Neo Foods is part of the $150 million Jalan Group, which has diverse businesses: tea plantations, textile machineries, software services, engineering as well as processed vegetables and fruits. Adarsh Jalan, CEO, Neo Foods, started the company, which specialises in the processing of processed vegetables after settling down in Bengaluru 16 years ago. “I noticed that the processed food market was growing and India had several advantages. So I decided to set up a factory in 2005 geared towards exports.” The aim was to operate in the fruits and vegetables sub-segment and export gherkins, jalapenos, paprika, chips and processed vegetables to leading retail chains, distributors, food service HoReCa companies across the globe.” Today its products can be found on retail shelves across the world including Tesco, Asda, Aldi, EdeKa, Metro, Dollar General, Family Dollar, Biedronke, Woolworth, etc.
About five years ago, Neo Foods entered the domestic food service market as well. The domestic foray was initially small in scale. “About two-and-half years ago, we decided to enter the retail segment as we felt that the domestic market has changed drastically over the years, with consumers picking up gherkins and jalapenos,” says Jalan, talking of his initiative in the domestic market. The timing was bang on as a new generation of consumers, who are young, upwardly mobile and part of the urban culture of working professionals, has been gravitating toward convenience food and creating a growing market for ready-to-eat and ready-to cook products.
Neo Foods is the second-largest and fastest growing company in its sector. A major chunk of the company’s total revenue is accounted for by supplying products to markets in Germany, UK, France and the US. Jalan accepts that the domestic business is still small for the company. But he has every intention to double the revenue over the next two years. “We will target three core segments in the market, which are QSRs, modern trade and retail, and HoReCa. A fourth segment, online retailers, is also part of the growth picture.
The growth projections are based on the changing preferences of a growing number of consumers towards ready-to-eat and ready-to-cook processed foods. “People in India have started to understand these kinds of products thanks to the multi-national chains, whether it is a Domino’s or Wendy’s. These chains are our direct users as they know how to use our products. Neo is already working with chains like Domino’s, Pizza Hut, Papa John’s, Au Bon Pain, Wendy’s, Chicago Pizza and others. Even though our products are made in India, they still belong to a niche category and their consumption calls for an evolved taste. But because of these food service brands, tastes of the people are also changing. Now we have a pan-India presence,” says Jalan.
How it pickles
With a 1,20,000 square feet built-up area, Neo Foods’ factory unit is situated in Tumkur, about 75 kms from Bengaluru. The unit has a state of- the-art equipment and facilities. Apart from local conveyors, the canning, bottling and cutting machines are imported from Germany and the US. The factory is divided into two separate units so as to handle both the export and domestic production separately. The plant also meets the requirements for certification – it complies with BRC issue 6 and IFS 6 global standards by SGS. The factory has also been designed to comply with the International Food Industry Standards. Both units have independent processing and packaging lines. The capacity of the factory was ramped up in the past two years and now produces 35 million jars and cans per annum. Jalan is negotiating to purchase land to set up another factory and is increasing the acreage under contract farming. The company has also been tying up with the farmers using drip irrigation, which will increase the yield by 50 per cent per acre.
According to Neo Foods’ Director and Head of Indian Business Shalini Jalan, “People are beginning to recognise and savour the taste of our products. With demand for our products on the rise, we decided to step into the retail segment for greater reach and accessibility of our products.” As demand for Neo Foods’ products pick up in the domestic market, items that were once 100 per cent exported – gherkins, relish, burger chips, jalapenos, red paprika, baby corn and silver skin onion – are now finding greater space on retail shop shelves in the country. “We have a good control over the farm so the quality of our products is assured. We started with pickled vegetable, which we were initially exporting and now sell in India. As business continues to grow in India, we have added and are adding more products for the Indian market,” says Shalini.
According to Jalan, the northern states of India contribute the highest in terms of QSR segment sales. On the other hand, the retail segment in the south is witnessing good growth probably due to the fact that the brand has a significant presence in those states, followed by the west, which is also contributing well.
Jalapenos and gherkins have started selling well in India. Baby corn also sells well at locations that do not have access to fresh produce. Shalini points out that the Bengaluru consumers from the expat and IT community pick more of the pickled vegetables and relishes as they have consumed these products abroad. Sampling and tasting counters have helped to promote the products. In the fastest moving range of Neo Foods’ products are the Neo Sliced Jalapenos, Neo Gherkins, Neo Hot Relish, Neo Mustard Relish and Silver Skin Onions.
According to Jalan, the challenges are not at the production level but mostly on the agricultural side. “Dealing with cultivation and 10,000 farmers is not an easy task. There are risks of crop failure, which is why our cultivation is spread over Karnataka, Tamil Nadu and Andhra Pradesh. So if the crop in one region fails, we have a back-up,” explains Jalan.
Then there is the perception battle – fresh versus bottled or processed food products – which has to be dealt with and turned around. Consumers in India are still used to buying fresh produce even though the demand for convenience food is gaining ground. Shalini finds that convenience has played an important role in creating a demand for Neo Foods’ products. QSRs with their international recipes and standards are playing a key role in
promoting modern food products.
Jalan is looking to expand capacity and is planning to set up a second factory unit close to Hosur Road, in Tamil Nadu, just on the outskirts of Bengaluru. “The one we have now is close to Tumkur, which is 75 kms northwest from Bengaluru. Hosur is closer to the port and easier for export. About 30 per cent of our crop comes from Tamil Nadu and the new unit will make it easy to manage. The new factory will take one year to set up.”
The tie-up with numerous farmers across three different states is a big advantage, which ensures consistency in product replenishments. Neo Foods has recently added other faster moving product ranges. It has recently introduced its paste line, which includes ginger, garlic, ginger-garlic, chilly and onion pastes as well as its fruit range i.e. fruit cocktail, pineapple slices and pineapple tits bits. Another product line – salsa dips – is slated to follow soon.
“We had met and spoken to customers regarding ginger-garlic paste and we got the feedback that they were not getting regular supply. Since we will be sourcing our own ginger and garlic, we have a great advantage,” says Shalini. “We have also spoken to many QSRs and restaurant owners and we came to know that it is not easy getting a timely and quality supply of all the vegetables. So, why not produce and supply all vegetables and fruits in processed form for easy usage? We are also supplying our products to sauce manufacturers who use it as ingredients, and this just adds to the basket. We have added red chilly paste, which is in big demand.”
As the products are new and at least some of them are relatively nouvelle, it will take some time before they are able to grab good shelf space in bigger retail outlets. Says Shalini, “We plan to approach Reliance and Big Bazaar as most people nowadays know what jalapenos and gherkins are. Most of the new retailers opening up want to have gourmet category products on their shelves.” Presently, Neo Foods supplies products
to A Grade retailers such as Nature’s Basket , Nilgiris, Food Hall, Hyper City, Spar, Star Bazaar besides premium regional stores like Le Marche, Khan Market, M.K. Retail, etc. But plans are afoot to approach mass market retail players like Reliance and Big Bazaar, besides also entering the tier-2 cities.