From selling virtual chocolate cows on Facebook to real meat in Indian households, the FreshToHome story

Shan Kadavil has seen many different facets of the internet. He started out as an engineer in Silicon Valley’s Bay Area, then worked for SupportSoft, a technical support software firm, which he saw go public. He then ran his own outfit - Dbaux, a cloud security firm.

From 2009 to 2015, he was the India head of gaming firm Zynga, best known for its Facebook-linked game Farmville, where cows gave you chocolate milk and you harvested artichokes every couple of hours.
Farmville upended the online gaming industry, and made Zynga one of the hottest internet companies in the late 2000s.
Then in 2015, tired of pushing virtual agri-produce to addicted teenagers, and wanting to do something more meaningful, he started FreshToHome, aiming to source clean chemical-free food - starting with meat.
“When people talk about food they use these wonderful adjectives like GMO-free and locally sourced, but the reality is that markets in India are a mess because of the number of middlemen in the supply chain and how unorganised it is,” says Kadavil, co-founder and CEO of FreshToHome.

With seven other co-founders - Mathew Joseph, BM Tambakad, Jayesh Jose, Jaleel PA, Firoz Vellakat, Suresh Parameshwaran and Nilkamal Malakar - FreshToHome last week raised $121 million in a Series C round led by the Investment Corporation of Dubai, Bahrain-based Investcorp, Ascent Capital and the US Development Finance Corporation, among others. It was valued between $300-350 million, according to a person close to the deal.

This is the largest deal in the meat delivery space, which also has other players such as Licious and Zappfresh, and a business hugely boosted by the pandemic, where people are ordering online more than ever.

In an interview with Moneycontrol’s M. Sriram, Kadavil goes into the nitty gritties of the business, why his brand is his biggest advantage, the difficulty of changing consumer behavior, and how, despite being a completely different businesses on paper, Farmville helped him build FreshToHome.

Numbers wise, how have things changed post-pandemic?

We have grown by four times in the last 12 months, and of that 2.5 times has come just after April. That was a big moment for us. Consumers have been used to buying offline, but this has at least made them try us. And when you know you can get a better quality product in a safer and more convenient manner, it becomes a sticky habit.
We do 1.5 million orders a month currently and have an annual revenue run rate of Rs 600 crore (current month revenue multiplied by 12). A significant portion of growth is new users. We are not present in all the metro cities, and are expanding to Kolkata and Saudi Arabia
It's also interesting that e-groceries and e-commerce are typically loss-making businesses, but we are EBITDA positive in our mature cities.

Given West Bengal consumes a lot of fish, why are you expanding there so late? Also isn’t the India market big enough before you expand abroad?

India is a huge market, and it's our main focus, but our strength is our supply chain. UAE and others import fish, mainly from India. Our supply chain is by air throughout India. Now the same 3.5 hour flight from Kochi, instead of going to Delhi, will go to Dubai. So it is a natural extension. So we are already among the top 5 e-grocers in UAE.
As for West Bengal, we have always been sourcing from there, But Kolkata being in the east, it's hard to justify the cost of operations for just one city.

How long did it take you for EBITDA profits in these cities?

Three-four years for most cities. Some cities we have been there for two years, and we are expecting profitability in the next one year.

How do you ensure quality running a marketplace model, where anyone can be a seller?

It's pretty straightforward. There is a particular criteria for a seller to be on the platform. We provide software to monitor temperature end to end. So if a seller is going from the coast to somewhere, he has an Internet of Things (IOT) device which measures temperature throughout. The collection centres, last mile vehicles, have all got it. So anytime there’s a breach in temperature, both us and the seller are notified. We also provide test kits, we provide labs where each batch of meat is tested for ammonia or formalin and results are uploaded online to us, the seller, consumer, everybody.
Your current business is also a sea change from Zynga - from online gaming to an operations-heavy business today. What has that change been like?
Frankly, I’d had enough selling virtual coconuts and tomatoes. I wanted to do something with real impact. These are folks whose lives are perennially under risk, when there’s big rain or a festival, their livelihoods come to a halt. The least we can do is provide a guaranteed market access. So there is a lot more to the venture for all of us co-founders than just the money.
As for a digital business to operations-heavy, we are seven co-founders, each with their own expertise. Mathew understands the fish domain. Suresh understands operations, Firoz runs factories, etc. So there are a lot of people beyond the tech guys who have been doing this all their lives.

How do you differentiate yourself from the competition?

There are a few differentiators, and that’s part of why we have also been able to raise this large round. From a positioning standpoint, we are a mass premium brand, and we are able to do that because of our direct sourcing. We have enough margins that we can pass on to the end-consumer, make money, and grow fast. We are priced 10-15% lower than competition because of this.

Secondly, nobody does vertical integration (be responsible for every part of the value chain, from sourcing to delivery) the way we do it. We in fact have a US patent around it. Beyond the platform we are also the world’s largest agri-commodity exchange. That makes a huge difference because it guarantees quality. That’s why our competitors don’t put quality certificates online. To be able to certify you can’t source from local stores; you have to own the supply chain.

We are able to price it well despite being better quality. For example, we sell our chicken as antibiotic- and residue-free, at Rs 218 per kilo, which is the same rate as from the wet market.

Given you’re a mass premium brand, you can’t be accessible to everyone. So how deep do you want to be in India, in say 3-5 years?

We want to be in all the Tier 1 and Tier 2 cities. Our model is scalable. Our biggest investment is factories or processing centres, and we don't need one in each city. For example we can have a factory in Bengaluru that serves Salem and Coimbatore (in Tamil Nadu) all the way to Kochi (Kerala) because a truck run is happening. A bit like a hub-and-spoke model. We have about six factories today.

When you say you’re EBITDA positive, where are these margins coming from?

It stems from a higher gross margin, from cutting off the middleman. That can fund the cost of delivery, and we get a commission from our sellers only because the unit economics make sense for them. Our average order values are in the Rs 600-700 range, so there is enough to pay overheads and still pass on the benefit to the consumer.

How does the value chain work, from me ordering to the meat reaching the house?

Assume you’re ordering in Delhi. The fish is being sourced from south India. Kochi is one of the largest harbours. The auctions happen between 4-7 am. These are boats that have been out at sea for 24 hours, and then come back to auction. People haggle over auction prices, but once the 10th or 20th auction happens, prices stabilise and variance is low for one species.

These are people who can't read or write, but they use WhatsApp. We have given them an app with pictures of fish, so they’ll click on the picture and say okay, this fish has come for this price. The seller who would sell for Rs 80 in the wet market, we will buy for Rs 100. But the same product may have different prices in Tamil Nadu, Kerala, etc. It may be priced for Rs 240 in Tamil Nadu. So we pick geographically whatever is cheaper, but the seller gets more than what he usually would. Then it gets into the e-commerce inventory and comes via flight to Delhi. The processing centre in Delhi cuts it into clean packs, and delivers to the end consumer.

Do you work with traditional or new age logistics companies? How do you standardize the logistics process?
No, the sellers have their own logistics network and delivery agents.This needs cold storage between 0-4 degree celsius. There’s a tremendous amount of training and handholding that goes on, but it is extremely reliable. It is also much more reliable because traditional logistics companies are not used to temperature-sensitive material. It has taken us five years to perfect this whole process.

We have two types of deliveries - express delivery and scheduled delivery. Express is, you get it within two hours. Scheduled delivery - the bulk of our orders - you order tonight and get it tomorrow morning, or you order it before noon, on the same day.

If you had to pick, what’s your moat? The supply chain, or the tech?

The brand, actually. FreshToHome stands for 100% fresh, 0% chemical products. Second is the tech-enabled supply chain. You can't separate them. It is because of the tech-enabled supply chain that we can realise the right price, get good quality, etc.

Is South East Asia interesting, from an expansion standpoint?

We have been looking at it from the point of view of - how do we leverage supply chains? Something that’s 3-4 hours from India. There are other markets that qualify, but the GCC countries (most middle-east countries) have a large Indian presence, so there is a large user base, and these landlocked countries will also be importing fish anyway.

How did your Zynga stint help you with FreshToHome?

We do a lot of gamification. Digital marketing is a big part of our effort, which also we mastered from Zynga. For us gamification involves how to show you what to buy in relation to what you are browsing, how to show that buying more is more beneficial. We even have a game inside the app (predicting who wins that day’s IPL match for rewards), where we give points, which can be used with your purchase. It is a significant retention driver.

Farmville was amazing as a digital acquisition machinery. Very viral. We had a very strong product management culture. India didn’t have good product managers before Zynga India. So things like making the cost of acquisition an important metric, how to bring it down, increasing organic virality, increasing reach, retention and revenue. We follow similar things at FreshToHome.

What is your biggest challenge today?

It's a big challenge to just convince people to buy and eat healthy. If a foreigner comes to India and sees a wet market, he would be horrified. Bacterial contamination starts within 30 minutes, and without cold storage, you will get heavily contaminated meat. Because Indian cooking habits involve a lot of temperature, it is not easily noticed, but it is still bad for your body.

As Indians, we equate what is cut in front of us to be fresher, but don’t really figure out how long it takes to get that stuff to the shop. So that’s what I keep wondering about, how to change that habit, how to educate consumers. Even for us in the initial days, monitoring temperature was a nightmare, until we automated it and used tech.

Except the pandemic, what has surprised you, in terms of a plan working, not working, in your journey so far?

We always felt like coastal cities would not work for us. Because fish is directly available there so why would people buy online? We started in Bengaluru and Delhi because of that. But that’s actually been a very poor hypothesis. Mumbai is one of our largest markets. What we realised is that although Mumbai is a coastal city, it doesn’t produce enough fish. So the majority would actually come from Ratnagiri, Vapi or Surat, and hence the same demand issues exist. The unmet need for the consumer still exists.