Cold comfort
In 2001, Dev Lall founded Bakers Circle to make frozen snacks and desserts that would be sold through the country's fast food chains, restaurants and bakers. The business didn't exactly begin with a bang; Lall needed truckers who would deliver his frozen products at minus 20 degrees Celsius. The few who were ready to take up the challenge were just not up to the task. "To take our dough from Kashipur (in Uttarakhand, where the company has its production unit) to, for instance, Hyderabad would take 15 days," points out Lall.
The solution: Lall invested in partially building his own cold chain, which today consists of seven refrigerated vehicles - leased back to truckers with a minimum guarantee. "We can now do the Kashipur-Hyderabad journey in 96 hours, and spend just 15 minutes for both loading and unloading," says the plucky hotelierturned-entrepreneur, who worked in the Hyatt chain in North America for six years before starting Bakers Circle.
Lall's experience underlines the bitter truth about the Indian foods business - along with its sheer opportunity. The lack of refrigerated facilities for chilling, freezing and storing - the three key links of the cold chain taking frozen products from producer to consumer - also results in a colossal wastage of eggs, fish, milk, and meat, of which India is amongst the world's largest producers (see The Weakest Link).
If India is the second-largest producer of fruits and vegetables in the world, why is it that its share of global exports is minuscule - some 0.5 per cent for fruits and 1.7 per cent for vegetables? Answer: Roughly a third of the 180 million tonnes of fruits and vegetables grown go to waste in the absence of infrastructure to store these items for a longer period.
The value of this post-harvest wastage was estimated at over Rs 45,000 crore by a Task Force Report on Development of Cold Chain in India prepared by the government and the Confederation of Indian Industry in 2008. Another way to look at it: The quantity of fruits and vegetables that go to waste is more than the consumption of these food items in the United Kingdom.
And then, whatever cold storage capacity exists in the country is inadequate for most food items. Points out Atul Khanna, Director, Global Cold Chain Alliance (India Chapter), an international association of cold chain investors: "Most of the capacity (nearly 80 per cent) is configured for potatoes and there is not much value addition that they provide."
The good news is that it can't get any worse from here - not when a clutch of entrepreneurs is attempting to plug various gaps that exist in the cold chain. Sample: MJ Logistics, a third-party logistics services provider, has created 25,000 tonnes of capacity for cold storage and distribution at Palwal in Haryana. These facilities are part of a larger logistics hub. Funded and 90 per cent owned by Eredene Capital, a UK-based fund house that invests in logistics projects in India, MJ Logistics intends to provide storage facilities at 18 to -25 degrees Celsius to processed food players and retailers.
The business case for cold chains is doubtless sound, but it's not for those looking for quick returns. It guzzles cash, and the gestation period is long. Anil Arora, Managing Director, MJ Logistics, says Rs 85 crore has been invested in the facilities since inception more than two years ago. The company earns revenues on a pay-per-use basis, and the game plan is to work with organised players in food processing or those looking for value addition and making MJ a permanent link in their supply chain. "If one is lucky, the business can mature in seven years, but 10-15 years is a realistic time frame to become an established player," adds Arora.
What works in favour of such players is that the lack of modern cold chain facilities ensures optimum utilisation. "We function at 110 per cent of our capacity," says Ravi Kannan, CEO, Snowman Frozen Foods, a joint venture between Gateway Distriparks of India, Mitsubishi Corp., Nichirei Logistics Group and Mitsubishi Logistics Corp. of Japan. Snowman, which claims to be the first company to set up a pan-India distribution system for frozen and chilled foods, has cold stores across 22 locations, and runs a fleet of some 150 refrigerated trucks.
Plans are afoot to put up another four warehouses by investing a little over Rs 20 crore by next March. It may appear a lucrative opportunity, but the cold chain business is no walk in the park. Industry observers reveal that giants like Reliance Retail and Aditya Birla Retail, who are attempting to set up their own cold chain infrastructure, are going slow because of the complexities of the business.
Sandeep Sabharwal, Managing Director of Sohan Lal Commodity Management, a logistics and procurement firm that manages 70 warehouses, knows this and has moved away from managing cold storages. So while Sabharwal is bullish about growth in warehouses, he is wary of the cold chain infrastructure.
"The issue is that the cold storages are often a single man show or a family-owned facility and they do not want to let us manage it. We might do dry-green units (that is, cold storages in regions that have a naturally cool climate and so, do not need cooling facilities for certain items) someday where due to the climate we do not need a cold storage," Sabharwal says.
Another problem with the cold chain initiatives is that they are fragmented, with hundreds of small players doing their own thing. Just one such entrepreneur is Gagan Pal Singh Anand, Proprietor, Anand Frozen Food Carriers, who owns 34 10-wheel trailers and does an annual turnover of Rs 5 crore. He hauls frozen peas, meat, dairy products, cheese and chocolate, medicine, menthol oil, and yeast across the country. Of late, Anand has hit a rough patch. "Road infrastructure is still poor. Tyre companies have increased prices by 40 per cent, tolls have increased, and our freight prices do not go up in tandem," he explains.
From an investor's point of view, this might be the best time to back a player and help him build that much needed scale. Gaurav Mathur, Managing Director of private equity fund India Equity Partners, explains that while scale was being built up at the front end (processed foods, quick service restaurants et al) for some time, of late there is action at the back end, too. "Cold storages, warehousing... are also attracting private equity investments... There is a lot of development waiting to take place," adds Mathur.
Gagan Seksaria, Associate Director for transportation and logistics, at consulting firm KPMG, divides the cold chain into two segments - one that caters to businesses that need a temperature of 10-18 degrees Celsius; and the other that needs freezing capabilities of below zero, up to minus 20 degrees Celsius. He feels that the first, which can be used to carry items like chocolates, is easier to manage: a slight change in temperature en route will not destroy the products.
That may be one way to begin, but the big bucks are clearly at the colder end. Seksaria points out that large food processing and food retail companies (like McCain, McDonalds and Domino's) are assisting entrepreneurs in the sector through incentives and captive volume to develop their indepedent cold chain networks comprising warehousing and distribution of their products under required conditions. There is money to be made in cold chains, but only for those with an appetite for risk, and a hunger for quality and precision.
