• StartUps

Amar Krishnamurthy’s first time attempt at becoming an entrepreneur was a disaster, way back in 1995. Post his master’s degree from U.S.A. in manufacturing systems and about a year of work experience implementing ERP systems, he decided to publish street maps for Bengaluru. However, a lack of experience and data on the outskirts of the city resulted in an inaccurate map which ended the project in 1998. Later, in 2002, he re-entered the entrepreneurial arena with Town Essentials, as a systematic grocer for the B2B segment, and now for B2C as well.

In the years between, Krishnamurthy gained work experience by joining a relative in his distribution company for FMCG products, taking care of operations in Bengaluru. This phase exposed him to the pitfalls in the sector. “When things are unorganized, there is an opportunity to make it better,” says Krishnamurthy, MD, Town Essentials. For him it was the grocery segment since, back then, hyper-marts and organized retail was just about taking off.

The target customer was from the B2B segment, meaning hotels, fine dining restaurants, industrial canteens, hospitals and multinational corporates running in-house kitchens. The firm’s product list started with dry groceries only.

Since inception, Town Essentials’s concept has been to bring in formal systems by way of regular quotations based on current commodity prices, computerized billing, door delivery of items, including replacing products in case of complaints, and proper accounting of purchases. “The greatest advantage in dealing with us is our systems,” he reaffirms.

Orders are routed through its in-house call center where only a product number is required; customers are informed when the order is ready. “If something is not available it is mentioned instantly,” he adds. A key differentiator here is that all products are tested at its in-house laboratory to maintain consistency in quality. It also publishes a price list keeping prices of products standard for 15 days at a stretch.

The early days, as with any startup, were fraught with challenges. Krishnamurthy’s first role was to physically visit mandis to source groceries while his sales team went on a cold-calling spree to win clients. This pattern continued for about three years, before they had good volumes and broker contacts to directly source from mills. “During this phase, our supply value was about Rs.30 lakh per month, translating to 100 tons per month in terms of tonnage, across customers,” he recalls.

The business involved intense operations, Krishnamurthy needed an ERP system and found a vendor to customize one. “I relied on software for everything, from accounts to inventory, and since it was custom-made, it came with a lot of bugs, thereby hurting the business,” he says.

There were issues like a period when the firm was struggling with a cash-burn as a result of heavy infrastructure, low margins (as he was still sourcing from mandis), low volumes and uneven logistics. “These incidents proved to be a huge learning curve for me; it would have helped had I been from the same industry,” admits Krishnamurthy.

The business model is the same now but its processes have evolved with a differentiator. All groceries sold are branded under Town Essential’s label as opposed to the early years when he was simply trading brands. In 2009, he began supplying wet groceries, and is sourcing them from auctions houses (vegetables) and mandis (fruits) as of now. “We are still young to source directly from farmers in this category,” he says.

Most business comes through referrals from existing customers, then a sales representative goes with a quote. “We work with credit-worthy customers. For new restaurants, we start with small orders,” explains Krishnamurthy. While customers are not bound by any formal contract, they are required to register themselves and are given a credit period of 30-45 days.

Shrikant Patil, early investor and Board Member, Town Essentials, is optimistic on the scalability of the model. “Food is an evergreen business and has an all-India play,” says Patil. Impressed by its billing systems Adigas, a chain of multicuisine fast food restaurants in Bengaluru, added it to its list of vendors, for four of its 12 outlets, in 2002. “Price points are Re.1-Rs.2 higher than others, but they supply excellent quality and clean products,” says Krishna Kumar B.P., Partner, Adigas. “Plus they set right any problems immediately,” he adds.

In March 2011, Krishnamurthy forayed into the B2C segment. The opportunity? Focus on quality and service of goods. “There’s a huge gap in quality of groceries. Self-service concept of supermarkets is not personalized, unlike old kirana shops, which matched customer needs,” he points out. Town Essential’s B2C vertical takes issues like long queues, slow billing systems, untrained staff that make grocery shopping a taxing experience, offline to its back-end. “We had the complete infrastructure for sourcing in place; our quality is better than retail market,” says Patil on the addition of the B2C vertical.

60-years-old Lakshmi Narayana has been buying groceries from Town Essentials since June 2011. “They are cheaper than retail outlets; I’ve had a good experience,” she says.

Orders can either be placed on its website or via call center with a minimum order value of Rs.400 for its home-direct customers, plus Rs.20 as delivery charge. “Right now customers are mainly by word-of-mouth, as I want it to grow organically,” states Krishnamurthy. The USP here is products are 5-30 percent cheaper than retail; however, Krishnamurthy says he no longer plans to use this as his selling strategy, instead he will shift focus to quality.

Hence his target customer base is households earning with a monthly income of Rs.50,000-Rs.1 lakh, where grocery costs are approximately 10 percent of income. “B2C is exciting for me because the intelligent customer is not going make a purchase based on price, unlike B2B where price is critical,” he adds. Its prices for home-direct customers are updated on the website. According to him, Bengaluru has about 20 lakh households where the average buy is Rs.3,000 per month, and these figures are an indication of the potential market it is addressing.

It has an in-house line of processed foods for both B2B and B2C verticals. These, he claims, are cheaper by 10-30 percent than the retail market.

Other long term expansion plans of the company include setting up a bakery and a kitchen for small party catering, by 2012-’13.

Agreeing with the plans, Patil reaffirms: “These are natural extensions to the business. We will create our own niche with high-end bakery items.”

©Entrepreneur August 2011

Tags:
Amar Krishnamurthy, B2B, B2C, business, customer, FMCG, grocery, Karnataka, kitchen, Town essential