A Gourmet Touch

It is not often that people turn their childhood passion into business. But Arjun Gadkari, Co-founder, Nilgai Foods, is different. While interning with Lighthouse Advisors in Mumbai, his love for food led him to realise the huge opportunity in global cuisine in India. He took on board his family friend Abhay Jaiswal, who was then working with PwC in London as a strategy consultant, and the two launched a venture in 2011 that now makes gourmet food products under the Pico brand and packaged coconut water under the Cocofly name. And no, Gadkari didn't study hotel management - he didn't have to. "My mother is a great cook. She has also written a cook book. Food was an integral part of my growing-up years and came naturally to the family. I have even worked as a chef in Bormio, a small town in the foothills of the Alps in Italy."

The first step the two took was shifting to Mumbai in 2010. With $1 million from Gadkari's parents, the two started a gourmet cafe, Cafe Pico, in 2011, in Colaba. The business model was similar to that of UK's fast food chain Carluccios, which offers ready-to-heat food such as quiches and baguettes along with packaged items such as jams, sauces, dips and dressings, apart from baked food. "We wanted to use the cafe as a testing ground for the packaged food business," says Jaiswal.

It took one year, but demand picked up. They opened a second cafe in Kurla and gradually moved to a central kitchen in Goregaon in 2013. To use the full capacity of the 2,000-sq.ft. kitchen, they started a quick service restaurant, or QSR, chain called PICO Express. They opened 12 PICO outlets, mostly in corporate parks. They also started selling through third-party retailers such as Nature's Basket and e-commerce sites such as Ekstop and Big Basket.

With reach, experimentation increased. "We played with flavours and designs, saw what worked and noted what didn't," says Jaiswal. They launched 25-30 types of condiments. The best selling product, says Jaiswal, was the 'sweet and sour' mango chilli sauce.

Apart from asking customers what they liked, Gadkari also travelled extensively to look for interesting food products. "I travel almost five-six times a year and find products we can introduce," he says. The Bhut Jolokia Hot sauce was launched after one such trip. He says the Ghost Pepper sauce, also called the Naga sauce, is very popular in the US. "We found that the bhut jolokia chilli was imported from India but there was no big company selling it in India. It was an unexplored market." The Bhut Jolokia Hot sauce is now their best-selling product with annual sales of 1.5 lakh units, he says.

"To be a successful FMCG brand, we have to be present in at least five per cent of the total eight million kirana shops in India. We hired a sales team to crack the distributor network," says Jaiswal. But they got rejected by 500 distributors. "The benchmark for distributors is Kissan jam or Horlicks. Sales of a company like ours are meagre in comparison," he says. So, they changed their strategy and hired 10 people with 20-plus years of experience in sales with FMCG brands such as Nestle, HUL and P&G. "We interviewed almost 1,000 people before hiring these 10 but it paid off. We got access to distributors and negotiated a higher margin and better payment terms," says Jaiswal. Now, their 60-people team sells Pico sauces through 2,000 general retailers and supermarkets. Their total funding till date is Rs. 25 crore, most of which has been from Gadkari's family.

With the packaged foods business expanding, it was becoming difficult to manage the QSR chain. It was like running two start-ups, says Gadkari. So, in 2015, when R&A Foods, the owner of fast food chains Paninaro and Pronto, expressed interest in buying PICO Express, it was an easy decision. It was an all-stock deal. Nilgai Foods got a 26 per cent stake in R&A Foods.

At this stage, their advisor, Shreekant Gupte, the former CEO of Marico, suggested that Nilgai go for a stronger product proposition. "We realised people were using our products to spice up their already-cooked meals," says Jaiswal. "We realised that India, the land of chillies and spices, does not have its own hot sauce brand. So, we pitched Pico as a spicy brand." This made sense. Globally, the hot sauce market is $20 billion. "India's share is minuscule, less than 1 per cent, as our total sauce and ketchup market is just Rs 1,500 crore," he says. So, they stopped making sweet jams and salad dressings and decided to focus on their six hot sauces and ketchups.

There were challenges. Since people in lower income groups are the biggest consumers of chilli, this also involved change in branding from premium to mass market, says Gadkari. Also, from 200-ml bottles, they started offering smaller packs, even Rs 2 sachets. With production rising, they started running the Goregaon plant in three shifts, and after it hit peak capacity of 10 tonnes for Pico sauces, moved to a 8,000-sq.ft. facility in Vasai.

Last year, Gadkari had, what the founders call, "another bhut jolokia moment", when he noticed how FMCG start-up Vita Coco's packaged coconut water had become a rage in the US. He saw an opportunity in India, the third-largest coconut producer, whose denizens were already aware of its benefits. In India, says Jaiswal, the market for "unpackaged coconut water, straight from the fruit", is Rs 2,600 crore.

"Another insight was that the coconut water exported from India will be cheaper than brands from the US or other countries," he says. In February 2016, they launched Cocofly, which did sales of Rs 25 lakh in the first month in Delhi alone.

Analysts are impressed. Pinaki Ranjan Mishra, Partner and National Leader, Retail and Consumer Products, EY, says their positioning as a spicy brand is strong. There is a huge opportunity in that space, he says. "However, I am not sure if diluting the product line with an entirely different product is such a good idea for a start-up. Easy availability and natural taste of fresh coconut as well as competition from other soft drinks means they would require a high degree of brand spend, product innovation and management focus to succeed," says Mishra.

Nilgai says it closed 2015/16 with sales of Rs 3.2 crore. The operating cost is Rs 60-70 lakh a month, says Jaiswal. The company is planning to launch marketing campaigns to increase sales. The company recently launched a marketing campaign with an aim of boosting sales 25 times. For Cocofly, says Jaiswal, promotions in radio and newspapers for a month could take it to an extra 2,500 outlets through the distribution channel for the Pico brand. They will now focus on advertising Pico sauces too. There are other plans as well. "We will launch pickles and chutneys this year. We have 12 products ready for deployment," says Gadkari.

The company is looking to raise $6-8 million this year. The founders say that as they launch the marketing campaigns for Cocofly and Pico, and start exports to Europe in April, they will be able to touch Rs 40 crore in sales by next financial year.