Chitale Group’s success comes from a healthy mix of technology and tradition

What Moti Mahal is to Delhi or KC Das is to Kolkata, Chitale Bandhu Mithaiwale is to Pune. No trip to these cities is complete without a visit for chole to Moti Mahal, buying jars of roshogullas from KC Das or stocking up on bakarwadi from Chitale. The eight-decade old homegrown company embraced the Gujarati sweet and customised it for Maharashtra (by deep frying it and adding spices). While outsiders may only know Chitale Bandhu for its bakarwadi and other namkeens, for the locals, it is a brand that defines quality through its shrikhand, curd, cheese, sweet mix packets or any other dairy items. In fact, the company started as a humble milk distribution service 81 years ago in Bhilawadi, Maharashtra, took its business to Pune in 1942 and started making khoya and other milk-based Indian products in 1950.

“The day you want to add water to milk, you should stop doing the business,” was the founding tenet laid down by Chitale Group founder Raghunath Rao. To this day, the fourth generation of the family abides by this value, says current partner of the group, Indraneel Chitale. For instance, in the 1970s, when Chitale’s father and uncle suggested setting up a milk bar to sell value-added milk drinks like lassi and chaas, his grandfather cautioned them that the minute they moved away from traditional products, there would be high chance of dilution of brand value. Besides keeping with tradition, the company has also matched step with technology. From being the first ones in the country to sell milk in packaged pouches when everyone else was selling it in glass bottles, the group was also quick in automating its entire manufacturing process by 1994.

By straddling tradition and modernity effectively, the small milk distribution company has become a Rs.12 billion (excluding Chitale Digital) established regional player with presence in five more states such as Karnataka, Gujarat, Madhya Pradesh, Goa and Andhra Pradesh. It also exports to the Middle East, North America, Europe and Singapore. 60% of its revenue still comes from its core milk business and 40% comes from finished goods, but now the company is transitioning. It is working on building a more profitable model by inching away from milk and towards finished or packaged goods. “Our current Ebitda margin is around 15-20%. We enjoy a better Ebitda when it comes to our finished goods products - sweets and namkeens (20%)... margin for liquid milk is in single digits,” Chitale says.

The brand is sold through one original store on Bajirao Road in Pune, 25 franchise stores and nine express stores (which only sell packaged, no fresh goods). It also operates through 30 super stockists and 450 distributors who send their products to 125,000 stores.

Before the lockdown, their stores and franchisees earned Rs.700,000 per day with the express stores bringing in Rs.30,000-40,000. That has been hit due to the pandemic and they are currently generating 75% of the earning capacity. But, Chitale says that the lockdown also boosted demand for their packaged products, including sweets, by 10x. Besides bakarwadi, their other popular products include shrikhand, mango barfi, kaju katli and gulab jamun mix but they are also seeing rising demand for ketchup, paneer and cheese.

In a segment that is highly unorganised and also has players such as Amul, Chitale says they have remained relevant in their markets due to their ability to adopt technology. “We are still a regional player and not a national player like Amul and Haldiram’s. But, we compete with them in the local market,” he says.

The Indian snack market (both sweet and savoury snacks) is estimated to grow at 33% CAGR by FY23, according to market research consultancy RNCOS, and Chitale Group is confident of playing this growth to their advantage. “We have been investing in technology and modernising our systems from the get-go,” says Chitale.

For instance, to predict its retailers ordering patterns and stock replenishment, its digital arm has built an app which can track everything from procurement to the final product purchase by a retailer in any region. “What we have seen is that distributors push for products that sell fast. The app also alerts the distributors if they miss out on adding a regular product. It studies retailers’ history with our products and that also helps us decide how much to produce,” explains Chitale. Similarly, the company also orders raw materials in line with the requirements of distributors. This has helped them streamline their distribution and turnaround process besides reducing wastage since fewer products now expire before sale. Chitale claims that their wastage cost is about 0.8% of the total, whereas for most other snack companies that mass produce, that cost comes to about 5-6%.

The same level of efficiency translates to its packaging and processing. Like when they imported machines from Sweden to automate their peda-making process. “Even though it was a great machine, it didn’t get the perfect shape,” recalls Chitale. The pedas came out of the machine looking too perfectly circular, therefore looking machine-made, when people prefer the more uneven, handmade look. So they imported a new machine from Japan. Similarly, when they started making bakarvadi in 1970s, they were making it by hand. In 1994, when they wanted to automate, they could not get the right machinery. Sanjay Chitale, managing partner of the group, says it took them four years and multiple trips to Netherlands to customise the machine. The group was also the first in the country to use RFID technology to track its herd and automate the process of khoya production.

Beyond home ground
Now, the management wants to emulate this strategy on a larger scale. Chitale says looking at new locations is a natural step for the group. “We are planning to set up more capacity in the next year to cater to demand and aim to reach around 11-12 states by 2022,” he adds. These regions include the North and the East. That’s just the visibility for the next two years; they have a long-term plan to expand even further. But, analysts feel it will be an uphill task if Chitale also plans to expand its milk presence. “Local companies will have to play to their strengths whether for securing superior raw milk supplies or at retail level with healthy diversified value-add product mix in the portfolio in order to stand out,” says Shiva Mudgil, senior industry analyst at Rabobank.To allay those concerns, Chitale adds they are developing distribution chains in more states and not building new manufacturing centres. Hence, they will stick with expansion in packaged foods and avoid liquid milk. “Our marketing and communication has been very ‘Maharashtrian’ as a brand. The challenge now is to make products that are more mainstream and nationally accepted,” he opines.

Sanjay Tripathy, co-founder and CEO, Agilio Labs believes Chitale can achieve brand recognition if they cite local dominance and address Maharashtrians all over the country. “They should also evaluate the gaps in the market and launch products accordingly in different markets rather than one-strategy-fits-all,” he explains and adds that the company should account for a sizeable marketing budget and distribution incentive for recognition.

To make its products nationally accepted, Chitale’s R&D team is working on getting the taste right, one that goes beyond just a particular region. Pinakiranjan Mishra, partner and leader - consumer and retail goods, EY says that could make or break a brand, especially in a market as diverse as India. “In the case of most packaged goods — whether chips or juices — most often a few SKUs contribute to the majority of the business,” he says. To build a hit brand, the company will have to find a product that works across the board. Chitale shares that they have been working on this for the past two years and are looking to offer a mix of traditional trademark products along with a few generic ones. “The first thing we have to do is make it “reach” there. Once there is some sort of brand affinity amongst customers, they will buy more products from the range,” he says.

In order to better its reach, the company has also been boosting its online presence. Its website offers its catalogue of milk products, instant mix, sweets, namkeen and pulp and spreads, which can be ordered in the regions they are present in. These online products with a long shelf life rake in about Rs.400,000 per day. Chitale hopes to bring this figure on par with store sales of Rs.700,000 per day. They are also building a warehouse in Mumbai, which will expedite this target and also reduce delivery time.

The engineering graduate believes their ambition is not unrealistic as the family runs a tight ship. “As we (fourth gen) have all worked at different places, we are able to bring in different ideas and suggestions to widen the bandwidth of the company,” says Chitale. Everyone in the company has a clear role. He explains it as a “chain-link where everyone’s work is dependent on the other”. This, he says, helps each member prioritise the development of the company instead of focusing on “finding one’s place in the organisational structure”. Despite different perspectives, they are confident that they will continue to honour the traditions on which the company was founded.

With a few technological tweaks and new marketing strategies, the Pune-based player is planning to reach new heights.