A healthy appetite

Enter, and Browntree store’s door shuts on traffic, pollution, noise and other ills of modern life whizzing past on Chennai’s perpetually manic Nungambakkam High Road. Inside, all cool and quiet, are many ways to good health and taste: Iranian almonds and Californian prunes, ragi chivda and jowar sticks, sugar-free drinks and low sodium snacks, Davidoff’s espresso coffee and Darjeeling first flush tea (organic, of course).

Well-lit and nicely laid out, it’s quite the opposite of the office of Browntree Retail’s young founder-directors, Dinesh Kumar, 33, and B Abhinandan, 27, who share a cabin that’s short on décor but big on bustle. Tucked away in a nondescript street off the arterial Arcot Road in Chennai’s western fringes, Kumar and Abhinandan seem to use it as a nerve centre, fielding calls, updating charts and reviewing SKUs — it’s a list of Browntree delivery vehicles with driver names and mobile numbers that enlivens Kumar’s side of the wall. Browntree’s buzz comes from straddling two overlapping verticals — a chain of health food stores and an in-house packaged health foods brand. The brand’s real specialty, though, is its ability to turn shopping into a guiltless pleasure (okay, barring the imported chocolates — more than 800 SKUs from 50 international brands).

Kumar and Abhinandan, who named their business after the healthful connotations of “brown trees that grow, shelter and give naturally”, got into this market because, “everyone wants health food.” The about-1,000 sq ft Browntree stores stock 3,500 SKUs — 40% of which are private label, which the partners plan to grow significantly. In terms of volumes, 70% of their stocking is products they deal in, and 30% (over 50% in the future) is their own label range — but the revenue is split 50/50.

“We felt that there was potential to expand by scaling up stores and branding health foods,” Kumar says. It was a good estimate.  Browntree kicked off with a starting capital of Rs.2 crore spread over four stores in 2009, added one in 2010, another four in 2011, and two more in FY12 — which adds up to a total of 12 already-profitable stores (eight in Chennai and four in Bengaluru), all of it funded by family members and internal accruals. “Our rented stores cost around Rs.40-50 lakh, on average, to be set up, depending on the location,” explains Kumar, adding that the partners manage to break even in four or five months and entire capital is recovered in 24-30 months. “We have never taken a bank loan and are not looking for PE funding either.” Yet Browntree, which started off with 10 employees and now has over 100 on its rolls, notched sales of Rs.3 crore in first year and has grown at a CAGR of 100% since. 

Tricky trade

The health food market has several definitions so the differentiation is unclear. Alpana Parida, president, DY Works, a Mumbai-based brand consultancy, explains that ‘organic’, ‘fortified’, ‘natural’, ‘holistic’ and ‘Ayurveda’ classifications overlap, and there’s no authority to certify organic foods in India. In other words, health food buyers have to trust stores such as Browntree (and variations of this business model, like Organic Garden and Nature’s Basket in Mumbai). Parida also feels, “Indians cook healthy food at home so persuading them to get it from a packet will remain a small part of the food market and it will be difficult to find the right hook.”

The location of a store is one such hook for Browntree, which carefully pre-selects its addresses for easy access by upper-crust neighbourhoods in Chennai and Bengaluru. “The response has been very good,” points out Kumar. “Mostly, people don’t come with grocery lists — they look around and pick up things that they like.”  Some stores are kept open from 8 am till midnight because ‘Browntree families’ stop by after the city becomes quiet. Unsurprisingly, the client profile is the quality-conscious upper-middle class. “Their walnuts are the best in Chennai,” says Sreelatha V, 38, a software engineer. “Costs are about Rs.50 or more per half kilo, which is alright for expensive things like dry fruits.” Sreelatha says she first shopped at Browntree to buy gifts for friends.

Margins vary from 5-25% — dairy products have the lowest margins, India-made biscuits and branded foods fetch 10%, and the most lucrative SKUs are uncommon imported foods like the quinoa seeds from Europe and the exotic goji berries (Rs.3,500 per kg), commercially cultivated in the Ningxia Hui region of China, which is currently in short supply because of a crop failure — regular customers keep calling to find out if it’s back in stock. “We are the first specialty food store to issue privilege cards for repeat customers,” offers Kumar. Each Browntree store averages 300 footfalls a day, of which about 50% are repeat customers. 

Quality and reliability in suppliers wins over bulk discounts for Kumar, and it’s a philosophy that Browntree extends to its clients — even corporate orders for the festive season, which sees a 100% hike in turnover, are booked at MRP by the marketing team that pitches for them (May is the lean period, when customers go on vacations).

Health foods are a tricky business where freshness and quality requirements are challenging. For instance, dry fruits, Browntree’s fastest-moving SKUs, have to be stored under ideal conditions and turnaround has to be fast. Then different states have different food labelling laws, which turns packaging into a non-standardised nightmare (‘net weight’ is spelt with different abbreviations and upper-lower cases in Karnataka and Tamil Nadu, in both of which Browntree operates). And while there’s no expiry date for honey, it has to be dated by law. 

Branching out

The company wants to move into tier 2 towns in Karnataka and Tamil Nadu before it expands to other metros because India’s non-metro clientele has the money to spend but not the stores. However, DY Works’ Parida is not so sure. “Imported foods may be a novelty but the tier 2 palette is not yet ready for health foods — the quality of water, GM foods and usage of pesticide is what impacts ‘health food’ in the Indian context, more than exotic promises,” she notes. 

The tier 2 expansion is some way off, though. Browntree’s upcoming outlet is in the not-yet-open Phoenix Mall in the Chennai suburb of Velachery, its first in a mall, and a kiosk will come up soon at Global Hospital. If that works, “it’s a question of extending the format to IT parks and manufacturing hubs, which offer a ready market.” While the momentum is with Browntree, it will be some time before it actually grows into a forest.