New choice on the platter

Ranapratap Brahma, Anabil Goswami & Arindom Hazarika, co-founders of Arohan Foods
As with most people in the Northeast, Sashanka Kakoty lives on pork and rice. Other than buying raw pork from the market, he had few choices all these years. For people like him, there is some good news. An Assam-based start-up, run by three B-school alumni, is offering pork lovers a new choice - an exclusive processed pork brand called Choice Pork Natural.

Started by three Assamese guys - Anabil Goswami, Ranapratap Brahma and Arindom Hazarika - it is catching many an eye because of the scalability. Launched in December 2011, the brand could within a year spread its reach across six states here (barring Tripura). It has now touched the mainland with a recent launch in Kolkata and will soon be in other metros and cities. In the next one year, Arohan Foods looks forward to a pan-India presence. From pork sausages and pork cocktail sausages to pork salami and pork bacon, Choice Pork Natural has enough to offer.

FACT BOX
25 per cent month-on-month growth since launch in December 2011

Target to cross Rs 1-crore mark

in turnover this year

Aims to touch Rs 10-crore mark

in next two-three years

Available across 100 stores

Plan to double store presence

in next six months

Current production 1,000 kg

Since its launch, turnover had been growing 25 per cent month-on-month. In 2011-2012 (the brand hit the market around March 2012), the turnover was Rs 2 lakh. This year, it expects to cross Rs 1 crore and to touch Rs 10 crore in two-three years. When Business Standard visited and talked to some managers of stores selling Choice Pork Natural in Guwahati, they said the product had been accepted well and demand for it was growing. The product is available in 100-plus stores in the northeast.

"Excited" by the venture's "world-class standards" and "hygienic production", venture capital fund Omnivore Partners had in April 2013 invested an undisclosed amount in Arohan. Omnivore said it was on a look mission in the region to choose a start-up to invest and finally zeroed on Arohan. "Since we invest in agri-businesses, we thought to invest in a northeast-based start-up, as farming is the mainstay of the region's economy. When we zeroed on Arohan, it gave us the confidence to invest, as not only was it producing some world-class products in the most modern ways, it was also run by three super-talented guys, all having management degrees," said Reihem Roy, vice-president of Omnivore.

This investment helped Arohan increase capacity. It set up a "state-of-the-art" plant recently at Sonapur, near Guwahati, to meet demands as the product is marketed across India.

The beginning

Goswami, Brahma and Hazarika, after completing their studies in 2007 (Brahma is an alumnus of IIM-Indore and Goswami & Hazarika are both from IBS, Hyderabad) had "in the back of the minds" the desire to return to Assam and start a venture. In 2011, the trio quit their respective jobs at Tata Chemicals, Bank of Baroda and Kotak Mahindra Bank, and returned to the state. "We were initially thinking of many things, from food service, to medicine to health to information technology. But logistical and infrastructure constraints do not allow you to start any venture of your choice in the northeast. Since the Northeast is overwhelmingly an agrarian economy, we finalised on starting an agri-based venture," said Goswami.

The number of pigs in Assam and the northeast is very high and pork is a widely consumed meat. Piggery and pork production consists primarily of backyard and unorganised sector producers. The complete absence of organised players in the region's pork business, especially in the processed-packaged segment, caught the attention of the trio. Soon, the idea of a processed pork brand germinated. The three spent a couple of months travelling across India. "We travelled to various parts to see which were the best pig farms that can be replicated here; we talked to experts. We have seen the successful models. This is how we learnt about this business," said Hazarika. After having gained exposure, they tied up with farmers in nearby villages to source pigs and started producing the products from a small pork processing plant within the campus of the National Research Centre on Pigs, near Guwahati. From around 100 kg monthly production in the initial period, it has gone up to 1,000 kg.

Business model

Arohan claims to be the country's first "pork integrator". It buys pigs from farmers it has tied up with, processes pork, packages the product and distributes through the fast moving consumer goods model.

Before they tie up with any farmer, they set a condition on raising pigs in a hygienic and scientific way. They employ some veterinarians who assist and advise farmers, spread across many villages, in pig rearing.

"We tell farmers what feed needs to be given, how to keep pigs healthy, what vaccinations need to be given and at what time, provide nutritional advice. We intervene in those things but leave pig rearing to them, as they have been doing this for generations. We just give the modern scientific advisory support. That ensures we get healthy and hygienic pigs for manufacturing our products," said Goswami.

He added to ensure that even the piglets farmers buy are bred in a scientific way, Arohan is in talks with some institutions to convince them to breed pigs and sell the piglets to farmers; the company would be a facilitator. Matured pigs are purchased by Arohan from the farmers at the prevalent market price and brought to the factory, where these are slaughtered and the meat processed, packaged and sent to the market.

The co-founders are averse to the idea of having the company's own farm to rear pigs. They say their present model of sourcing from farmers is "region-friendly", as for the majority of the tribal population, pig raising in the backyard is integral to the way of life. "Our model is not to change anything but to make the best of what we have. Our strength is to stick to traditions, where the farmers in villages will rear pigs, not us employing people on a large scale to rear on our own. We want the farmers to be part of our back-end supply chain, to grow the pigs in a healthier manner and sell to us," said Hazarika. From a couple of farmers in 2012, the company claims it has around 2,500 from whom it sources pigs. Arabind Das, chief operating officer of Godrej Tyson Foods Ltd (GTFS), which owns the popular Yummiez frozen food brand, said: "First and foremost, to be successful in food processing, any brand would require to have assured safe raw material sourcing options. The supply chain is critical to the processed food industry. Inefficient supply chain management increases the cost of production; thereby, higher product prices."

Though Arohan believes their model of sourcing pigs from farmers as "sustainable", others in Assam's pork business complain of a supply deficit. "There is a big demand-supply gap in Assam's pig market. We often face a supply deficit. During festive seasons, it becomes worse. Scarcity in supply often hampers our business. Though we always prefer locally grown pigs, during scarcity we are sometimes forced to buy pigs from outside the state," said Bhaskar Gogoi, owner of Gogoi Pork, a popular retail pork chain in Guwahati, which specialises in smoked pork.

Said an industry expert on condition of anonymity: "If Arohan is really aiming big, they will have to set up a farm on the lines of the established poultry players. They cannot let the fluctuations in supply and prices in Assam's pig market dictate their business. Further, their model of sourcing pigs is fine on a smaller scale. When you are a pan-India player, you cannot keep your brains busy trailing after farmers to ensure if they had provided the correct feed or the right vaccination to the pigs they are raising. You would need an in-house farm which will ensure scientific rearing of pigs on a large scale and guarantee non-stop supply."

Experts estimate the size of India's pork market at around $2.4 billion, on the basis of the 18th livestock census of India (2007), which put the population of pigs at 13 million. The size of the processed-packaged pork market is estimated to be negligible.

"There has been no such study done in the past. However, estimates show around 50 million Indians consume pork as part of their daily diet and another 30 million are passive eaters. When it's a new product you don't know the size of the market but you create the market," said one.

Apart from the northeastern states, the predominant pork-eating region of India, it is also consumed in sizable quantity in Kerala, Goa and parts of east and south India. Urbanisation and the country's booming middle class is also driving growth in cities and metros. Experts say the growing numbers of urban pork eaters are the real hope for the packaged industry. "More than targeting the predominant pork eating markets, the packaged pork industry should concentrate more on the upscale urban markets," said an expert.

With Arohan setting its eyes on urban markets across India, it hopes to soon take capacity utilisation of its new factory from the present 25 per cent to 100 per cent.

Challenges and the way ahead

"In India, the food processing industry has inherent challenges. Food safety, from farm to fork, is at the top. It is more challenging for a frozen product, as the cold chain infrastructure across the extended supply chain in our country is still to be fully developed," said Das of GTFS.

Arohan has vehicles mounted with cold storages to take their products to stores across the region. "Lack of cold storages is certainly an impediment in our growth but things are expected to be better outside the region and that eases our challenge as we move to other parts of India," said Hazarika. He added the company might need to invest in setting up cold storages outside the northeast. One is planned in Kolkata.

To give shape to its pan-India spread, Hazarika said Arohan was in an "advanced" stage for a deal with a "leading national retail brand".

It would distribute its products from cold storages to stores of the branded retail player. To start with, it would make available its products to the latter in a few cities with cold storages. He said Bangalore, Mumbai, Pune and Delhi were on its radar, where it plans to initially make available its products for the branded retail player. Asked if Arohan would be open to an acquisition from a major branded chicken seller in future, he said, "We do not see any reason for that."

EXPERT TAKE: Mark Kahn

Arohan Foods is uniquely positioned as the first integrated pork processing business in India. They have a first-mover advantage, as pig farming is underdeveloped nationwide. Also, the market for processed pork (sausage & bacon) is nascent. Arohan needs to focus on pork eaters across the non-veg-loving eastern and northeastern states, rather than going after cosmopolitan urban consumers nationwide. Developing products suited to local tastes will also be important. Arohan should show a new level of quality to customers, used to pork raised and slaughtered under questionable conditions. On the farming end, Arohan must develop an approach to piggery integration that supports improvement of smallholder farmers, including solutions for swine housing, nutrition, animal health & breeding. These solutions (as products or services) should take into account regional conditions and not blindly import foreign technologies. Smallholders need to be gradually transformed, increasing their own investment in piggery operations as they see the benefit from higher incomes. If Arohan can guarantee buyback to pig farmers at competitive prices in exchange for better farming that increases the quality of processed pork for consumers, everybody wins.

Mark Kahn, an MBA from Harvard Business School & agri-business specialist, is a former executive vice-president of Godrej Agrovet and later co-founded Omnivore Partners