In October 2009, nine months after converting the floundering Nature’s Basket into a gourmet food store, its team was pleasantly surprised. Its seven stores in Mumbai had seen sales grow at 70 percent — a surprisingly quick validation of their change in strategy. Getting there, however, has been a rough ride.
Two years earlier, Godrej’s Nature’s Basket business wasn’t going as planned. The store, set up in 2006, had been formed as a result of a simple, yet ambitious plan — to get farmers better prices for their produce. But selling vegetables in cities is a low-margin business at the best of times. Add expensive real estate to the equation and the company was losing Rs. 6 for every Rs. 10 worth of produce sold. “We realised that with vegetables there is only so much you can do,” says Mohit Khattar, chief executive at Nature’s Basket.
Understandably, the top brass at Godrej wasn’t happy. Some of them even wanted the business to be sold off. But Tanya Dubash and her team who had incubated the Nature’s Basket business, were keen to give it another shot. They realised that while the gourmet food opportunity may not be too large, it would give the group a great name and a way to advertise the brand as youthful and vibrant.
It’s a niche that has given Nature’s Basket a new lease of life. The company knew that globally gourmet foods were a $16 billion market and, in time, India would also see consumers shop for exotic spices and flavours.
The turnaround plan came out of a simple observation. Thanks to an increasing number of Indians travelling abroad, a sliver of Indians are experimenting with exotic foods. Shopping for gourmet items as varied as tonkatsu sauce and tuna chunks often meant a visit to places like INA Market in Delhi or Crawford Market in Mumbai. It’s a market estimated at Rs. 6,000 crore to Rs. 6,500 crore by Technopak Advisors. Its growth is pegged at 15-17 percent annually.
The business worked well for the shop owners, but for buyers it meant navigating narrow lanes at these crowded markets. Browsing store shelves was near impossible. Buyers usually went in with a list and walked out with their products. Clearly, there was a gap in the market waiting to be exploited and Nature’s Basket understood this.
The chain, that had begun with a single store in 2006 and had grown to eight in 2009, now has 19 stores across Delhi, Mumbai, Hyderabad, Pune and Bangalore and is on target to clock Rs. 90 crore in sales this fiscal. While profitability is still some time away, stores that are more than two years old have broken even.
From Agriculture to Gourmet
Before Khattar took over in February 2009, Nature’s Basket was nowhere close to being a gourmet food store. It had started off as the brainchild of Godrej Agrovet, another group company. The initial plan was to take advantage of Agrovet’s links with the agricultural market. The thinking at Agrovet, which had strong linkages with farmers, was ‘why not get fresh produce to cities and help farmers get a better price?’ But selling vegetables in air-conditioned shops didn’t work. A change of plan was required.
The company realised that building a gourmet food chain requires a completely different mindset. As a first step, the business was split from Godrej Agrovet and a separate subsidiary was formed. Along with low-margin vegetables, the stores would stock herbs like basil and rosemary that could be sold at much higher margins.
The company engaged Technopak to suggest changes to the format. After a formal market study, the verdict was simple. “Given the store locations in high rental markets, the company needed to stock products that are space-effective and productive. Essentially, high margin products,” says Saloni Nangia, president at Technopak.
Early on, Nature’s Basket realised that, if managed inefficiently, inventory could prove to be its Achilles’ heel. “The issue with stores like this is that it becomes difficult to understand what sells and what doesn’t. All the margin is lost on items that don’t move,” says Damodar Mall, director, food strategy at the Future Group.
(This story appears in the 17 February, 2012 issue of Forbes India. To visit our Archives, click here.)