Managing Director @ Cocoguru
CategoriesCoconut Oil
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Coconut oil helps you lose weight. But how?

Coconut oil helps to reduce weight

Normally, consuming oil should make one fat and gain weight, but how is it that using coconut oil helps weight loss? It is true, not a joke. Let us understand how.

Anomaly
Coconut oil is an anomaly among edible oils and nature’s gift to mankind. In science and nature, we know a famous anomaly that is of water. Ice floats in water. Normally, cooling a liquid should bring the molecules closer and make it heavier/denser. But water when cooled beyond 4 C starts expanding and becomes lighter and Ice at below 0 C floats in very water. This anomaly of water has enabled life to sustain under water even in colder regions in winter months. Similarly coconut oil gives you the benefits of oil required by human body and yet doesn’t give the side effects of weight gain.

Oil or Fat?
Lipids can be classified into oils and fats. Coconut Oil though an oil shows several qualities of a fat.

Physical Specifications

Physical ParameterOur Values
Specific Gravity0.915
Refractive Index1.445
ColourTransparent Light Golden Yellow
OdourPleasant roasted coconut

Generalizations don’t hold
Having considered coconut oil as an anomaly, the following generalizations based on transitive logic are not true

  • Saturated fats are bad, Coconut Oil is saturated. Hence coconut oil is bad.
  • Cholesterol clogs arteries and bad for heart. Coconut Oil has cholesterol. Hence coconut oil is bad.
  • Oil intake should be avoided for better health. Hence coconut oil should not be used.

Rather the reverse of it is true for coconut oil.

Digestion
Digestion is essentially about breaking down complex hydro-carbons like carbohydrates, lipids and proteins into basic carbon dioxide and water using oxygen and release energy. Simpler hydrocarbons are easier to digest than complex ones.

Digestion of glucose

Medium Chain Fatty Acids
Majority of coconut oil is easily digestible medium chain fatty acid. Other oils consists of long chain fatty acids and require special enzymes for digestion, they give more strain to pancreas, liver and entire digestive system and they get stored as body fat.
Coconut oil had 50% lauric acid of carbon chain length 12. To compare with alternative edible oils. Olive oil considered healthy is majority oleic acid of length 18. Sunflower oil, a mass consumed oil is majority linoleic acid of length 18.
Practically compare your feelings after eating oil fried food with coconut oil vs sunflower oil to feel the difference. Stomach feels bloated and heavy with sunflower oil but light with coconut oil.

Reasons for weight loss

  • Improved metabolism. So, with lesser quantity of food the desired energy is generated in body
  • Instant energy. Craving for food reduces when energy is supplied
  • Not stored as fat. Fully digested into useful energy and not stored as fat.

For many who live outside the tropical regions, don’t get coconuts, import coconut oil and use it for their health. But those in tropical region where coconuts are available don’t value what they have. Kannada saying “Hittala gida maddalla” literally translates to “The plant growing in the backyard is not medicine”.

Source
Dr. Mercola – http://articles.mercola.com/sites/articles/archive/2010/10/22/coconut-oil-and-saturated-fats-can-make-you-healthy.aspx

CategoriesPricing
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Another Price Increase

Starting today, we will increase our wholesale price premium per litre by another 2 Rs from existing 3 Rs to make it 5 Rs. I owe an explanation to various stake holders like company sales force, distributors, wholesalers, retailers and consumers about the move.

A friend casually asked while talking about each other, is Cocoguru the ‘Apple’ of Coconut Oil? That was 2 years after we started the business and struggling to stay afloat with various operational issues and struggling to find feet in the market. Couldn’t tell a lie and say ‘yes’, shy to say ‘no’ either. Couldn’t give any proper answer, but started imagining how an ‘Apple’ of coconut oil will be. With cut-throat competition and price sensitivity in the market didn’t think it was possible.

Coastal Karnataka market has majorly 2 types of coconut oil suppliers, small millers and re-packers. Small millers have a couple of rotary machines, do job work service and cater to small local area. Re-packers bring coconut oil in tankers, pack in small consumer packs and distribute at competitive prices to all wholesalers and retailers. Each one tries to undercut their price compared to others. There also exists a few age old mills (between 50 to 100 years old) that sell their brand to a small niche market at a premium price. They have no fixed costs like bank loan interests and repayments and salary to professionals. They don’t even have a hunger for growth as they will be battling with succession plans.

In a market like that, for a new comer like us, with large fixed costs, loan repayment pressures, with foot barely set in the market, increasing price is the hardest decision to make. There is a huge risk that traders will alienate us, but consumer demand is what we can cling on. It is a path less travelled, but we are here to make a difference.

Higher price automatically leads to more profits is far from truth here. If short term profit is the motive, reducing price should build volume and compensating lower price by slightly reducing quantity, lowering quality, adulteration and tax evasion gives far better margins. Brands that provide full value of coconut oil to consumers have around 20% premium to mass brands. So, our 2 rs price increase now is just a means to end.

Till now one rupee was increased every 6 months, so as per plan the next increase was due in January. But we are doing it now because of the adverse circumstance we find ourselves now. Despite association being formed in coastal Karnataka, millers are resorting to short-cut routes to earn a sale by undercutting their rates below the agreed base price. Countering to that the price deciders in association have resorted to deep price cutting.

Complaints of manufacturers selling oil at below association base rates prevail. We would like to warn that prices will be dropped further and will be dropped deeply if this trend continues and will be kept lower until all undercutting stops.

Undercutting will never stop, we don’t have deep pockets to survive, we don’t want to compromise on our quality and value to alienate our consumers.

We have been trying to deliver more value to our consumers and will continue to keep the promise which I would like to highlight a few here

    • Sweet taste, aroma – This means purchase of good quality copra whose FFA is less than 0.5%. Such copra costs about 5% higher than ordinary copra with FFA of about 1%.
    • Long life – Once the raw material quality is ensured. Each stage of manufacturing process must be strictly controlled to deliver right product to have long shelf life of 6 months to 12 months
    • Availability – Regular availability of stocks, irrespective of season, market price and demand fluctuations. Also availability in wider geographical region, rural/urban areas, wholesalers/petty shops. This requires maintaining adequate stocks and effective supply chain management and distribution network.
    • Branded – A brand has the responsibility to stand for something and exceed customer satisfaction relentlessly. It should be well known and liked. Demand should be driven by consumers instead of being pushed by traders.
    • Food Safety – Coconut Oil is recognized as a food product and is given the respect it thoroughly deserves. It means maintenance of purity, necessary hygiene and safety standards.

Copra prices change daily and multiple times within a day, but association coconut oil prices are changed weekly. That itself is too short a cycle for a smooth trade along the channel from manufacturer to consumer. That is how commodities are traded not how branded consumer products are distributed. We intend to raise the price sufficiently high so that price comparison stops and when we have full control over our price we like to change prices at a much lesser frequency like monthly or quarterly.

To summarise, the intention of increasing price is not to increase profit but to increase customer value. Thanks everyone for your kind cooperation.

CategoriesCoconut Oil
by 13

Adulteration in Coconut Oil

Recently, 9 coconut oil brands have been banned by food safety department in kerala.

The department has banned oil brands Kera Plus, Green Kerala, Kerala A-one, Kera Super, Kera drops, Blaze, Pulari, Coco sudham and Kallada Priyam from the state on Wednesday, 8 April, reported Asianet News.

Having experience of 3.5 years in this coconut oil market, this is no news, it has been quite rampant. Here are a few relevant points –

  • A famous entrenched brand of Coconut Oil, market leader in Dakshina Kannada and Udupi is adulterated. It is a great case study of how one can build market leadership by satisfying traders than consumers
  • If the brand from Dakshina Kannada has name ending with letter ‘A’ it is definitely adulterated. A market leader will create many followers, who unfortunately have picked up the same bad habbit.
  • Coconut Oil brands from re-packers are more likely to be adulterated than those from oil manufacturers
  • At all India level, a famous brand from east having 5% national market share with tagline “Mera Pyar …” is not pure coconut oil. Legally speaking they have never claimed it is pure coconut oil, but they have not let the consumers know it is not pure either
  • KLF, a major coconut oil manufacturer in a bid to take on adulterated coconut oil with price is introducing blended coconut oil with sunflower oil
  • Oil Millers from Kerala are best friends of coastal karnataka based traders, as they sell coconut oil at lower price and buy copra from them giving a higher price. How is that possible?
  • Consumers have lost faith in coconut oil. Not because coconut oil is bad, but the coconut oil that they get is so bad. Example of how an industry can devalue the product they sell
  • In the midst of all this, genuine oil millers are getting badly affected, traders measure brands only by price. So a forum was started in Kerala to save coconut oil

Palm Kernel Oil
Palm Kernel Oil among oils is the closest to coconut oil in terms of chemical characteristics especially fatty acid saturation level. It blends easily with coconut oil, price is only about 60% that of coconut oil. So, mixing makes perfect sense. As I observed in North Karnataka market especially Belagavi, 90% of oil that is traded as coconut oil is actually palm kernel oil. I met a witty trader who said, “Your coconut oil prices changes with copra prices, but here it doesn’t, it only varies with palm oil prices”. I couldn’t control my laughter. At the time I visited Belagavi, price of so-called coconut oil was lesser than that of its raw material i.e. copra. Their defense is people in villages like to purchase hair oil at cheaper price, after all it is still a vegetable product.

Chips/Paring Oil
While manufacturing Desiccated Coconut Powder, the black skin in coconut is removed and only kernel is powdered and dried to make final product. This skin is a byproduct. It is dried and sold at about 65% of cost of copra. Like copra it is also rich in oil content. But the quality of oil is inferior to that from copra. Most manufacturers mix these chips with copra for oil extraction. Sophisticated manufacturers extract oil separately, refine, bleach and deodorize it to remove of excess FFA, dark colour and bad odour. This is later mixed with pure coconut oil or packed as it is. There is a large such unit in Tiptur that makes “Kasadinda Rasa” as we say in Kannada, turning a waste into a useful thing. Possible defense is it is oil extracted out of coconut and is hence coconut oil. That unit is not to be blamed (legally) as this oil can be used for making soaps. But the re-packers who buy this oil for marketing as edible oil is to be blamed.

The above 2 forms of adulteration can be detected easily by testing for Iodine Value. Iodine Value indicates the degree of saturation in oil, in fact, Iodine Value is equal to the degree of unsaturation in oil. Coconut Oil being highly saturated (92%) has an IV of about 8. All other oils have IV that is much higher. Due to variations is Copra, the allowed range for IV is 7.5 to 10. Paring Oil will have an IV of about 20 and Palm Kernel Oil about 25. So, Coconut Oils tested to have IV of above 10 is definitely adulterated.

Second grade oil
Best copra is white in colour and has a pleasant odour. Rotten copra will be darker and have pungent smell. Due to inferior quality, they are available at a lesser price compared to superior grade. This copra can be mixed with good quality copra during oil extraction. The resulting oil will appear good, but will deteriorate quickly. Copra manufactured from Coconut comes in all grades. Edible grade sells at highest rate and it is separated. Of the remaining, ideally second quality copra should be segregated, but many millers don’t.

This can be detected by just checking the FFA/Acid Value. Lower the acid value better the quality. Good quality oils have FFA of less than 0.7. Allowed is up to 2.0 for edible use.

Refined Coconut Oil
Excess of FFA (Free Fatty Acids) in Coconut Oil can be chemically removing by neutralising with a base, this is called refining. Coconut Oil extracted from second quality copra or that is solvent extracted from coconut oil cake is refined. This refined oil passes all the chemical parameters of food safety, but consumer is deprived of its taste, aroma and quality. We sell our coconut oil cake to a major solvent extractor in Kerala. I just asked him, where do you sell the coconut oil, he said it is finding major demand among re-packers. Re-packers buy inferior quality coconut oil and mix it with refined coconut oil to balance FFA. Surprisingly refined coconut oil is cheaper than just filtered coconut oil.

Use of refined coconut oil can be detected by again checking for FFA. Even the best quality coconut oil will have FFA not less than 0.4. Refining brings FFA down to 0 also. So, if the FFA is abnormally low, it means it has refined coconut oil.

I have leant these things recently, as I was forced to think and find out how other brands are able to sell their coconut oil at a lesser rate. Initially, I used to think

  • They are getting copra at a lesser price
  • Their manufacturing and overhead expenses are lesser
  • Their oil yield might be better
  • They know how to time the market and buy copra when it is at lower price
  • They are satisfied with lower margins
  • They are just doing it for the sake of brand building

But now I understand the various malpractices that are in vogue. I will write a detailed post later about other malpractices.

CategoriesManagement
by 0

80:20 Principle and its application

A business friend gave me a book “The 80:20 Manager“, I didn’t read it for 6 months thinking it is just another self-help book that is good to read but tends to be forgotten after a week. But this was something that was inline with my established beliefs and it was not hard to follow. It rather, gave me confidence to implement what I believed.

In essence, book is about Pareto Principle applied to management. 20% of selected inputs leads to 80% of outputs. For business, 20% of customers can give 80% business and profits.

Since starting 3 years back, business has been journeying in various ways. Here are a few ways in which we got back our focus in the last 3 months.

Other edible oils trading
With coconut oil getting dearer, consumers were shifting from coconut oil to other edible oils. So, our business within existing market was getting reduced. Demand was shifting from bigger SKU like 1 Litre pouch to say 500 ml pouch. So, we had started trading in other edible oils like Refined Palmolein Oil, Refined Sunflower Oil and Lamp Oil. With this, we could

  1. Provide our existing Coconut Oil customers i.e. Retailers with full range of edible oils, so that they could source more from a reliable vendor
  2. Get more income from same customer at same distribution expense and more sales turnover
  3. Use vehicle load fully, keep better tab of fluctuations in other edible oils

But with it,

    1. The focus started shifting away from our core business of manufacturing and marketing coconut oil.
    2. Adequate service could not be given to our customers because of supply disruptions from our vendors.
    3. Lot of works were to be done in transportation, unloading, loading, accounting, leakage processing, payment, selling in credit, managing working capital etc.

What seems like busy work and turnover was actually not contributing towards building Cocoguru brand or increasing bottom-line. So, we just stopped them altogether. That provided a lot of relief and we closed Sullia godown, released a rented vehicle and saved on a few resources.

Distribution
Wholesalers/Retailers were given supply of coconut oil through our Sales Van. For this we had to arm the vehicle with a driver and salesman. To account for those transactions an accountant was required, an officer was required to manage the delivery team. These are unrewarding work for a manufacturer, but had to be done initially to sell our products. The cost was very high, 40% of our company expenditure was going towards sales and distribution. We had 5 delivery vans to supply all over Dakshina Kannada district.

I always had a dream to stop doing line-sales ourselves and get distributors to do it for us. But distributors will take it up only when the brand is popular and they are confident of selling it. The margins should also be sufficient to sustain their business by only selling coconut oil.

The tough decision of increasing our selling price has made it possible and very soon. We left out less productive sales people, made enthusiastic sales people as distributors, gave away our existing vehicles to them at a reasonable price. With this we could leave out about 12 people from our payroll, stop renting 2 vehicles, sell 2 of our own vehicles, save the work of 2 accountants, Logistics officer and Top Management. Expenses are very less and under control, selling price is predictable. When the distributors have to sell to earn for their living their performance is even better and sales improved.

Leave Customers
With the eagerness to sell more and acquire as many customers as possible, we tend to serve any customer at any cost. But some customers are not worth our attention. Some need discounts, need credit, need pampering, are difficult to supply, need a different quality, put restrictions on us and still never get satisfied. Bolding leaving them out is a win-win situation for both the customer and us. We can cater to profitable customers better, others can get their desired service from a competitor. For every customer lost, there are a couple of them to be gained.

Piece Work/Contract Labour
If we believe in Theory X, labourers are lazy, they tend to take away maximum wages for minimum work. While employers looks to get maximum work for minimum wages. Mostly the labourers have their say. It is cumbersome for supervisors to get maximum work with quality from them always.
So, to align their work output with their income, we have made a piece work system, where they get paid only for the units of work done and not on attendance. This is system is fair for all workers, they are not paid on seniority, experience or any prejudice, only on output they produce.
In any annual appraisal discussion their only focus is on the revised salary, without any regard to their past performance or skills to be developed, responsibility to be assumed in future. For such people giving instant reward is the way to go.

After doing this their performance have increased multiple folds. Example, for a 5 member team segregating 6 tons of copra a day was very difficult, now 3 members are doing it very comfortably and with better quality.
For bulk quantity loading and unloading, in house labourers weren’t willing to do, so external labours had to be called. Now for 10 paise per kg, they are willing to do.
In packing section, where 9 people couldn’t finish all packing jobs, now after leaving 3 people, the 6 people are having enough time to go for other jobs.

Overall we could leave about 8 less performing people and better performing people are getting handsomely paid. Form 30 labourers we have brought down the count to about 20, work is getting done faster and better, existing labourers are fully engaged and satisfied.

With all these steps, the amount of administration work has come down drastically. Again couple of people who have become redundant were left out. With this lean an organization, it is possible to even double the business without having to add any headcount. Any decline in business can also be managed with minimum overheads. With operations focused and streamlined, way forward is to grow sales through advertising and appointing distributors to cover more area. From accumulating losses for 2 years and not knowing way forward this is a very pleasant situation to be in.

CategoriesPricing
by 2

Price Increase

We market Coconut Oil all over Dakshina Kannada district for edible use. In order to prevent unhealthy competition that erodes everyones profits, an association is formed among all oil millers. Minimum Price is being set weekly and all oil millers are expected to follow it in selling price of respective brands. Cocoguru started off with its price at 1 Re premium when association started 2 months back. Now we will increase the premium by 1 more Rupee and there by setting a premium of 2 rupees on a product that is valued at about 150. The following are our thoughts behind the price increase
  • Increase Brand Value – Brand Value is measured as Price Premium x Increase in sales because of use of brand name compared to an unbranded one. We invest in increasing our brand value and then look to encash it.
  • Signal of Quality – It is otherwise very difficult to communicate value of our product w.r.t. that of competition. One of the easiest and sure shot way is to increase price. While comparing 2 shirts that are seemingly similar, we tend to think that shirt that is higher priced as one that is better. Food served in a star hotel is supposed to be better than one served in an ordinary hotel because one gets a higher bill there.
  • Reason for Purchase/Sale – People should buy our product because they want it and badly want it, not because it is available at a lesser price.
  • Increase Responsibility – By price increase, in order to maintain and increase sales, one must back it up by improving the quality, service, marketing, be consistent and responsible. This will again be good for the brand.
  • Satisfaction – Company employees, suppliers, salesforce, distributors, retailers and consumers all feel very satisfied, have prestige in being associated with the brand.
  • Insulate from competitor moves – Lower priced brands are always under threat from new entrants and competitive price moves. Whereas premium brands are harder to topple by competitors. Competitors must work very hard to build their brand in order to acquire our customers.
  • Prevent Bargains – When our selling point is lower price, customer always tend to bargain. Transaction then happens only when we yield to the bargain. If we yield to those who bargain, then the one who doesn’t bargain suffers, eventually he too starts bargaining. For a routine FMCG sale, bargaining with the same customer every week is not a smooth way to deal.
  • Futile Price Wars – Price as a competitive advantage is never permanent and not worthy. We can gain a temporary sale by selling at a lower price. But competitor will immediately react by selling his at an even lower price. This will end in a price war with no winners but all badly wounded losers.
Going forward we like to increase the price gap and eventually not lend Cocoguru to price comparision with another brand. Every aspect of our business is undergoing continuous improvement, price will also undergo improvement accordingly.