Fruit & Vegetable retail in India is gradually transforming with organised players revisiting their business model at every step of the value chain from farm to fork, in order to restructure it. They are reinventing their distribution and marketing strategies, and also testing newer retail formats and practices that may lead to fresh growth channels.
Organised retailing is gaining momentum in India. The trend has also picked up pace in food and grocery selling which is the largest category, comprising almost 60 percent of total retail. Unlike other food segments, the organised fresh fruits and vegetables (F&V) sector has been a slow mover. The economic liberalisation in 1991 paved the way for modern retailers to foray into F&V business. The entry of corporate retailers like Reliance Fresh, Safal (Mother Dairy), More (A B Group), Heritage Fresh, Big Baazar and Food Bazaar (Future Group), Nature’s Basket (Godrej), etc, into this business was significant too as it made the sector more organised, more modern and more challenging.
They brought with them a fresh approach to the trade by opening new format stores that offered convenient and superior shopping experience. It seemed that their huge investments would give them quick traction and rapid growth. Traditional retailers and small vendors regarded them as a potential threat of ‘big fish eating small fish’. But after all these years, fruits and vegetable selling still remains the mainstay of conventional vendors, hawkers, and peddlers. Operating through mandis, small roadside kiosks, or pushcarts, they continue to be fiercely competitive and hold over 96 percent of F&V retail. On the other hand, the extent of modern retail is only up to 3-4 percent of the total retail. This is forcing organised players to revisit their business and distribution models to increase their market share. Further, as the modern consumerist culture takes deeper roots in India, a bigger tussle between organised and unorganised players is inevitable.
Organised retail gaining ground
In the U.S., Australia, Canada and Asian countries like Indonesia, Malaysia, Thailand, and Philippines, organised F&V retail is highly developed. In contrast, the Indian market is in the early stages of development. “The F&V trade in India is quite complex, uncertain, ambiguous and volatile. It is further compounded by the perishability factor intrinsic to the category, seasonality and cyclic nature of production system. Despite being a low margin business, it offers tremendous market potential. As of now, organised retailing in this space is very low in our country. The local fruit and vegetable vendors dominate the market,” observes Pradipta Kumar Sahoo, Business Head – Horticulture, Mother Dairy Fruit & Vegetable Pvt Ltd. The company is a leading organised retailer of fruits and vegetables across Delhi/NCR under the Safal brand. Having pioneered the concept almost 25 years ago, it currently runs 350 Safal stores. According to Sahoo, the idea of Safal was to provide a continuous and reliable supply of fresh produce to its customers, all the year around, without compromising on the core values of safety, freshness, and value for money.
Hyderabad-based Heritage Foods has affirmed significant presence in the southern states through 68 Heritage Fresh supermarkets where F&V is the main attraction. S Jagadish Krishnan, Chief Operating Officer of the company’s retail and bakery divisions, comments, “Fresh produce retailing in India is largely unorganised. The vendors procure their stock from wholesale mandis and sell by going from street to street or through small roadside shops. Besides, there are local weekly bazaars that spring up in various localities. So, pure organised F&V retail segment is still niche and there are not many players in it. It takes time and patience to understand and sustain in this category as one is dealing with products that have only 1 or 2 days of shelf life.”
Kovai Pazhamudir Nilayam (KPN) is a leading retailer of fruits and vegetables based in Coimbatore, Tamil Nadu. It began its journey in 1965 as a single shop and by 1985 had expanded to four outlets only. However, over the years, it has expanded to become a multi-crore chain of 44 outlets spread across the state. Senthil Natrajan, the Managing Director and son of KPN’s founder N. Natrajan, feels that traditional sellers will always remain their primary competition since they are deeply connected with buyers and know exactly what they are selling, and (mostly) understand quality also. Apart from this, they don’t have rentals or high fixed costs. “Where we can be better is in our ability to provide more variety given the vast space in our outlets, hygienic shopping conditions, and ambient atmosphere, ” he adds. The business model of KPN is very basic and suitable for tier 2 and 3 cities. Its further growth will depend on its capacity for maintaining fresh stocks, competitive pricing, adding products that would entail efficient logistics, and a proper cold chain.
Impact on supply chain
There is growing awareness amongst farmers, producers, suppliers, wholesalers, retailers, and even the end-consumers, regarding the benefits of organised play. The organised F&V supply chain helps in doing away with too many middlemen and hence bringing greater value and profitability to all. “In the traditional model, there can be as many as 2 to 4 intermediaries between the consumer and the farmer. The reforms under the Agriculture Produce Marketing Committee (APMC) Act have enabled retailers to directly procure from farmers in many states. Corporates and chains procure fruits ex-farm for both domestic distribution and exports. For vegetables, however, sourcing is still largely dependent on wholesale mandis,” notes Krishnan from Heritage Foods.
Nonetheless, structuring is catching up at every step of the value chain. There are a number of agribusiness and large retail chains that work on the contract farming model. Desai F&V, a fruit exporter; Fieldfresh Foods (a Bharti & Del Monte joint venture), a vegetable exporter; and Champion Agro Fresh, supplier of fruits and vegetables to the domestic and overseas market; all sign contract farming agreements with growers. While Namdhari’s Fresh is an F&V exporter as well as retailer with 20 outlets in Bangalore, Heritage Food’s agribusiness division not only feeds its supermarkets but also supplies to other organised retailers and general trade.
Large retail chains like Reliance Fresh, Food Bazaar, More, Easyday, Spencer’s, and Safal also have networking with farmers for direct sourcing under this model. Additionally, they buy from local markets to maintain daily stock requirement. Sahoo at Safal informs, “We have farmer’s association across 14 states and they supply us fruits and vegetable round the year. Our field team empowers them with information on crop planning, good agricultural practices, and most importantly, with market linkages.”
KPN’s Natrajan informs, “Our business model consists of a centralised warehouse integrated with the cold chain, and a strong distribution network that is well connected to its outlets. The central warehouse also acts as a collection centre for farmers and agents.”
Most recently, Mahindra & Mahindra (M&M Ltd), Mahindra Group’s agribusiness vertical, launched its fresh fruit brand Saboro in Hyderabad. It offers a wide range of fresh fruits, including imports. It is the first Indian corporate to offer such a wide variety of branded fruits to the consumer. Sharing the motivating factors that drove the conglomerate into fruit growing, Ashok Sharma, Chief Executive – Agri & Allied Business, M&M Ltd, reveals, “Saboro is a natural extension of our already established farm equipment business. The F&V industry in India is valued at Rs 2 lakh crore and consumption has been growing at a CAGR of 10 percent in value terms over the last decade. There is also a big consumer segment that is extremely health conscious and quality conscious. Only organised production can guarantee high quality standard. Thus, we see a lot of potential in this business. We deliver ‘FarmTech’ prosperity to farmers linked with us via our signature services model that includes end-to-end extension services such as agronomy, certification, grading and packaging, and finally procurement. We make the produce available through modern retail stores and currently are in partnership with Heritage Foods for our retail supply in Hyderabad. We’ll look for similar alliances in other cities too.”
Big Bazaar is also planning to introduce its own branded vegetables. The supply side is further strengthened by importers like Ind Thai Fresh Agro Impex from Piranoor (Tamil Nadu), East Asia Trading from Mumbai, Gokul Fresh from Kolkata, and many others which procure fresh produce from outside of India to be distributed locally. Explains Bhavin Shah, Director, Gokul Fresh, “We import exotic fresh fruits and vegetables from across the globe as well as procure premium produce from India. Presently, we are distributing mainly to all premium resellers and retailers in Kolkata.
Additionally, we supply to the hospitality industry and cater to weddings and other events.” He informs that F&V import companies have to face several regulatory issues at point of entry by the FSSAI, Port Health Officer, Customs, Plant Quarantine, etc. The company is planning to set up four company-owned retail outlets in Kolkata, and also plans to branch out to tier 1 and 2 cities in eastern India.
The sector’s back-end is also being strengthened by modern wholesalers like the homegrown Adani Fresh, and the international Metro of Germany and Carrefour of France. All of them are serving as a potent link between farmers and retailers by providing the much-needed infrastructure to purchase and market fresh produce in the country.
Innovations in F&V retail
Distribution of fresh produce is continually evolving. Time and again, there are newer formats and practices that are experimented with. Such innovations may lead to discovery of potential new growth channels. In recent years, with e-commerce wave has encapsulated various retail segments, and the F&V sector has also been invaded by e-tailers such as N-Fresh, Blive, Veg on Call in Delhi, Veggie Bazaar in Chennai, and Farm2kitchen in Gurgaon, etc. Ease of online ordering system from home and delivery to the doorstep are their unique selling propositions.
However, most of the web stores have been unable to compete with physical stores. But Farm2kitchen seems to have gained a sound footing in this space. Founded by Seema Dholi in 2011 in Gurgaon, it sells farm fresh produce via Facebook and the company’s website. As a women entrepreneur, she understood the hectic lifestyle of working women and found them to be her potential (primary) customers. She explains, “The population of working women has increased significantly in recent years. Their growing proportion means that the kitchen is getting re-de?ned with regards to grocery shopping. Also, they value time, space and privacy. All these are taken care of when one shops from an online platform like ours.”
What’s more, Farm2Kitchen is working on being the producer, processor and retailer of organic food. It has collaborated with Nashik-headquartered Sahyadri Farmers Producer Company Ltd, a leader in food safety practices especially pertaining to fresh F&V, to help with procurement and logistics. “We have moved into offline retailing along with our online business. With the recent roll out of Farm2Kitchen Organic Food & Lifestyle Retail Store in Pune, we plan to open more outlets in major cities in 2014,” discloses Dholi.
Nature’s Basket by Godrej also deserves a mention. The corporate retailer sells fresh organic produce besides other food items and ingredients through both offline and online modes. Presently, it has 30 stores across five key cities.
While Safal by Mother Dairy has come up with eco-friendly vending carts in Delhi, Taaza Plaza is a unique ‘retail store on wheels’ concept launched in Mumbai last year. It is a public-private partnership (PPP) between Star Agriwarehousing & Collateral Management along with Fuzion, and the Maharashtra State Agriculture Marketing Board. Sharmila Banerjee, Founder and CEO of Taaza Plaza sheds light on the venture, “Taaza Plaza aims to connect farmers with consumers and create alternative marketing systems for purchasing and selling of fresh produce by eliminating middlemen. We are replicating the Western concept of mobile retail outlets. Our mobile vans, fitted with weighing machines, are parked inside residential premises to provide fresh produce at consumers’ doorsteps. We have trained and professional van staff. We have E-bills and also home delivery. Retailing in India is gearing towards convenience and quality. I see farm to fork becoming a game changer in the near future.” The venture is looking to expand across Maharashtra.
Gokul Fresh, in addition to regular products, will also be focussing on the organic F&V category to benefit from rising consumer demand for such products, especially amongst health conscious consumers. They are also planning to invest in a customer education initiative by having an in-house expert team to inform consumers on the health benefits of organic produce.
Key growth drivers
Traditional retail is making way for organised formats like supermarkets, departmental stores and convenience outlets. Most of them sell horticulture produce, or fruits and vegetables, and the category amounts to 3 to 4 percent of their entire business. It may be a small figure vis-à-vis traditional trade, but industry experts view it as an encouraging scenario. But do they cater more to upward and urban consumers? Perhaps not. Besides metros and class A centres, Reliance Fresh, More, Safal, Heritage Fresh, Big Bazaar Kovai Pazhamudir Nilayam, Namdhari’s Fresh, etc, are present in class B and C cities also.
The foray of modern retail into smaller cities is a testimony that the country’s F&V retail sector is slowly but steadily transforming. On the demand side, the transformation is led by factors like rising incomes, improved living standards, busy lifestyle, and demand for quality. On the supply side, modern retailers are creating value in the front-end by having convenient locations, a broad range of products, quality at comparative prices, comfortable shopping atmosphere, and better services.
Pre-cut for success?
Although most consumers prefer whole fruits and vegetables over pre-cut, still a number of working women, singles or couples, students living away from home, and even housewives are finding comfort in pre-cut fresh fruits and vegetables as these save cutting/cooking time, and suit their their busy lifestyle.
But the category has yet to find favour among mass consumers. Bangalore-based Wyn Brands, marketer of fresh fruits and vegetables, experimented with supplying pre-cut veggies and fruits to the city’s grocery stores during 2003-2006. Says Stephen Poonen, Founder, Wyn Brands, “We began supplying pre-cut F&V to many grocery stores in Bangalore in 2003. Those were the early days of modern retail in the country. The idea didn’t garner the anticipated response because of issues of insufficient chilled storage space and lack of initiatives to popularise the category. Also, large size households find pack size of 250 gms insufficient.”
Poonen is of the view that veggies are normally the loss leaders in the supermarket format and they are essentially used to draw footfalls in a store. Yet he believes that customers are more receptive to the pre-cut category while the traditionalists prefer whole veggies. “But, even today, I do not see more shelf space allocated to cut as compared to whole F&V,” he opines.
Even established fresh produce retailers like Heritage Foods did not find the category gainful and discontinued sale of pre-cut veggies at its stores. However, in the past few years the scenario has been gradually changing. Having recognsied the emerging consumer segment, Reliance Fresh, Max Hypermarkets, Spencer’s, etc are stocking their shelves with packaged pre-cut fresh F&V.
Ponnu Subramanian, Sr. Vice President – B&M (Foods) & SCM, Max Hypermarket India, talks about the current demand scenario for pre-cut F&V: “The demand for pre-cut fruits and vegetables at our stores, though small at this moment, has really picked up, especially in the last one year. We have observed that the cut veggies are more popular with bachelors, while the cut fruit segment is bought by all types of customers. The more popular products are peeled garlic and onion, skinned out pineapple, straight-cut beans, skinned sugarcane bits, sweet corn kernels, de-husked baby corn, etc. While mix cut vegetables like Pulav mix, Chinese cut veg mix are doing well in the north, pre-prepared products like peeled garlic and onion are doing well in the south.
In the case of pre-cut F&V, higher input costs like extended refrigeration or transportation costs, extra handling, cleansing and cutting, extra packaging, etc lead to higher pricing as compared to the whole variant. Subramanian (Max Hypermarket) says, “Normally, we do not procure cut fruits and vegetables separately, and it is done internally. However, we face the challenge of educating customers about real pricing of pre-cut category. At face value, the cut fruits and vegetable appear to be too expensive but if one calculates net useable portion of any whole fruits or vegetables, the cut variety will come across as a practical solution from the pricing point of view. However, this knowledge and approach is still to develop in the customer’s mind.”
Regarding storage and wastage issues, Subramanian ensures that his company outlets and F&V collection centres have adequate temperature controlled storage and display so that the storage issue does not arise. He also points out that for normal retailers, storage will be a challenge as cut fruits and vegetables are likely to perish faster.
But is the category cut out for greater success? Subramanian states: “Currently we, at Max Hypermarket, are not looking at viability separately as we are in the business building stage of this new segment. The contribution of cut F&V to the total F&V sale is 1.5 percent in our south-based stores and it is about 9 percent in the north. The contribution is set for a 50 percent increase in the coming year.”
India is the world’s second largest producer of fruits and vegetables after China. As per a report, fresh produce worth Rs 13,300 goes into wastage every year due to acute shortage of cold storage and refrigerated transport. To match the growing production levels, capital infusion of over Rs 55,000 crore is required by 2015-16, which will help in removing supply chain inefficiencies.
Sharma at M&M Ltd points out, “Fragmented supply chain, low market visibility for the producer, lack of clarity regarding consumer requirements, and lack of regulations or enforcement of regulations are some issues peculiar to F&V trade. The industry will become more organised with the passage of time.” He hopes that information technology will also help in overcoming barriers between the producer and consumer. All this will lead to more value creation for both.
At the store operations level, grocers have to face logistic costs, high rentals, and other overheads. They also have to deal with problems typically related to F&V stock such as storage, freshness, and wastage. According to Krishnan at Heritage Foods, managing a fresh produce value chain requires alertness and close monitoring. As much as possible, the fresh produce should be sold at the store level by cutting down on the material turnaround time between harvesting and selling. Multiple handling of the produce must be avoided as it leads to quality deterioration. “In our stores, category management at the front-end is aimed at presenting and managing the F&V portfolio in a manner most appealing and tempting for the consumer. Specific processes have been enabled to keep the material fresh and graded at the store level.”
Sahoo at Safal opines, “The shelf life of the product is critical for deciding how we should handle it in terms of sourcing and storage. Products with low shelf life of a few hours have to be sourced from nearby areas and distributed with minimum handling. For products having a longer shelf life, we have our own and third party storage facilities across various centers in India.”
As a supplier, Shah from Gokul Fresh also has to deal with storage and freshness issues. “The most important aspect of our business is to maintain the freshness of our produce. This is done by having a strong back-end with trained employees to continuously monitor the quality of the inventory while maintaining the cold chain,” he shares.
A major concern for organic produce retailers like Farm2Kitchen is procurement. Seema Dhoil states, “Backward linkages are very important for us as we face greater challenges. Organic fruits and veggies retailing has enhanced costs and risks. As compared to conventional farmers, there is a lesser number of farmers in organic farming. We have to deal with a number of small suppliers with issues of perishability, shrinkage, and unsold inventory adding to the total cost structure.”
Ripening market for fresh
The silver lining is that demand for safe, healthy fruits and vegetables is on the rise as more and more people are looking for healthier food options, remarks Sahoo at Safal. But he would like to see how complexity and fragmentation in the entire value chain will be resolved.
People are quite aware of what is available abroad in terms of both variety and quality and they are consciously looking for similar products locally, observes Shah (Gokul Fresh). According to him, even for products like fruits and veggies, consumers now prefer modern outlets over traditional shops as they want a good shopping experience before actually savouring their purchase.
Kovai Pazhamudir Nilayam is looking for expansion in a big way, but wants to grow organically. As Natrajan says, “It will be wiser for us to move to geographies in closer proximity (nearby cities) where our supply chain can reach easily.”
Krishnan of Heritage Foods comments, “In F&V business, factors like nature of market, consumer behaviour, and traditional practices pose a bigger challenge for an organised player than high capital requirement. He believes FDI can be useful in strengthening the back-end for better supply chain linkages, especially in the fruits category.”
Viewing public-private partnerships as the future of the retail industry, Sharmila Banarjee from Taaza Plaza quips, “The government can play a facilitator’s role but it’s the private sector that needs to have a larger role. With urbanisation and fast paced life, a concept like ours that offers greater convenience to consumers, is going to impact the industry in a big way and will gain wider acceptance in the years to come.”
M&M’s Sharma stresses that more than foreign funding, simplifying regulations, debottlenecking of the current agro supply chain, and encouraging private participation through constructive PPP model will be much more beneficial for making the industry more organised.
About the Author
Namita Bhagat has an academic background in management and finance. She writes on the retail and franchise business in the Indian and Middle East markets.