Last Thursdays With Niranjan Shrestha – Sujal Foods (Laxmi group)

A Story of survival of one small business and how it was scaled up

Niranjan Shrestha
Niranjan Shrestha

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I would like to call myself a second generation entrepreneur. My grandmother used to make homemade sweets in Pokhara and sell it to students.  They took the process further and decided to mechanize the sweets making process and start a business. In that process, they went to India and somebody suggested about starting a sweets industry, which eventually started in 1973, the very year I was born. I was 15 day old when the business started. When they started, there were two big players on the scene like Nebico and Pashupati, which used German machinery. We started with handmade sweets but now we are the largest confectionery manufacturer in Nepal. We currently export around 5% to other countries and are looking to export more. We have almost a thousand people working together.

Talking about the difficulties in dealing with the regulatory authorities during the time, I would like to share one interesting story. My parents went to register the company as Laxmi Confectionery. The officials told them to change the word confectionery and use a Nepali name. They didn’t find any word for confectionery in Nepali, so they registered as Laxmi Mithai Bhandar. Another major regulatory hurdle was on buying sugar, our major raw material. There was a big problem we faced which we still do and that is the quota in sugar. A company could receive only a certain amount of sugar. To overcome the hurdle, we divided the manufacturing in smaller units and in all those units there was a name “Laxmi”. After we started the business, we went on to figure out people who could manage the business and the factory in different locations.

We, the second generation, started Sujal Foods by merging two existing units called “Suva Laxmi confectionary” and “Jay Maha Laxmi confectionary”, hence the name “Sujal”. After this we closed all old factories to increase efficiency and focus.

After we started Sujal Foods, we introduced Chocó fun which helped us realize that the chocolate market was growing in Nepal.  In Asia, only bigger players like Cadbury and Nestlé were doing well in India. We felt that we needed a good machine to produce. We attempted to buy one from Gandaki Noodles, which they bought from Austria but were unable to use it despite the fact that it was a good machine. We approached them a lot of times but they were reluctant at first. Later they finally agreed to sell and we bought those machines.  For research and development, we walked around Europe many times. To bring the full line of machines were very expensive and took about one an half to two year to get it. But despite of it all, finally Chocó fun entered the market and now it’s very popular as one of the largest selling brands in Nepal. So, that’s how we started.

Lesson #1: Always be vigilant in bringing new technology to improve your production and introduce new products.

In the mean time, my father started a soap factory. During that time, there was licensing system in importing palm oil. For any smaller businessman to have a license, they had to buy it from bigger businessmen, which was almost impossible. So, my father closed the business realizing there were no possibility to obtain the license to import palm oil. My family was also in the soft drink business producing fanta lamona. Some multinational players came and asked “How many bottles and crates do you have? If we buy all these and dump it, what will happen to your business?” Then we thought this could be a serious problem because they had the muscle power to do it. So we closed down our small soft drink business. This is just to share how bigger players eat small players at certain times, when there is unhealthy competition and weak regulatory enforcement to protect small business owners from large sharks.

Lesson #2: Enforcement of government regulation to protect small business is vital for its survival.

After we entered the confectioneries business, Maoist insurgency started in Nepal but we took this risk as an opportunity and we actually grew our business in the eastern and the western Nepal.  Despite the complaints that there was no access to remote areas during that time, we grew almost 33% and those became our golden days.

Lesson #3: For entrepreneurs, challenges are gateways to opportunity.

After confectioneries, we started Sujal Dairy in Pokhara in 2061 B.S., which is the privatized unit of the government’s Dairy Development Corporation (DDC). I believe, we can claim Sujal Dairy as one of the success story of privatization in Nepal. In the beginning, it was very difficult for DDC staffs to handover the unit to us. Moreover people were very brand loyal to DDC as it has been around for generations. Our challenge was to think of how to get the new brand name “Saffal” to be successful. It was challenging to communicate to people that Saffal was just a new name of DDC. So, we had a team who worked for two weeks to simply develope an idea which we finally agreed upon. We worked on finding out how, when and in which places consumers bought DDC products. We noticed that it was very difficult for consumers during winter to carry cold pouch of milk. So we decided to give one extra plastic bag with our name and inside the plastic bag, we put a pamphlet that said DDC was now converted into ‘Safal’. With this simple technique, each and every customer received a direct message. If we had communicated that through public media, it would not have been as personal or as effective and would have required a large media campaign with big budget. But what we did has now become one of the case studies in Pokhara.

After working in the dairy industry for two years we found out that it was a good business. We worked with villagers and co-operatives. Moreover, dairy industry is the fastest medium to transfer city money to village. In other cash crop, the cycle takes a minimum of ninety days and the maximum of one year like in the sugarcane business. But in case of dairy farming, the farmer gets money every fifteen days. Another challenge in dairy industry is the season. During some seasons, buffaloes and cows give very less milk and in some, farmers literally have to throw milk on the streets. Taking this into account, we started to manufacture milk powder but that did not fare too well. We launched alpine dairy whitener which came up with mega budget but it did not work in Nepal. However, it gave us a very good lesson on technical components on making milk powder. There was a huge communication gap with the marketing and production side and we realized even if we made high quality international standard products, it wouldn’t be successful until we are able tell the story in the local context.  Now we have started the production again but this time we have started very small and trying to enter like guerrilla.

Lesson #4: Even if you have the best idea that you are 100% confident in, it is wise to start small and adapt according to the feedback you get from customer and the market.

Currently, we have acute shortage of milk in Nepal. In the past, we used to have milk holiday and many people left milk production. Hence, to encourage farmers to re-enter the market, we launched a campaign, tying up with Laxmi Bank and insurance company to give loans to farmers without any collateral. We started by giving loans to almost 792 farmers and suddenly the price of the capital went up significantly, because the price of land and feed is increasing. So we hesitated backing individual loans, and now we are opting for a community model. In the mean time, interesting things have happened. One of the guys working in Arab approached us and wanted to start cow farming if there was loan available. We agreed to give him the loan. He came up with developed grass to feed cows and twenty people from that village started planting developed grass for cow farming. They started having more income and now many people of that village have involved similar activities of income generation.

We are still working in developing new products. Where we see good prospects, we have started investment.  There is good market even in India but we are struggling to enter the market. We don’t have any statistics and the research done by government is very weak. We are not able to continue in a good pace and there are many hindrances. But, that is the reality of doing business in Nepal. The key to survival is to be able to roll with the punches.

As someone wise said, “When life gives you lemon, make lemonade.


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