The Real Extract

Introduction

When Dabur forayed into fruit beverages, little did it realize that it was creating India’s number
one fruit juice brand, Real. With a whopping 58% market share, Real today’s the
Indian market leader. Real’s value proposition to consumers, is a 100% preservative
free fruit juice, offering great taste and nutrition of freshly squeezed juice, all retained
in a hygienic packaging.

The success continues, with Dabur reporting 29% growth in Real Fruit juices as of
December 31st 2010, contributing significantly to the 18.5% growth in its EBITDA.
Much of this success is attributed to operational practices employed at Dabur’s Foods
business, which brings the Real fruit juice to the market.

Operations

From the fruit orchard to the Tetrapack™ pack of juice, the fruit passes thru two stages of
transformation. The raw fruit is first sourced from various sources around the world. As shown in
the figure below, the production process for manufacturing fruit juice, involves first transforming
the fruit into concentrates and then reconstituting the concentrate into juice.

Because of the nature of the raw material i.e. fruits, the business cycle is typically bound by the
fruit harvest cycle. Further, the best quality fruits are available
in specific geographies, which offer the most conducive
environmental condition for their growth. By transforming
fruits into concentrates, beverages companies like Dabur,
Fruit Concentrate Juice reduce their dependency on the harvest cycle and decouple
themselves from the associated risks. Concentrates are produced by the removal of water from
the fruit juice, which ensures higher shelf life of the concentrate. Moreover, the concentrates
typically don’t require cold storages for storing and also offer the added benefit of a reduction in
weight and volume for transportation.

Typically, the concentrate production facilities are located where fruits can be easily sourced, be it
in terms of geographic availability or in terms of lower transportation (fruits being perishable). This
is what made Dabur grab the opportunity provided by West Bengal government in 2003.

Up until then, Dabur was focused on building a strong beverage brand, Real. For this purpose,
Dabur had diversified at its existing facility at Nepal, to produce and package fruit juices. Nepal’s
favourable duty structure, allowed Dabur to easily source concentrates into this facility. Add to it
the special bilateral trade treaty with India that allowed duty free imports and the availability of
cheap labour, ensured that blend was right for Dabur to aggressively launch Real into the Indian
market.

When West Bengal government identified food processing as a major growth area, Dabur
decided to set up a concentrate production facility at Siliguri. Silguri located at North Bengal, is
strategically located with easy access to the North East and Bihar. It is also located in a major
fruit-growing and trading area, especially for fruits used in the assortment of juice choices offered
by Real. For this concentrate facility, Dabur sources pineapples from West Bengal & North-east,
litchis from Bihar and guavas from UP. Being close to its production facilities in Nepal, the entire
output of pulp and concentrates from the Siliguri facility is absorbed by Dabur Nepal. Further,
Siliguri also offered Dabur the possibility to sell its concentrates in the world market, using the
nearby Kolkatta port. With its Siliguri facility, Dabur plans to reduce its raw material costs by 10%
by changing the mix from imports to local sourcing.

Having gone in for backward integration with its facility at Siliguri, Dabur embarked upon setting
up a packaging facility, similar to that in Nepal, at Newai, Rajasthan. Rajasthan, being part of the
“Golden Quadrilateral” highway project, offered exceptional advantages with a well established
transportation network. This allows Dabur to not only consolidate, but also expand its already
significant market share in North India. It also reduces Dabur’s dependency on its earlier single
packaging facility at Nepal.

Discussion Questions:

1. What are challenges faced in the manufacturing fruit beverages?

2. What are the advantages an own concentrate production facility, offers to fruit beverages
manufacturers?
3. What were the locational considerations involved in the choice of Siliguri?
4. What are the advantages of setting up a packaging facility in Rajasthan?
5. What would be your recommendation for Dabur’s operational strategy as it embarks on
an ambitious plan to take Real from Rs. 500 crore to Rs. 700 crore in 3 years?