How Shan Kadavil is building FreshToHome into a proficorn

Mr. Shan Kadavil, CEO and Co-Founder, FreshToHome at the FreshToHome Facility Centre in Chikka Gubbi, Bangalore.
 
In a startup ecosystem that’s obsessed with churning unicorns, Shan Kadavil claims to be an exception.
 
The CEO of the seven-year-old startup, FreshToHome doesn’t believe in chasing sky-high valuations, or at least flaunting it, even as he raised a spectacular $104 million amidst a funding winter. Instead, the 45-year-old is playing the long game, when he intends to take his company public three years later and in the process, win over the bourses. That has meant a steady focus on operating income and profitability at his fish and meat delivery platform, which he claims is already bringing in revenues of Rs1,300 crore a year and is operationally profitable.
 

The company competes with the likes of Licious in the country’s $50 billion seafood and meat market. It currently operates in 160 cities, of which 154 are in India. The rest are in the Middle East region. “At a high level, we are a destination for preservative and antibiotic-free fish and meat,” Kadavil tells Forbes India in an interview. “We have been very clear from the beginning that we don’t intend to feed our customers what we don’t feed our children.”
 
Kadavil set out to build FreshToHome in 2015 as India’s answer to Whole Foods, one of the world's leading retailers of natural and organic foods. He previously had a stint in Silicon Valley where he had built and operated popular games such as Farmville, and Mafia Wars while working at Zynga. FreshToHome has raised more than $250 million in seven years, with the latest round of $104 million being led by Amazon Smbhav Venture Fund. The company had, in 2020, raised $121 million in its Series-C round. Yet, it doesn’t speak about its valuation, instead referring to itself as a proficorn, a unicorn or startup that’s operationally profitable.
 
“We are quite big and we've given two to three times higher valuation increase to our investors when compared to the last one,” Kadavil says. “But, at the time of a public listing, the demand for a pre-IPO company will be mirroring what capital markets look at, including profit after tax multiple. That's is our focus and that’s why we don’t pay so much attention to being a unicorn.”
 
With the latest round of funding, the company wants to ramp up its omnichannel expansion, in addition to building its business around the 160 existing markets. Already, the company has set up 30 stores in Bengaluru and is gearing up to open more. The company also operates a patented AI-based technology called Commodities Exchange, which allows fishermen or farmer to electronically auction their produce to FreshToHome.
 
“Omnichannel is the next big frontier for us,” Kadavil says. “The stores that we set up have resulted in a fair amount of growth from a new user perspective. For a B2C company, the biggest pain is going to be on marketing, and we see a huge reduction in marketing because people will come to try out the stores.”
 
“Omnichannel is being considered by many D2C players across categories given that offline is still a preferred destination of customers for many parts of the product purchase journey,” says Abhijit Routray, engagement manager at consultancy firm Redseer. “The same applies to meat/poultry. The key here is to set up shops in the right micro-markets with a keen eye on profitability while ensuring short breakeven times for the stores, as demand is expected to be robust.”

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For the Love of Fish

Much of Kadavil’s decision to set up FreshToHome came from his love for devouring fresh fish from Kerala while living in Bengaluru.
 
Kadavil grew up in the Middle East after early schooling in Kerala, and moved to Bengaluru after a stint in the US where he worked for nearly a decade. An engineer by profession, Kadavil led the enterprise business unit of SupportSoft, a California-headquartered technical support company for businesses and consumers before moving to India with Zynga as its country manager.  
 
“We used to make games for a living,” Kadavil says. “It was games like Farmville, Mafia Wars, and so on. Zynga was the second-largest IPO after Google then. Farmville did more than a billion dollars in revenue.” It was also during his stint at Zynga that Kadavil met many of his co-founders at FreshToHome, which counts eight co-founders including BM Tambakad, the CFO, Jayesh Jose, the CTO, and Nilkamal Malakar, the chief data officer.
 
“I had no connection to the seafood and meat industry back then,” Kadavil says. “I relocated back from the US around 2009. Back then, I had then been buying fish from my current co-founder, Mathew Joseph’s company.” Mathew, a fish exporter from Kerala had set up an online platform, SeaToHome, that would sell fresh fish from Kerala to New Delhi and Bengaluru. By 2014, however, Joseph, with limited access to technology, had to shut down the portal. That’s when Kadavil and the other co-founders stepped in to build FreshToHome.


 
“Traditionally, fish exporters don't do things that involve technology but it was quite successful, and Matthew’s is a visionary,” Kadavils says. “The product was well-liked by me. I was buying from him and we then started FreshToHome.” Since 2015, Kadavil says, the business has grown at least four times in the past ten years largely due to its focus on technology, delivery efficiency, and the patented app that helps the company in procurement.
 
The company essentially works like Amazon or Flipkart, where the fishermen or meat seller sells their products on the platform to the consumer, with FreshToHome acting as a conduit. To do that, it charges a commission. Kadavil says the platform alleviates the need for traditional middlemen, who often put pressure on fishermen to sell at a cheaper price, and at the same time, they ensure that the products sold on the platform are also fresh, sold within 24 to 36 hours of sourcing.
 
According to government regulations, fresh fish from the sea needs to be auctioned. The commodities exchange platform facilities the auction process by allowing fishermen to sell the fish by taking a photo and uploading it and getting a better price on the FreshToHome platform. In all, Kadavil reckons that the fishermen get a 20 percent higher price than they get from the market when they sell on FreshToHome.
 
“Fish is a bigger market than chicken, which is 70 percent of the market,” Kadavil says. “We have spent a fair amount of time with the fishermen and farmers and that's the biggest thing that distinguishes us quite drastically from all of our competitors. The market is around $50 billion market and despite that, the organised players in this market are less than one percent.”
 
“FreshToHome has had significant growth over the last couple of years and is evidenced in the fact that they have grown their market share in the online meat delivery space significantly in the last 3 years or so,” adds Routray. “Their mutton and seafood sales have been particularly great, where they are among the market leaders.”
 
The company also engages in contract farming where it pays for fish farming, which comes to use particularly during seasons when there is a ban on fishing. Of its annual produce of 25,000 tonnes of seafood, around 10,000 tonnes is generated through contract farming. The company also engages in vertical integration when it comes to poultry farming while its mutton is sourced through partners.
 
“We focus on Basa, Rohu, Katla, shrimp, and prawns when it comes to contract farming,” Kadavil says. “Fishermen own or lease the water body, and we pay two lakh rupees per acre as an advance for a guaranteed buy-back from them.” FreshToHome’s business is spread across both coasts of India. Usually, one coast is shut while the other remains open during the breeding season. 

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Swimming Against the Tide

Much of FreshToHome’s success has been led by its ability to fulfill deliveries in metros such as Delhi and Mumbai. Usually, orders placed are delivered the next day for seafood and poultry. Currently, Delhi, Mumbai, and Bengaluru list among FreshToHome’s top markets in the country despite ramping up its presence to 154 cities in the country.
 
While India’s overall meat market was worth Rs3,30,000 crore gross merchandise value (GMV) in 2019, the market is set to grow to more than Rs4,60,000 crore by 2024, according to Redseer Consulting. It only helps that over 70 percent of the Indian population consumes meat in some form. “This is particularly prominent in eastern and southern India. For instance, over 98 percent of West Bengal’s and Andhra Pradesh’s population consumes meat. Fish is the most consumed form of meat,” Redseer said in a report.
 
It has also helped that the larger meat market is highly fragmented with wet shops accounting for a bulk of the sales. “But the online meat space is dominated by few players,” adds Routray. “We have a couple of early leaders but this space is still nascent and there is plenty of growth headroom for the players to grow.”
 
FreshToHome claims to be the only ecommerce player in the country that can provide a chemical-free and antibiotic-free certification for all batches of products. The company operates its supply chain warehouses across key metros in the country where products are often shipped before they are packaged and sent to consumers. Today, 99 percent of what the company sells is fish and meat but has also begun offering products such as batter and chutney apart from ready-to-cook offerings.
 
“We have another app called FTH daily that has got vegetables, fruits, milk and so on. But FreshToHome is a one-stop for non-vegetarian products," Kadavil says. FreshToHome accounts for about 90 percent of the group’s revenues with the rest coming from FTH Daily. Eventually, Kadavil reckons that FTH Daily will be integrated into FreshToHome.

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“We do about Rs1,300 crores of revenue per year, of which 15 percent comes from the Middle East and 85 percent come from India,” Kadavil says. “Both are growing. We've grown about four times in the last 10 years. That's the model we built. So we operate at a high margin, and we also have a high rate of user retention apart from low wastage.” According to recent documents available with research firm Tofler, FreshToHome had an annual revenue of Rs40 crore in 2022, while net losses stood at Rs389 crore.
 
Meanwhile, with the export market offering significant opportunity especially since the Gulf regions are dependent on India for imports, Kadavil is already ramping up its presence there. By estimates, fish from India accounted for $5 billion to the Gulf Cooperation Council (GCC) region. That also presents a significant opportunity for rivals to up their game. FreshToHome’s Bengaluru-based rival Licious raised $150 million last year, and in the process became the first D2C meat brand to join the unicorn club. Similarly, Tiger Global-backed Capital Fresh touched $500 million in valuations last year.
 
FreshToHome currently works with some 4,000 farmers directly. “One of the key things that we wanted to get done was to be operationally profitable. So we've done that in the last six months or so,” Kadavil says. “We like to look at the bottom line and we are operationally profitable. That's helped us to gather a fair amount of interest, especially since the markets are quite depressed at this time.”
 
The deal with Amazon through its India-focused Sambhav Venture Fund could also help the Bengaluru-headquartered company ramp up its presence across the country. Current investors in the country include Iron Pillar, Investcorp, Investment Corporation of Dubai, Ascent Capital, E20 Investment Ltd, Mount Judi Ventures, Dallah Albaraka, and JP Morgan.
 
“This is a segment that’s quite unique in nature,” N Chandramouli, CEO of consultancy firm, TRA Research. “What companies like FreshToHome and Licious have done is bring an amount of authenticity to the purchase experiment with antibiotic and fresh product. With very limited players in the segment, the potential is massive going forward, especially as they look at omnichannel presence since the purchase experience will get better. Also, Amazon hasn’t had much success in the food delivery business, and the recent fundraiser will help them scale up. ”
 
That’s why Kadavil is very confident about FreshToHome’s plans. “In my estimate, about $750 million of revenue will come from FreshToHome, Licious, and the like,” he says. “But the market size is $50 billion. So definitely, there's a fairly large market to play. We're all less than 1.5 percent of the market. But at the same time, it is challenging to displace people who go to a wet market. That's the omnichannel play that we are looking at.”
 
From almost two million users, Kadavil says his business has grown to over 130 million users now. Flush with funds, FreshToHome is only gearing up to help millions take to fresh fish and meat in the country, and in the process, make buying an easy affair.