Modern Foods - Disinvestment and After

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Turning Around MFIL Contd...

According to Kapur, "Post-acquisition, the task before Levers was not only to increase distribution and sales, but also to ensure that Modern bread's daily delivery system was well established and further strengthened to ensure the delivery of fresh stock of bread twice a day." He further added, "Improvement in quality is an ongoing process which will continue in the year 2001." In mid 2001, HLL introduced a voluntary retirement scheme for employees of four units of MFIL that were closed and for its surplus employees at other locations.

Work was suspended between 1991-99 at four of MFIL's 19 factories—Kirti Nagar (closed since June 1999), Ujjain (closed since March 1994), Bhagalpur (since October 1998) and Silchar (abandoned at the project stage itself in October 1991). Workers in these units were drawing wages. Moreover, many units at different locations had surplus manpower. HLL officials said MFIL's losses would reduce to Rs. 200 million in 2000-01 from Rs 480 million in 1999-00. In 2000-01, the first year under HLL's management, bread sales of MFIL increased to Rs 1.02 billion from Rs. 780 million in 1999-2000. Growth in bread sales in the first four months of 2001 was 80 per cent over the corresponding period of 2000. However, MFIL employees were not ready to accept that the performance of the company would improve in the future. Said an employee, "How can HLL revive the company when it's is going about shutting down plants." They pointed out that the units at Bhalgalpur in Bihar and Kirti Nagar in Delhi had been closed and just about half of the Lawrence Road factory in Delhi was operational.

The employees were not confident that capacity utilization would go up to 75% as claimed by HLL from the dismal 15% at the time of takeover. Since November 2000, MFIL's franchisees had been turned into ancillaries and as a result, the sales figures of these franchisees had been added to the sales figures of MFIL. The employees therefore argued that there had been no real increase in sales. The employees also felt HLL's turnaround strategy for MFIL would involve shutting down of units, laying off workers and relying on third party production (outsourcing).

However, HLL officials said that its outsourcing plan was based on the presence or absence of an MFIL unit in a given region. For instance, in Mumbai, MFIL had its own plant, so HLL did not outsource bread for that region. On the other hand, in Pune it did not have its own plant and so it relied on an ancillary (Refer Table I for both sides of the story). Kapur said that HLL had no plans for using MFIL's vast stretches of land for its expansion. He said, "We will use Modern's land for Modern's expansions, and nothing else."

TABLE I
THE TWO SIDES OF THE STORY

MFIL VIEWPOINT	HLL VIEWPOINT
HLL made MFIL sick.	MFIL was potentially sick.
HLL is outsourcing, not making bread.	HLL is outsourcing where it doesn't have plants.
HLL is shutting down MFIL's plants.	These plants were set to up to handle MFIL's diversification.
HLL will exploit MFIL's real estate.	HLL will do so only for MFIL's own expansion.
Workers feel insecure.	Staff reacting well towards HLL efforts.

Source: Business Today, June 6, 2001.

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