Rotten Tomatoes

I sometimes think it is useful for children to learn their reality lessons early in life. From a business education point of view, the earlier they are exposed to the reality and the harshness, the better prepared they will be, when they enter professional lines.

Radhika is my 14-year-old daughter. She noses into my "home office" whenever she feels the need to chin wag with an audience - even if it's in the singular. Her interests could range from humour in advertising, to the deteriorating quality of potato chips.

Yesterday her topic of conversation was on the serious side - she wanted some help on a school project. Commerce is one of her electives and this one was on street vendors. Her brief : logically flowchart a street vendor's activities and examine sales, profitability and cash-in-hand.

"Piece of cake," she announced. "You buy at a low price and sell at a high price ... as simple as that." This had to be an eye opener for her, so I worked out a simple Q&A format that could also be the structure for the project. We decided to use "Tomato Raghu" - our regular in the neighbourhood as a working example.

- Do you think, Raghu's job is easy ?

Raghu starts work at four in the morning. He has to push his cart all the way to the wholesale mandi, to get the best prices. Unfortunately there's no guarantee on that. The bigger buyers get a better deal.

- Does he have the capital to run his business ?

Raghu buys 50 kgs of tomatoes a day and that roughly means an investment of 500 rupees, which he does not have. He borrows 500 from a money lender and has to pay back 550 by the evening.

- Does he own the cart he uses to carry the tomatoes ?

No he doesn't. He hires the cart at 20 rupees a day. So even before he starts trading in the morning, he has to account for 50 as interest on loan and 20 as hire charges.

- How can he actually lose money on a simple buy / sell job ?

Since his cart is essentially outdoors, and in the hot sun, he could lose five kgs if the tomatoes spoil. Most housewives pick only the good tomatoes - the not so good ones also soften when buyers check them for hardness. So the spoilt and unsold tomatoes need to be taken into account.

- Can Raghu make a good profit on each sale ?

In this country, "a good deal" means pushing for a good bargain - irrespective of what you're buying -  steel, tea or tomatoes. Sometimes, with regular customers, Raghu is forced to sell at his cost price.

- Does he really make money at the end of the day ?

Let's review Raghu's sales statement for the day. He has sold 10 kgs at 14 rupees; 10 kgs at 13; 10 kgs at 12 and 10 at cost price. He still has 10 kgs left which are soft and squishy. Nobody wants to buy that, so he invariably finds a ready customer in the small roadside dhaba. Squishy tomatoes sell for 5 rupees a kg. Sometimes less.

- How does that add up in terms of profit and loss ?

- 10 kgs at Rs 14 a kg  (Sales : Rs 140 / Profit : Rs 40)
- 10 kgs at Rs 13 a kg  (Sales : Rs 130 / Profit : Rs 30)
- 10 kgs at Rs 12 a kg  (Sales : Rs 120 / Profit : Rs 20)
- 10 kgs at Rs 10 a kg  (Sales : Rs 100 / No profit here)
-   9 kgs at Rs 5 a kg    (Sales : Rs 45 / Loss : Rs 45)
          (Total Sales : Rs 535 / Profit : Rs 35)

- What is Raghu left with at the end of the day ?

Raghu started his day with 500 and has done a sale of 535 - which means a profit of 35. With the 535 that he has, he has to pay back 550 to the money lender and 20 to the owner of the cart. Which means he is still short of 35 and has no money to take back home.

- What options does Raghu now have ?

He needs to take some money home, so Raghu is forced to borrow Rs 100 from the money lender in the hope of doing better the next day. So he actually starts tomorrow with a borrowing of 500 plus 100, and payback of 660. You also need to add cart charges to that.

If you look at the last line in the sales statement, Raghu has kept back one kg of soft tomatoes that he lovingly wants to take back home. His wife has one look at the tomatoes and flings them in his face. "If you're in the tomato business, how can you bring home rotten tomatoes ?"

At the end of our session, Radhika had all the information for her project; she also had tears in her eyes. "This is not a lesson on business, Dad ... this is a lesson on survival."

# Sharath Bhat is a freelance advertising writer in Bangalore.

[Postscript]
These days, the prices of tomatoes are as unpredictable as the weather, so I played safe and took a notional 10 rupees a kg.