Situation Analysis of the case

“Ajanta Packaging”

In partial fulfilment of Course:

Managerial Communication - I

Submitted by:

Jatin Singh

Roll No:

P20214

Date of Submission:

17th August 2020

 MEMORANDUM

To: Mr. Deepankar Agarwal

From: Mr. Jatin Singh

Date: 17th August 2020

Subject: Brief Report on the current packaging industry scenario and the options we have

This analysis is about the prevailing scenario of the glass bottle packaging industry. The industry
primarily deals with packaging, storage, and transportation of glass bottles. The packaging industry
has been continuously evolving, starting from wood and shifting through paperboard, plastics, metal,
PVC, and glass, which has been a significant player in the industry for a long time. However, PET has
been growing as a significant competitor. This report highlights and analyses the crucial issues which
the company is facing currently and briefly outlays the options we have in our hands to turn the
business around. This should help decide the future path.

Yours sincerely,

Jatin Singh

Executive Assistant
Ajanta Packaging is one of the major players in the glass bottle packaging industry and has
established a niche in the market. They have been performing quite well and are in a strong
competitive position. The company had started by supplying glass bottles to various sectors. Having
served efficiently for the past 30 years, they have an excellent reputation. Their high quality and
cost-effective products give them the much-needed edge. A clear indication of their performance is
the data, that 95% of their revenue was from glass bottles, out of which 90% came from existing
customers. The company had started with an investment of US$500 and, by 2012, earns revenue of
more than US$100 million.

There were many reasons behind this-

1. First, in the market, to set up a fully functioning computerized MIS system.

2. Various service contracts with global manufacturers, giving them a vast supplier base and
robust supply chain backbone, that could resolve any operational issues.
3. They provided cheaper competitive rates for freight costs.
4. Various customizable products, warehouses, professional expertise, and four marketing
offices across North India, offered the flexibility and the power to negotiate with their
suppliers and customers.

Customers chose Ajanta, because they provided JIT service and made their life more straight-
forward and provided a one-stop solution to all needs.

However, over the past few years, the threat from more durable and cost-effective substitutes has
affected the overall market share of glass bottles. According to data collected, though the Indian
packaging industry had a growth rate of 15% in 2010, the glass bottle market share was steadily
declining and had dropped to 11% by 2012. The major competitor of glass bottles was PET bottles.

Few of the reasons why PET (CAGR @6.9%) was gaining popularity was–

1. Lighter in weight, which reduces freight costs.

2. Tougher
3. Cheaper
4. Offered better shelf-life and ease of stacking

As an outcome of this, the price of raw materials increased, and glass is starting to get replaced in
various industries such as Soft Drinks, beer, IMFL, and pharmaceuticals by PET. Though Ajanta has a
steadily increasing revenue, its overall profit margin has to decline from 40% in 2008 to 23.9% in
2012, showcasing market saturation. Ajanta has to make a critical decision to make, as 95% of their
revenue was dependent on glass bottles. Either they can continue their glass bottles approach or
diversify their product line (PET bottles).

If they decide to continue with glass bottles, they have the following advantages-

1. Pre-established strong competitive position

2. No requirement of new business infrastructure setup
3. Increase in market dominances, as many glass bottle competitors are exiting the industry
4. Aesthetically pleasing
 5. Better retaining of taste and aroma of the product
6. Glass bottles would not go obsolete

However, the risks involved are –

1. Over-dependency on glass bottle (95% revenue), even after decreasing popularity

2. Declining profit margins
3. Slashed price of competitors leading to re-negotiations with customers
4. Expanding the customer base (with or without reducing price) would affect the service
quality

On the other hand, venturing into PET has benefits –

1. Entering a growing market

2. Capitalizing on their brand name
3. Directing new and old customer base to PET (In 2012, they had ventured into PET bottles for
pharmaceuticals)
4. Given time, have the potential to become an efficient supplier

However, this also came with risks-

1. Building a new supplier and distribution base

2. Establishing and acquiring expertise in PET
3. Effect the service levels for PET customers due to less expertise
4. Competition from pre-established better PET suppliers