Secret Diary 2019

PC Musthafa on iD Fresh Food and Values | Secret Diary - Part 2

Secret Diary of PC Musthafa — Part 2

RA Chandroo

Three months later, I got a job offer from Citibank in Saudi Arabia in 1996 and my salary was more than Rs.100,000/month. I remember I sent the entire salary in cash through a friend back home, and father started to cry when he saw money. He had never seen so much cash at one go and, in one stroke, he cleared debts he had gathered over a lifetime. I was able to put two of my sisters through college, help in getting all three of them married and even build a house for my parents in our village. 

It is around that time that my friend and I started an online used-car business. Used-car sales was flourishing in Saudi and, in those days of dotcom boom, we wanted to bring the business online. Ours was more like a listing platform where we brought the seller and buyer together, and it started to do really well. We even got offers from Avis and Budget Rent a Car (both US car rental companies), but we didn’t want to sell just yet. However, the dotcom bust happened, and our business did not survive. This cut deeply into my savings and my confidence. I had begun to fear failure. 

My boss was moving to Dubai and I moved with him, with a cushy job that paid well. I had also married Sajna by then. Life was starting to look up again. Again, homesickness began to creep in. I had not really spent time with my parents since junior college and the one-month vacation we took every year, though spent entirely at the village, did not seem enough. Secondly, I had always wanted to study more but could not because of my financial responsibilities, despite having a good GATE score. I had wanted to pursue Master’s in computer science from IIT or IISc. Lastly, the techie job was getting monotonous and I wanted to try anything different. I had risen from my circumstances with help from strangers and I wanted to do something similar for the many smart kids back in my village. So, in 2003, I decided to return to India.

To say it was not easy would be an understatement. My father was flabbergasted, unable to understand why I would give up such a comfortable life I had built. But I was adamant and, thankfully, my wife and cousin supported my decision. Nasser was running a small kirana store in Bangalore’s Thippasandra area by then. He said, if it doesn’t work out, you can always go back and that it is not the end of the world. With the confidence they gave me, I came back home with savings of Rs.1.5 million and a pipe dream. 

I got a job with Intel and this time, the role was more managerial, where I was leading a team. I realised that I enjoyed managing people more than programming computers, and so decided to pursue an MBA. Ever since I saw their sprawling campus during one of our picnics to Bannerghatta National Park, IIM Bangalore had become a dream destination. But, the entrance wasn’t easy, so I put my head down and prepared for two years. Finally, I cracked it. I now led a hectic life, juggling work and studies but I got to meet my parents every month, so I was happy. Also, as the in-house techie, I helped in upgrading Nasser’s kirana shop by putting in processes such as daily-account closing that helped run the business more smoothly. Meanwhile, we had lengthy chats about what businesses we could pursue. 

Nasser wanted to start a supermarket chain but I wasn’t too kicked about it. We had a lot of ideas and my MBA helped in filtering them, and figuring out what we shouldn’t do. I had become good at elimination. The first premise was that we should play in a segment where is there is no MNC or large player with deep pockets, because we cannot compete with them. The business must be scalable and profitable because we couldn’t fund the losses.

These discussions were continuing endlessly when we noticed that readymade batter that was being supplied to Nasser’s store, in a plain pouch sealed with a rubber band, had regular takers but there were constant complaints about the quality, hygiene and service. My cousin tried to fix this several times but the problem persisted. That’s when Shamsu, one of our cousins suggested that we make the batter ourselves. It was our ‘Aha!’ moment. We decided to give it a try and that’s how iD Fresh Food was born.

***

Five cousins — (Abdul) Nasser, Shamsu (Shamsudeen TK), Jaffer (TK), Naushad (TA) and I — decided to start the company together. 

We started with a Rs.50,000 investment in a 50 square feet kitchen with one grinder, a mixer, a weighing machine, a sealing machine and a second-hand scooter for delivery. We gave ourselves six months to get it right. It was going to be just the five of us to begin with and our initial target was to get 100 packets sold every day. We wanted to get there in six months. Our job was to go to the market daily, get the rice and dal, make the batter, ferment it and then pack it. Since we didn’t have storage space and working capital, buying ingredients was a daily affair. Once the batter was packed, we would load it into the scooter and deliver it to the stores ourselves. 

By the time we were done with deliveries, we would be drenched in sweat. It was back-breaking, but there is no denying that we enjoyed it. We identified 20 stores in and around the neighbourhood because Nasser knew these store owners. Nasser earlier had a spices distribution business, so they were his clients, and that helped us build our initial network. Our first customer was Nasser himself and we got our initial trials done in his store. Starting up was easy, but convincing retailers to stock our product was not. Most of them said “we are good friends and we wish you well, but who is going to buy idli-dosa batter?” We didn’t lose hope and kept at it. By the end of the first month, we had finally managed to convince the store-owners to keep the products. 

For the first three months, we were packing 100 units and sending it into the market, and having 25 returned. Consumers still hadn’t fully warmed up to the idea of using readymade batter. But we kept pushing the product because we believed in the new economic theory that supply creates demand. I strongly believe in Steve Jobs’ philosophy that people don’t know what they want unless they experience it. Apple would have never come up with the iPhone if they had gone by market research and only created what people wanted. Once buyers found that the product quality was better than what they had expected, the popularity of the brand was built through word of mouth. 

We focused on three things. One, we would ensure the highest product quality; my product would always be the hero of the bunch. Two, we would ensure the highest service quality, which meant stores would be replenished on a daily basis and we would focus on the right placement of the product at the right stores. Three, we would get the packaging right, making it look like a premium product. People were more comfortable buying a branded product, with the expiry date prominently printed, rather than the unbranded batter in a plastic cover held together with a rubber brand. All of this helped and we were selling 100 packets a day by the ninth month.

We did our research and found that there were 1,000 stores we could supply to in Bangalore and, even if we maintained our average of selling five packets to an outlet, we should have been able to sell 5,000 packets daily. We were confident that we were on the right track. So we decided to set up a larger kitchen with a capacity of 2,000 kg for an investment of Rs.600,000 that came out of my savings. 

We were gearing up for our dream run but I had started struggling with finding time for work, family and business. So, in 2008, I made a choice and decided to join iD full-time. Again, I had left my father shocked. Why would his son give up a cushy tech job to become a rice merchant? To be fair to him, nobody really understood what this idli-batter business was. They thought that maybe we were getting into trading. We managed to calm all the frayed nerves by saying if it didn’t work out, I would go back to being a techie. The company was generating about Rs.3-4 million in annual revenue when I joined as CEO. 

We were able to quickly scale up the business. We hired young, smart boys from remote villages and across cities, and trained them in manufacturing and sales. By 2010, we were supplying 3,000 kg of batter to stores in the city (which had now become Bengaluru), clocking annual revenue of Rs.100 million. We thought if we could sell so much in the tech capital, imagine what we could do in the Mecca of idlis, Chennai. We decided to plough in all our profit into setting up a plant there and debuted in the market in 2010. Only after we entered it did we realise what a tough market it was. 

For one, we couldn’t compete with the local players on price. They were buying subsidised ration rice at Rs.1/kg to make the batter. So, they were able to supply at Rs.20/kg, and iD batter at Rs.45/kg was way too expensive. Secondly, since the subsidised rice was not really suitable for the batter, they would add loads of soda into it and that would make their idlis softer than ours. Therefore, for the Chennai customer, not only was our batter much more expensive, its quality didn’t meet their expectations. But we didn’t want to compromise on our product quality, and didn’t want to resort to unethical practices to lower the cost of our ingredients. 

Meanwhile, business in Bengaluru had begun to slip because the core team was focused on setting things right in Chennai. Our cash flow was impacted since we were losing money in our new market. We had ploughed our entire profit into setting up Chennai infrastructure. So, for nearly six months, we couldn’t pay salaries on time. A few of our employees left but most of them stayed back. It was proving to be a costly journey. 

Selling idli batter is not a fancy business, and not one of the investors was interested in funding us at the time. Our second option was to borrow money and run the business till things got better, but it went against our ideology. We don’t take or pay interest. Also, I strongly believe that once you have an EMI hanging over your head, you lose focus. But there were employees to pay. Finally, the only option was to shut the Chennai operations down, sell the assets and use the money to pay salaries. In the beginning of 2011, we decided to exit the market. 

We lost a lot of money but not our confidence. Our team decided to enter the market with a better strategy at a later date. The journey to Chennai cost us about Rs.3.5 million, and it hurt to absorb that kind of loss at the time. My professor at IIM and my mentor, Mr (DVR) Seshadri, used to say that a good manager always kills the wrong project at the right time. We did just that with Chennai. If we hadn’t, it would have taken down the entire business. It was the courage to take such bold decisions during tough times that made us the brand we are today. I have always focused on cash flow and profitability because I believe that is the only way to build a great business.

We take immense pride in sticking to our principles, even when it costs us heavily. That’s how we have grown to become one of the trusted brands in India. Once, we had to walk away from a large deal because our product would have been used to promote liquor. This was way back when our business was making only Rs.10 million in revenue, and we got an order for Rs.15 million from a five-star hotel chain that wanted the diamond-cut snacks we made. I was thrilled because it was good money but I got curious to know how it fit into their menu. The manager told me that they were planning to use it as a bar snack, but I didn’t want any of our products used to promote liquour. So, as hard as it was, I decided to refuse the order. I told my team the reason why the deal was off and then cried on my way back. 

I didn’t cry because I lost out on the money but because god gave me the strength to walk away from it. Businesses can be built in several ways but it is most satisfying when you can advance it without giving up on your principles. In hindsight, refusing the deal gave us a lot of clarity on what the company’s vision should be — to assist home chefs in kitchens across India. So, we dropped the snack offering since it didn’t align with the brand. ‘Growth at any cost’  can never be the bedrock of any good business.

In 2012, I reached out to my family, friends and former classmates to join me on my journey to take iD to the next level. We expanded to cities such as Mumbai, Hyderabad, Pune and Dubai, with each of them leading the initiatives in these cities. We had a partnership model with a local manufacturing plant in each city and the partner would have a stake in the parent company. We followed the same manufacturing process everywhere. We also expanded into more product categories, and launching parathas and chapatis worked really well for us. We decided to try our luck in the Chennai market once more. This time, we entered as a paratha company and slowly built our network with retailers. Customers took to our parathas, and once we managed to establish iD as a trusted and credible brand, we re-launched the batter. 

 

This is Part 2 of a three-part series. Click here to read Part 1 and Part 3.

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