Startups : How iD Fresh manages to supply packaged batter for a million idlis every day - See more a

Category: Business

While growing up in an illiterate farmer's family in a remote part of Wayanad, Kerala, P.C. Mustafa did not have a lot of expectations. "I grew up in a remote village. There was lack of basic facilities. I was poor in studies and failed in Class VI." This was just the shock he needed. As the reality of having to work on a farm if he did not study struck him, he decided to take another shot at educating himself. This time, he succeeded, and a few years later managed to join an engineering course at National Institute of Technology, Calicut. His first job was with Motorola in Bangalore. After some time, the company deputed him to the UK on a long-term project. "Maybe it's my background, or whatever, I couldn't live on a diet of potatoes there," he says. Musthafa PC is a Computer Science engineer who went on to get an MBA from IIM-Bangalore. It was during this course that he decided to take a plunge into entrepreneurship. Mustafa's cousins - Sanshudeen T.K., Abdul Nazer, Jafar T.K. and Noushad T.A. - ran a kirana shop in Thipassandra, a Bangalore suburb. "I would sit in the shop on weekends and holidays. After IIM, I could have got a job anywhere, but I decided to be on my own," says Mustafa. Sitting in the shop Mustafa would notice women buying batter for idlis and dosas. In spite of the poor quality of the batter and irregular supply, it used to fly off the shelves. This gave him the idea to enter the packaged food business for which he dipped into his Rs 14 lakh savings. He could have gone ahead and picked the highest paying job but the foodie in him made Musthafa do something he loved but had no background in – food and manufacturing. The year was 2006 and the place was Bengaluru. All across India, batter for idlis and dosas is sold in plastic bags with a rubber band to seal it. And there are millions of households that buy this batter to prepare food items. This is where the idea took birth: the plan was to put some structure to the batter industry. Musthafa got along with his four brothers and decided to start with a small pilot."Most of these people have little education and capital. What works for them is hard work. Rents are high, margins thin, but workers usually enjoy the same status as owners. When these stores grow, they have a ready supply of workers, usually friends and relatives. After a time, some workers start their own stores," he says. ID Products Range They bought a couple of machines for the batter and packaging and iD Fresh was born. “The idea was simple. We wanted to get hygienic, nicely packed batter to Indian households,” says Musthafa. Within a few weeks, this small factory in a suburb of Bengaluru was running full steam and the idea was validated. iD Fresh started a larger factory with a vision of building a food company that made preservative-free food that can be cooked at home. “We made sure that we focus on the product quality and packaging. The market is anyways huge,” says Musthafa. iD Fresh was also sure about the distribution channels. There are more than 65,000 retail stores in Bengaluru, of which about 12,000 have refrigeration. They had to increase bandwidth and get their product into as many stores as possible. After a few years of steady growth, iD Fresh decided to raise funds and expand its reach. The company raised Rs 35 crore from Helion Venture Partners in 2014. At that time, the company was 600-people strong and the new funds are to be used to scale up and introduce more products. Now, iDfresh is a 1000+-member team with seven factory locations and eight offices. “We now manufacture 50,000 kgs of idli/dosa batter per day which is equivalent to a million idlis,” says Musthafa. Besides batter, iDfresh has also introduced Malabar parotas and chutneys which have become a household item in south India. Idli/dosa batter is their most popular product followed by Malabarparota. Talking about the process, Musthafa says, “Batter is made, seal packed and loaded into chiller vans as early as five am. It is then supplied to stores across Bengaluru and other cities we operate in. We have partnered with thousands of retail stores and the supply to all these areas are completed by two pm latest.” The company has reached a scale where the company can also estimate the demand in each of these stores and stock accordingly. Its is a great example of a new brand that has built a strong, sustainable venture in the food industry. The company also has partnerships with grocery delivery portals like Bigbasket, Grofers etc. “These new channels are great for the customers to order what they need on demand but when it comes to our sales, online is still only a fraction of the overall market,” says Musthafa. The cousins, aware of their humble background, started small. They brought 5,000 kg rice and made 15,000 kg batter, which they distributed as samples. "This is where feedback from our kirana customers was crucial. By the end of the experiment, we knew how to make ideal batter." Mustafa says with advent of nuclear households, Indian women have enormous demands on their time as they juggle job and house work. "She wants to be seen as taking care of her family by serving them fresh food. Our aim was to complement her efforts, not compete with her, which is why we will never get into the ready-to-eat segment. Our aim was if the idli was fluffy and tasted well, credit should go to her," he says. In 2008, the cousins rented a 50-square-feet kitchen and a grinder. The batter was delivered on a scooter. Nazer did the grinding while Sanshudeen took care of delivery. And yes, the Malayali kirana network did help, at least in the beginning. Mustafa says initially the idea was he would remain just an investor. "I had to take a call. If we wanted to scale up, we had to put organisational structures in place and run operations professionally. That is when I decided to enter the business full time and the company started operating formally," he says. What set them apart, he says, was quality. They did not add preservatives or additives to the batter and used low-sodium salt and water purified by the reverse osmosis method. "Our product is 100 per cent natural. We do not use chemicals or preservatives. It is just like the home-made product." While the company was informally known as Best Foods Pvt Ltd, copyright issues forced a change to ID Special Foods Pvt Ltd. Sadananda Maiya, who built and later sold MTR Foods, and who now runs Maiya Foods, which is into spices, ready mixes and ready-to-eat segments, says the fresh food business is risky because of the short shelf life of the products and the problem of logistics. "It is hard to crack," he says. ID, however, seems to have done it. By 2010, the brothers were selling 2,000 kg batter a day. The annual revenue had touched Rs 4 crore. The company employed 40 people, though distribution was limited to Bangalore. At this stage, attempts to expand to Chennai failed. "We learnt several lessons. First, this is as much a logistics business due to the product's short shelf life as it is a food business. One reason our attempt to crack the Chennai market failed was the poor quality of refrigeration and air-conditioning facilities." Attempt to diversify by getting into snacks such as rose cookies and diamond cuts didn't take off either due to lack of value proposition and product differentiation. Here, the company did not stick to its core strength - making products with a short shelf life. Other challenges also kept cropping up. One was wastage. As it is a daily distribution business, inventory means losses. In the early days, wastage was as high as 25 per cent. "We had to get the ideal mean between ensuring availability and minimising unsold inventory." Mustafa says that is where his IT experience helped. They developed an application to capture data on a real-time basis, cutting wastage to 1.6 per cent. Also, the plan to sell Malabar parotas, which have a shelf life of three days, took off. Today, apart from 50,000 kg batter, the company sells 40,000 chapatis, two lakh parotas and 2,000 packets (200 gm each) of tomato and coriander chutney in a day. Parotas accounted for 40 per cent of ID's Rs 62-crore revenue in 2014/15. ID today sells in eight cities - Bangalore, Mysore, Mangalore, Chennai, Mumbai, Hyderabad, Pune and Sharjah. A total of 200 Tata Ace delivery vehicles go around the seven cities in India. ID now employs 650 people, touching more than 10,000 stores a day. Mustafa says the company has been profitable from day one and the amount of batter it sells in one day can make a million idlis. Most of the expansion has been done by ploughing back profits. They could have borrowed to grow faster, but Mustafa says religious principles forbid them from taking loans. Six months ago, ID raised Rs 35 crore from Helion Ventures, a venture capital (VC) fund, to modernise its factories, expand its fleet, and for marketing and R&D. Mustafa says mentoring by people such as management consultant Ashok Dhingra, which was enabled by Helion, is what attracted him to Helion "in spite of being wooed by more than 60 VCs". In the pipeline are fresh sambhar, coconut chutney and dhokla for the Ahmedabad market. ID plans to be present in 30 cities in the next six years, though Mustafa says it will not get into ready-mix spices or categories where there are large players unless they can ensure differentiation. Harish Bijoor, who runs an eponymous management consultancy, says scaling up the fresh food business is not easy. "Unlike batter, which is a fairly standard product, succeeding in other daily food categories may be harder due to regional variations in taste," he says. 'THIS IS AS MUCH A LOGISTICS BUSINESS AS IT IS A FOOD BUSINESS. ONE REASON OUR ATTEMPT TO CRACK THE CHENNAI MARKET FAILED WAS THE POOR QUALITY OF REFRIGERATION,' says P.C. MUSTAFA, founder, ID Special Foods. But a gung-ho Mustafa says with a smile: "For a guy who failed his sixth standard, I don't think I have done badly by selling batter." There are a lot of startups in the food delivery space and after a big splurge of funding, we are seeing a correction in the market. There are various models- delivery from restaurants, Internet-first kitchens etc. The market is large but there are too many players and consolidation seems like the only way ahead. For iD Fresh, the path ahead is clear: build on the product line and expansion across cities. The company has also gone international with sales in the Middle East. “We are confident about the space we are in and want to maintain our market leader position. We are targeting to be a Rs 1,000-crore company by 2020,” says Musthafa. Website : http://www.idspecial.com/ - See more at: http://www.khanstory.com/2015/11/how-id-fresh-manages-to-supply-packaged.html#sthash.2EYxTAJx.dpuf