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The Solutions
Most of the capacity of nearly 80% is configured for potatoes Atul Khanna, Director, Global Cold Chain Alliance (India Chapter), an international association of cold chain investors The good news is that it cannot get any worse from here not when a clutch of entrepreneurs is attempting to plug various gaps that exist in the cold chain. For example, MJ Logistics, a third-party logistics services provider, has created 25,000 tonnes of capacity for cold storage and distribution at Palwal in Haryana. These facilities are part of a larger logistics hub.
The Solutions
MJ Logistics is funded and 90 per cent owned by Eredene Capital, a UK-based fund house that invests in logistics projects in India. It intends to provide storage facilities at 18 to -25 degrees Celsius to processed food players and retailers. Though the business case for cold chains is doubtless, but its not for those looking for quick returns. It guzzles cash and the gestation period is long according to Anil Arora, MD, MJ Logistics For example, in MJ Logistics, Rs 85 Crore has been invested in the facilities since inception.
The Solutions
The company earns revenues on a pay-per-use basis and the game plan is to work with organised players in food processing or those looking for value addition and making MJ a permanent link in their supply chain. If one is lucky, the business can mature in seven years. But, 10-15 years is a realistic time frame to become an established player. Anil Arora What works in favor of such players is that the lack of modern cold chain facilities ensures optimum utilisation. We function at 110 per cent of our capacity. Ravi Kannan, CEO, Snowman Frozen Foods, a JV between Gateway Distriparks of India and Mitsubishi Corp.
The Solutions
Snowman claims to be the first company to set up a panIndia distribution system for frozen and chilled foods. It also has got cold stores at 22 locations and runs a fleet of 150 refrigerated trucks. It is also planning to put up another four warehouses by investing a little over Rs 20 Crore by March, 2011. It may appear a lucrative opportunity, but the cold chain business is no walk in the park. Biggies like Reliance Retail and Aditya Birla Retail are running slow to put up their cold chain business. This is mainly due to the complex nature of this business.
The Issues
Sandeep Sabharwal, MD of Sohan Lal Commodity Management, a logistics and procurement firm that manages 70 warehouses, has moved away from managing cold storages. So, while he is bullish about growth in warehouses, he is wary of the cold chain infrastructure. The issue is that the cold storages are often a single man show or a family-owned facility and they do not want to let us manage it. We might do Dry-green units (that is cold storages in regions that have a naturally cool climate and so do not need cooling facilities for certain items) someday where due to climate we dont need a cold storage. - Sabharwal
The Issues
Another issue with the cold chain initiatives is that they are fragmented with hundreds of small players doing their own thing. One such entrepreneur is Gagan Pal Singh Anand, Proprietor, Anand Frozen Food Carriers, who owns 34 10-wheel trailers and has an annual turnover of Rs 5 Cr. He hauls frozen peas, meat, dairy products, cheese and chocolate, medicine, menthol oil and yeast all across. Road infrastructure is still poor. Tyre companies have increased prices by 40%, tolls have increased and our freight rates do not go up in tandem Anand explains why they have hit a rough patch.
The Issues
From an investors point of view, this might be the best time to back a player and help him build that much needed scale. Gaurav Mathur, MD of private equity fund Equity Partners, explains that while scale was being built up at the front end (processed foods, quick service restaurants etc.) for some time, of late there is action at the back end too. Cold storages, warehousing are also attracting private equity investments, there is a lot of development waiting to take place. - Mathur
The Issues
Gagan Seksaria, Associate Director for transportation and logistics at KPMG divides the cold chain into two segments. One that caters to businesses that need a temperature of 10-18 degrees Celsius and the other that needs freezing capabilities of below zero till -20 degrees. He feels that the first, which can be used to carry items like chocolates, is easier to manage: a slight change in temperature en route will not destroy the products. That may be one way to begin, but the big bucks are clearly at the colder end.
The Issues
He points out that large food processing and food retail companies like Mc Cain, McDonalds and Dominos are assisting entrepreneurs in the sectors. They are giving incentives and captive volume to develop their independent cold chain networks comprising warehousing & distribution of their products. There is a lot of money to be made by these independent entrprneurs in this business. But, these people need to show the right appetite for risk and a hunger for quality and precision. However, going ahead there would be large corporate houses like Reliance and Aditya Birla who would help this industry organise and consolidate.