Why meat delivery remains a tough market to crack online

The founders, Abhay Hanjura and Vivek Gupta, took 42 flights across 52 days, meeting investors day in and day out. Some refused because they thought the meat delivery business was a one-city wonder that worked only in Bengaluru and wouldn’t succeed elsewhere. Others said the pricing was expensive. Then, there was the clique of investors who let their personal prejudices about meat colour their business judgement.

Hanjura remembers receiving an investment term sheet from a marquee Indian fund, which eventually backed out when one of its limited partners (LPs)— a vegetarian—did not want to invest in a company that facilitates the consumption of animal flesh.

“Ironically, (in) our first few rounds, the investors—except Mr Mohandas Pai’s fund—were Koreans, Japanese, Singaporeans, Germans, Russians; everybody but an Indian fund, except 3one4 and Mayfield," said Hanjura. “But after we crossed the two-city barrier, people realized we were onto something special."

That’s why when Licious touched the coveted $1 billion valuation mark in October, it was no mean feat. It was also an important signpost. Among the dozens of direct-to-consumer brands that have taken over the Indian market in recent years, the first firm to attain unicorn status is a meat delivery startup.

Naturally, with this sudden turnaround in fortunes—fuelled, in part, by the pandemic—competition in the meat delivery space is intensifying. While Licious has had a good run, the overall gross merchandise value for the players in the segment doubled over the last 18 months, as new users turned to ordering reliable and hygienic meat online, according to research by tech consulting firm RedSeer Management.

“The pandemic leapfrogged the growth for meat delivery startups," said Ankit Agarwal, a partner at venture debt firm Alteria Capital. “Availability and (the) predictable delivery of hygienic products from a trusted meat and seafood brand during the pandemic shifted a massive customer base from local shops to new age players like Licious."

With this fillip, meat delivery startups have chalked up lofty plans. Many are looking to expand overseas and into more cities within India, while others are looking at opening offline stores and adopting an omnichannel strategy. Experts say that the segment will continue to be dominated by Licious and FreshToHome, making it a two-horse race between them for market leadership, but other players will also make a noticeable mark, considering the massive size that the fish, meat and poultry market represents: $50 billion currently and poised to touch $80 billion by 2024.

“To put that in perspective, it’s bigger than all the Avengers movies put together," said Shan Kadavil, co-founder and chief executive officer of FreshToHome. “It’s one category in India that’s bigger than the entire Hollywood industry… from an addressable market standpoint."

Licious, which is the only unicorn in this space, has raised $285 million till date and competitor FreshToHome has raised $154 million since its inception. FreshToHome is also in talks to raise a new round and currently its valuation stands at around $300-400 million, according to an investor who requested anonymity. As for market share, 80% of online sales are done by vertical players such as Licious and others, whereas, the remaining 20% is done by horizontal players like Swiggy, BigBasket, etc, according to RedSeer estimates.

The new customers

Berty Thomas, a coder and a meat lover based in Chennai, had to switch to buying his meat from online meat delivery platform Tender Cuts when the pandemic hit last year. “During the pandemic, the supply (at local shops) was erratic: he may or may not open the shop," said Thomas. He liked the online experience so much that this year, when Thomas moved to Bangalore (where Tender Cuts didn’t have a presence in his neighborhood), he decided to switch to Licious rather than scouting for an offline vendor close by. “I don’t miss going to the shop, it’s much better this way," Thomas added.

Thomas is among the wave of new customers who started using online meat delivery during the pandemic and have now decided to stay put. Licious’s Hanjura believes that their brand building prior to the pandemic helped them convert new customers during the last one-and-a-half-years. “No one likes to go and buy meat. It’s the least pleasurable experience. Consumers were forced to go simply because they are worried about what they will get if they don’t go themselves," said Hanjura.

Licious now has massive expansion plans—of going to 50 cities from the current 14 within the next one to one-and-a-half years. Hanjura said the firm’s ready-to-cook and ready-to-eat offerings have seen impressive customer interest and it plans to double down on those categories.

Competitor FreshToHome, which was started as a way to provide access to high quality fish, is also doubling down on its business. Kadavil says the pandemic boosted the platform’s growth over five times in the last 24 months and made customers less hesitant to turn to online options for their fish and meat needs. All of this led to the company becoming EBITDA (earnings before interest, taxes, depreciation and amortization) profitable, claims Kadavil.

One reason why FreshToHome has grown swiftly in size is because of its use of tech—specifically, one patented technology called the ‘Commodities exchange’. It is an electronic options platform for fishermen, who can use it to sell their catch to FreshToHome directly, cutting out the middlemen. “The fishermen can scroll through a bunch of pictures because they are not very literate and whatever fish has come in, they will put in the price—this fish is available for X price," explained Kadavil. “Because of our ability to cut the middlemen, we are able to give them a 20% higher price. And we do the end-to-end transport—trucks, cold chains, large factories that can cut, clean, pack and then deliver the product to the end consumer—all the while maintaining a 0–4-degree temperature range."

Armed with a strong playbook, Kadavil is now looking at replicating the model by scaling up to 104 cities from the current 56, and to three countries in the coming six months. “The last four to five years was about establishing the playbook and now (it’s about) growing the brand," said Kadavil. It also has 33 offline stores and plans to expand that number to 100. Product expansion is also one more aspect Kadavil and his co-founders are keen on. Interestingly, FreshToHome is planning to venture into meatless meat (plant-based products that are meant to taste like meat) in India after receiving a positive response in Saudi Arabia.

Aggressive expansion

Other players in the space too are aggressively expanding. Tender Cuts, which is a Chennai-based omnichannel seafood and meat delivery company, just recently launched its 50th store in Bangalore. Meatigo, a Gurugram-based startup, has bootstrapped its way through eight cities and is now seeking external funding to grow further.

“We will continue our focus on new product launches and creation of new categories: 3-4 new launches every month," said Siddhant Wangdi, founder and chief executive of Meatigo. “We plan to invest in technology to focus on sourcing, operations and customer experience."

But all this doesn’t mean that the sector isn’t without its challenges. Online meat delivery currently accounts for less than 1% of the overall meat industry, which is still held together by local stores, wet markets and business-to-business suppliers and exporters. Organized offline players in the space—such as Suguna, Venky’s and Godrej Agrovet—have managed to create a ₹280 crore ‘processed frozen’ segment in the poultry space, according to a Hindu Businessline report.

Moreover, when it comes to the local butcher shops that come under the unorganized segment, many of them have now started providing home delivery, which can be a potential challenge to the online meat delivery players.

FreshToHome’s Kadavil explained that during a recent survey in Bengaluru on the operational model of the local unorganized shops, his firm found that 30% of the overall volume is sold via home delivery—through WhatsApp or phone orders.

Other challenges, according to experts tracking the space, include the complex supply chain that online meat delivery startups have to manage. Case in point: Licious doesn’t aggregate suppliers on its platform. Instead, it procures meat and takes over the entire supply chain and cold chain into its own hands in order to ensure that the products are hygienic, delivery is smooth and demand is predictable.

Supply chain nightmare

“With meat delivery, the whole thing (supply chain) had to be built end-to-end," explained Pranav Pai, founding partner at 3one4 Capital and an early investor in Licious. “We cannot simply provide an Amazon-like marketplace for sellers. We wanted to build an Apple, where the full-stack from chip to software is internally managed." But this also means a lot of wastage is inevitable. Multi-city expansions can also result in ballooning fixed costs.

“It’s a complex supply chain to manage, and there is a massive offline element to it. So, with scalability, there could be pressure on margins to maintain high quality standards and fill rates to ensure customer satisfaction and retention," said Alteria’s Agarwal. “It will go through its curve with every city launch. Every city may have its own supply chain issues in (the) early days of launch. While rapid scalability could be an issue, it also means higher barriers to entry for new entrants."

The third challenge is that of the emerging threat from aggregators. For instance, an investor in the space, who requested anonymity, explained that when Faasos entered the food delivery market, it became the only 30-minute delivery platform after Domino’s. But then Swiggy came and ensured that delivery was done for all existing restaurants as well.

“Using the same analogy, assume Swiggy makes all the meat shop brands available online. While there will be (a) difference in branding, if the customer knows that a neighborhood store gives decent meat and can be made available at the doorstep and if Swiggy starts promoting those brands, that’s a potential challenge," said the investor cited above, adding that it’s a tussle that will always exist between an aggregator and a brand.

“Brands will just have to maintain good quality so that the customers come to them and not change (their) loyalties toward other offerings by aggregators. That’s the biggest challenge for consumer brands today."

None of this, however, deters the founders. After facing an uphill battle during the initial years, Hanjura is now optimistic about the future of Licious. The company also plans to bring its business full circle by launching a physical omnichannel store in order to provide a unique offline meat-buying experience. “We have a very interesting offline manifestation of what the meat buying experience can look like," said Hanjura. “We will hit the ground running by the end of this year."