‘The margin expectations in the distribution network is the biggest retail challenge’ says Pankaj Agarwal, Just Organik
In an exclusive interview with Pankaj Agarwal, Co-founder & MD, Just Organik sheds light how organic is an emerging category for retail brands.BY Shipra Srivastava | September 19, 2018 | comments ( 0 ) |
How did Just Organik started and the journey so far? Also shed light on your entrepreneur journey so far?
With the inroots in the technology, Just Organik was first conceptualized about 5 years ago when a life impacting event forced to think beyond the 18 years of corporate job and think the obvious. With an ambition to facilitate safe and healthy food to everyone we conceptualized “right to safe food a fundamental right” and the answer was organic certified everyday food. The venture began its journey initially with connecting verified organic farmers in Uttarakhand to the urban consumers through a dedicated e-commerce. What started as a small initiative to help organic food reach every Indian kitchen has now taken the form of a reputed national organic produce brand. Products from Just Organik are now available on most of the retail stores and major online e-commerce platforms as well.
The journey of Just Organik has been a shining beacon of hope for those who look forward to changing lives positively. The roots of our success lie in the dedication, perseverance, and persistence in providing authentic organic produce to our customers. Our brand is not just helping the consumers to stay fit but also aiding farmers financially by providing them a means to generate sustainable livelihood. Organic farming is the only holistic and sustainable form of the agriculture that also helps in achieving the target of doubling farmer income by 2022.
Kindly shed light how organic food market is evolving in the country? Kindly shed light on few numbers to quantify the same.
The last decade has seen a lot more shuffle in the diet regimen of people around the globe, owing to medical researches and scientific advancements. Even in India, most people try to incorporate healthy, safe and nutritious food in their diets. This widespread awakening has paved the path for organic food consumption globally.
India hosts almost 20% of the global population but unfortunately contributes to less than 0.2% of the organic food market. While the global business is at around 80 bn USD, although largely unorganized yet the Indian domestic organic food market worth around 1000 Crore rupees today. A majority of the contribution of the Organic growth is from the global market with the exports hovering around 2300 Cr.
Though this is disappointing but represents a huge potential for business growth. India has the largest organic land available thus providing the opportunity to grow phenomenally well.
The need is to build the consumer confidence. The start of the Jaivik India compliance for organic produce by FSSAI shall be able to provide the much needed confidence to the consumers and result in industrial growth. It will also regulate the market for authenticity. In the next 2 years, organic food market is expected to grow at a CAGR of 30%.
What is the current distribution of Just Organik in the online as well as offline space? Also going forward what are the plans to scale up the distribution?
Just Organik has clearly worked on the strategy to make it sustainable for the company and other stake holders. We are not equipped with huge funds to spend the money on visibility, TVC or other forms of advertisements. Even the digital space costs a lot of money and hence competing with traditional brands in the commodity market, flushed with money was a challenge. We first focused on our packaging to get entry into the Modern trade chains. Even now 80% of the total offline sales comes from the modern trade. Focusing on the online market was the natural extension and going to GT was inevitable. However the huge cost of this distribution channel is counterproductive to the expansion strategy for Just Organik where we want to make the organic more affordable and reachable to general consumers.
We are choosing our distribution channels and the partners that synergies with the thought process of the company. Which is making it sustainable for everyone. We are not in the race of booking the revenue with negative profits like some of the brands have started doing it and offering the margins north of 40% to the retailers.
Domestic expansion and international expansion is all driven by the carefully chosen business partners, giving us steady growth.
Just Organik is now working on some innovative distribution channels for which the pilot has already been launched. These channels are to engage the consumers directly and make then the flag bearer for the organic and safe food. It is a win win situation for all. The initial results are very encouraging and we plan to push it aggressively in the next quarter.
According to you, what are the challenges in this space?
There are a number of challenges that the Indian organic food industry is facing today and that is also the reason that the Indian is no where on the global organic consumption map.
First and fore most is the lack of money in this sector as the large scale industrial houses are still missing and it is still not a darling for the investors. With the lack of available finance, the growth is only organic and not disruptive enough.
Even the government is not consumer centric at this point in time and more farmer centric. If there is enough demand generated, the backend will automatically get strengthen with the available govt support.
The margin expectations in the distribution network is the biggest retail challenge. Since the players are still new, they tend to undercut each other for the limited available space at the retailer shelves. Retailers are smart and they demand for huge margins, not recognizing the fact that this leads to the increased pricing, therefore keeping the consumer uptake slow.
The trust deficit from the consumer side is another challenge. With the cultural undertones for mistrusting the compliances and lax attitude from the regulator is not helping at all. No effort is being spend by any stake holder, including government to educate the consumer and talk about the benefits of organic food. Even industry is not flushed with money spend on this aspect.
Supply-demand disparity is also causing trouble for the overall industry, specifically for the fresh fruits and vegetables (F&V) segment. The demand is coming from the metros while the cultivation is in the remote areas. Availability of the cold chain for the same becomes mandatory e.g. supplying the organic fruits from Sikkim will be a logistics challenge.
How receptive are venture capitalists and private equity keen on funding such models?
Most of the players in this industry are new and do not belong the regular industrial houses. Apart from the market leader there are only few that have been invested. Untimely death of many brands is a result of this scarcity and unsustainable growth strategies. The e-commtype of glamour is still missing despite presenting a huge opportunity in this space. This may be because of the perception that the sector is swinging between being positioned as a social venture to agri venture or manufacturing or FMCG and hence a clear set of investors is not in view.
So far most of thecompanies that have entered the organic food industry are bootstrapped including Just Organik. Despite being an industry thought leader in the organic food segment, venture capital interest seems to be missing.
Which regions are indicating a favorable response and for what products?
All the regions that have higher sense of wellness and heightened awareness levels for the health and wellness combined with higher disposal income, more “ITfied” Metros and Cities are preferred destination for the organic brands and retailers. South India is high on this barometer and hence the largest organic consuming region, followed by NCR, Mumbai and then Kolkotta. These are also the regions where it is very easy to get what consumers ask for and complete product profile is available through all the possible sales and deliverychannels.
Recentlywe are seeing a lot of interest coming from the class B towns and cities. On the online market place, most of the orders are from these places. The demand for the products that are little beyond the normal grocery and towards wellness is higher. Products like organic tea, millets, seeds, jaggery and oils sell better in these areas.
This may also be because of the fact that in the class B towns and cities, the delivery channels are limited and hence the demand for the normal grocerycan not be met immediately, when needed.
Detail the organic products on sale and how Just Organik has grown over the years?
When we started in 2013, the supply of grocery using ecomm itself was new and organic being a nichecategory; it was even harder to convince the consumer to take this route. There were limited players and the consumer segment was different, belonging to much mature and cosmopolitan generation.
As the concern for the health grew over last few years, organic category has also grown. Influence of the global demand and the fast pace of digital communication channels have contributed the growth of organic industry.
Our quality of the products, range to fulfill the everyday kitchen requirements and innovative sales channels has contributed the growth in a positive way. While our revenue in the first year was only Rs 2 lakhs with hardly 15 SKUs to offer, today we have at 9 digitmonthly revenue with more than 150 SKUs and over 80 unique products. Recently awarded for the best product range in organic category this phenomenal growth is an indication of putting right strategies together.
Today we are working directly with the farmers for the procurement of most of our produce and tying up with various government supported cooperatives for the sourcing of best of the produce available.
Have you raised any sorts of funds so far or plan to?
Started with a small seed capital, even today it is largely self funded with the support of family and bank overdraft limits. We have recently raised some short term debt to meet the working capital and inventory needs.
Now is the time to go for the equity based funding to support our expansion plan and increase the visibility. We are also looking at some strategic partners to support us with the funding needs.
Kindly shed light on your expansion plans? How much investment are you looking to pump in to ramp up the expansion?
The geographical expansion is happening simultaneously in domestic market as well as in the international market. Domestically we are expanding with appointing new distributors and going after the direct to home approach while for the international market we have signed up distributors for Singapore, Middle East and American market.
From the product expansion perspective, we are launching the wholesome, instant and organic meals to support the various dietary regime e.g. “weight management” and “detox”. These are millet based with almost nill fat and under the sub brand “Ethnic Cravings”. Initial offering is types of these diet regimes and and it will be expanded to include multiple international tastes and recipes.
All of it needs funds and hence we are looking to raise 2-3 Mn in the short term to fuel all of it. As the plan gets into full swing, depending upon the nature of funds and valuation, we would plan to go for the next funding.