How Is India's Cold Chain Supply Coping With Growing Demands? Snowman Logistics CEO Sunil Nair Has Insights

India's evolving consumer preferences have seen a paradigm shift in its food consumption patterns and pharmaceutical requirements. As the demand for fresh produce, dairy products, and medicines increases, the need for an efficient and reliable cold chain supply has become even more important.   

Gauging the demand, companies like McDonald's made their way into the Indian markets. Today there are several similar outlets such as Burger King, Pizza Hut and KFC. To sustain these international brands, there is a need for a network of raw material supply and a supply chain which has to work efficiently. All of that has to move in what is called a cold chain. 

However, India's cold chain supply grapples with its own challenges such as complex regulatory frameworks, and a lack of standardised protocols and infrastructure. To delve more into the nitty-gritty of India's cold chain supply, The Core's founder and financial journalist Govindraj Ethiraj spoke to Sunil Nair, CEO of Snowman Logistics, India's largest temperature-controlled logistics network. Snowman Logistics is present in many cities and states - and has a large network of multi-temperature vehicles and zones.  

Nair spoke of some of the challenges that the cold chain supply industry faces in India. One of them is the availability of drivers.

"Drivers are short in supply, whereas the demand for transportation is increasing. And we see that while the driver is a very skilled job, it is still not a respectable job. And hence, no one wants to become a driver." 

He said that the potential of the cold chain industry in India was huge and that "the opportunity (for growth) is huge and the industry is growing at a good 12-15% compound annual growth rate (CAGR) and it has grown. It has demonstrated that number over the last 4-5 years and it is looking more promising for the subsequent five years". 

Here are edited excerpts from the interview:  

We are in the peak of summer in India. I am in Mumbai, you are in Bangalore where I know it is a little cooler but the rest of the country is not. What are you seeing or sensing around you as temperatures have risen?

The demand for frozen food has increased, particularly the ones that are consumed frozen, like ice cream products. And we have seen that pre-Covid versus the summer of 2022, the consumption has almost gone up by 30% for ice cream, for all of our ice cream customers. This year it has gone up from last year by 15%. So, we see the consumption of cold beverages, and cold products increasing.

So this is one change that we are seeing for good. I think with global warming happening, even the winters are not so cold now. So consumption of such products throughout the year is expected to be there. Earlier, there used to be a big seasonality in the products. Now we see that the gap between the peak season versus the lean season is not that much. So this is one thing that we are observing closely.

This could be for two seasons. Europe also eats ice cream even in winter and I remember food companies telling me that in India that one day it would happen. Maybe it is happening now. You are only distributing it. So in your understanding is this taste-preference change linked or temperature linked?

I would not like to link it to temperature fully but I think it is because of taste. It is because of availability now. Earlier, reaching it to every nook and corner of the country was difficult. Now with the cold chain infrastructure available everywhere, there are carts carrying ice creams, there are small shops with ice creams. Earlier, it used to be there only at selected places. So, I think availability is the major driver here. 

In your understanding and the way the business has been running in this space,  is this a supply-driven demand or a demand-driven supply?

It is demand-driven supply but still what happens is these are FMCG (Fast Moving Consumer Goods)  products. So there is a push from the supply side. There are always promotions, there are always targets and they try to see that the product is as visible as possible, so that the impulsive buying is high. So, it is still supply-driven to some extent. 

It also means that at the destination there is more electricity or power available to drive those refrigerators and refrigeration components. Isn't it?

Yes, that is what I meant when I said that availability now is at every nook and corner. And that availability is driven by the cold chain, whether you talk about the refrigerated truck carrying it from a plant in Nasik to Siliguri in West Bengal, or storing it there, or reaching it to the outlets where the small refrigeration system is placed and there is power supply to it or some backup of power.

And there are now even non-electrical ways of storing frozen products for a few hours. So because of this complete supply chain infrastructure is improved a lot, the availability at every place is there and that is helping.

Let us stick to ice creams for a moment. Tell us about the journey of a cup of ice cream or a box of ice cream from the places that you are picking up with and where do they go?

We do national distribution. Let me just take the example of Baskin Robbins ice cream. It is manufactured in Pune and it moves in boxes to various cities where we have our cold storages. So we move it in refrigerated trucks. These are typically large 32-feet refrigerated trucks. 

We move it, let's say, to Chandigarh. So that particular truck will go to Chandigarh, it will be unloaded at our cold storage and it will be kept at -20 degree centigrade and then as per the requirement of the ice cream parlors or the distributors of Baskin Robbins, we go and deliver it to them. These are all boxes till then. And after that they supply to the small shops. We supply it to the ice cream parlour.

There are two types of ice creams that  we supply. One is the typical tubs, which are small cups or we supply the bulk also. The other one is the four-litre bulk from where they serve the scoops. So, this is the complete journey through which the -20 degree or below temperature  has to be maintained and then it comes into the hands of the consumers.

What is the furthest distance that your trucks are going at least in the context of Baskin Robbins?
In the context of Baskin Robbins, it must be going to Imphal-Imphal would be the farthest. It will not go straight to Imphal. It will go to Kolkata, Siliguri and from there it will get further transported. So if I see a complete journey, it will take anywhere between 12-15 days in one direction.

So, you are saying that the ice cream has to be preserved at -20 for twelve days as it is moving?

Absolutely, yes.

The trucks that carry it must be consuming much more fuel than normal trucks. I am sure that generators are running to run the ACs. Is there a sense of how this economics works? 

Very difficult to share the economics. But I can say that for a common man it is almost 70% costlier than normal transportation. If I have a similar truck, a  body container on it but there is no refrigeration in it versus a refrigeration container and the operations cost of it, it costs almost 70% more

Somewhere the brand has to have that power to obviously command that price which the consumer in Chandigarh or Siliguri will pay for it to make up for all of this.

Very much. That is the reason why low-value products such as fruits and vegetables, while globally in many countries, are transported in refrigerated trucks. But in India, it is still not done. It is transported in open body trucks because refrigeration adds cost.

While it preserves your quality and quantity of produce, it also adds a lot to the cost. And if the consumer is not ready to take that cost, then it does not make sense. Fruits and vegetables today are produced in every nook and corner of the country. Just outside the consumption centre.

So for Mumbai, most of the vegetables come from Pune and nearby places. So it is an overnight journey and it is distributed so they do not use refrigeration. If they use refrigeration your per kilo cost of okra will go up by one or Rs 1.5, which they cannot afford. The price point of your product also matters.

If it can absorb a cold chain cost and the value the cold chain is adding - ice cream for that matter has no choice,  you have to have a refrigeration system. But in general, I am saying, yes, the cost matters a lot.

What are the two or three products that you carry by value and by volume?

From a product point of view, the topmost will be only ice cream only. We carry ice cream for Amul, Baskin Robbins, HUL-their Kwality Walls, Vadilal, Cream Bell, and almost all the ice creams. From a value point of view and volume point of view, ice cream would be the number one. 

Number two would be seafood where we store a lot of seafood for export purposes, primarily shrimp. Almost 20% of the Indian export goes through our cold storage facility. So that is number two volume. Number three would be a mix of various products but meant for the QSR (Quick Service Restaurant) industry. So QSR is our major client segment. Almost 15-18% of our revenue comes from QSR. So that would be number three in terms of volume.

What has changed in the QSR industry in the last 2-3 years, because Covid has caused some kind of shift in the way people consume and eat perhaps? 

We have seen that there has been a huge improvement in the overall sales of an outlet and the good part is eating at home at your convenience has increased a lot. Pre-Covid, outlets were not prepared for that kind of service. There was more of a dine-in concept.

So a McDonald's outlet or KFC outlet was more of a dine-in concept only. Five to ten percent max would be home delivered pre-Covid. But now they are all geared for home delivery by partnering with the Swiggys and Zomato's of the world. And a good 30-40% of the volume is eaten at home. So that is helping them also. Now, post-Covid they are also prepared for this kind of arrangement.

Tying up their IT systems are in place, their kitchen is now modified to take care of this kind of requirement. So, we see a lot of change here, a lot of volume increase per outlet-that is what is very important for this industry also. And this is helping us have a higher volume throughout the transportation, storage and secondary delivery to the outlet which optimises a lot of costs also. 

Within the food QSR segment would it be mainly dairy products-maybe cheese that you are transporting more or it is also like a little bit of vegetables and so on?

No, most are processed food like tikkis and patties-those are the major ones. And then comes cheese and sauces as the second category.

And the processed part, are they also traveling longer distances or is it sort of serving only cities and so on?

No. From the source, if you see, they are traveling longer distances. A KFC chicken would be coming from Pune Venky's and getting distributed nationally. It is moved frozen from there to our warehouse and from there, it goes to the KFC outlets. Similarly, McCain french fries are picked up from Mehsana and it is brought to the various warehouses and then it goes to the various outlets- whether it is a KFC outlet or any other outlet.

So these are all the processed foods that I am talking about which go into the patties that are manufactured. There are patty manufacturers in Taloja, Mumbai and Chandigarh. They are also picked up from there and distributed nationally. 

So the burger that I am eating or likely to eat, say in a mall in Mumbai, could actually be composed of components that have come from all over the country, anywhere but Mumbai?

Absolutely. Maybe the vegetables are from Mumbai because they are usually freshly delivered. But, the rest of the things, the sauces would have come from Chandigarh, the patty would have come from Taloja and something would have come from Pune and then it gets assembled at the outlet.

This is obviously a growing industry. But as I am always told, it is not up to potential in terms of what we can do. And you mentioned for example, if we were to get into food, as in vegetables and fruits, then there is an opportunity but the costs do not match up. What are the hurdles this industry faces in terms of growth?

The potential is huge. As per the estimate by some research organisations, the cold chain industry in India is close to Rs 70,000 crore. Whereas if you see the organised sector in the country, all put together there are not many, maybe three big operators which do cold chain.

Rest is a completely unorganised sector or it is captively developed by the manufacturers or the brand owners. So the opportunity (for growth) is huge and the industry is growing at a good 12-15% compound annual growth rate (CAGR) and it has grown. It has demonstrated that number over the last 4-5 years and it is looking more promising for the subsequent five years.

The major challenge here is the price point, the recognition of the cost of doing this business. There are companies in India that still compare a cold chain price with a normal transportation, cold storage price with a normal warehouse price because a lot of products are moving from a non-cold chain to a cold chain.

As you know, the confectionary industry moved from (being) a non-cold chain to a cold chain (industry) some seven/eight years ago when they started finding quality-related issues. 

Now, a lot of pharma products are moving from a non-cold chain to a cold chain. They end up comparing the costs and when we did brief research in some of the similar countries, we found that all these countries have faced the same problem but there has been a time when the demand and supply of cold storage and refrigerated truck met an equilibrium point and then they realised that the price correction has happened.

This is the major challenge that this industry is facing today where the price needs a good 10-12% correction to recognise the cost of operations. It is important to understand that in this industry once you have built your infrastructure, which is very capex heavy, which is also a barrier for any new entrant to come in with those capex investments and in addition to that the opex is completely regulated.

Whether you talk about electricity cost, minimum wage cost or diesel cost-they are all regulated costs. You cannot go and negotiate with your vendors and try to reduce costs. You cannot. So, the cost is not fully in your control. The infrastructure is already in place, there is very little play left to you to be more efficient as such. So what is now required is a slight price correction in the market which will make the overall proposition attractive for people to come and get into this business.

Let me come back to the traditional goods or foods that you have been transporting. What are the hurdles that you face or are facing as a transporter? I know GST has made life much simpler and therefore at least in theory trucks that leave Pune should reach Chandigarh in 48 hours.

Other than cost, the second major hurdle is driver availability. Drivers are short in supply, whereas the demand for transportation is increasing. And we see that while the driver is a very skilled job, it is still not a respectable job. And hence, no one wants to become a driver.

One would prefer to become a sweeper in a mall, rather than become a driver because he is in an air-conditioned environment and he will reach home in the evening, whereas the driver has no such guarantee. The lifestyle that a driver gets and the treatment that a driver gets are actually causing a lot of issues. 

Organisations like us - Snowman - are trying to see how we can change that for our drivers at least. But the availability of drivers is very short and that is causing one major problem when it comes to transportation.

What is the average salary for a driver because I am assuming that driving a 32-feet truck that is refrigerated and therefore the value is so high, the compensation is also higher than what a normal driver somewhere would get?

Yes, the driver gets Rs 25,000 to 35,000 per month on a fixed basis and they will get allowances that will take them  Rs 35,000 to 37,000 per month. 

In your case, do drivers stick with you all the way? I know some logistics companies are using this switch kind of model where you drive for four hours, they get off and another driver comes in. 

We do not use that. We believe that the driver has to have ownership of the truck. Our trucks are costly, on average a truck would cost Rs 35 lakh. So we want the driver to treat the truck as his own. We see that we attach a set of drivers with a set of trucks and we see that they only drive it because then they know if there are any issues in the truck in terms of maintenance, we see that they own it up completely.

You are saying that even earning over Rs 30,000 a month, which I know is not enough, particularly if you are living in a city or you may want to earn more. Are you saying that is not sufficient incentive to get people to train themselves, or be trained by someone like you to become drivers?

No, as I told you, one is money. It is attractive but not attractive enough to live a less respectable lifestyle and be always at risk on the road. Someone who is going from Mumbai to Chandigarh, he would meet his family maybe in ten days. He would have to come back and then meet. So these are some of the reasons why the driver availability is low.

And this is not just your problem, I am sure but an industry problem. So what is the industry doing about this?

I am sure that a lot of the organised operators are trying to do something in terms of taking care of their family-related challenges, if they can address that. Giving them more respect in the system. Not calling them drivers, calling them pilots and those kinds of things. But I think society as such should change.

It is not about one or two operators alone because no driver wants his son to become a driver. What may come, he will see that he will not become a driver-even if he is not educated, he would like to work in a departmental store or a mall or theatre or in a restaurant-there are so many options today. With those options no one wants their kids to come to the same profession.

I think this is one area, if I compare with other developed countries, where driver availability is very short, where the cost of drivers has gone up. I mean they are five times what we pay. I think we will also reach there very soon. We will also end up paying Rs 80-90,000 for a driver and then maybe then comparatively commercially this profession will look better for the drivers.

We talked about food in the beginning and said that shifting consumer preferences have caused demand up the chain. That is really the first dot. The other dot you are now pointing to is businesses like pharmaceuticals and chemicals you are also getting into. Tell us about these transitions. What is driving these transitions in chemicals, pharmaceuticals, confectionery and so on?

From the Snowman point-of-view, we want to expand. We have been in the industry for at least two-and-a-half decades. And we believe that all the initial learning that we have to have is already done. Whether it is about setting up the refrigerated truck or setting up the cold storage, we have done that enough, we have enough learning in place, and we have a strong team.

Over the last four/five years we have spent a lot of money on our IT piece. So, from an IT point- of-view and leadership point-of-view are very much there to double the revenue.

And at the same time what is happening is, on the other side, the law is becoming more stringent, and our food safety law is comparable to any developed country in the world. And they are being emphasised on the ground also. So, this creates more demand for companies like us and we do not want to miss out on that at this point.

That is the reason we are trying to expand a little bit, we are trying to reach out to customers who respect this kind of infrastructure, this kind of services, this kind of IT infrastructure and try to grab that business.

Temperatures are rising, the climate is changing and that will have an impact on your business. How are you preparing for this or responding to this as you look ahead?

We are taking this as an opportunity for us. This will only mean that more and more products will get into the cold chain. In terms of all our infrastructure, they are well capable of maintaining temperature - so when we want -20 degree temperature, our infrastructure is capable of taking it down to -25.

So even if the external temperature rises by 4 or 5 degrees additional, we will still be able to maintain the desired temperature. So our infrastructure is capable of that.

So our focus today is to create more capacity in terms of cold storage and transportation and be ready for the increasing volume. We have seen that our customers organically grow 10% Y-o-Y. So even if we do not bag more business or new clients, our existing business will grow by 10% next year.

So we are just gearing up to see that the 10% is accommodated in our capacity and at the same time we grab more businesses. So that is the whole strategy with which we are putting in our expansion plans in place.

You are also a listed company and there are a lot of companies that have raised a lot of capital in the unlisted space and want to get listed. How are you seeing that space between you as an existing player and you having a parent, Gateway Distriparks Limited, which has been around longer? So you are a veteran in this space. And you are also up against some very young companies run by very young people?

I would say that when it comes to raising funds or when it comes to valuation, a listed company is always at the mercy of the market, and the market sentiments. whereas a private company can have their own story around it. Yes, that challenge is there when it comes to a listed company but from a competition point of view, we are far ahead, even if we take number 2, 3, and 4 and add together all of them, even then they are less than us in terms of capacity.

Not only that, with the amount of reputation we earn in the market, in the last six/seven years, we have not lost a single business. If we have lost a couple, it is only on commercial grounds. So we want to benchmark and be a benchmark whether it comes to pricing, quality of service,  whether it comes to infrastructure. That is the way we would like to take it forward.

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