When the COVID-19 vaccine comes up and the government decides to vaccinate the whole country on a short-term then there will be huge demand for reefer storage and transportation, which may clash with demand for seasonal foods. Hence, there is a lot of planning and organising required.
During this Covid pandemic and also because of the disruptions that happened in supply chain for food, vegetables, and a lot of essentials, a lot of focus came onto cold chain infrastructure for the storage of essential commodities. Similarly, with the vaccine coming in the near future, the vaccine storage and transportation also brought a lot of focus onto cold chain infrastructure. Let us come to the vaccine part of it a little later. But I wanted to understand from you what is the cold chain infrastructure in India today and what is the necessity for us to have a world-class cold chain infrastructure?
When we talk about the overall cold chain capacity in terms of the volumes in India, we are among the top 3 or 4 in the world. But since this country is primarily driven by agriculture and most of the cold chain which was set up long ago was focused on agri produce, almost 60% to 65% of the capacity is only meant for potatoes. And out of the balance, around 30% to 35% capacity goes for rest of the agri produce like apple and carrot kind of things. When we come to the organized part of the cold storage facilities, which are multipurpose facilities where frozen, chilled and controlled ambient products can also be kept and you can have agri and FMCG in the same facility. Such facilities are very less in the country and when people talk about shortage of capacity in the country, they primarily mean a modern setup, an organized setup is very less. When we did our own research we found that only 4% to 5% of the overall Indian capacity are modern and multipurpose. And that’s where the challenge comes in terms of capacity, and with the Covid vaccine coming in, it is appearing to be a challenging situation in case government decides to vaccinate the whole country on a short-term programme.
When we talk about cold chain infrastructure, we often hear complaints from customers especially from pharma and other customers that the storage facilities, especially the temperature control is not well maintained at storage and also during transportation. What exactly is the real problem?
When organized and unorganized sectors exist together, there will be very confused statements that we will see. Most of the multinational users in the country have been contributing to the overall development of cold chain and they have put up systems and processes in place to ensure there is no thermal shock to their products right from the source till it is consumed. At Snowman, we have complete visibility and control on the temperature, whether the product is in the truck or cold storage, with our technology, we can monitor those temperatures at any given point in time. So, even now, sitting here, I can see temperature of every cold storage facility, every chamber in that cold storage facility, and every truck that is on the road today, I can see the temperature on my mobile. There is an alert system if there is any temperature variance beyond the specified limit, then there are alerts which go to the respective functional head for taking corrective actions.
So, these are the traits of an organized operator, but there are other operators as well who cannot afford such technology or who would like to cut corners to survive, because this industry is still struggling with a lot of pricing challenges and demand-supply imbalances that have been happening. So, people do try to cut corners particularly those who have very tactical arrangements and work on spot arrangements rather than long-term partnerships. So, these are the mixed opinion. I am sure if you talk to some large long-term users, they will have a different opinion for certain category of operators in the country.
Certainly with Covid-19, the demand for vaccine storage is a wakeup call for having a robust cold chain infrastructure. Also, Government of India is emphasizing on agriculture products especially vegetables and fruits storage. So, will these things drive more state-of-the-art cold storage structure. What would be the drivers in future for having a robust cold chain infrastructure?
Keeping Covid vaccine separate if we look at the overall cold chain demand in this country, there are four segments which are driving the overall demand – dairy and ice cream; pharmaceutical; FMCG and the QSR segments, and of course the seafood. Seafood is the safest one. These five segments are actually driving the overall consumption in this country and if you see their growth on an average over the last four years, they have been growing at 15% to 18%, and all the research projections say that over the next 4 to 5 years, they will grow at more or less the same rate, which is a good enough rate for any industry to survive.
Almost 95% of this industry is unorganized, and there’s a big shift that is happening towards organized because of the increasing compliance requirements in terms of food safety or drug controls so that is additional volume that an organized operator in this industry can enjoy. So, the potential in terms of growth is exorbitant, and what it needs is huge capex to be put in so that the growth is sustained. Considering the Covid vaccine which is expected to come in and it of course will depend on how and what strategy government comes up with, and if government decides to vaccinate the whole country in say a year or two, that means there is huge requirement of storage and transportation in refrigerated trucks whether it is +2 to +8 degree or -20 degree, the demand will be huge, and it will clash with the growth otherwise the industry is witnessing, and hence there is a lot of planning and organizing which is required.
The government will have to plan it very well so that it doesn’t clash with the food seasonality. For example, if the vaccine comes in February-March, that is the time when ice cream season starts in the country, and ice cream consumes a majority of cold storage facility in the organized sector, and if ice cream ends up taking those capacities, then vaccine will be difficult to distribute through the same network. Hence, there should be a proper planning and reservation of space and clarity in terms of how it is going to happen. So, the demand side, I think it is very much there. On the supply side, one is the whole unorganized volume is coming into organized network so the capacity has to be built in and it is not just about the refrigerated warehouse or refrigerated trucks, but a lot of processes, people and the technology which is very important for a sustained long-term growth and relationship with the growing customer segments.
If I understand correctly, what you are saying is the demand for storing vaccine will impact the regular commodities that are being stored during this period. So, definitely there will be shortage on both counts; both storing vaccine and as well as the commodities. So, my question is, we have a comfort that the vaccine that India is likely to get or government has ordered can be stored at a normal freezing temperature, not like -70 what Pfizer produces. In that case, what could be the requirement? The second question is, where are we now? The Prime Minister gave a call for the industry to get ready for the vaccine storage and transportation? What are the efforts that are being taken and is it really feasible in the shortest time possible to set up this infrastructure?
No, setting up infrastructure does take time. That’s the reason I have said that there should be a proper planning in place. It will clash with the food season, it will clash with the overall food industry which is growing, and hence a lot of planning has to take place. If the distribution or vaccination programme is planned on a short-term, say in a year or two, then there will be an issue. If we plan it to happen in 3 to 4 years’ time, then maybe the capacity available can be optimally used and somehow the programme can be run. If it is 2 to 8 degrees, then all the more it becomes easier because 2 to 8 degrees facilities are available amply in the country and you may have to invest a little bit to make it a pharma compliant kind of facility. That can be done on a shorter notice as well. But all this needs a lot of planning; what kind of volume will go into -20 or +2 to +8, and which state, how much distribution, how many vaccination points, how many primary health centres, and what volume of trucks that you would need, how much will be moved from which location, who is producing how much? If Serum is producing 20% of the requirement, then from Pune all over the country that many trucks will have to run. So, that logistics planning is very very critical.
Ok, let us leave the vaccination aside. Let us talk about Snowman Logistics. So, how Snowman Logistics has been performing during this pandemic? How was the business and what do you see now with things improving post seriousness, I think we are coming to a stage where that kind of seriousness, lockdowns or disruptions are no longer a nightmare?
When the lockdown was declared on 24th March, we had also locked down our facility; only the technical staff which had to be there 24×7 were there ensuring that all the machineries are running and temperature is maintained, generator is up and everything is intact, but in 2 to 3 days’ time, the government clarified that cold storages which are backend for home delivery restaurants and the pharmaceutical products can operate. So, from 27th onwards, we started working.
Even during lockdown, all our facilities were open and we functioned, maintaining all care that we needed to take in terms of personal hygiene, sanitation, facility hygiene, social distancing. So, initially for first 3 to 4 months, it was very tough for us because of the social distancing, our productivity per man had come down to one-third, and there were a lot of challenges to operate within the facility. Then, we had to re-look at our operating processes and redesign it in such a way that even if we compromise on the productivity, we don’t compromise on rest of the things which are critical at this point in time.
So, in the first quarter, which is from April to June, we had a major impact on our business, particularly in transportation which had come down to almost 50% because only essentials were moving, rest were not moving. Whereas warehouse was still occupied because customer could not move their products. But it is not a good sign for us because our business is, we grow with our customers, we earn with our customers. So, we gain when the throughput of their product within our warehouse is good, and that was slowed. Now, in Q2, we find that the business is back to the extent of 80% if we compare it with pre-Covid situation.
Fortunately, our business development team has been very aggressively working before the lockdown and we had good pipeline. So, during the last 6 months, we onboarded a lot of new customers and we ensured that our warehouse utilization is intact while transportation still suffered. So, we continued to maintain our utilization at around 84% to 85% which is going on today also. Our transportation is still a little lower than what it used to be. But we see a good improvement coming in, most of our affected segments which are quick service restaurants were affected very badly because most of their restaurants were in the mall which were closed down.
And ice cream is affected very badly, in fact their full year is gone because April to July is their peak season during which they sell almost 70% of their annual volume, which is completely lost. So, we see they are resuming back; around 80% to 85% of their business is back and we see that going forward, things should be much better for us because we have onboarded new customers plus the old customers are resuming back their volume, so we should be in a better situation going forward.
Can you tell me a little bit about your infrastructure? Where are your warehouses located, which are the key products that you handle and what is your USP?
We as an organization want to be an end-to-end solution provider to our customers and we offer them primary transportation, storage at mother warehouse or CFS locations and then secondary transportation solution also. During this whole transition, we offer them various value added services like inventory planning, customer order processing – so we will take orders from their customers, we will make invoice on their behalf, we also do a lot of blast freezing, kitting and bundling for festive seasons for our customers. We have also started designing solutions for our customers, whether it is designing their warehouse, or putting some processes in place where efficiency comes in or giving some IT solution to their requirements.
With all these things, we become a one-stop shop for our customers and we want to have the maximum pie of their distribution spend. That’s what we focus on, that’s our USP.
We believe that any relationship should have a lot of interdependency and by doing all these things we see that we are a lot dependent on them and they are on us as well, and we work on many strategic initiatives together. So, with this USP, we work with all the clients and this is what we go and sell instead of selling warehousing space or truck space. So, we sell a complete solution. Coming to the infrastructure, we as of now, we exist in 15 cities. There we have our warehouse setup. In case of transportation, we will be touching almost 500 touch-points in the country.
We are adding 2 more warehouses now. Our existing warehouses are in North East at Chandigarh, Palwal and Jaipur. In case of East, we have Kolkata, Bhubaneshwar and Vizag, and we are opening one more in Siliguri. In West, we are at Ahmedabad, Surat, Pune, and Mumbai. In South, we are at Hyderabad, Bangalore, Chennai, Krishnapatnam, Cochin, and now we are opening one more at Coimbatore. All these put together, the existing warehouse capacity is 107,000 pallets and with the expansions that I talked about, we will be 120,000 pallet positions. Each pallet is typically a 1 tonne storage capacity with 1.5 cubic meters. Each of our facilities is multi-purpose facility, we can store anything ranging +25 degree C to -25 degree C. This flexibility is there and each facility would have multiple chambers. So, we can operate some chambers at -25, some chamber at +2. We can just do a programming and that changes. So, that flexibility we have kept at all our facilities which are comparable with most of the global standards that exist now.
Our facilities can be compared with the facilities that are available in most of the developed countries in terms of maintaining temperature, design, flooring which are the critical parameters one would consider. Coming to the segments that we serve, we serve pharma, QSR, seafood, confectionary, dairy. So, the top ones for us are pharmaceutical which is around 10%, QSR (15%), seafood (23%), confectionary (10%), FMCG (10%), and the rest are small percentages – 3 to 4%. And each of our cold storage facilities runs 24×7 and it is 24×7 manned by technical staff there who ensure and monitor that the refrigeration system is up and running, and then there are escalation system through technology also, people who are not present physically there will also come to know if there is any deviation, and this is one of the most important thing in cold chain, and that is to maintain the desired temperature for the product. We also have a command centre at Bangalore which is 24×7 manned and remotely monitors the whole country’s activity through a CCTV for all warehouses and temperatures through our technology that we have and trucks, with respect to whether it is moving, stopped, running, if temperature is maintained or not – all those kinds of information, and the command centre also functions as a troubleshooter for the people on the ground; if someone is facing some problem and needs help they can call the command centre and then command centre will further activate necessary help. So, this is what briefly Snowman is.
You have already set a gold standard for the company, and virtually you are in almost all the metros and the tier 2 cities which are seeing the growth. So, from here, looking at the future demand and the drive that is coming up into the cold chain infrastructure, what are your plans for the future?
We are investing around Rs.70 to 75 crores this financial year and expanding facilities. We are also planning to invest few crores in our IT technology piece. We are growing roughly around 12% to 15% this year; this was the plan 3 years back but since Gateway District Park, our promoter wanted to sell their stake in Vadali in between, there was a pause on all the projects. But now, there is clarity that Gateway will continue as promoter and they have released all old pending projects. We are putting up a 5 year plan for the company’s growth – the wish list is that in 3 to 4 years’ time, we double the capacity and see that we become profitable. We are profitable now but still at the break even point. We want to make better profits and better returns for our stakeholders. So, most of the investments that will go henceforth will be basically for better returns on investments.
We are focusing a lot on the pharmaceutical vertical irrespective of the Covid vaccine, whether it comes or not. Three years back, we were zero on pharma; today our 10% of revenue, almost 10,000 to 12,000 pallet capacity is given for pharma vertical. The idea is to invest more time and energy into that. So, we have created separate vertical for pharma to grow. So, these are immediate strategies.
