How ColdEx Logistics is climbing up the food chain

November 9, 2014, was a day of reckoning—of sorts—for two companies. On that day, Burger King launched its first outlet in India, at Select Citywalk Mall in Saket, New Delhi. It was also the day when Gwalior-based ColdEx Logistics put itself to test to see whether it could realise its ambition of transforming itself from a simple transport company in the cold chain business to one that provided integrated solutions to quick service restaurants (QSRs).

Hours before Burger King opened its doors, Sandeep Dey went through the drill at the Saket restaurant one last time. The fast food brand’s chief supply chain officer had prepped for the rush of customers who he knew would be curious about Burger King’s signature item, the Whopper. What he could not predict was whether Delhiites would take to the menu. The reality outperformed even his wildest expectations: That day, the store sold 2,500 Whoppers.

However, at no point was Dey worried that he would run out of food. Along with ColdEx, he had planned the launch down to its last detail. The cold storage chain had a carriage inventory, in three vehicles stationed at the mall’s parking lot, that was five times the sales potential of the Saket restaurant. Dey recalls spending the better part of November 9 shuffling between the vehicles and the restaurant to keep a check on the depleting inventory. “I was able to ensure that the restaurant got a continuous supply of products from the trucks. The credit for this goes to Gaurav Jain (managing director, ColdEx Logistics) and his team. It was their idea to install the trucks in the parking lot, extending our storage capacity. The company provided the service at no extra cost,” says Dey. And over the next three days, as customers whetted their appetite and curiosity, the trucks became the outlet’s extended cold storage.

For 42-year-old Jain, the success of the launch is a very sweet victory. “We wanted to showcase our focus on the customer. Burger King was the first client who gave us a chance to provide an end-to-end solution at a national scale,” says Jain.

Not that it has faced a dearth of clients previously. Since 2007, ColdEx has bagged some of the biggest customers in the business, and provided logistical support and distribution services to well-known international brands operating in India, including Subway, Domino’s Pizza, Starbucks and KFC. But with Burger King, Jain has upped his game.

For the fast food chain, ColdEx oversees vendor development, projections, menu development and manages inventory at distribution centres responsible for storing and supplying the required products. It is the burger chain’s sole distribution partner across India. Since its launch, Burger King has opened 10 restaurants over 52 days in Delhi and Mumbai, and ColdEx has worked with Dey and his team from day one. It has contributed to all aspects of the supply chain management schedule. Most importantly, ColdEx put together a distribution blueprint for Burger King in less than two months.

When Forbes India profiled the company in its February 17, 2012 issue (The Ice Candy Man and How He Built ColdEx), it was one of the leading cold storage transport players in the market. It carried goods for confectionery makers, QSRs and even pharmaceutical companies where products need to be transported in sub-zero degree temperatures. In 2012, the company had a turnover of Rs 106 crore. Today, it has a top-line of about Rs 200 crore, and has seen its sales grow at 35 percent annually in the last five years.

What has changed in the last three years? Jain has been enhancing ColdEx’s business model—and in no small measure. By investing in warehouses and IT systems, and managing every link in the supply chain—from storage to transport—the company is well on its way to becoming a leading integrated solutions provider in the country.

India’s temperature-controlled logistics industry is estimated at Rs 12,000-15,000 crore and is poised to grow at a minimum 20 percent year-on-year over the next three to five years, say industry experts. One of the drivers of this is the increase in the consumption of perishable goods that are sensitive to temperature. This growth isn’t limited to QSRs, but also pharmaceuticals, fruits and the confectionery industry. ColdEx has a presence in all these sectors: Its clients include Nestlé India, Hershey India, Amul, Kwality Wall’s and pharmaceutical company GlaxoSmithKline.

ColdEx grew out of Swastik Roadlines Pvt Ltd, a trucking company that Jain’s father started nearly three decades ago. Jain joined it in 1999, and over the years transformed it from a dry logistics to a cold chain business. (Swastik Roadlines started operating under the brand name ColdEx Logistics from 2007.)

Jain would like to see ColdEx become the go-to logistics company in the QSR sector, and has mapped out a growth plan for the next five years, one that could easily propel it into a Rs 700-crore business. “I plan to create a plug and play model in the cold chain logistics business, which I can then sell to any QSR that wants to set up shop in the Indian market,” he says. He describes his ‘plug and play’ model as a readymade integrated logistics product that even a new entrant can use with ease.

This plan is based on the premise that more international brands will be entering India. “ColdEx already provides services to five of the six major international QSR companies. And there are at least 40 international players who are looking at the Indian consumption story seriously. If these companies are to enter India, they will have to spend years getting their supply chain right. But if they simply outsource their requirements to ColdEx, these new players will be in business in three months,” he says.

It’s not as easy as Jain makes it out to be. “Logistics is a huge challenge, especially for perishable commodities,” says Raja Lahiri, partner-advisory at consultancy firm Grant Thornton. This could explain why the cold chain industry is so fragmented. According to the prospectus published by Snowman Logistics, one of the largest publicly listed temperature-controlled logistics providers in India, organised players in this sector account for only about 6-7 percent in warehousing and 15-20 percent in transportation. In India, only around 10 percent of the produce passes through a cold chain. “There’s a huge opportunity for companies like ColdEx. While the food industry has been expanding at around 20 percent over the last three years, the logistics sector is growing at a faster rate. Though many companies will try to enter this space, it is only those who have the technology and people that will eventually succeed,” adds Lahiri.

And with Burger King, Jain has proved that his expansion plans are more than just a pipedream. The fast food chain was up and running within 45 days after ColdEx signed on the dotted line. (Incidentally, the burger chain had conducted a six-month trial run with many logistics players before choosing ColdEx.)

To accommodate multiple clients (ten and above) at the same time, however, Jain will have to invest in the business and expand his existing cold storage capacity by either buying or leasing warehouses. He currently has six warehouses (five leased, one owned) and has built ColdEx’s storage capacity using internal funds or reserves. But he has plans to increase his cold storage capacity from 6,000 pallets to 30,000 pallets over the next 18 months. (Pallets are wooden, plastic or metal planks used to store edible items in cold storage warehouses.) The company will require funds to the tune of Rs 150 crore in order to expand. “In five years, I hope to increase my capacity to 80,000 pallets,” says Jain.

For now though, ColdEx lags behind its biggest competitor, Snowman Logistics, which has a total market capitalisation of Rs 1,474 crore and a storage capacity of about 60,000 pallets. But Jain argues that the comparison between the two companies should be restricted to cold storage warehousing and transportation. “Unlike other players, we offer integrated solutions. That’s why we are working with marquee customers,” he says.

Snowman Logistics got listed a few months ago in September 2014. But Jain is in no hurry to follow the same route. His immediate priority is to get the integrated services arm in sync with customers, provide consultancy services, increase warehouse capacity, transportation and inventory planning. He estimates that this will take two years, but it’s likely that the company’s sole investor, private equity firm India Equity Partners (IEP), will exit before that. IEP has taken a 27 percent stake, which it acquired for $10 million in December 2010, and is now looking for a return that is more than three times its investment.

KK Iyer, managing partner at IEP, describes Jain as a calculated risk-taker who has the ambition to expand. “As a fast-growing, entrepreneur-led company, ColdEx represented a great opportunity for us to invest in the cold chain logistics segment. Today, it has emerged as one of India’s largest cold chain companies led by a strong management team,” says Iyer.

IEP is likely to sell its stake to another private equity player, and Jain is looking forward to an investor who is on board with his expansion plans.

A fair share of ColdEx’s recent success can be attributed to CEO Sunil Nair, 43, whom Jain had hired in 2013 to help shape the business into an integrated player in the cold storage supply chain market. Nair is an expert in this area, having spent a decade with logistics company Radhakrishna Foodland as vice president, before working as an independent consultant for three years. At Foodland, he was responsible for building the supply chain logistics for McDonald’s in India.

In less than a year, Nair has shifted ColdEx’s business model and helped realise Jain’s vision. When he joined as CEO, it was primarily a transport company, and moved products from suppliers to warehouses, distribution centres and retail outlets. “We decided to become a one-stop shop for the supply chain needs of all our clients. They had many vendors, but we convinced them that we would give them one integrated solution,” says Nair. By tailoring solutions, ColdEx was able to provide an end-to-end support for inventory management.

By 2014, ColdEx got its first big client for integrated services in the QSR sector: Yum! Brands, which operates KFC, Pizza Hut and Taco Bell in India. For KFC, ColdEx manages daily pickups from 80 vendors and delivers frozen goods to six Yum! Brands distribution centres in a -18°C environment. Every year, its fleet of trucks moves about Rs 250 crore worth of stock for the company, and clocks a total distance of 27 lakh km. In 2012, ColdEx invested in a call centre to track its vehicles 24/7.

“We used to deal with around 50 transporters, but with ColdEx, we work with only one logistics supply chain company. It gave end-to-end visibility and saw to it that supply was continuously available. I think costs went down by around 15 percent,” says Rajesh Shetty, director (distribution and planning) at Yum! Brands (India).

The success of a logistics and distribution company is said to be dependent on the quality of processes it follows, but Jain attributes his success to two more ingredients: Talented personnel and cutting-edge technology. “You need to put the right people on the right job, give them the right tools, and then everything works well,” says Jain. “Empowering employees is very important.”

His willingness to trust his employees sets ColdEx apart from its competitors. Once, the staff at the Burger King outlet at Korum Mall in Thane, Mumbai’s central suburb, realised that they would run out of their current stock of fries by 4 pm. But the ColdEx vehicle travelling from a Panvel warehouse was stuck in traffic and would take another six hours to reach. Rather than hoping for the best, the area manager at Coldex, Prakash Nair, arranged for a car to meet the trucks midway. He stocked the car with 30 minutes’ requirement of fries and rushed them to the Korum outlet as a stop-gap measure.

“These are decisions that will not be taken by other companies. Even if they did it, we would have to bear the cost. ColdEx did it at no extra cost. It’s quite possible that ColdEx allows its employees on the ground to make quick decisions,” says Dey. “You need to make decisions quickly, and this can only be done by an empowered staff.”

A satisfied client means that Jain is happy, but he’s also looking for ways to cross the final hurdle, or what he calls meeting the last-mile consumer.

While its revenue is based on a business-to-business model, ColdEx wants to reach the end customer (the people who eat the burgers and fries) as part of its integrated services. Nair and Jain have already figured out how to reach malls and city centres—where their QSR clients have outlets—in record time.

But that’s not enough for Jain, who aims to reach the home of consumers who want their burgers hot and their cold drinks, well, cold. He wants his vehicles on a city’s narrow lanes and inner roads where the end customer or retail shop is located. If ColdEx can crack this last link in the supply chain, it can target ecommerce companies and offer a separate service to fast food chains.

The management at ColdEx has observed that the movement of food products from distributors to retailers is not a cost-effective process, especially in the case of ice-creams and yogurt. Many QSRs don’t even offer home delivery of ice-cream-based desserts. The company wants to use its existing cold storage technology and convert them into boxes for two-wheelers. This, says Jain, will keep the products in a temperature-controlled environment. “It is cost efficient and product compliant.”

So far, ColdEx has been conducting trial runs for fast-moving consumer goods companies like Groupe Danone and Britannia Industries Ltd in Delhi and Mumbai. In the trials, the FMCGs’ products are transported from distributors to consumers via two-wheelers. It currently has 10 scooters, but the plan is to invest in 400 scooters in the coming year and eventually finetune a business model.

“I will take my time to get this last mile right,” says Jain, who feels that this is the most difficult link of the entire cold chain logistics. And as usual, his biggest bet will be on the people who are on the ground dealing with customers. “The last mile is crucial. But we believe that this will be the final move to deliver complete end-to-end supply chain logistics,” says Jain.

When Forbes India spoke to Jain three years ago, he had said he was in no hurry to grow, and was looking to consolidate what had been built. But 2015 is about growth, and ColdEx is shedding the last vestige of its former trucking business to become a heavyweight in the cold chain business.