Safal supply chain- outlook magazine

safal Fruity Success Starting as an off-shoot of Mother Dairy, fruit and vegetable retailer Safal’s strong backend and wide reach make it a high potential brand. Himanshu Kakkar It’s a simple process. You walk into a store, pick up a trolley, fill it with fruits and vegetables and proceed to the cash counter. The clerk weighs your pickings on a digital machine and hands you a printed bill showing the exact weight and amount. Today, it’s a normal transaction for Indians across the country. But in 1988 it wasn’t that common, particularly if you were buying perishables. Thanks to Safal, the largest organised retailer of fruits and vegetables in the National Capital Region (NCR), it soon would be. Safal is owned by Mother Dairy Fruit & Vegetable, a subsidiary of the National Dairy Development Board (NDDB)     Today Safal’s supply chain is spread over 106 farmer associations in 15 states and has 50,000 farmers as suppliers.     . The name is actually an acronym that combines the Hindi words for vegetables and fruit (sabji + phal). The retailer was established to bring farmers closer to consumers, something that NDDB was already doing with milk—by the 1980s, Mother Dairy had scripted success in the NCR. It had adopted the cooperative model to sell dairy products to urban consumers at affordable rates (66% market share in NCR milk sales today). Elated, the government decided to use the same platform to sell perishables, launching a pilot project in 1986. Soon after, Safal was established. A supply chain was developed and a central distribution facility set up in West Delhi. Safal started with 12 outlets in Delhi and two years on, the number of outlets was up to 141. Today, Safal has 400 booths in NCR and another 26 in Bangalore. It sells 350 metric tonnes of vegetables and fruits every day. It has 525 employees on its rolls and 13 area offices in NCR. And it has grown into a Rs 650 crore business clocking annual growth of 10-12%. Over time, the retailer has diversified its offerings     "Our ambience is much better than stalls, or mandis. But it is not better than modern retail, because they have ACs."     . Now, apart from fresh fruits and vegetables, it sells frozen vegetables, fruits, processed food (pickles, ketchup, puree, juices) and fruit pulp/concentrates (mostly to institutional customers). However, fruit and vegetables still constitute the core (accounting for two-thirds of turnover even today). Simple Business Model The backend is Safal’s core strength. “We map crop areas according to climate and our people talk to farmers. They make a strong association of 20-50 farmers in each area (mostly villages),” explains Pradipta Sahoo, Business Head, Horticulture, Mother Dairy Fruit & Vegetable. Today, the supply chain is spread over 106 farmer associations in 15 states and has 50,000 farmers as suppliers     Private retailers use fresh fruit and vegetable as a footfall driver, and then sell other products. Safal cannot use the same tactic.     . Safal trains the farmers, helps them source inputs and draws up a crop plan for them. Sourcing happens on a daily basis. Farmer associations and Safal bargain with each other every day around the market price. “We insist on that day’s mandi price and we get that,” says Bhopal Singh, member, Khewra village producer association (Sonepat, Haryana). He points at the benefits: “The price may be the same as the mandi, but Safal comes to our doorstep to collect. This saves us transportation cost, time and hassle of selling in a mandi.” The produce thus sourced is taken to distribution and processing facilities. From there, it is either frozen, processed, or dispatched for sale at more than 400 retail booths. At the front end, the 400-500 sq ft neighbourhood booths are mostly owned by Mother Dairy (80%) but are managed by 361 concessionaires. “We sell products to them and they sell it to customers,” explains Sahoo. The commission: roughly 10% on fruits and vegetables and 5% on other products. Price discovery remains Safal’s prerogative. It benchmarks against mandis, thelawalas (pushcarts) and retail stores to arrive at a market-driven price. Regular buyers feel that Safal’s prices are slightly below the market price. Sahoo believes that price is a market oriented and varies from one commodity to other. “Due to procurement arrangements last year, we sold watermelon at a price much below the market rate, attracting the ire of the market,” he says. However, this may not be true of all vegetables or fruits. The retailer has been running a vegetable/fruit auction centre in Bangalore since 2001. To leverage its existing backend and capture the retail market, it launched 26 stores in Bangalore in 2007. These have a larger area (1,500 sq feet) and are like neighbourhood supermarkets. Mother Dairy owns only seven of them. Institutional sales also account for a significant chunk of the company’s revenue. Key buyers include Coke, Hindustan Lever and PepsiCo. “We supply 10,000 tonnes each to Coke and PepsiCo India,” reveals Sahoo. He claims that Safal is strong in international markets too. “Both Coke France and UK buy their Alphonso and Totapuri mango pulp from us.” Safal recorded profits in its processed food vertical only in 2010. Its processing units are located in Mumbai, Uttarakhand and Bangalore. The retailer sells 50% of its fruit pulp and concentrate in the domestic market and exports the rest. Front-end Concerns Madhu Sehgal, a 58-year-old teacher from West Delhi, has been a Safal customer for 20 years. But she now complains: “The booth can no longer match private stores. The stocks are inferior and the crates are often dirty and empty.” Store managers blame excessive picking and sorting by consumers for the decay. That could play a role, considering the daily footfall in the 400 stores is around 120,000. The fresh fruits and vegetables are sold out in the morning, leaving behind inferior produce. “We sell roughly 60% of our supplies between 6 am and 9 am,” admits Saran Singh, DGM (Sales and Marketing). Then, there are other constraints. Stock once dispatched to a store are is not taken back. And so, in an effort to recover their investment, stores continue to put these on shelves till they are bought. However, Sahoo feels that ageing stocks and decay don’t affect the economics; “The loss due to old stock may not be more than 2-3% of the sales per booth.” Still, in an effort to remedy matters, Safal has arranged to supply stores thrice a day (morning-noon-night). But the better produce still comes in the morning. Competition The NCR fresh fruits and vegetables market is estimated to sell 5,000 metric tonnes per day. Only 10% of this is organised and Safal claims to have a market share of 40-50%. In effect, Safal’s market share is just 4-5%. The advent of other food retailers such as RelianceFresh, EasyDay, Spencer’s and More has eaten into Safal’s market share in the last five or six years. These private players offer a better ambience, a wider range of products and better staff. However, they lack the penetration and reach enjoyed by Safal’s booths. To take on the competition, Safal has rebranded and refurbished 125 of its 400 plus stores as Safal Pure Veg stores. In addition, its positioning will always be different from a RelianceFresh or an EasyDay. According to Sahoo, who was himself with Reliance earlier, the basic tactic of private retailers is to use fresh fruits and vegetables as a footfall driver, and then sell other products with better margins. “In our case two-thirds of our turnover is from fresh fruits and vegetables—we cannot use that tactic.” Sahoo also points that in India, 99% of fresh fruits and vegetables are still sold in unorganised markets. “Our ambience is much better than stalls, shops or mandis. But it is not better than modern retail, because they have ACs,” he admits. Expansion Plans Safal focuses on middle- and low-income customers, who constitute a large part of the population. Arvind Singhal, Chairman, Technopak Advisors, feels that the brand “has got immense unexploited potential as it reaches a large strata of society in NCR.” So, is the quasi-government nature of the organisation impeding its growth? No, says Singhal. “Amul takes on giants like Nestlé. Why can’t Safal?” Going forward, Safal plans to expand further. In the retail space, it is evaluating places close to Delhi and Bangalore, such as Mangalore, Hospet (near Bangalore) and Chandigarh (near Delhi). In Delhi, Safal is exploring the franchising model to add more stores. A pilot project is already on in the NCR, but the management won’t divulge details. While Safal officials say the organisation has a limited role to play in combating overall inflation, it could make a difference once it has a much larger network, bringing the farm closer to the fork.