Entry Strategy into Cold Storage Business

Abstract

This aim of the report is to formulate entry strategy for a player into the cold storage business. It includes a study on the basics of cold chain industry in India. It explains how a cold chain is indeed a chain of various activities and processes from farm to the fork. The motivation of this project is explained through two pronged approach of dire need of cold chain infrastructure in India as well as interest from Tata Reality and Infrastructure to enter into the cold storage business. The motivation is duly supported by a market analysis of cold storage in India and how it is poised to grow at a rapid rate in the near future. Both primary and secondary research methodologies have been used to get data for this project. The aim of the secondary research was to understand the cold chain practices in general and India in particular. Primary research was focussed on understanding the cold storage practices and nuances entirely from Indian point of view. The primary research incorporates the various visits to cold storages made exclusively for the purpose of this project. Quite a few cold storages in Ahmedabad such as Vadilal, Padmavati, Mothershree, Integrated Pack house were visited to gain the first hand perspective of this business from these players along with the office of Adani Wilmar (apple cold chain business). We also visited the major spice market in Madhopura in Ahmedabad to conduct a consumer survey. The transcripts from these various discussions and visits have been listed out as reference for specific details. Most of the major insights in this project came from primary research visits. It was realized that majority of cold storages in India are old, with dilapidated infrastructures and are running on outdated technology and are managed with adhoc practices. Most of these cold storages are temperature controlled and not humidity controlled. No new investments are being made to upgrade these cold storages. The plausible reason for these findings is that the Indian customers are not discerning and sensitive yet to the benefits of cold stored products, fruits and vegetables in particular. Thus, while some are not able to appreciate the high quality of cold-stored fruits and vegetables, many are not ready to pay the price premium for good quality products. The difference is felt, however, in case of exports, where premium is paid for high quality product. The report lists the operational issues faced by the cold storages, the most important of them being the electricity supply and capacity utilization. Various rental models as being used by the studied businesses have been described. The cold storage business is highly commodity specific and the more profitable parts of the business include sub-zero storage that caters to products such as ice-cream, milk products, meat, medicines, plasma and serum. Trade and export of products seems to be the way to garner revenue and increase profit margins. Special mention has been made for spices where customers are able to differentiate easily between high quality and low quality products and how spices are a good way to increase cold storage capacity utilization. A prevalent local Indian technique used by the cold storages has also been mentioned where the cold storages have been modified to double up as ripening centres and thus lead to higher revenues and capacity utilization. It is also mentioned that to increase capacity utilization cold storage should be multi-commodity. Emphasis has been laid on how exports of fruits (mango in particular) are a highly profitable business as exporters are ready to pay the premium to cold store their products in technologically advanced cold storages. Also, focus should be on products such as banana which is available throughout the year for storage.