay for the goods even after they sold
these. They sometimes made partial payment or delayed
the payment on some pretext or the other. If the supplier
insisted on payment the retailer might return the unsold
stocks stating that the product was not selling well and may
or may not make the payment requesting for time.
Sainandish promoted Sainand Beedis directly to
the retailers when introducing the brand in a new market.
On his rst visit to the retailer he usually gave credit
for a bundle of Sainand beedis. On his second visit he
sought feedback and also payment. In case the retailer
was unwilling to pay even after selling the product he did
not provide replacement stock then. According to him, if
there was demand for the brand then the retailer would be
interested in obtaining replacement stock. The interest of the
retailer to obtain replacement stock was used by Sainandish
to get at least partial payment if not the entire amount. In
this way a part of the money was recovered and at the same
time the brand made an entry into the market.

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PROMOTION

00083.indd 235

The promotion for Sainand Beedis highlighted the quality


of its tobacco. It claimed that its beedis were made of a
special type of tobacco from Nippani (a place in the state
of Karnataka). In the year 1999, it spent Rs.15,000 for
advertisements. It used cinema slides, wall paintings, shop
paintings and audiocassettes with recorded message. It
used rickshaws (a tricycle used as public transport for two
persons) decorated with posters and equipped with loud
speakers for the audio promotion. The message for Sainand
beedis was inserted between two songs. The advertisement
jingle was not in between a song as Sainandish was of the
view that the listener would get irritated if a song was
stopped midway. A system to ensure that the rickshaw
followed the itinerary was put in place. The system required
the rickshaw puller to take the signature of the wholesaler
in the location where he moved around as a proof of his
presence there.
Along with the audio promotion that used rickshaws,
sample beedis were also distributed. The sample pack had
two beedis. The sample packs were also sometimes made
available to retail shops. The retail shops generally used
these to sell as loose beedis.
Sainand Beedis also had consumer promotion schemes.
Consumer schemes included a rupee, Rs.2 or Rs.5 in a pack
or letters in a pack to be put together by the user to form the
brand name (six letters in Telugu language). In the second
scheme the brand name so formed was to be exchanged for
a 5 gm silver coin. Though these were consumer promotion
schemes it was the retailer who beneted, as most beedis
were sold loose.
A part of the promotional effort was directed at
educating the consumers about duplicate brands. Duplicate
beedis were found in Venkatapuram mandal, which was
adjacent to Cherla mandal. Audio promotion educated the
consumers about duplicate beedis in Bhadrachalam and
Venkatapuram. This was in addition to the action taken to
raid and destroy stocks of duplicate beedis with the help of
local police.

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236

ACRJ

In Palawancha it erected a tent in a prominent location


and used audio promotion on the quality of Sainand Beedis.
The tent and the audio promotion attracted a crowd. Beedis
were distributed to the members in the crowd for trial and
their feedback taken. After this the smokers were given
a sample pack of two beedis with the brand name on the
pack. The response of the smokers was positive but they did
not subsequently purchase the brand from the retail store.
Though regional television, regional radio station
and regional newspapers were available Sainandish did not
venture into using these as none of the brands of beedis
including the large brands used these media vehicles. The
costs for advertising in these media was readily available
with him (Table 7).

INTERVIEWS WITH SOME CHANNEL MEMBERS


AND CONSUMERS
Interviews were conducted with some of the channel
members and consumers to provide an additional understanding of the market. Sujathanagar village in Kothagudam
Mandal was selected for the purpose. Sujathanagar village
had a population of 9000 of which the male population was
48% and female population 52%. The major occupation was
agriculture with 47% farmers, 50% agricultural laborers, and
traders and Government employees making up the rest of
3%. The average monthly income of a person in the village
was Rs.1,150 (Table 8). There were 30 retail shops in the
village. Two wholesalers served this village. Eight retailers
and ve consumers from this village were interviewed.

Interviews with Wholesalers


The two wholesalers serving the village were interviewed.
The bigger of the two wholesalers sold beedis worth
Rs.32,000 per month while the small wholesaler sold beedis
worth Rs.15,000 a month. These two wholesalers sold three

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SAINAND BEEDIS 237

00083.indd 237

brands of beedis: S beedis, PVS beedis and Dost beedis. Of


the total beedis sold by the large wholesaler 72% was that
of S beedis, 19% of PVS beedis and 9% was of Dost beedis.
The smaller wholesaler sold 20% S beedis, 53% PVS beedis
and 27% Dost beedis. They stocked these brands because of
demand from the retailers for these brands. According to the
wholesalers the sale of these brands of beedis was because
the consumers perceived these brands to be of good quality.
The wholesalers indicated that they did not get any credit
from the distributor nor did they give any credit to retailers
for beedis.

Interviews with Retailers


Eight retailers were interviewed. The average monthly sale
of beedis by these retailers differed. The retailer with the
least sale of beedis had monthly sales of beedis worth Rs.140
and the retailer with the largest monthly sale of beedis sold
beedis worth Rs.5000 in a month. The average monthly sale
of beedis for these eight retailers was Rs.1,640. Of the eight
retailers ve stocked S beedis, 1 stocked PVS beedis and
2 retailers stocked both brands of beedis. All the eight
retailers indicated that they did not receive credit facility for
beedis. The retailers preferred beedi brands with quick stock
turnover. None of the eight retailers received any trade
scheme for beedis nor were they aware of any consumer
promotion scheme for the brands of beedis sold by them.
The eight retailers indicated that the major consumers
of beedis were agricultural laborers. Six of the eight retailers
indicated that farmers were also important consumers while
one indicated teenagers also to be an important segment. All
the eight retailers indicated that the consumers were brand
loyal and did not switch brands.
The retailers sold beedis loose, in addition to selling
beedi packs. Five of the retailers indicated that 90% of their
sales were loose beedis, while one retailer sold only in
packs.

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Interviews with Consumers

00083.indd 238

Five consumers were interviewed. The average monthly


income of these consumers was more than Rs.1,500 with
the lowest monthly income at Rs.1,200 and the highest at
Rs.3,000. The respondents differed in age, with the youngest
at 20 years, the oldest at 45 years and the average age was
30 years. Four of the respondents were school dropouts
while one attended school till class 10 (12 years of formal
schooling). Four of the consumers preferred S beedis while
one preferred Mangalore Beedi. 2 of the users of S beedis
preferred the brand because of its good quality and the
respondent who preferred Mangalore Beedi indicated that he
bought more out of habit than for any specic reason. Three
of the respondents indicated that their source of information
and brand knowledge was friends while for one of the
respondents it was the retailer. All the ve respondents
indicated that they do not switch brands and were brand
loyal. Four of them smoked cigarettes occasionally but
one smoked only beedis. All the ve consumers indicated
that they watched television and went to cinema. Three of
the respondents listened to radio and the respondent who
studied till class 10 also read vernacular newspaper. None of
the respondents had seen any advertisements for beedis.

ISSUE
Sainandish, the proprietor was keen to enter the markets
in Palawancha mandal and Kothagudam mandal. In
Palawancha (about 20 km from Bhadrachalam), Sainand
beedi sold about 2 to 3 bags a month while the market
potential was about 35 bags a month. In Kothagudem
mandal, the potential was double than that of Palawancha
but Sainand beedis was not present. Sainandish had put in
effort to improve sales of Sainand beedis in the Palawancha
and Kothagudam markets but this had not yielded the
desired results. Personal selling to retailers (pan shops) and
offering credit were part of the effort. Audio promotion
and cinema slides were also used to promote the brand to

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SAINAND BEEDIS 239

00083.indd 239

consumers. Interviews with channel members indicated


their preference to stock fast-moving competing brands. In
addition to this, one of the competiting brands had a strong
distributor making it all the more difcult to persuade
wholesalers to push this brand. Consumers were loyal to the
brands they smoked, as they perceived these brands to be
of superior quality. It appeared to be very difcult to break
into these markets. Sainandish was keen on developing a
strategy to gain share in these markets where his brand
had hardly any presence. The alternative to entry into new
markets was to increase efforts in the existing markets to
gain market share.

REFERENCES
1. Chennai Interactive Business Services (P) Ltd., 2004, Worlds rst
non-tobacco Biri (accessed 5 January 2005) [available at http://
www.chennaionline.com/health/homearticles/2004/03vardan.
asp]
2. International Labour Ofce, 2003, Making ends meet: Bidi workers
in India today: A study of four states, Geneva.
3. Government of Andhra Pradesh, District-Khammam (accessed
20 June 2004) [available at http://www.aponline.gov.in/
Quick%20links/apfactfile/info%20on%20districts/khammam.
html ]
4. Department of Collectorate, Khammam, Demographic Prole
(accessed 20 January 2005) [available at www.khammam.com]
5. Zora Milenkovic, 2004, Bidis continue to dominate Indian tobacco
market... (accessed 20 January 2005) [available at http://www.
euromonitor.com/article.asp?id=4250]
6. Cecily Stewart Ray, Prakash Gupta and Joy de Beyer, 2003, Research on tobacco in India: An annotated bibliography of research on
use,health effects, economics, and control efforts. The World Bank.
Washington, D.C.
7. ERC Statistics International Plc (1998), India, in World Cigarette
Report, 1998, pp. 138.
8. Eenadu ETV(Telugu)-Tariff (accessed 4 February 2005) [available
at http://www.eenaduinfo.com/reach.htm]

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Table 1. Potential and Sales in the Market Served (excluding Hyderabad) by Sainand beedis

00083.indd 240

Location

Distance from
Bhadrachalam
(km)

Potential
(bags/month)

Sales of
Sainand
(bags/month)

Competition

Bhadrachalam

180

150

PVS

Cherla

65

70

65

PVS/Kismat

Manuguru

45

60

35

Dost/PVS/S beedis
(equal share)

Palawancha

25

35

PVS/S beedis
50:50

Kothagudam

45

60

PVS/S beedis/Dost
50:30:20

Table 2. Package Size and Price per Bundle to Retailer for Different Brands
Sl. No.

Brand

Type

Pack Size

Price (Rs.)

1.

Sainand

Normal
Size

Pack (Katta) = 20 beedis


Bundle = 20 packs
Bag = 100 bundle

40.80

2.

S. Beedi

Big
Size

Pack = 20 beedis
Bundle = 2 packs
Bag = 48 bundles

65.60

3.

Dost

Big
Size

Pack = 20 beedis
Bundle = 20 packs
Bag = 70 bundles

37.60

4.

PVS

Normal
Size

Pack = 25 beedis
Bundle = 20 packs
Bag = 100 bundles

61.60

5.

Kismat

Big
Size

Pack = 18 beedis
Bundle = 20 packs
Bag = 70 bundle

32.00

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SAINAND BEEDIS 241

Table 3. Comparison of Channel Prices with Competitor (in Rs. for


a bundle)
Brand

PVS

S-Beedi

Dost

Kismat

Sainand

Price to wholesaler

60.40

64.80

36.60

31.00

39.80

Price to retailer

61.60

65.60

37.60

32.00

40.80

Price to consumer

72.00

72.00

48.00

40.00

48.00

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Item

Table 4. Distribution of Tobacco Users in India


Beedis

Users (mn)

% to Total

Beedis

125

50

Chewing

77

31

Cigarettes

88

19

Table 5. Annual Consumption of Cigarettes and Bidis by Adults


Period

Annual Average Number Consumed


Per Adult (aged 15+)
Cigarettes

Bidis

Total

197072

170

840

1010

198082

180

1130

1310

199092

150

1220

1370

199698

170

1350

1520

Sources: WHO, 2000; ERC Statistics International, 1998.

00083.indd 241

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Table 6. Latest Schemes for Retailers


Incentive

5 bundles

1 steel glass

25 bundles

5 gm silver

100 bundles

1 ask

Table 7. Advertising Media Tariffs for Television, Radio and Newspaper


1. Advertising rate for local language television
Cat - I
Cat - II
Spot buys
Rs.14,500
Rs.12,500
(10 sec)
Category is based on time and program

Cat - III

Cat - IV

Cat - V

Cat - VI

Rs.9,500

Rs.6,500

Rs.4,500

Rs.3,000

Source: www.eenaduinfo.com

2. Advertising rate for local language radio station:


Spot buy rates for 10 seconds (in rupees)
Group of
Stations
II

Programme
Category 1
400

Programme
Category 2
250

Programme
Category 3
180

Source: www.eenaduinfo.com

3. Advertising rates for local language newspaper


Basic rate for Khammam District for 1 sq cm is Rs.34

Table 8. Distribution of Income in Suajathanagar Village


S. No.

00083.indd 242

Beedi Sale Volume

Monthly Income Range (Rs)

Percentage of
Population (%)

> 10,000

0.5

5,000 to 10,000

0.5

2,000 to 5,000

1,000 to 2,000

30

Below 1000

60

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SAINAND BEEDIS 243

Chart 1. A Packet of Beedis

00083.indd 243

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244

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Annex 1. Mandals of Khammam District

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Annex 1. (Continued)

00083.indd 245

Mandal Mandal

Mandal Mandal

Mandal Mandal

Code

Name

Code

Name

Code

Name

WAZEED

16

PALAWANCHA

32

KALLURU

VENKATAPURAM 17

KOTHAGUDEM

33

THALLADA

CHERLA

18

TEKULAPALLE

34

ENKURU

PINAPAKA

19

YELLANDU

35

KONIJERLA

GUNDALA

20

SINGARENI

36

KHAMMAM URBAN

MANUGURU

21

BAYYARAM

37

KHAMMAM RURAL

ASWAPURAM

22

GARLA

38

THIRUMALAYAPALEM

DUMMUGUDEM

23

KAMEPALLE

39

KUSUMANCHI

BHADRACHALAM 24

JULURPAD

40

NELAKONDAPALLE

10

KUNAVARAM

25

CHANDRUGONDA 41

MUDIGONDA

11

CHINTUR

26

MULAKALAPALLE 42

CHINTHAKANI

VARARAMACHAN 27

ASWARAOPETA

43

WYRA

DRAPURAM

28

DAMMAPETA

44

BONAKAL

13

VELAIRPAD

29

SATHUPALLE

45

MADHIRA

14

KUKUNOOR

30

VEMSOOR

46

YERRUPALEM

15

BURGAMPADU

31

PENUBALLI

12

Source: Government of Andhra Pradesh,


http://www.aponline.gov.in/Quick%20links/apfactle/info%20on%20districts/khammam.html

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Annex 2. Cost Index for beedis

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Item

00083.indd 246

Percentage of Sales

Normal Size

King Size

1. Labour

45.16

39.79

2. Leaf

16.29

19.93

3. Tobacco

9.00

10.37

4. Paper (packing)

4.52

4.78

5. Labour (packing)

0.91

0.80

6. Other material costs

1.58

1.48

Sub-total

77.46

77.15

7. Ring (sticker)

3.56

77.46

80.71

Total

There are certain other taxes that are variable and also
overhead expenses. Though the prot varies with volume
it is approximately 7% on sales for the current volume.
This does not include additional expenses on promotion
that varies from year to year depending on the competitive
situation. The time spent by household members and
Sainandish is also not included in the cost.

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Annex 3. Sales for Mangalore Ganesh Beedis

00083.indd 247

Year

Approximate Sales
(Beedies in billions)

198990

28.1

199091

28.5

199192

27.6

199293

27.7

199394

28.0

199495

25.6

199596

25.7

199697

25.4

199798

24.4

199899

23.6

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