Everyone's invited

This must be one of the few companies on which unsuccessful political pressure was brought upon to obtain a franchisee. If that sounds like a tall claim, how about this: special-occasion customers in Mysore, Bengaluru, Erode and Coimbatore who happily spend twice as much on transport than the cost of the product. In their years of growing the business, the father-son duo of Prabhakar and Mukund Kamath has seen it all.

Customers with sharper taste-buds than theirs, those who have offered them new flavour ideas and others who have insisted on a takeaway all the way to Mumbai. Though Mangalore-based Ideal is synonymous with serving sumptuously gratifying quantities of ice cream at an affordable price, its entry into the business was more by providence than by design.

Having lost his parents by the age of 20, Prabhakar was determined to make it big in life. The eldest of four children, he decided to carry forward his father’s business of selling tailoring material and firecrackers, called Ideal Traders. While it did make him good money, the seasonal nature of the firecrackers business rankled Prabhakar. That’s when he heard that a local ice cream manufacturer was appointing dealers.

Driven by the thought that selling ice cream would help him at least meet the wages of workers hired for the firecracker shop, Prabhakar through a friend got in touch with the manufacturer, whose precondition was that Ideal should have a deep freezer. Unfortunately, the deal fell through when the manufacturer realised that Kamath’s shop on Market Road was close to its own retail outlet! So in January 1975, Kamath was stuck with a freezer that he had purchased from his savings reserved for building a house — a princely sum of Rs.25,000.

The big churn

That’s when his friend gave him a pep talk: “What’s the big deal about ice cream? Why not make your own ice cream?” Prabhakar took that to heart, bought a churner and started making five to six litres of ice cream everyday and gave it to neighbours and friends for tasting and feedback. After experimenting for nearly four months, he was satisfied and opened a shop on May 1, 1975.  “Had I not invested the money to buy a freezer, I would not have been in this business. It is destiny,” says the 70-year-old Kamath.

Ideal’s first ice cream outlet did rip-roaring business from day one. So much so that by the fourth year, waiting customers leaned over those seated. That proved disconcerting not just for those relishing the ice cream but to Prabhakar as well. Therefore, Ideal set up another parlour, which has since become the country’s biggest with a seating capacity of 300.

Testimony to Ideal’s irreplaceable taste was the fact that business continued to double even as the new outlet was within walking distance of the first. Its best-selling Gadbad, too, was a runaway success since its launch in 1977. It came about because Kamath’s relative in Chennai told him about Buhari Hotel, which sold an ice cream combination called sundae. There was also a similar offering that Diana Hotel in neighbouring Udipi served, called Gadibidi. Kamath says, “I thought, might as well try it here. The combination clicked and since I could not name it Gadibidi, I settled for Gadbad as most of my customers were medical students from the north.”

Best seller

When Prabhakar’s son, Mukund, joined the business in 1996, Ideal’s entire sales came from parlours. To generate more revenue, he decided to launch new products and move into the retail market. Today, 12 distributors reach out to 500 outlets in the states of Karnataka, Kerala and Goa. Not just that, retail contributes 60% of revenues, while parlours and caterers account for the rest. 

Ideal sells more than 40 varieties of ice cream through its parlours and retail outlets. Since its introduction, Gadbad and its variants have topped the sales chart, with Parfait coming a close second. They both account for close to 60% of parlour sales volume and value, respectively. The third best-selling flavour is Tiramisu, a spur-of-the-moment creation. Mukund recalls an NITK engineering student approaching him for sponsoring a college event and mentioning how bored she was with the chocolate ice cream in their parlour.

As he was already experimenting with an ice cream to be called Irish Coffee, he immediately called his manager and asked him to mix it with a particular combination of nuts, flavour and syrup and serve it to her. Seeing her ebullient response and because it had coffee and chocolate, he further added cake, put it on Ideal’s regular menu and a best seller was born.

Frozen dessert is another category that contributes 3% of Ideal’s sales and is largely aimed at the caterer segment, which doubles up as an ‘R&D’ initiative — a new combination gets served at marriages and instant feedback is sought. One such hit flavour that came about at one of Mukund’s friend’s reception was Tangoberry — a vanilla base combined with strawberry and orange syrup. The new thing that the Ideal team is currently excited about is a flavour called Jackfruit Payasam. 

Secret sauce

Well, all very nice, but how has Ideal managed to stay affordable over the years? Ideal gets cost efficiencies from a number of areas. For starters, it makes its own ice cream and sells in its entirely-owned parlours. Starting with a 16-seater outlet, Ideal today has a seating capacity of more than 1,000 spread across six parlours in Mangalore. More importantly, these parlours run on a 9 AM-to-9 PM schedule.

Even during the rainy season, it operates at 50% occupancy. While all this ensures high volume, the founder’s penchant for affordability and intense competition in the retail segment translates into a consolidated net margin of 8% to 10%.

Nobody comes closer to the parlour volume that Ideal does. In sundaes, Ideal has the arena all to itself and the nearest competitors are Natural and Baskin Robbins, which only sell scoop ice cream. But in retail it competes with biggies like Amul, Kwality Walls and local players such as Hangyo. This is where the going has been tough for all players, given the fragmented nature of the market.

However, the ongoing fallout could power the growth of organised regional players such as Ideal. Owing to rising inputs costs and the extremely competitive nature of the retail market, many marginal manufacturers are shutting shop. Once the shake-out runs its course, not only would the remaining players have more pricing power, they will also end up with a bigger market share.

Ideal, though, has consciously not chased growth. Prabhakar says sustaining quality over multiple franchisees is an uphill battle. “When one expands to 10 or more outlets the quality goes down. By outsourcing production, we could have had 50 franchisees by now, but we were more willing to live with a loss of revenue than a loss of reputation,” elaborates Prabhakar.

But the overwhelming calls from potential franchisees are getting too hard to resist. The management gets at least one call a day from Bengaluru or Mysore inquiring how can they become a franchisee. And there is where Ideal is headed next. Mukund says, “While Bengaluru may have a capacity to absorb six to eight parlours, we will start with two.” Ideal’s first franchisee parlour in Bengaluru will open by May 2013. For FY13, Ideal is expecting a turnover of about Rs.20 crore. It certainly has come a long way from its first year sales of Rs.25,000 and in five years’ time, Mukund Kamath is aiming for Rs.100 crore.

As the management does not want its expansion to come at the cost of a shortfall in supplies to the Mangalore market, it is doubling capacity at its Kottara Chowki plant. The additional 15,000 litres capacity will go onstream by December and after that the company intends to aggressively execute its plan to expand into Bengaluru and Mysore.

In a notoriously perishable and impulse-buy business like ice cream, everything has to come together, right from the quality of the cream used to the back-end cold chain. The quality of ingredients and the machinery used not only influence the final taste and texture, but also determine whether customers will keep coming back for more. There were a few things that Prabhakar was always clear about.

He had a passion for quality and wanted each and every segment of society to come to Ideal’s parlours. If one casts a casual glance at the customers thronging their parlours, you will realise that dream has come true. And now the mantle has been taken over by his son Mukund, who sums up what the owners have been consistently chasing, “Even though the customer may not notice the incremental change, our ice cream undergoes continuous improvisation. Customer satisfaction gives us a bigger kick than profitability.” The founder, though, has the final word. “The only thing that is still the same is that chocolate continues to be my favourite flavour.”