Refusing a scoop of perfectly good ice cream is quite hard in the steaming suburbs of Mumbai, and no one knows that better than RS Kamath. Son of a fruit vendor, Kamath was looking for the ultimate entrepreneurial challenge way back in 1984 when he decided to take what he knew best — fruits — and turn it into a successful business venture. Observing the growing demand for ice cream back in the day, Kamath invested ₹4 lakh in a single, 200 sq ft artisanal ice cream outlet at Juhu scheme and called it Natural Ice Cream.
The brand has since captured the imagination of Indian foodies, catering to both lovers of savoury food and those with a major sweet tooth through innovative flavours such as tender coconut, cucumber, fig and turmeric leaf. The ice cream from Juhu scheme has come a long way and is now moving towards becoming a national brand.
While sales have doubled in five years, profits too have been robust
However, it has not been all smooth sailing for this family-run enterprise — the journey from a single outlet to 120 branches across the country has taken its own sweet time. “When we couldn’t handle the crowd at the Juhu outlet, we decided to expand to the suburbs. But the move from a small-scale enterprise to a larger business came with its own set of challenges. We were worried about being able to maintain the same quality and flavours that made us popular. We didn’t have the capacity we do right now and had to create homegrown equipment to meet the growing demand,” says Kamath.
Having grown up watching his mother cook, Kamath says he picked up a lot of tricks that he was able to apply during the construction of the brand’s 25,000 sq ft factory in the suburb of Kandivli in Mumbai. One of these inventions is the machine the company uses to remove the pits from custard apples — Kamath claims to have learnt the trick while watching rice being cleaned at home.
The scheme of things
By 1993, the brand had touched a 15% growth rate, thanks in no small part to Kamath’s homegrown inventions. It was then that he decided to capitalise on growing demand from Mumbaikars as well as tourists by opening a store in neighbouring Pune. Today, the brand has a presence in places as far off as Hyderabad, Jaipur, Delhi, Pune, Goa, Shirdi and Nashik, with a total of 120 stores across 26 cities. But throughout this expansion process, the brand’s greatest challenge has been maintaining the same quality at each location. Kamath says the company has kept the production of the brand’s famed blends limited to its factory in Mumbai and food processing unit in Mangaluru and is not looking to outsource the process anytime soon.
“The art of making these ice creams is not common knowledge; there is a particular process we follow in their production. Outside our two bastions, it would be hard for us to check the final products for quality and consistency, which we are not comfortable with,” he says.
Kamath’s son, Srinivas, who is a director in the company and who oversees the retail expansion of the business, says he is aware of the capacity-building challenges the company faces at present. “Most of our processes are semi-automatic; they can’t be tracked online or from a distance. It is not feasible for us to open additional units across the country at a time when the production process is completely labour-oriented,” he says.
Here’s how Natural turns fruit, high-fat milk and sugar into that delicious scoop in your waffle cone or cup: the milk is boiled down into thick rabri, which is later mixed with muddled fruit and frozen to form the final product. The challenges begin right from the first step — it takes nearly 56 litre of milk to make 500 ml of rabri.
Then, the brand has to account for the wastage that occurs during this conversion and the fact that most of the fruits that go into the ice cream are seasonal. Despite these challenges, however, the company manages to sell 18-20 regular flavours throughout the year, introducing a new flavour for the weekend every Friday.
Though the brand retains control over the production process, it has taken the franchisee route for expansion, with the company running just four of all its stores. Says Srinivas, “We want to expand to all the major metros in the country, starting off with a self-owned store and slowly moving to franchisees so that we can standardise the process in each city.”
The franchisee agreement may not involve an outright fee or royalty but lists every process that the store management has to follow. Franchisees are not allowed to sell any other brand’s ice creams and are supposed to decorate the store in the fashion of Natural outlets elsewhere. In return, the brand sells the ice creams at a cheaper rate, allowing the franchisee a margin of close to 30-35%.
Though the franchisee route has proved to be a comfortable expansion model for Natural in central and western India, the challenge of transporting the blends from Mumbai to other centres is proving to be daunting for the brand. At present, transportation costs — including fuel, packaging and refrigeration supplies — account for 8-10% of the brand’s total expenses.
Says administrative director Girish Pai, “Our stores are open 365 days a year and production runs for 325 of those days, with the factories dispatching orders as per the demand from each franchisee. The demand for different flavours varies in every city, so we cannot standardise orders either. Besides, the ice creams have a shelf life of 15 days, which means there is a risk of wastage during transportation. This is why we can’t open a store in a place such as Kolkata.”
Srinivas puts things into perspective. “Ours is a handmade product. Shifting our capacities and the production process out of sight will mean we will have to start automating the system and machine-making the ice cream. It will be like cooking in a microwave oven after using a sigri for years,” he says. The company spends up to ₹10-20 per kg transporting its products through railways cargo shipments or local logistic players. It also hires refrigerated trucks to deliver ice creams to all its stores. This elaborate delivery network ensures that the 10 tonne of ice cream that the Kandivli factory churns out each day — a figure that goes up to 12-14 tonne during summers and the festival season — does not go to waste.
The western market, primarily Mumbai, is a big revenue driver
A tight control on production and its strong delivery network have ensured that Natural continues to rake in the profits. “Around 60-70% of our revenue comes from sales of ice cream tubs. With the growing popularity of restaurant dining, the parlour format that we started our business with is now in the news. Not many players have been able to recreate our success,” says Srinivas. In addition to in-store sales, Natural earns close to ₹10 lakh-20 lakh each month through institutional sales and wedding catering; its flagship outlet in Juhu alone nets close to ₹3 lakh each month. Though it is something of a bit player in the ₹3,500-crore Indian ice cream industry, Natural is not fazed by competition.
“The per capita consumption of ice cream in India is very low. With each new entrant, consumption goes up, helping smaller players like us. Besides, we want to focus on our primary target audience, which is the entire family. We hope our range of interesting natural fruit flavours will attract families that are trying to inculcate the habit of healthy eating in their kids,” says Pai.
Adds Srinivas, “For any ice cream brand in India, mithai is the biggest competition. Apart from this, every region has local ice cream players, such as Nirula’s in Delhi. That mindset is difficult to break.” Ankur Bisen, senior vice-president, Technopak, thinks Natural has an edge, “Natural has always been consistent with its product quality. Its development process has been on-point and its quality has never faltered. The only hitch is that it should be careful during the expansion process and should try to retain its hold on the younger section of its target audience.”
Adds Mohit Bahl, head of retail at KPMG, “While its positioning as an all-natural brand works in its favour, Natural needs to work on its capacity shortcomings and its organisational structure. Being a family-owned business, the company may find it difficult to get out of its comfort zone. It needs to start paying attention to supply chain issues and logistical challenges.
Of course, it helps that Kamath himself has a very clear idea of where he wants to take his business in the near future — for him, the priority remains increasing capacity at the Mumbai factory, developing Natural’s equipment and expanding to as many cities as the brand can realistically deliver to. Pushing y-o-y growth to 30% is another target. Adds Srinivas, “We’re hoping to expand further in south India, especially to Chennai. If all goes well, we might be able to turn these plans into reality in another two to three years.”
As far as funding the expansion goes, the company seems to be pretty happy with its internal accruals. “Though we have been approached by a lot of interested parties, we don’t see a need for high-end investments just yet”, says Srinivas. For now, the family is happy opting for the traditional bank-funding route. Kamath has the last word, though. “Our ice creams are handmade with a lot of love. It would be nice to be able to use technology that can help us increase our products’ shelf life without having to compromising on quality. If all goes well, we might even be able to take our franchise outside India,” he smiles. That would indeed be a natural progression.