The KRBL management.
You cannot build a brand on imagery or product alone. both go hand in hand. one without the other is incomplete as far as building a good brand goes. creating a brand with a poor product and only the ads and messaging around it will never find any takers. on the other hand having great product without anyone
Blind tests are good tools, but unless every consumer is being taken thru it and as a result realizing that there isn’t a discernible diff in the product, the conclusion you have drawn will probably not be true.
A blind taste test is often used as a tool for companies to compare their brand to another brand, not necessarily to send a message to consumers.
A couple of years ago we were doing a series of blind tests for pidilite amongst Carpenters. Carpenters were asked to use 7 adhesives one of which was fevicol and ofc they didnt know which is which. The sample size was 150. Of the 150, 141 were able to identify fevicol correctly. There were no other imagery cues just plain use experience. Some of them didnt even have to use it, they just eyeballed it. Thats a strong brand advantage to have.
Users of krbl branded basmati rice should be able to identify it after using it from amongst other ones because of many things krbl does like ageing it properly.
While not a blind test the following test report gives good insights on the quality attributes of the several brands tested, i am guessing sometime in March 2016 post GI tag approval for basmati. One can clearly see that India Gate while good is not the best. There are other rice brands that score above India Gate and are priced lower. The Sensory Panel results are also interesting.
It largely depends on what a brand stands for. Me and a group of other fellow investors were having a discussion around Maruti a few days back brainstorming on what makes Maruti retain its leadership year after year. It evolved into an open ended discussion and we could not conclude on anything except we all agreed that we need to find out if the brand Maruti represents superior cars or is it all the other attributes ( trust, reliability, availability, etc ). I would wager that its the latter. Now, lets see if we could have a blind test for cars. Obviously since the car’s external looks would give it away, what if we had someone like Renault build a replica of any one of Maruti’s models and have Maruti customers drive both vehicles. I would guess that most customers would just take a blind shot.
Even as far as Fevicol is concerned, i dont think its impossible to develop an adhesive that would be as good as Fevicol or even superior to it. What may be incredibly difficult to do is to build the trust in the minds of the customer. We did have Blue Coat a few years back that was considered to be superior to Fevicol but then Pidilite just bought it out.
The point being - if the brand or the competitive edge is just the technicalities of the product ( taste in the case of food products ), its not that difficult for a competitor to take away that edge. But if the brand represents a whole lot of other attributes, it then gets incredibly difficult for new entrants to dislodge the incumbent.
I agree with you. There is one more this per my Unserstanding in a commodity like rice biggest challenge is to give consistent quality. And I believe KRBL has mastered it.
Thanks for bringing up the idea of blind test. I feel the sample size needs to be big enough to conclude anything there and also each of these brands have multiple product lines at different price points - so am not sure if it would work for basmati rice. Until then we have to go with the unscientific sample of one - the anecdotal evidence.
Also, I went through the pdf you had attached for basmati rice and some things piqued by curiosity - What if the test was sponsored? There wasn’t anything to say it wasn’t, so I assumed that it was and looked up who it benefitted the most - Patanjali which was listed as “Value for money”.
Was there a test like this done before Patanjali burst into the scene? I couldn’t find any. So I tried to invert - Are there other products for which the same company has done tests that involved Patanjali? And then I found these.
Groundnut oil report
In both, I found this.
Interesting how Patanjali always ends up in the “Value for Money” bracket. These are what I found with minimal digging and that was enough for me to personally discredit the report. Maybe Patanjali is indeed value for money but somehow its hard for me to believe.
I may have different opinions concerning KRBL’s valuation. However, I must say that I’m mighty impressed by Mr. Mittal’s interview posted by a fellow member.
His values, principles are laudatory.
Indeed, an inspiring success story for India’s youth. His approach of simple living and high thinking, his humility inspires confidence that KRBL is led by fine people.
I think the best feedback is from our own home kitchen.
We eat biryani every week and try different brands Indiagate, dawat, kohinoor and others.
After reading this thread last few days I asked my wife, did she find any thing special in India Gate brand - Her reply is, there is clear difference in appreance of rice grain it’s longer in indiagate and after cooking their is lot difference in the aroma and of course Taste and also expression on her face. So this is reason I suppose why KRBL-India Gate brand is a leader in its category, and commend higher price and earn superior margins.
I think it’s a brand on its way to reach FMCG Category and then grow higher.
Over the course of the next 3 years mgmt might have to look at other rice based products/products to be a real fmcg brand. Lt foods is already doing this. That is why I see Lt foods as a decent investment opportunity too! They have just launched their rice based snacks via their JV with Kameda Seika.
I’ve been living in Hyderabad for the last 2 years and I’m a native of AP with biryani being my favorite food. I can spot a great biryani when I’m served one. I’ve found the biryani that’s served at our cafe to be the best I’ve ever had in Hyderabad. Trust me, I’ve tried a lot of places in Hyderabad, none of them could better the biryani served at our cafe. FWIH, Our head chef has a great reputation among head chefs at other five star hotels in Hyderabad.
I’ve asked him about the brand of basmati rice he prefers. He said it’s India Gate Classic basmati rice and he doesn’t like to use any other brand. That, I believe, says a lot about the quality of the product.
Discl: Invested in small quantity, views maybe biased
My humble submission-
There’s no dispute on the quality of India Gate Basmati rice. It’s a top grade product. However, the question is how many of us would be willing to pay a significant premium over other brands. It’ll be the willingness of people to pay a premium that’ll drive the earnings.
Very interesting perspective.
Is this strictly based on your experience alone or is there any empirical evidence to back this?
Personally, when it comes to a food product, I prefer going with a reputable brand, not just because it tastes better, but because I expect it to be a much safer product.
For example, I prefer kinley soda to kalimark soda because I believe Kinley would have a better quality control and testing process in place and hence is likely to contain lower amount of pesticides, heavy metals and/or other harmful contaminants, even though they both look, feel and taste the same (it’s just carbonated water afterall)
The test does not use India Gate Classic. Please note that price/quality/taste wise ->
India Gate Classic >> India Gate Dubar >> India Gate Tibar.
You can almost say that India Gate Tibar is everyday Basmati rice. I don’t know if products of competition are also used from similar segment for fair comparison.
I have tried India Gate Classic/Dubar/Tibar, Daawat Classic/Rozzana/Devaaya, Kohinoor, Lal Qila & loose rice bought from farmers (my relatives are in rice business), Hypercity Everyday Basmati, More Store Everyday Basmati. In my very biased view, India Gate beats everything else in respective category on quality/taste front.
The pricing is a different matter altogether. I have never seen any discount on India Gate Classic & very minimal discount (at least compared to competition) on other India Gate products. I see decent discount on Daawat product all the time. At my home, we use India gate Tibaar for everyday use with India Gate Classic once a week for special meals/occasions.
Disc - No investments
What are the names of products for the rice krbl sells abroad? The name india gate will attract more customers because it is simple, conveys rice speciality and removes language barriers. Chicken biryani is the top dish ordered on swigy for last two years. Biryani is having international identity and india gate will greatly benefit from it.
I see a lot of posts on home test results of India Gate Classic. Please bear one more.
I am 33 and I’ve been eating basmati maybe since I was 8. We cook only basmati rice at our home (be it khichdi or biryani ) so its safe to say that I have eaten a lot of branded and unbranded basmati rice.
India Gate Classic (IGC) is the best basmati rice I have had so far! Its quality is consistent all the time. Every penny of premium over other braded or unbranded basmati is totally worth it.
Royal basmati is the worst we have had. We tried Royal about 3 years back when I had no idea that there are basmati public listed businesses named KRBL and LT Foods - so trust me this is truly unbiased feedback. Royal basmati was marked down on the isle and promoted by Walmart back then. Having never tried before, I thought to give it a try, but we were very disappointed. I would not take Royal even if given for free to me.
Difference is like Blue Label versus Red Label (whiskey). Obviously, Blue Label being India Gate Classic.
With such excellent product - KRBL gets tremendous pricing power which is clearly visible in its realization which is much superior than its competitors. Management confirmed in Q3FY16 conf call that price fluctuation in IGC SKU is minimal. So when basmati price is falling, IGC price is going to be firm. This clearly indicates that management is not after volume but margin and value creation.
I see Middle East as quality conscious market (40,000 MT for IGC SKU) and India as super price conscious market (10,000 MT for IGC SKU). India being price conscious market - still KRBL has done tremendously well in last few years as their domestic business has grown many folds. So the numbers show that consumers are liking the brand and are willing to pay the premium. And as more people try IGC - I am sure the stickiness is going to improve even further helping sustain or improve current return ratios. Middle East shall continue to eat the best quality IGC.
IMHO - strong brand, pricing power, competent and honest management, big run-way of growth are signs of a compounder. Future business economics look bright for KRBL!
Disc: views may be biased as KRBL is part of compounder bucket in my portfolio.
I too concur with your views also apart from superior quality over the period of time the person who cooks will build up confidence and familiarity, convenience with certain type of grains each brand produces.
My family uses India gate classic for many years, though they were lot of other options equally good like Daawat, but some stickiness with India gate classic basmati rice still prevails, for which customer may ready to pay some premium price as along as quality stay intact.
I have invested in KRBL since 2013, got out in 2015 with colorful returns, when they were planning to expand into low profit energy business. Initial reason to invest into KRBL was my own reason to stick to consistent quality under the brand for several years, and comfort of valuation (Commodity kind of business valuations) and chances of future transformation in valuation to a FMCG business. It seems the thesis of FMCG valuations transformation is on the cards, by looking at many several knowledgeable investors are interested in KRBL in recent past.
Curious to see how much this plays out and how much it rewards investors now. Reinvested in KRBL in March 2018, increasing allocations based on opportunity.
Its interesting that despite what the report claims on quality, India Gate over many years has garnered majority market share, with no evidence yet that this is decreasing. Most people on this thread also seem to agree that when it comes to quality of basmati, there is no one close to India Gate. Maybe its the ageing of rice, maybe its the quality of the seeds used or the procurement strength that they claim they have. At the very least, we can assume that they have a product which is not clearly inferior to other competing products, but at the same time have built the strong branding/imagery/business strength (moat), which helps them maintain/inc share.
So while, what you say is theoretically true, it is playing out differently for KRBL on the ground.
I should point out (based on my experience working on brands in P&G, including conducting research, and later doing analytics) that blind tests are Blind Product or Packaging or Taste Tests, carried out to know more about product / packaging / taste related benefits that the consumer prefers vs your competing brand / s. In blind product test referred to, branding and packaging are removed and just usage tested. For more your may see this definition by Ipsos, a leading researcher.
Typically BPTs (blind product tests - most common) are used to compare product usage experience of your product with competitors’, to find out what attributes your product scores over competition and where it falls below, in the eyes of the consumer. Practically there will be some attributes where competition will score better; and some where you will. And, typically, in what is called the Overall Rating, both will broadly be similar. By and large true of most FMCG companies / categories. In some categories product attributes make a big difference in choice, like sanitary pads, and in some, little, like aerated drinks where taste or flavor is a personal like. These tests are carried out with the primary objective of knowing what product attributes consumers prefer that goes into deciding their overall rating of the product.This helps sharpen product focus (no need to spend money on attributes which consumer does not want), distinguish vs competition, and decide on product strategy (typically price vs value).
So in light of this, I fail to understand why a blind product test would be done among “most loyal customers” just to see whether they can identify the brand. Most cannot. In fact there is a case study of Pepsi vs Coke where in identified tests people preferred Coke and in blind, they preferred Pepsi. And then when New Coke was launched with “improved taste” it became a disaster. So much so that Coke brought back Old Coke ( New Coke replaced with Old, now called Classic! ). Of course this is a special case. But I can bet with good odds that this is true to a good degree in many FMCG brands. That is, your most loyal customers cannot differentiate your brands vs others in BPTs.
In my opinion, the observations are consistent (that even loyal customers cannot distinguish), but the conclusion is opposite. Even if people realize there is no difference between their brand (identified after BPT) and the other, or in fact is inferior, they will still buy their brand. Also note the other competing product found better is also a brand which also spends ( "extra money they are paying is for imagery and general product narrative "). So the consumer does not think (quite logically) that I will buy A over B because I am paying for imagery. Both A and B spend on imagery. And C who say just gives you exactly the same in a transparent unbranded plastic packet (say loose noodles instead of Maggi packaing) is avoided completely, even though it saves money on imagery / narrative.
I would restate this as “if two products are not vastly different from one another, the one that wins is the one that builds a stronger brand”. A stronger brand is the best deterrent from switching. Once you build a strong brand, all things remaining same (same distribution, direct costs, packing, consistency etc but slightly inferior product) , you get pricing power.
Hi Krishnaraj, thanks for very informative analysis. I am curious to know where the “dollar shave club vs Gillette” fits in your analysis. Investors like Pat Dorsey now believe, the brand strength is no more a moat. People look at the reviews and number of stars in amazon to decide which product to buy. So if a new competitor with same quality of product with lower price comes up, chances for good market share gain are easier than ever. If KRBL’s product is superior, then only it will be able to gain premium. From all the testimonies here it seems KRBL has superior product. It would be wise to check the amazon reviews and stars to confirm our theory.
I would like to share an interesting incident. I never ate IGC. However, so far best rice for me which i ever had was Galaxy. I was simply crazy about its long grain and aroma. Just now I realized that Galaxy is also same breed i.e. 1121. Now, where is the edge of KRBL if both KRBL and Galaxy are selling 1121? I understand it’s in the distribution network. It’s simply not possible to buy Galaxy 1121in Gurgaon. Whereas IGC is easily available. Coming to margin. I bought IGC in T-3 town and I paid 80-100/Kg. Whereas online price is 145/KG.Galaxy on Snapdeal. And again you can see galaxy is not even available online.
All this leave me with one question. Will KRBL be able to protect its moat which is primarily based on sourcing capability? What if there is some other serious player who matches their sourcing methodology and edge. Though I know it’s not easy. I am really struggling to find the answer this the question.