Licious sinks its teeth into offline market: How the unicorn meat delivery start-up is looking at offline success for its next growth phase

The ambitious twosome spotted a business opportunity but also realised how much work lay ahead—moving people away from a wet market to buying meat online at a premium. With more than 70% of people in the country being meat eaters, the market was growing, even though most of the players were in the unorganised sector. The latent market existed, and the duo went for it. Today, Licious has a presence in 20 cities. Along the way, its revenue has grown to Rs 746.38 crore in FY23 from Rs 69.43 crore in FY19. Licious also became India’s first D2C unicorn in October 2021 after raising $52 million from IIFL AMC’s Late Stage Tech Fund. And over time, it has had a roster of investors such as Temasek, Multiples, 3one4 Capital, Mayfield, Vertex Growth Fund, and Bertelsmann India Investments.

And things are likely to only get better. The meat and seafood market in India is expected to reach Rs 8.69 lakh crore by the end of 2024 from Rs 6.6 lakh crore in 2019, growing at a CAGR of 5.65%, according to Euromonitor. And Licious is making the next giant leap—it plans to have 500 offline stores in the top 20 cities over the next five years. The Co-founders also have another big job at hand: to ensure that Licious turns Ebitda positive over the next six to eight months. With the FY23 number at a negative Rs 445.98 crore (see chart), their task is cut out.

A Helpful Chunk: Bon Appétit!

But first, let’s talk about how the duo sold the idea to investors. Gupta, 43, recalls how the first 15 meetings with potential investors were about the idea being loved but no money coming in. When Mayfield came aboard in mid-2016, it was for a funding of $3 million, spread across six instalments. “In 2017, we had five investors together putting in $10 million,” he says, with a wry smile.

Then came the Covid-19 pandemic. The hygiene concern increased the appetite of meat-eaters for online purchases, as they avoided buying meat from local butcher shops. As a result, the numbers soared, but there were numerous challenges to overcome. While around 10% of the overall grocery pie is meat, it has never been an essential service in India. “Though we were upbeat about our business, the reality of building a supply chain with limited money was never far away. There were no organised meat processing plants [in India], unlike more developed markets,” says Gupta. Hanjura, 38, chimes in to point out that Licious’s biggest achievement since founding has been building a supply chain. Licious has 100 delivery centres and five processing centres across 20 cities. The thumb rule is a processing centre reaches out to a radius of 300 km or 10 hours of travel. For instance, the one in Bengaluru caters to Chennai, and the one in Taloja supplies to Mumbai, with Delhi handling Gurugram and Chandigarh. “We now have bio-secured farms and a joint venture for fish feed (called Growelicious) or [we]just partner with state governments for red meat,” he adds. Besides building the supply chain, Licious has also spent a lot on technology. “It (technology) has helped in cutting back wastage in delivery centres from 30% to 2.5%,” says Gupta.

According to independent food advisor K.S. Narayanan, Licious took to the D2C model and offered superior packaging and value-added products like ready-to-cook options. “Covid-19 helped them to expand rapidly,” he adds. Clearly, with the market becoming more organised, an evolved consumer and the willingness to spend helped. “In today’s time when the consumer is looking at a branded, hygienically ready-to-cook option, Licious stepped in with the offerings and quickly scaled up across many cities.”

Today, India is a very aspirational market, and it is not just about being cheap or affordable, says Gupta. He picks out a category like atta as one that is getting more organised. “More people are buying iPhones or wearing Levi’s jeans. The human psyche is always about wanting to consume better and as categories get more organised, that gets more obvious,” he says. The trick is to get it right on quality—never an easy thing to do—and that is what will drive the spend. Consumer expectations from this business are only getting higher and Hanjura says rising costs do not mean you can knock off a slice of salami. “This is a high-stakes category, and we must consistently improve and add value. We started by selling the most hygienic chicken to one that was fresh and now it is about being the juiciest.”

Licious slowly expanded into markets like Mumbai, Delhi, and Kolkata. “They spent a lot of time understanding Bengaluru, and that was a very smart thing to do since it became a playbook. Understanding logistics and supply chain has strengthened their position and often, the challenges of entering this business are vastly underestimated,” says Siddarth Pai, Founding Partner, 3one4 Capital, an early-stage Bengaluru-based VC firm and an investor in Licious. He emphasises that the importance of understanding a target market is key, along with getting it right on the process. “An efficient supply chain brings down costs, and then it comes down to managing raw material costs. The process part in this business is actually as important, if not more than the proteins.”

The concept of premium threw up a few pleasant surprises. Kolkata was a case in point where it was not expected to work. “The response was so good that we opened a processing plant in the second month. Today, we have a very large share of the ready-to-cook segment, apart from a healthy piece of the mutton market,” says Hanjura.

The Offline Opportunity: Much at Steak

Though the Licious brand has established itself, it still has a limitation in terms of only being available online. Also, the booming online meat and seafood market is crowded with players like FreshToHome, Jalongi, Zapfresh, to name a few. While the online meat and seafood market in India is growing faster (15-20%) than the offline market (nearly 6%), the size of the online market is negligible (0.31%) compared to the offline market.

Gupta says going offline will give the brand more visibility. To Hanjura, it is a natural evolution for the brand. The promise is a very sophisticated experience, not a wet market. “You can ask for cuts and get it all in a sealed packaging. It will be a fun way to shop,” says Gupta. Soon, Licious will own the stores, and in a city like Bengaluru, where real estate is still affordable (compared to Delhi and Mumbai), the stores will be spread over an area of 700-800 sq. ft, he says. “We have a lot of data on our consumers like the number of Bengalis living in Koramangala,” he chips in with a smile. The six Licious stores that exist today are only an extension of the online business and serve as sampling channels. Value-added offerings like ready-to-cook and ready-to-eat products in the offline stores will give Licious an edge over the neighbourhood meat shops.

The good part is that the stores—also to be branded Licious—can be housed in, say, a township or a prime commercial area. “We don’t need to be in a high street. In smaller centres, we can open stores first,” says Hanjura. The five processing plants and the existing supply chain will help Licious open offline stores faster.

While India is a predominantly meat eating country, there is still a long way to go in terms of meat consumption. In the US, per capita consumption of meat is 112 kg. “If you look at a nation’s per capita income, there will be a deep correlation with how much meat is consumed. For instance, in China, it was 4-5 kg in the 1960s and is 65 kg today,” Hanjura says. Speaking of India, it was 4 kg in 2000 and hit 8 kg when Licious started operations in 2015. “Today, it is at 12 kg, and there is no question that the number will take off.”

The economics of going offline is pretty similar to those of any other retail business. On a month-on-month basis, it will need to cover fixed costs that include power and salaries. For an outlet of approximately 700 sq. ft, it will need to spend around Rs 3 lakh each month. Taking a gross margin of 30%, an outlet will need to make upwards of Rs 9 lakh or Rs 30,000 each day. Plus, one has to take the capex into consideration—freezers and chillers—that will cost Rs 2,000 per sq. ft or Rs 14 lakh for the said outlet. Of course, meeting costs each month is most critical to getting the business off the ground.

Post-pandemic, the lines between online and offline have clearly blurred, according to Dippankar Halder, Founder of Jalongi.com, an online seafood and meat platform. “Everyone does home delivery now, and that means value proposition will be king. It comes down to differentiation based on assortment, price and service experience,” he says. His company first took the online route before opening a few offline outlets only to get back to a completely online model since it requires deep pockets and a lot of time. “Running an offline chain is a very different ball game, be it on organisation, people, or processes. An independent non-vegetarian product store will have profitability challenges, especially if it is perishable and accounts for a small part of the overall food consumption basket.” There is an obvious brand rub-off for an established online player when it decides to go offline.

Halder is clear that non-vegetarian “is a great category that can be differentiated on range and retail experience,” apart from bringing in good margins. “If one has an engaged team with the right leadership and operates independently, magic can happen. However, the perishability part means the retail rollout needs to be gradual and controlled to maintain viability.” Plus, offline increases the number of distribution points, since it does not come from one source. Consequently, waste increases, as does cost.

Quite clearly, the rewards are plentiful, but a lot needs to be done before that. Apart from sourcing, processing, and managing distribution costs, “predicting demand is an important component,” and getting it wrong can “lead to high wastage levels,” says Vinay Gopinath, an industry expert and former COO of Nandu’s, an offline poultry player. Given that one is still playing the commodity business, positioning meat and seafood as premium offerings is not easy. For the best-run outfits, gross margins for chicken are 20-25%, while fish is at a more attractive 40%. Mutton, the most expensive of all, brings in a lower 15-20%.

“Operationally, the meat business is a difficult business model and more so if you are selling a perishable product. Plus, the consumer is always comparing you to the neighbourhood meat shop and will not give you a premium of more than Rs 30,” says Gopinath. For the average consumer, it is a commodity without any perceptible value addition. “Success in offline is enhanced if you have a comprehensive model where you control the entire process, starting with sourcing,” he says.

A multi-meat outlet in India normally gets approximately 60% of its revenue from chicken, 25% from fish, 10% from mutton, and 5% from eggs. That can change depending on, say, a decision to sell perhaps only value-added fish. The market in an aspirational India is expected to grow from here. That implies a higher proportion of not just the organised piece but also online. According to Narayanan, growth is inevitable with convenience being the buzzword. “The brands have to set a base benchmark on assured quality free of chemical molecules, value addition based on consumer needs, and at a reasonable premium to what the roadside butcher offers,” he says. There is an obvious acceptance of value-added and pre-prepared products in restaurant kitchens. “Typically, the trend first gets acceptance in the food service segment before gradually moving into the household kitchen. It will be interesting to see how the price variation between seafood, chicken and lamb plays a part in the consumer choosing between alternate proteins.”

In the offline market, Licious will face competition from established players like Republic of Chicken, Green Chick Chop and Nothing But Chicken, apart from the neighbourhood meat shops. Currently, Licious has more than one million active consumers. The repeat segment is around 50% on a monthly basis and 75% for each quarter. At an average consumer spend of Rs 18,000 per year, there will be 500,000 people buying from Licious each month, translating to an annual revenue of Rs 900 crore from online sales. “The number of active consumers will increase through offline and so will the frequency of purchases,” says Gupta. The folks at Licious are hoping that this indeed is the reality.

It seems Licious is all set for a prime cut of India’s offline meat market. A meaty future awaits! 

@krishnagopalan