13th
July’12::
NATARAJAN – KOVAI PAZHAMUDHIR NILAYAM
Kovai Pazhamudir Nilayam maybe a mouthful for anyone outside Tamil Nadu but after you read about this company's trajectory from roadside vendor of fruits to regional retail king, the name just may stick around in your imagination.
NATARAJAN – KOVAI PAZHAMUDHIR NILAYAM
Kovai Pazhamudir Nilayam maybe a mouthful for anyone outside Tamil Nadu but after you read about this company's trajectory from roadside vendor of fruits to regional retail king, the name just may stick around in your imagination.
The name means 'Orchard of Fruits' and is the
first branded retail chain purely for fresh fruits and vegetables in the
country.
While other chains such as Reliance and More
have posted large losses (Rs 44 crore or Rs 440 million for Reliance, Rs 423
crore or Rs 4.23 billion for Aditya Birla's More), Kovai says that it posted
Rs 3 crore (Rs 30 million) profit on revenues of Rs 150 crore or Rs 1.5 billion
in 2011-2012.
This is a world away from
the 25 paise per day that founder Natarajan decided to save, along with his
three brothers, for a rosier future in 1953.
Natarajan was 10 at the time, his father had
died, and education was jettisoned so they could scrape together a living and
survive.
Natarajan and his elder brother Chinnaswamy
had recently joined a road side fruit shop, while his younger brother
Kandaswamy worked at a petrol station.
"Those were really tough days, without
any proper food and shelter," recalls Natarajan, who started his career as
a cleaner in the fruit shop.
Twelve years later, in 1965, armed with
in-depth knowledge about fruits, "especially procurement" says
Natarajan, and fortified by the modest savings that the band of brothers had
diligently squirrelled away, Natarajan and his brothers decided to open their
own shop -- a 400-square foot establishment in Coimbatore.
"We didn't
want to be road side vendors and wanted to do something unique. We wanted to be
known as a brand. We knew it was a big risk but we decided to take the
plunge," says Natarajan.
Kovai was born.
Being a retail chain that specialises in only
fruits or vegetables has its own challenges which are roughly the same today as
it was back in the '60s.
One has to compete with carts that come right
to your doorstep and sell you products that are invariably cheaper. Indians
like to bargain, and Kovai's model back then (and now) was to sell fruits in
kilograms (versus in dozens) and that too at a fixed price.
(However, Kovai's large
volumes and direct sourcing today actually help keep prices around 10-20 per
cent lower than those of hypermarkets and street vendors and where most such
chains falter in quality of product, Kovai's is regarded as excellent.)
In this sort of retail model, success hinges
on the daily collection -- if the day's business matches the monthly rental,
you're in the black.
The brothers, however, were paying Rs 100 as
rent, but couldn't make more than Rs 30-35 in sales, which led to further
hardship.
"We hardly earned any money and we
couldn't support our mother or our younger brother's education, so we decided
to join a mill on a shift basis."
Natarajan and his brothers finally realised
that their only hope for success was in doing something back then that
companies like Airtel have been feverishly pursuing today: Generating 'value
added services.'
Besides fruits, the brothers started selling
fresh fruit juices as well as sliced fruit in their outlet which allowed them
to milk more revenue per kilogram of fruit rather than selling it whole.
The slices and juices were
able to garner them a 150 per cent margin.
This proved to be a life-saving strategy and
allowed them to slowly consolidate their operations and expand.
Today, Kovai has expanded to 34 outlets, of
which 24 are owned and run by Natarajan, while rest are owned and run by his
three brothers.
Natarajan has also expanded into vegetables
which forms 60 per cent of his business. Saloni Nangia, senior vice president
& head, retail & consumer products, Technopak Advisors feels that
regional brands like Kovai's are successful because they understand their
customer's needs better.
"Also, the needs often change, which
regional brands can adapt to faster," he adds.
Kunal Bhaktha, partner, Lastaki Advisors Pvt
Ltd, an investment banking company says that another reason for their outsized
success is because "the promoters have come from farming community, they
know the pulse of the farmers and understand them."
Along the way, Natarajan has
also managed to fulfil the quintessential Indian fairy tale -- to educate his
son Senthil to the extent that he eventually ended up at Microsoft as a product
developer, which he quit six years ago to join the family business.
Now, Senthil is hoping to continue his
family's remarkable journey by bringing a little bit of Microsoft to Kovai.
Technology to manage the business's supply chain is one such thing.
Technology to manage the business's supply chain is one such thing.
His other initiatives: Importing fruits like
Apples, strawberries, and oranges from eight countries including the US,
Australia, South Africa, Egypt and New Zealand, making them one of the largest
fruit importers in retail; converting vegetable and fruit waste into manure or
raw material for farmers in Kerala; launching a chain of juice bars (called
Season's, with revenues of Rs 15 crore or Rs 150 million) and foraying into
textiles (revenues of Rs 3 crore or Rs 30 million).
Senthil was also the brain behind the
expansion of the business, adding 21 stores over a period of six years.
"Now we are
planning to add another 50 by 2015 with an investment of Rs 50 crore (Rs 500
million).
While the major focus will be in Tamil Nadu,
we will also look at Bengaluru, Cochin and Hyderabad," he said.
He is in the process of raising Rs 25 crore
(Rs 250 million) of private equity funding for this purpose.
Still, staying a regional king is one thing
and expanding onto the national stage something else entirely.
Becoming a national chain requires deep
pockets, a branding exercise with a catchy name (that people can pronounce
across the country) and a vast distribution, supply chain and cold chain
network.
Not having all the pieces in place could
spell disaster as now-extinct retail chain Subhiksha found out and something
that the heir to this empire will have to internalise if he wants to continue
the magical journey charted by his father.
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