Loose wholesale or branded pouches for an eight-member papad group
Kanchan leads an eight-member women's self-help group in Jodhpur making urad dal papad. The group can produce up to 600 kg a month but currently sells only 200 kg loose, in 5 kg bags, to a local wholesaler at ₹95 per kg. Costing per kg: urad dal 0.5 kg at ₹110/kg; spices, salt, papad khar and oil ₹5; loose packing ₹2; piece-rate wages to members ₹12 - variable cost ₹74 per kg. Fixed monthly costs are rent ₹3,000, part-time supervisor ₹4,500, electricity and sundries ₹1,000 and licence/testing ₹500, i.e. ₹9,000. Kanchan has two offers. A wholesaler from Udaipur will take 500 kg a month at ₹80/kg on 45-day credit. Separately, a supermarket chain will stock 200 g printed pouches at an MRP of ₹50, allowing the retailer 20% of MRP and taking a 10% margin on its own selling price; printed pouches cost ₹2.50 each. Working capital does not allow full volume in both channels.
1. Calculate contribution per kg for the loose channel and per pack and per kg for the pouch channel, the break-even volume for each, and recommend a channel.
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Loose channel: ₹95 − ₹74 = ₹21/kg contribution. Break-even = 9,000 / 21 = 428.6 kg/month. At the present 200 kg the group loses ₹4,800 a month; at full 600 kg it earns 600 × 21 − 9,000 = ₹3,600.
Pouch channel:
- Retailer buys at 50 − (20% of 50 = 10) = ₹40.
- Distributor sells at ₹40 and takes 10% on his selling price, so buys at 40 / 1.10 = ₹36.36 net realisation per pack.
- Variable cost per pack = (0.2 × 74) + 2.50 = 14.80 + 2.50 = ₹17.30.
- Contribution = 36.36 − 17.30 = ₹19.06 per pack, i.e. ₹95.30 per kg (36.36 × 5 = ₹181.80 realisation per kg).
Break-even: 9,000 / 19.06 = 472 packs = 94.4 kg/month - well within capacity. At 600 kg (3,000 packs) profit = 3,000 × 19.06 − 9,000 = ₹48,180.
Recommendation: move to branded pouches. It breaks even at a sixth of capacity and earns about 13 times the profit of the loose channel at full capacity. Keep the local wholesaler only as a fallback for off-spec or surplus stock.
2. Evaluate the Udaipur offer of 500 kg at ₹80/kg on 45-day credit. Show whether it helps, and state the conditions under which it could be accepted.
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Contribution: ₹80 − ₹74 = ₹6/kg; on 500 kg that is ₹3,000, against fixed costs of ₹9,000. As a stand-alone business it produces a loss of ₹6,000 a month - the price does not even cover the group's overheads, only its variable costs.
But contribution analysis works at the margin: if the branded channel is already running at a level that covers the ₹9,000 fixed cost, the Udaipur order becomes worthwhile. Example: 100 kg branded gives 100 × 95.30 = ₹9,530 contribution; adding the Udaipur order gives 9,530 + 3,000 = ₹12,530, a profit of ₹3,530. So the order should be accepted as fill-in volume only, never as the main channel, and never at the cost of displacing a pouch order.
Hard conditions before accepting:
- Capacity check: 500 + existing branded volume must stay within 600 kg, or wages and drying space must be expanded.
- 45-day credit on ₹40,000 ties up working capital; ask for 20–25% advance or a shorter cycle, otherwise the group may miss wage payments.
- Written order, quality specification and rejection clause; the buyer must not resell under his own brand using the group's identity.
- The group must still hold FSSAI licence and follow GMP, even for loose 5 kg bags.
Verdict: sign only after branded sales cover fixed costs, and renegotiate to ₹84–86/kg.
3. Kanchan wants the first printed pouch on the shelf within six weeks. What must be done before dispatch, and what would you negotiate with the supermarket?
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Regulatory and quality steps before the first pouch leaves:
- Confirm the FSSAI State licence covers the papad category at the group's premises; get the licence number approved for label printing.
- Finalise the label with all mandatory declarations: product name, ingredient list, nutritional information per 100 g, net quantity 200 g, FSSAI logo and licence number, green vegetarian logo, batch number, date of packing, best-before (papad typically 4–6 months - support with a storage trial), storage instructions ('store in a cool, dry place'), MRP inclusive of all taxes, and contact details.
- Get a NABL laboratory report for moisture, total plate count, yeast and mould, and coliforms on a pilot batch, plus a water activity and moisture specification for release.
- Train the members in GHP: head cover, aprons, hand washing, pest control, separate drying and packing areas; keep medical fitness certificates.
- Standardise the pack: correct weight control, seal integrity test, and a batch code that allows traceability.
- Register for GST and open a bank account in the group's name for the supermarket payments.
To negotiate with the supermarket: a written rate contract, payment terms of 15–30 days (not 60), sale-or-return only for damaged packs, shelf position and a trial period, and a clear clause on who bears the cost of expired stock. Ask for an initial order of three months' volume rather than a one-off, so the group can plan dal purchases.