“I had forgotten how bad the stench could be, and it felt very scary to be so closely packed with other people,” he told ET. The experience sent him scurrying back to buying meat from online stores such as Licious and FreshToHome, he said.
Two years on, things couldn’t be more different. Harish now buys chicken, mutton and fish from the closest physical bazaar, and relies on online stores for “top-up” purchases. “It’s a whole experience to see fresh fish and pick it, or discuss the cut of meat with a butcher,” he said.
Hundreds of thousands of meat and fish consumers like Harish across the country have had a similar mindset shift, said senior executives and investors in the online meat industry. And that’s bad news for them. But beyond people returning to physical meat and seafood markets, the online industry has also been hit by inflation blowing up input costs, and the lack of funding.
In the slow lane
The online meat and seafood industry is roughly between Rs 2,500 crore to Rs 3,000 crore in size, estimates Satish Meena, an independent ecommerce analyst and advisor at Datum Intelligence.
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A few organised companies, such as Godrej Agrovet, Venkys, and Nandus, which primarily function in offline markets, have also begun online plays. While the first two are listed and profitable, Nandus is privately owned and yet to hit full profitability.
ETtechBut even with the existence of a few large organised players, the online market remains extremely small, accounting for less than 1% of the country’s overall meat and seafood market, large swathes of which remain unorganised.
The potential from low online penetration and lack of organisation has seen marquee investors such as Temasek, Prosus, Tiger Global, 3one4 Capital and Amazon pour in over $1 billion in funding into the sector, as per Tracxn. These inflows have even given rise to a unicorn in direct-to-consumer (D2C) firm Licious, which was valued at $1.5 billion in April 2022.
But the size of the customer segment willing to pay a premium for online meat will have to be reconsidered, founders, analysts and investors in the space told ET. “We already might have reached some initial saturation with the customer base, and though retention is good, it is very difficult to make existing customers buy in higher frequency,” said Meena.
For instance, de-facto market leader Licious reported only 9.5% growth in revenue to Rs 747.7 crore for FY23, against a reported revenue projection of Rs 1,500 crore. FreshToHome, purportedly Licious’ closest competitor, is yet to file its FY23 financials, but projected an annual revenue run rate of Rs 1,300 crore in March. In contrast, the company’s FY22 operating revenue was much lower, at Rs 102 crore.
The slowdown is also indicative of the valuations assigned to online meat delivery firms likely being “three or four years ahead of where they actually should have been”, a founder in the online meat ecosystem told ET, declining to be identified. “Meat consumption in the country is on a secular, upward trend but the COVID-led tailwind skewed expectations about the online sector,” he added.
Deepanshu Manchanda, founder of ZappFresh, one of the few profitable firms in the online D2C meat segment, agreed. “You have to build like a legacy consumer player, like Dabur and ITC. Our focus has been to build a mass brand and not just focus on a certain client base,” he said. Manchanda added that the firm had kept its focus on keeping prices in check and not making its products “aspirational”.
ZappFresh reported a profit of Rs 3.5 crore in FY23, but its revenue growth remained muted at Rs 70 crore, against Rs 56 crore in FY22. The firm operates at a 40-50% gross margin and 10% EBITDA margin. “The key is to work with the existing ecosystem of butchers and traders as that helps with pricing and sourcing… we are looking for partnerships with offline players, not disrupting them,” Manchanda added.
A rebuild in the works
The slowdown in growth is happening amidst an extended funding winter, forcing firms to strengthen their unit economics.
Earlier this year, food-delivery major Swiggy shut its online meat shop, reverting to offering products from D2C firms instead. That approach is also being followed by rival quick commerce players such as Zepto and Zomato-owned BlinkIt. The unnamed founder quoted earlier said that the lack of focus on the meat vertical in quick commerce firms meant wastage levels could be very high for them, as high as 50%. At the time Swiggy closed its meat shop, cofounder Sriharsha Majety had told employees in an internal note that the vertical could not achieve a “product market fit”, a term that refers to the degree to which a product satisfies a strong market demand.
Meanwhile, Chennai-based D2C firm Fipola has had to shut shop, while TenderCuts sold to Delhi-based Good To Go, reportedly in a distress sale.
“I see two major reasons behind firms in the sector failing to do well. First, and most importantly, is supply chain issues. Second is the lack of differentiation,” an investor in the ecosystem said, declining to be identified.
The D2C online meat industry is a low-frequency business with most of the buying happening around the weekend, the unnamed founder quoted earlier explained. Fixed costs incurred in building a supply chain around those “focused activity peaks” lead to unnecessary cashburn.
“For some regions and players, we see as much as 50% of the week’s sales happen over six hours on Saturday and Sunday,” the founder added.
Scaling up the supply chain system without incurring heavy fixed costs during low-capacity periods is tricky, and firms have been trying to crack this conundrum. “A lot of work has gone into operational efficiency, right from improving procurement, to batching the movement of the product better, to matching the cyclical nature of meat purchases in India,” the unnamed investor quoted earlier said.
Wastage control is also hard as Indian customers don’t prefer deep-frozen meat. “At the start of the year, wastage could be as high as 40% to 50% for some of these players, especially in quick commerce, as they were still not good at predicting demand fluctuations post covid. Now, I think major players such as Licious and FreshToHome are under 10% wastage,” the founder said.
Investors and senior executives, however, remain hopeful. Overall meat consumption continues to grow, and the hope is that contenders in the space will be able to corner a share of the growing pie through products such as ready-to-cook dishes. However, they face stiff competition from restaurants in both price and convenience in this regard.
FreshToHome has tried to solve this by venturing abroad, operating in middle eastern countries such as the United Arab Emirates (UAE) and Saudi Arabia. The UAE reportedly accounts for about 15% of its revenues.
Amid a paucity of funding, a few companies have also been able to raise money. For instance, FreshToHome raised $104 million at an undisclosed valuation in February, most of which it said would be used to fund its entry into Saudi Arabia and other MENA (Middle East and North Africa) countries. In September, business-to-business (B2B) seafood startup Captain Fresh raised $20 million.
A person close to Licious stressed that even though the firm had seen revenues stagnate, it has been able to narrow losses by almost 40%. “It has been very difficult to maintain revenue while cutting costs at a scale like that, and they have done so without massive job cuts,” he added, declining to be identified.
To be sure, the industry is not out of the woods. “You’ll have to steadily wean people away from their established behaviour by building trust and better systems that can offer competitive prices,” said a second investor in the ecosystem. Until that happens, people will head to the fishmonger to buy their bangda, surmai, mutton and chicken.