Anyone who grew up in the 1990s or had young children during the decade, in all likelihood, will remember Tazos and Boomer tattoos. The little discs with cartoon characters emblazoned on them were a craze with kids, who collected them, traded them, and bought numerous packets of Lay’s chips in pursuit of new Tazos.

Perhaps in a different demographic, something similar is happening today with Yellow Diamond Rings and the little toys that Indore-based Prataap Snacks puts inside its snack packets. Their fidget spinners, playdough, and other toys are an absolute hit today with children who snap up packet after packet of Rings just for the toys.

It is hardly surprising that the snack maker dishes out millions of packets of the salty Rings every year, and packs millions of toys in them every day. The company changes the theme of the 50-paisa, China-made toys every two months. “The entire supply chain has to be overhauled every two months. New packaging, new toys, new commercials, and we have to manage the inventory level of the old and the new,” says Subhashis Basu, the recently hired chief operating officer of the company. “It’s a task that we have mastered, and also created an entry barrier in this segment for new players.”

Prataap Snacks was incorporated in 2009, but it’s already the sixth-largest organised packaged snack maker in India. It makes a host of snacks from Chulbule to Fungroo and Scoops, but close to 40% of its revenue comes from Rings, its most popular brand which sells like hot cakes in small towns and cities. The popularity of its snacks helped the company’s annualised consolidated revenue increase to Rs 1,036.7 crore in 2017-18 from Rs 909.4 crore the previous year. It also propelled the company to No. 340 on Fortune India’s Next 500 from No. 437 last year.

So how does a relatively new company from middle India become a formidable player in the total Rs 55,000 crore packaged snack market, and even give some competition to global behemoths such as Pepsi and ITC? It all began in 2003, when Amit Kumat, an engineer from Madhya Pradesh’s largest and most populous city, after many failed ventures, started selling cheeseballs made in a factory in Lucknow, Uttar Pradesh.

Amit Kumat has his roots in business: His father owns a wholesale cloth shop where he worked after a short stint in the U.S. The cheeseball experiment was Amit Kumat’s second shot at making snacks. The first was when he bought a sick chip factory in Indore and started making chips under the now defunct Hello Chip brand. The business died in a few years, after which he dabbled in various businesses, including a trading website and an SAP training institute. By 1999, all his business ventures had failed, and he was saddled with liabilities.

Prataap Snacks’ factory in Indore.
Prataap Snacks’ factory in Indore.

The idea of going back to the snacks business came when Amit Kumat started Prakash Snacks with his brother, Apoorva Kumat, and his brother’s classmate, Arvind Mehta, with an investment of Rs 15 lakh in 2003-04. Selling cheeseballs made them a tidy profit and revenue of Rs 22 lakh in the first year, which more than quadrupled to Rs 1 crore the following year. They then invested the money in a second-hand, 40-year-old chip line, which people doubted would work at all. “After going through seven-eight businesses, we thought that this is the right business for the country. Western food snacks has been an evolving category for the last 10-15 years, and will grow for another 10- 15 years,” Amit Kumat, managing director and CEO, tells Fortune India, sitting in the company’s headquarters in Indore, also the site of one of their biggest factories.

An unassuming but sharp businessman, Amit Kumat is not your regular suited-booted CEO. But he can definitely rattle off numbers, percentages, and figures about the business, and is very clear where in the industry the company wants to be. He says there was a huge market to be captured in places where companies such as PepsiCo subsidiary Frito-Lay were not looking. “At the bottom of the pyramid, there is a huge population who are going to try the product (packaged snacks) for the first time; they are shifting from the unorganised to the organised market,” he says.

Amit Kumat’s hunch was spot on. And there’s been no turning back since. What’s the secret sauce behind his success? His attention to detail is certainly a big factor. Much like Harun al Rashid, the medieval caliph of Baghdad and a character from One Thousand and One Nights who used to walk in disguise in the night to see to the welfare of his subjects, he too visits his retail outlets once a week to understand exactly how his products are doing. Without the disguise, of course. The company has not started using data analytics yet, but he says it’s the retail outlets he gets most of his information from. “It is the best information you can get anywhere. You might think you are such a big brand, but they will put you in your place. In 10 minutes, you will understand where you stand in the market,” he says.

It is definitely old school in the time of data analytics, but understanding the pulse of the market is, perhaps, what has helped Prataap Snacks grow so fast. It might not be harnessing technology like its bigger counterparts, but the snack maker has always been on point in terms of innovation. “They started with chips, then they entered extruded snacks, and then they entered namkeen, now they are entering new segments with Yum-Pie and nachos. They keep entering new categories, which helps them grow their top line and their margins,” says Archit Varshney, analyst at Ambit Capital. Innovation isn’t restricted to launching new products for Prataap Snacks. Basu says the company also has different pricing for different markets. “We were the only company in India that was offering different grammage (grams per packet) in different areas. We were offering a 16-gram Rs 5 pack in Delhi, but a 13-gram pack in Guwahati. We were the first to do that. Now everyone is doing it, even Frito-Lay and ITC,” Amit Kumat says.

“In terms of running the business, I don’t think big changes have happened post the IPO. Earlier, we were answerable to maybe 15-20 people, now it’s more like 10,000 to 15,000 shareholders.”
Sumit Sharma, chief financial officer, Prataap Snacks

Prataap Snacks also happens to be in the right place, quite literally, at the right time. It is located conveniently in Indore in the centre of the potato-producing Malwa region, which offers it more than just raw material. Indore is a consumption market, which means trucks loaded with goods come to the city, and they often have to go back empty. Amit Kumat says that allows Prataap Snacks to leverage the “reverse logistics” and get a better freight rate.

The stars are aligned, so to speak, for the company. The timing couldn’t have been better for them. Owing to urbanisation and growing income levels, the snack market and the overall packaged food industry in India have immense growth potential. The company estimates the market for organised snacks will grow at a CAGR of about 14.6% between 2016 and 2021. A Credit Suisse report says the total branded packaged foods market will grow from $40 billion to $200 billion over the next decade. “Affordability of products is important for growth in most categories in India due to the low per capita income levels,” says the report.

And that is where the sweet spot lies for Prataap Snacks. It is delivering value products that are either priced lower than bigger brands, or offer more per pack. Amit Kumat says Prataap Snacks started out by giving more value to consumers. So, when Frito-Lay was offering 22 grams in a Rs 5 pack, Prataap Snacks offered 30 grams for the same amount, which has helped the company grow at around 20% to 25% in the past five-six years. Its pricing strategy pushed several bigger companies to also offer value packs in an effort to stay ahead in the market.

Amit Kumat believes Prataap Snacks succeeded in building a strong business because it was ahead of the curve in creating the right taste, in innovation, and in giving value to the customer. But not all small and medium businesses are able to achieve that. “In India, for the smaller player to start, to create an organisation, to create a company has become extremely difficult, because of the competition, innovation and money required in the business,” he says.

He’s right. Prataap Snacks isn’t in an easy industry. Being a small player has its own pitfalls in the snacks business. Fluctuating commodity prices are a big issue: While big companies have the option of importing potatoes, for instance, if the crop fails in India, smaller companies suffer. Numerous small businesses that have tried to sell snacks have either died, or become suppliers for bigger brands. Prataap Snacks itself uses third party factories to manufacture its products.

Standing out in a crowded market isn’t easy either. “A big challenge for this kind of a company is also brand recognition. If they are expanding and targeting new markets, we need to see how the brand works there, how the brand grows there, and how it is perceived by the consumer,” says Tejashwini Kumari, senior research analyst at financial services company IIFL. Prataap Snacks, to an extent, took care of that when it hired Bollywood actor Salman Khan as its brand ambassador in 2016.

Increasing competition and the capital needed for growth are perhaps the reasons why Prataap Snacks accepted a $30 million investment from Sequoia Capital in 2011, nearly two years after the investment firm had first approached the Indian snack maker. Amit Kumat says Prataap Snacks decided to bring on Sequoia because it thought the funds would help it grow faster and the investment firm would bring systems and processes to the Indian company which listed on the stock exchange last year. And Sequoia has done that with a 48.4% stake in the company. “Sequoia helped us prepare for the IPO over the years,” says Sumit Sharma, chief financial officer of Prataap Snacks. “In terms of running the business, I don’t think big changes have happened post the IPO. Earlier, we were answerable to maybe 15-20 people, now it is more than 10,000-15,000 shareholders.”

So, what’s next? Taking over the country. Literally. The company caters to about 1.7 million outlets and wants to double that in the next threefour years. Its co-founder and president, operations, Apoorva Kumat, says the company is going to ramp up its retail coverage significantly in the next few years. It has a strong distribution network of more than 200 super stockists and 3,800 distributors. “We want to be a major force in the category, and with multiple plants, we can cover pan-India. Currently, we have about 33% of the market in the east, and 25% in the north, but we believe we holistically cover only 50% of the country,” Amit Kumat says.

Does Prataap have plans to get into healthy snacks, the bandwagon most large snack food companies want to get on? Not right now. Although Nielson data showed healthy food and drink sales grew at 10% in 2016, Amit Kumat isn’t going there yet. He is a healthy eater himself, but believes health food is attractive only on paper. Prataap Snacks ventured into the healthy snack segment with quinoa chips, but the product was not successful. Basu adds that their core clientele is mass market kids, who are not interested in healthy products. “Our core clientele is not looking for quinoa chips, and getting into someone else’s core clientele will be a huge investment. For such a niche product we cannot invest that much,” he says.

Health food might not be on its plate for now, but Prataap Snacks hasn’t stopped adding to its menu. Last year, it stepped out of the business of savouries and entered the sweet snacks market with Yum-Pie, its version of Britain’s iconic Jaffa cake. “India is the biggest consumer of sweets in the world. There is no way a sweet snack won’t work in India,” says Amit Kumat.

(This was originally published in the June 15 - September 14 special issue)

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