Onjus - Squeezed Out

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Case Details:

Case Code : BSTR011
Case Length : 9 Pages
Period : 1997 - 2001
Organization : Enkay Texofood Ltd
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Food, Beverages and Tobacco

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Onjus is to 100% fruit drinks what Cadbury's is to chocolates and Fevicol to adhesives."

- Jagdeep Kapoor, Managing Director, Samsika Marketing Consultants, Ad agency of ETL.

"Orange juice is the most popular natural drink all over the world. In India, there was no such product, although there was an acceptance of orange juice in the form of concentrates and soft drinks."

- Tulsidas Goyal, Managing Director, ETL.

Introduction

In May 1997, Onjus, a 100% orange juice was launched by Enkay Texofood Ltd. (ETL)¹ in the niche market of fruit juices and virtually created a new product category.

By 1999, Onjus gained a 19% share (Refer Table II) in the tetra-pack fruit beverages market (Refer Exhibits I and II).

However, the success of Onjus seemed to be short lived. In 1999, the Director General of Investigation and Registration (DGIR)² lodged a complaint with the Monopolies and Restrictive Trade Practices Commission (MRTPC),³ against Onjus being sold as a natural fruit juice.

As a result, Onjus was not sold in the market for sometime.

Meanwhile, the competition in the market had heightened with the launch of PepsiCo's Tropicana.

Further, ETL's textile division, which was making losses⁴ (Refer Table I), owed around Rs.870 million to Financial Institutions (FIs) that asked the company to pledge the Onjus and Life⁵ brands against the loans.

To avoid the impending closure of its textile division, ETL channeled the cash flows from the food business into the textile business.

This didn't go down well with the FIs and they decided against investing in the foods business, leading to the shutdown of both the divisions in early 2001.

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1] ETL was involved in two businesses - Textiles and Fruit Processing

2] The DGIR functioned in terms of Section 8 of the MRTP Act, with effect from the 1st August, 1984, for making investigations for the purpose of the Act, for maintaining a register of agreements subject to registration under the Act and also for performing such other functions assigned to DGIR under the act.

3] The MRTP Act was originally framed to prevent concentration of economic power and to prohibit monopolistic and restrictive practices. The Act was amended in 1984, based on the recommendations of the Rajendra Sachar Committee, to provide also for the prohibition of unfair trade practices. The Act was further amended in 1991 virtually making the word 'monopolies' in the nomenclature of the Commission superfluous by de-emphasizing its role in controlling monopolies. The 1991 amendment eliminated the pre-restrictions of seeking government's approval of companies and undertaking with assets of more than Rs.1 billion for setting up new ventures or expansion of existing units. Since then the role of the Commission was confined to deal with complaints against undertakings relating to adoption of monopolistic, restrictive and unfair trade practices. The SVS Raghavan Committee on Competition Policy and Law has recommended enactment of an Indian Competition Act, alongwith the setting up of a Competition Commission of India (CCI), repeal of the MRTP Act, 1969, and the winding up of the MRTP Commission.

4] The textile division was making losses from 1993-94 due to increasing prices of raw materials and excess production of polyester yarn. The excess production was mainly because of the new 100% EOU started in 1996. The new unit, located at Kherdi, a Union Territory of Dadra & Nager Haveli, was set up to cater to the highly quality-conscious markets of North America, Europe and the Middle East.

5] Life was a mango nectar launched in 1998.