Reflections on a cup of coffee

You could be suffering from a strange mental condition that some ardent women’s liberation activists describe as ‘kitchen phobia’. Or you might just simply be a culinarily challenged individual. While we are on the subject, why not also assume the absence of an adoring mom or a wife to deliver at your bedside that morning ‘cuppa’ that makes a perfect start to the day? So, what is the best way to deliver it?

Nestle’s answer to that question would be to set up a centralised plant where coffee liquor would be sprayed with hot air to reduce it to a fine powder, and pack it in cute little glass bottles, install a sophisticated logistics and just-in-time inventory solutions to deliver it to every form of retail outlet — Walmart to the street corner mom and pop stores. There is no doubt that this is a very convenient, and easy to handle, process of making a steaming cup of hot coffee. Except that the freshness that you associate with a just brewed coffee somehow gets spray-dried out of existence along with the moisture, making up the decoction.

But more than the loss of its aromatic attribute, I wonder if it is the most efficient way of delivering coffee that can be consumed instantly. I do not know the intricacies of spray drying process, but I daresay, it is a lot more complex than getting one of those magicians who spews flame from his mouth in village fairs. An ‘out-of-the-box-thinking’ would, in my view, be this. Do we at all need ‘instant coffee’ to be delivered in a powder form as has been the case for nearly 100 years?

Small is beautiful

A ‘Jugaad’ answer to that question could be that, perhaps, it should be delivered quite simply as a liquid. I believe that considerations of efficiency, maximising customer value, demand that the industry be reengineered away from centralised large-scale plants with a complex logistics solution to reach the last mile customer. Instead, it should be a vast number of small-sized coffee liquor-making plants. Nothing fanciful. Just simply a perforated vessel to filter the decoction and another to collect the liquor — pretty much the way it used to be made by grandmas in thousands of South Indian homes.

Substitute the spray-drying plant with a simple packaging plant that decants liquor into small sterile aluminium foil pouches. It should be just as convenient as instant coffee. You just snip off a corner of the pouch to create an opening and the liquor flows just as effortlessly as pouring it out of a coffee pot, as I found out recently.

I daresay, it should be even cheaper, although the one that I had sampled was a little pricey owing to the fact that it was being touted as made from coffee beans that were grown organically. Things ‘organic’ usually command a premium. I suppose it must also be due to the fact that the right scale of operations in this business has not been hit upon.

Reinventing instant coffee

There is a perhaps an intuitive reason why the business of instant coffee should seek to reinvent itself. The manufacturing process of converting liquids into solid has an inherent bias towards centralisation of manufacturing and as a corollary, large size as well. But this goes against the grain of modern-day thinking which sees manufacturing as an activity that involves producing small customised volumes located closer to the consumer, while sacrificing none of the advantages of ‘Taylorean’ approach of breaking down processes to nuclear levels of activities, involving a judicious mix of outsourcing and in-house manufacturing.

The automobile industry is a classic example where players have chosen to create large manufacturing capacities for engines and transmission systems in one place, while diffusing the assembling of vehicles to many parts of the globe. Alternatively, they have chosen to consolidate the manufacture of certain types of vehicles in one location, while preferring to adopt a portfolio approach to other types of vehicles.

Governance model

The structure of dairy industry in India offers a classic example of how the rules of the game got rewritten in an industry that had the Western stamp all over. The late C. K. Prahlad wrote about how the Amul cooperative approached the business of dairy products in a manner completely different from the way an average American entrepreneur would have looked at it.

To replicate an ‘Amul’ scale of operations, the latter would have thought of acquiring 50,000 acres of farm land in Montana, 100,000 milch animals or more and an army of farm hands to handle all aspects of upkeep of these animals and a centralised dairy plant to process the output, and so on. In short, it would have a governance model that meant going for everything under one roof with a vengeance.

But the Amul model was completely different. There was no one large farm with hundreds of animals gathered under one roof. Rather it was managed by thousands of small farmers, each owning two or three animals.

The milk is collected at small collection centres located in each village and quickly transported to a nearby facility for chilling. The model is too well known to bear any repetition here.

The ‘Amul’ way

The debate over the relative merits of the two approaches is well and truly settled by a simple fact. India, today, is the largest producer of dairy products in the world by volume. But the value of the output in the US is many multiples of India’s.

It is not it produces some exotic dairy product that India doesn’t and, hence, commands a premium in the market place. It is just that the Indian stuff is a lot cheaper, the current RBI brouhaha over ‘protein inflation’ notwithstanding. Instant coffee too, should perhaps go the ‘Amul’ way.

Not just instant coffee; the Indian economy needs to capture this spirit of cost effective innovation too, if it has to get out of the low-growth, leading to low-investment, rut that it finds itself today. In 2002-03, a little over 1.25 lakh factories produced Rs 1.77 of output per a rupee of capital invested in their respective businesses.

By 2009-10, such registered factories could manage no more than Rs 1.93 out of every rupee of invested capital (Annual Survey of Industries). Not only has this not kept pace with inflation, it raises some fundamental questions about the real rate of growth in the economy if vast sections of manufacturing sector had no productivity improvements to offer. The tale is not much different on the labour productivity front too.

There may be policy paralysis in the Government; administrative efficiency may be declining. But sustainable growth can happen only if there is genuine value-creation through improved productivity — whether it is better exploitation of natural endowments or merely improvements in the productivity of factors of production. Sadly, evidence on this front in recent years is missing.

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