Once known as one of the most ‘happening’ places in Bengaluru for its buzzing atmosphere, Kalasipalyam or ‘city market’ is like most wholesale markets — crowded and chaotic. Fruit and vegetable vendors trying to outshout each other is how the market welcomes any unsuspecting visitor. Only a seasoned buyer will dare to scout around for the best deal. In 2015, the market attracted two observers who weren’t buying or selling anything, but they had a reason. Sharath Loganathan and Vasudevan Chinnathambi would head to the market daily, before dawn, to take in the proceedings and find answers to their exhaustive list of questions — on the quality of produce, prices of the products, change in pricing during the day, buying patterns, typical order size and many more.
The team — which included Thirukumaran Nagarajan, Ashutosh Vikram, Kartheeswaran KK — put all the answers to work immediately, that same year. They devised a tech-based platform, which relied on data and predictive learning, called Ninjacart to fix a ‘broken’ supply chain. By sourcing directly from farmers and selling to kiranas and retail stores, Ninjacart is eliminating the need for middlemen and giving a huge cost advantage to both parties. Today, it is the largest B2B fresh-produce supply chain company in the country.
“We have built a tech product that forecasts demand and enables us to make the purchase accordingly. Our accuracy in prediction has moved from 80% to 97% in the past four years (based on stock clearance). Our platform also segregates produce and plans the delivery route to ensure minimal cost,” says Thirukumaran, co-founder and CEO, who spoke with Outlook Business at Ninjacart’s HSR Layout office in Bengaluru.
Over a short span, Ninjacart has been able to scale up its operations significantly. Today, it works with close to 37,000 farmers across 20 states, throughout the year, to source fresh fruits and vegetables. A total of 4,000 farmers contribute to the daily pool of 1,400 tonne of produce that Ninjacart sends to retailers. And with 4,000 employees – including the operations, sales, category, procurement and corporate teams – the company has turned operationally profitable in Bengaluru. Its retail customer base stands at 50,000 across Bengaluru, Chennai, Hyderabad, Delhi, Gurugram, Mumbai and Pune. Reportedly, the company has been compounding revenue at 400% since 2016, with its FY19 revenue at 1.20 billion. Thirukumaran is confident of turning profitable overall in the next five years by constantly improving efficiencies.
“Ninjacart has taken a brave step. We need more effort from start-ups in this space because they keep bringing to light problems that weren’t known earlier,” says Ankur Bisen, senior vice president - retail and consumer products, Technopak.
With the kind of growth that the company has seen within a few years, venture capitalists and independent investors are also flocking in. So far, the company has received $147 million in funding from Accel and Tiger Global, among others. And according to reports, retail giant Walmart has also committed $50 million. “Strong execution capabilities, supply-chain efficiency and technological expertise are the three factors that make Ninjacart stand out. It’s a difficult problem they are solving, 365 days of the year,” says Subrata Mitra, partner, Accel, which was the first investor in the start-up.
While the idea is a game-changer, Thirukumaran says it was “purely incidental”. Sipping coffee, he recalls his entrepreneurial journey. His first job was with ABB, as a sales and marketing executive in 2006. And like most engineering graduates in India, Thirukumaran went on to pursue MBA in finance and operations from IIM Kozhikode, two years later. This is where he met Loganathan. But when he started working with Axis Bank in infrastructure project advisory, Thirukumaran yearned to build something himself.
“I had a typical engineering mentality of wanting to change the world,” he quips. Thus, from trying his hand at running a cloud kitchen and an ed-tech firm, Thirukumaran dabbled with a string of start-ups that didn’t work out eventually. After realising they weren’t scalable, he discontinued each of his businesses. In the meantime, he also worked with other start-ups such as CommonFloor, TaxiForSure and impact investing fund Aavishkaar.
In 2013, he had an idea that paved the way for Ninjacart. Along with Loganathan, he founded a start-up called ‘Shout’, a location-based instant information-sharing platform. A consumer could post a query, which would be directly sent to the sellers or traders in the vicinity. For instance, a person who wants to buy a smartphone would post that request on the platform. An alert will then be sent to sellers in the vicinity who can quote their prices. The person can choose the option best suited to him and place the order, which would be delivered by the seller. After working on the project for a few months, they realised hyperlocal delivery was a better problem to solve and so they customised their existing app.
Started as a business-to-consumer (B2C) offering, customers could order through the app and kiranas would make the deliveries. Gradually, the team started experimenting with backend support for the retailers in terms of sourcing and delivery. “That’s when we realised that there is more value in solving the problems of kirana store owners,” says Thirukumaran. Although incorporated in July 2015, the company moved to the current model officially in January 2016.
Mitra, who invested in the company when it was a B2C model, says that the pivot was essential, as the unit economics hadn’t been working out. In contrast, B2B offered a more critical problem to solve at much less customer-acquisition cost.
Ninjas at work
The founding team’s obsessive study of the market paid off. They learnt that a retailer had to reach the market extremely early to get the best fresh produce at the most competitive rates. As any Indian might know, bargaining is an acquired skill, and is definitely not an easy task. Even after winning that battle, he then had to incur logistics cost to transport his produce from the market to the store. On the other end, farmers had to deal with middlemen, who often ate up a lion’s share of the profit. The best way to solve this problem and make retailers’ lives easier was to bring both sides on the same platform.
Under the parent company 63 Ideas Infolabs, Ninjacart now works on an inventory-based model. First, through a farmer development programme, Ninjacart has field agents who educate farmers about the benefits of partnering with them. “We target farmers who own two to five acres of land and educate them about the quality of produce and demand cycle,” explains Thirukumaran.
Next, Ninjacart sets up collection centres where the farmer can drop off the produce. He can either arrange his own transport for this or avail Ninjacart’s pickup service for a nominal charge, which is lesser than what he has to bear alone since it gets divided among the number of farmers in a given area. Each centre serves the farmers in a five to 10 kilometre radius and has two relationship managers who tell them what the demand for next week looks like.
After the cut-off time for collection, the produce is moved to fulfillment centres based on demand. Here, the produce is sorted, graded, tagged and put into crates. These crates are then dispatched to the distribution centre. Finally, the products are transferred to smaller vehicles that go to the retailers. Hence, the retailer does not have to go all the way to the market as the ‘elves’ do that before he opens his shop.
“Ninjacart is addressing a fairly complex supply chain issue. They bring predictability in price and quality in an unorganised sector,” says Ankur Pahwa, partner and national leader-e-commerce and consumer internet, EY India. The farmer is hence assured that his produce will sell and, at the same time, does not have to seek various buyers. Meanwhile, the kirana store gets convenience, quality and a higher fill-rate (a measure of how well a retailer can meet consumer demand).
Harminder Sahni, founder and MD of Wazir Advisors points out that several Indian and international companies tried to organise food and grocery retail but they went about it in the wrong way -— they tried to turn kirana stores into supermarkets. Similarly, online players who tried to bypass the kiranas were unsuccessful. B2B start-ups such as Ninjacart, Milkbasket, Udaan, Jumbotail and ShopKirana are now trying this differently — by identifying a huge opportunity in organising the back-end for these stores, while allowing them to handle the front-end operations. “In the traditional supply chain, there are a lot of leakages in terms of rent and commission seeking costs. That’s where these start-ups are making a difference,” adds Sahni.
Currently, Ninjacart has over 120 collection centres, seven fulfillment and 60 distribution centres. It takes about 12 hours for this entire process to be complete — from collection centre to the kirana store, where the produce is dropped off between 6 am and 8.30 am — with Ninjacart’s 500-odd third-party fleet moving from one centre to another with clockwork precision. Transportation cost makes up 12% of the company’s overall expense.
The back-end operations are centrally controlled through their integrated product BiFrost, which has apps for all stakeholders — customers (to place orders), field agents (sales and procurement), operations (at warehouses) and drivers (for all routes, drop and pick up points).
“The algorithms guide the workers on what sequence to take, what to load, what to unload, and how to batch, aggregate and segregate. Each step or process happens through our algorithm,” explains Thirukumaran. For instance, each crate has a radio frequency identification (RFID) tag. When the worker scans it using the app, it immediately says which fulfillment or distribution centre it has to be sent to. Similarly, a driver gets instruction on all the drop points through the app.
Once the produce is dropped at the retail store, the amount is credited to the farmer’s account within 24 hours. This, in fact, is one of the biggest benefits of partnering with Ninjacart. Usually, it takes anywhere between ten days and a month for farmers to get paid for their produce.
What’s more, by eliminating middlemen, Ninjacart can offer farmers higher prices than they usually get and produce at lower rates to retailers. Otherwise, at least 50% of what the retailer pays actually goes to the middlemen. “These include a person who aggregates all the produce and takes 7% cut, and a commission agent who takes 10% for auctioning the produce,” says Thirukumaran.
With Ninjacart, farmers get paid 15-20% higher than the market rate, all within a day’s time. “I used to supply ridge gourd to Hosur markets and had to wait for my payments for almost a month,” says Devamma, a farmer who signed up with Ninjacart two years ago. Now, she supplies his produce to Ninjacart’s Malur collection centre for a better price. Another farmer, Balaji, who has been supplying beans, ridge gourd and chilli to Ninjacart for nearly three years, says, “In addition to timely payment, Ninjacart’s collection centres are closer to my farm than the mandis. It saves travel time and transportation cost.”
For the retailers, too, there is an immediate cost benefit as they get the produce at 5-10% discount even while saving on transportation cost. To top it up, Thirukumaran points out, they offer a guarantee on the quality of supply. While Ninjacart offers convenience, it also demands timely payments. Working on a zero credit model, the start-up gets paid immediately by the store owners and does not work with those seeking credit.
A retailer who runs a vegetables and fruits shop in Bengaluru, says that he first heard about Ninjacart at the local mandi. He then looked them up online and decided to partner with them about a year ago. Ninjacart’s field agent got the shop on board by verifying the location and other details, and put them on the supply route. “Besides better pricing, the door-to-door delivery helps me run my business in peace,” says Manjunath, who buys about 15 SKUs from Ninjacart daily, amounting to over one tonne of fruits and vegetables.
Apart from improving efficiency and income, Ninjacart also reduces wastage as its technology allows them to predict demand and source accordingly. While the wastage in a traditional mandi system is up to 40%, it is less than 1% at Ninjacart. “There are a few local and regional players, but none have scaled the way Ninjacart has. It is 10x bigger than the nearest competitor,” says Mitra.
Even as analysts agree that Ninjacart has a unique value proposition and has scaled up well, it is still early days for the start-up. Bisen points out that while, theoretically, concepts such as farm-to-fork look appealing, the demand-supply is extremely fragmented and varied. Hence, aggregation is an issue. “Plus there are state laws, regulation, infrastructure issues, ambient logistics, storage capability, perishability and so forth. It requires consistent innovation, execution as well as policy support to create impact on a larger scale,” he says. Sahni concurs, and states that it is hard to execute. “Onboarding a new supplier or kirana is not as simple as just putting your POS machine at their store or asking them to use your e-wallet. That said, it is still a promising idea,” says Sahni.
But Thirukumaran is not worried. He notes that many states have already started de-regulating fruits and vegetables so that companies can buy directly from farmers. This makes it easier for them to conduct business. Besides, he is well-aware of other challenges. Hence, the company is going for a measured expansion. Ninjacart is not planning to expand to newer cities for the next two quarters, and will go scouting for markets only in January 2020.
Analysts also believe there is scope for huge gross margin within the perishable product category. Ninjacart is still making losses because its expansion to newer cities requires investment in supply chain, logistics and warehousing facilities. But as volume expands, the company remains confident of turning profitable.
Pahwa adds that their robust supply chain and strong client relationships, especially with respect to kiranas, will also help them add layers to their product portfolio. “As they expand towards FMCG and other consumer products, they will be able to help kiranas with their stock-keeping and understand their business better,” he adds.
That ambition already exists. Thirukumaran says that the goal is to become India’s largest B2B supply chain company and move beyond fruits and vegetables. And with their strong value proposition, loyal customer base and consistent investor backing, it isn’t difficult for the start-up to move at ninja speed towards its goal.