Vegetable Retail

The first real idea that I had for doing a business was around selling vegetables.

It was the year 2005. Most of my friends from graduation and I were employed at good companies where we spent more than half our days. The evenings and weekends were more fun, mostly attributed to the endless gossips, gaming, movies and a bachelor's activity in kitchen. Since many of us felt a nagging for doing something extraordinary (actually to be making a lots of money :)), our meetings soon became the forum for business ideas.

Apparently, most of my ideas were very conventional. Rather than crazy new inventions, they all covered activities/businesses that were already in place. (All my ideas were about one or more of the following: optimizing processes, redefining/improving user experience, automation, integration/unification, solving day to day problems, organizing an unorganized market etc)

My Vegetable Retailing idea had two dimensions:

1. First was my vision of an "Organized" vegetable retail market in India and the role of Reliance in it.
2. Second was that of creating a niche for myself (selling high quality vegetables at high prices (and high margins :)) for the high end customers (upper 2% of the market))

Coming back to the first part and answering the two obvious questions:

Why Vegetable Retail?

Well, I thought about the typical consumer spending patterns.

• People buy shoes/footwear once or twice a year (It is true for about 50% of the world population that has descended from Mars)
• People buy clothes once in a month or a quarter (again, the other 50% population that descended from Venus does this more often)
• People buy groceries weekly or monthly (typically)

(and all these naturally differ drastically in amounts and frequency for different people)

But one thing that no human can survive without is food.
Every single family that I have known buys vegetables at least once a week (in most cases, more often)

Another disheartening observation was to see how the Vegetable prices change between the time they leave the hands of the farmer and when they are finally bought by a retail customer for consumption. In some cases, I found what was sold by farmers at Rs 3/- per kg would retail anywhere between 10/- and 20/- in small towns and metros. (Poor farmers and Poor consumers!)

I realized there was a huge scope for backward integration. (Something on lines of what Amul has done for the dairy/milk sector)
Lastly, I'd expect higher operating margins for vegetable retail as compared to the other forms of organized retail.

Why Reliance?

Well, because I was a Reliance shareholder and strongly felt that this was the company that had the right scale that could completely transform the whole sector. (especially after having been positively impressed with their action and strategy in telecom market)

The question was: whether the presently scattered/unorganized vegetable retail market in India could be organized over the next decade.

Lets do a modest top down analysis to see the potential and market size:

Population: 110 crore (1100 million)
(Assuming that more than half the population does not eat food or grows its own food, we would still have about 50 crore (or 500 million) consumers)
Taking an average family size of 5, this translates into 10 crore (or 100 million) Families.
Assuming Rs: 10/- (or 20 cents) are spent everyday per individual on vegetables and fruits.
(This translates to Rs: 50/- per family per day and a monthly family expenditure of Rs: 1500/- on vegetables and fruits)

So 100 million families would spend about Rs: 15000 crore (or $ 3.2 billion) monthly on vegetables. That makes an annual market size of Rs: 180000 crore (or $38 billion)

If this market was to be Organized with the help of a superb backward network/integration, there was going to be value at least for the buyer(consumer) and the seller(farmers)

The major player could potentially grab about 20% of the market share as the market moved from unorganized to organized over the next 2 decades.
This meant sales of about Rs: 45,000 crore (or $9.5 billion)

Even at 10% profit margins, we are talking of a billion dollars in profits annually.

In fact, to be honest, I'd expect the market to be much bigger in the years to come. (at least 4 times the modest estimate above)

• The market increases when the remaining 600 million also start eating.
• The market increases with the development and improvement in lifestyles.
• The market increases when people start spending more than Rs: 10/- per person on fruits and vegetables.

Moreover, Intelligent players would not limit themselves to vegetables, they'd expand to fruits, regular grocery items, milk products etc

For Reliance, this would have meant growing a new business that could potentially be bigger than its existing business.

Eventually in 2006, Reliance did come up with its retail plans announcing "Reliance Fresh"

Needless to say, I was the most excited of all, as several close ones called me and asked if I had made my recommendation to Mr. Ambani :)

Over the last 3 years, my observation is that it has certainly not been as successful as I had imagined it would be. Backward integration is tough, specially when it comes at the cost of eliminating a lot of traders and middle men. Politics and resilience kicks in as soon as you begin realizing your ideas and plans. In fact, even of the front end, there is a lot of competition now, as more and more players have jumped into retail.

My idea for myself was that of forming a niche. That of having vegetable/fruit outlets in all higher end residential societies, starting from one society in one city and eventually expanding to more, pretty much organically.

In fact, there is also a good(fast growing) market for peeled/chopped/sliced/washed and nicely packed vegetables and sprouts etc that are "ready to cook". The value add here is more than obvious.

If you go up one more level up the value chain, you have "ready to eat, precooked/frozen foods" already retailed by several known brands :)

However, my software engineer friends were more interested in selling vegetables and groceries over the web/internet. I constantly argued that all the Indian women that I had ever seen buying vegetables, liked to feel/prick/stress-test every single tomato/ themselves before approving it for purchase. And this was not possible online!

However, my mom was pretty upset to know that I was planning to quit my job and start selling vegetables. (What have you done engineering for ?)

My plans of Vegetable Retailing like all other plans slowly faded away / died out, and I decided to continue my focus on consuming, one thing that I was really good at !