There was nothing unusual about the July 2009 morning when Rohit Nayak’s train chugged into Nashik station on the way to Pune. Nayak was returning from a break at his hometown, Bhopal. Nashik station was crowded as usual but what caught Nayak’s attention was the countless plastic bags strewn around. It certainly was not the first time he was seeing them but, as Nayak recalls, his mind was brimming with ideas after having read Rich Dad Poor Dad the previous night. “The book and the sight of those bags were the reasons for me to get started on an entrepreneurial venture,” he says with a smile.
Just 20 years old at the time, Nayak still had two years left for his engineering degree but where the first two years had been all about becoming a scientist, the next two were only focused on business and entrepreneurship. Nayak and his friends Sudhir Deshpande and Satprakash Arora started their venture, ecoad, on an informal basis in 2009 itself, though the company was registered just six months ago. The business is simple enough — selling bags made of old newspapers to pharmacies — but there’s a twist in the tale. To ensure that the business is self-sustaining, ecoad has created an alternative revenue stream — advertising on the sides of the bag. “We are in the business of subsidising the environment through advertising,” Nayak says.
Nayak and his friends began their venture by exploring alternatives to plastic bags. They finally zeroed in on bags made from old newspapers because they served a dual purpose — paper is environment-friendly and using old papers meant reducing waste as well. Surendra Shroff, a senior member of the Rotary Club in Pune, suggested reaching out to rural self-help groups (SHGs) to make the bags. Nayak got in touch with Kalashree Creation, a women’s SHG in Bhor, 40 km outside Pune, and got some samples made as a first step.
Meanwhile, the trio was also researching who its target customers would be. They spoke to nearly 200 retailers of all kinds across the city and realised pharmacists seemed the most receptive to the idea of replacing plastic with paper. Though ecoad’s promoters tried highlighting the environmental impact of the bags, what really sold the pharmacists on the idea was that the bags were more financially viable than their plastic counterparts. As the manager at Prashant Medicals told Nayak, “As long as we can save costs, we’ll go ahead with your product.”
The bigger hurdle remained — of convincing advertisers. “Our focus is not on companies such as Domino’s or Vodafone. We want local advertisers; bakeries and boutiques,” Nayak explains. As it turned out, that’s exactly who he got. A promotional bag at a chemist’s store caught the eye of the founder of Pune boutique, Potpourri. After some negotiation, where ecoad pointed out the benefits of advertising on paper bags — newspapers may be thrown away, but bags of any kind are usually reused in most Indian homes, which means the ads would be seen again and again — the boutique owner gave an advance of ₹2,500, and ecoad was in business. “I had no money. That ₹2,500 was what I used to really start off,” says Nayak. Eventually, Potpourri spent ₹7,500 for ads on 5,000 bags.
What started in 2010 with one pharmacy has today spread to 34 outlets across areas such as Wanowarie, Kondhwa and Fatima Nagar, with about 45,000 paper bags already sold. The ecoad revenue model has two components. One is from distribution, where each bag is sold at about 35 paise to the pharmacist, which is about half the price of a plastic bag. The cost of manufacturing this bag is much more and Nayak recovers that deficit through advertising, which is on a cost-per-bag model.
Here’s how it works. ecoad buys the newspaper bags from Kalashree at about ₹1-1.5 apiece. This is a “basic” model, 8x12 inches without handles; it can carry up to 1 kg weight. Currently, the enterprise sells about 5,000-8,000 bags each month. ecoad is still to hit big numbers when it comes to revenue: so far, it has earned just ₹50,000, mostly because it subsidises the cost of the paper bags. Currently, Nayak works out of home, thus bearing many hidden expenses — internet bills, phone bills, space taken up by stock, depreciation, etc. He and Deshpande still don’t draw a salary, and are spending on promoting ecoad, setting up a website, legal registration, installation of shelves, warehouse development and delivery bags.
“We sell the bags at about a third of what we buy them for. The rest is recovered through advertising and leaves us with a margin of about 12-13%,” says Nayak. Still, the founders have big targets for ecoad: they plan to sell 15 million bags by December 2015 with a revenue of ₹4.5 crore.
Best from waste
It is mid-afternoon in Bhor, a small town with a population of 18,000 people. Sushil More is overseeing the work done by a group of seven or eight women. They are quietly making bags from newspapers, which will eventually find their way into retail establishments in Pune such as Champion Sports, Café Coffee Day and Mrignayani Emporium. Eight years ago, More had set up Kalashree in order to provide gainful employment to underprivileged women. “Plastic bags can cost up to ₹5 per piece, while a newspaper bag can start off at as little as ₹1. On an average, we make a profit of about 60 paise per bag,” he says.
Today, More employs about 100 women each of whom makes as many as 100 bags every day. But even though the concept of paper bags is becoming popular, More is blunt about the challenges involved. “It comes down to making it affordable for retailers. We need more players like ecoad to ensure such women are gainfully employed,” he points out. Orders from firms such as ecoad give the women at Kalashree the freedom to work from home, anywhere from two to eight hours a day, depending on domestic pressures. “They decide the schedule and can earn anywhere between ₹1,500 and ₹3,000 a month,” says More.
From the time he started ecoad in 2009, Nayak has been sourcing his bags from Kalashree. Once his advertisers approve the design for their ads, printouts are passed on to More and the women get to work on the bags using an eco-friendly glue called khad. “I was swayed by the quality of their work and their professionalism,” says Nayak.
Price of going green
What differentiates Nayak’s business model is the third-party ads on the bags, because of which he can sell them cheap to chemists. But it’s not been easy to convince advertisers. “This is still a new concept and it takes time to convince advertisers. But they eventually come on board, thanks to their tight budgets and our ability to connect locally,” Nayak says.
So far, ecoad has signed on six advertisers to promote boutiques, computer hardware stores, real estate dealers and tea brands. That includes small businessmen such as Irfan Syed, who owns a website offering real estate deals and an electronics service centre. Syed was targeting customers in a 3-5 km radius and a few months ago, came up with a ₹50 discount coupon, which he offered through ads on 700 ecoad bags, paying just ₹1,000. “In just four days, 25 people came in to redeem coupons — way more than the figure we had anticipated,” he says.
Going forward, Nayak hopes to persuade more advertisers and pharmacists to switch to paper bags. “Pune has 7,000 chemist outlets and we want to reach out to at least 1,000 in the next three years,” he says. That’s ambitious, considering ecoad has just 34 drug stores signed on at present. “We’re planning to introduce discounts from advertisers on the bags to motivate users to ask for it in all stores. We are also designing campaigns to create awareness,” Nayak says. By then, he hopes, the enterprise will be ready to seek investors. After all, the more money there is to buy paper bags, the more the women at Kalashree will earn, and the bigger the step to a polythene-free world.