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Food Logistics needs radical steps

Logistics Management

By Elda Christy, SENIOR WRITER

India has a market, which is fragmented and diverse, and hence it becomes a bigger challenge to meet the expectations.

Amul, Nestle, McDonald’s, HLL and now Wal-Mart, are all the big names that feature in Foodland’s client basket – a star venture of the Radhakrishna Group of Companies. Known for its strict quality standards, the entire Group has indeed come a long way since its modest beginnings in 1966.

The Chairman, Raju Sheté took charge of the company at the tender age of 17. Then, the company’s annual turnover was just 8 lakhs. Today, he heads the entire Radhakrishna Group, with a whopping turnover of Rs. 6.5 billion. He was the mastermind behind the inception of Foodland, which today provides broadline food service distribution & solutions, customized food service distribution & solutions, export, logistics and food distribution & solutions to the retail spectrum. It is the front-runner in India’s quest for a reliable and world-class food service distribution supply chain based on the ‘farm to plate’ concept.

In a candid interview with Logistics Management, Raju Sheté discussed the current state of food supply chain in the country and the challenges that lie ahead. Read on...

You took charge of Radhakrishna at the age of 17, how has your approach to this been different from that of your father?
When I took over I did not have much business knowledge. It was more of exploring than anything else; it was like being thrown into the wide-open sea. It was a learning process where I had to gain knowledge of things on my own. I had to leverage the understanding about how the maritime world worked at that point of time, which was oil and gas. This industry was at a take off point and so we tried to implement the same understanding like offshore catering, going catering on board. The oil and gas business has a strong logistics base, which has a lot of logistics capabilities. It had to be brought to the table in addition to the core understanding of food service like time, temperature, logistics, and multimodal on land and sea. Learning of this nature was more crucial since it set the direction to work in a very complex logistical environment.

Products like fish, meat, poultry, dairy, being very sensitive, had to do more with temperature, time and handling. And with foreign clients, who are very particular about their standards, it became challenging. In fact, the seeds of learning were sown then and I looked at the opportunity more as a combination of what we knew and the logistical capability than just a food supply company.

Industry sources point out that Wal-Mart has approached you to source its perishables. What model would you adopt for this?
Firstly, I think it’s not just about Wal-Mart entering the retail segment. It’s about other players like Carrefour or Tesco too who are pacing to make a way in the Indian market. If Wal-Mart has approached us, it could be due to some advantage that they see in us compared to other options around. Factors such as past track record, the understanding of food and the supply chain that we have developed for some of our esteemed clients like McDonald’s has given us an edge. So one can learn a lot from Wal-Mart and also transfer our learning and help them build their supply chain and capability. And that they have decided to outsource their operations is a smart move, unlike Indian companies who try to do everything on their own which is one of the reasons why the industry doesn’t develop. When a specialist is doing a specific job, the results are obviously better compared to the one who is not from this field. And in India what is termed as propriety should be an industry practice. So, everyone is doing their own little thing of supply chain instead of outsourcing it to companies who specialize in it. So, I think Wal-Mart is pretty prudent and they have realized it to assign the operations to an expert in this sphere. And we being their preferred choice, would be providing customized distribution of fruits, vegetables, meat and fish. It could be a dedicated distributional logistics platform for them.

Indian retail is estimated at around $300 billion, of which modern retail comprises $20 billion and is growing at a robust 35% plus growth rate. There are not too many modern cash & carry formats, although Indian traditional wholesale business forms a significant chunk. Currently Metro Cash & Carry is the only global cash & carry format in the country while Kishore Biyani of Pantaloon Retail has also set up similar formats, KB's wholesale recently in smaller markets.

How would you describe an effective supply chain?
Supply chain is all about transfer of goods from point A to point B and the best and efficient supply chain can be managed when there are minimum intermediaries’ involved. I don’t think it’s any different in America, China or elsewhere. In India it takes a different turn because it has not been thought of earlier in a correct manner, be it regarding roads or processing units.

In India, having an effective supply chain is more challenging because of different constituents like poor infrastructure, legislation issues, VAT, labor problems which are a major hindrance. So these things have to be tackled first before you hope for an overall positive effect. India has a market, which is fragmented and diverse, and hence it becomes a bigger task to meet the expectations. For the whole logistics supply chain to function well, it is important to have the whole constituents to come together otherwise even if you have the best software or advanced technology, it would be of no use. The whole idea behind a good supply chain is to reduce cost, improve efficiency and develop scale.

A lot attention is given to other sectors like IT, telecom and in the bargain the logistics sector gets totally ignored. Also, in addition to maintaining the quality of the product, keeping its integrity intact is quite challenging. The quality of the product depends on how it is handled right from the point of production till the point of delivery. And the kind of sensitivity, understanding and strict adherence to discipline that is needed, at present doesn’t exist in the country. The industry and legislature has to be clearer too. Users have to be demanding, legislations have to be very strict with it and most importantly it is the discipline of doing it correctly everyday. Everyone in the industry right from manufacturer, supplier, processor to consumer have to be on the same platform. They have to be aware and educated of what it takes to constitute a good supply chain. We still need to work in associations, refrigerated warehouses, which is a neglected area right now. We need to have the same kind of understanding throughout the supply chain and this will take time to come to pass.

Your clients include McDonalds, HLL, Cadbury’s, Amul, etc. to name a few. How is the supply model different from each of these?
The temperature factor is very critical for not only the above but all the clients. Among the customers mentioned above, McDonalds has a better understanding of product integrity with reference to on time supplies, cost structure, etc. The complexity was much less in its case like limited suppliers, products and control over end restaurants unlike in other three players. Hence, it is incorrect to compare all the three companies but the principal remains the same.

The other two clients have lived in a legacy environment with the distribution channel, which I think is slowly changing now. The difference is more in terms of needs and the perception of value. For McDonald’s the need is very high and the perception of value of a good supply chain is more evolved whereas, at this point of time HLL and Amul do not have a very high perception.

However, the model remains the same for all the clients. For instance, our model may be much evolved for HLL but may not be the same for McDonalds.

What do international players such as Wal-Mart, McDonalds etc. look for from key service providers such as you to achieve a competitive advantage especially in the perishable/food business?
The logistics cost as a whole is about 10 percent of the product cost but that 10 percent is like salt in food. Though, salt is the smallest element in food, it is the most essential ingredient, which can either make or break the taste. We understand food, consumers, storage, transportation and costs and this is our main focus.

Understanding the business thoroughly and its implications like food poisoning, wastage, error, etc. is something that we know well. Sometimes the brand is at a stake and hence we have to take into account every minute detail. And that’s the difference our clients see in us, which is competitive advantage in cost and quality.

What extra precautions do you take to prevent food spoilage? Is there any particular technology that you use?
We have to take every precaution possible like facilities, transportation network, training, and documentation and of course focus is most important, as it is the heart of the chain. We follow industry practice, quality inspection, sharing of data, protocol, traceability, training our people, awareness, educating the customers, etc. We maintain the international food safety USDA, HACCUP and CODEX standards.

What according to you are the main challenges that the F & B industry is facing?
Infrastructure, education, information, awareness are the major challenges. Presently, there has been a lot of proclamation about ‘food law’ being implemented but if that happens, about 85 percent of the food establishments will shut down in the country, as there is no concept of handling food properly. A lot of attention is paid to other sectors like IT, telecom and in the bargain this sector has been totally ignored.

On a global level, America has created a brand for itself because it is strict about hygiene, timeline, standards and other integrated essentials. It has reached this level because of the strict norms that it follows. However, sadly, these factors are seriously missing in our country. The Government has to do something about it and pay attention to this sector as well. As of now, it is dealing with sectors like telecom, IT which fetches good margins that falls between 35-40 percent. The logistics business is a very low margin business and whatever steps they take will need to be radical, which may have drastic repercussions. And in the food industry, it will be equivalent to moving a mountain, which I believe will take a good amount of time.

Today, we are charged with all kinds of duties and hence there is no rationalization of taxes, which again is essential for an efficient supply chain.

According to me, there should be stricter norms where only the correct way is adopted. The challenge is about bringing in discipline and only this will contribute to where we aspire to reach.

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