1

The supply chain as a concept & a reality is moving

far beyond the confines of an individual organization.

It has become a dynamic process that involves the

simultaneous acquisition & continuous reevaluation

of partners, technologies, & organizational

structures. The building blocks of successful supply

chains are numerous & their interactions are

complex, but businesses have no choice but to

embark on such an initiative: the supply chain has

evolved from corporate necessity to enhancing

competitive advantage for savvy industry leaders.

-- ZUBIN POONAWALLA

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Executive Summary

35% to 40% of the total production of fresh fruits & vegetables is wasted in India. This alone builds up

a case sufficient to set up a cold supply chain infrastructure in the country. The service being offered

here is essentially a privately owned & operated cold supply chain service provider. Scope of work

involves procuring the produce from the place of growth, manufacture or packag ing, getting it to the

central distribution hub, storing at the hub under controlled conditions & then transporting the stuff to

the customers premises as and when required. The customers are the large retail chain operators in who

require a regular supply of fresh fruits, vegetables, meat & other perishable food products. Also,

caterers, hotel, restaurants would be the customers as their requirements are also the same.

The needs of the customers are:

Due to a dearth of co ld storage facilit ies, the seasonal production deteriorated rapidly & had to be sold

within weeks.

A proper cold chain facility could also help meet the demand-supply gap of various food products

including fruits & vegetables.

Marketing objective

Sales target is to have an 70% capacity utilizat ion in the first year, thereafter increasing by 5% every

year till it is 90% at the end of the fifth year.

Market ing objective would be to enter into long term contracts with the retailers & hotel/restaurant

owners to give that level of capacity utilization.

Positioning

Better customer service in the delivery of orders.

These benefits can be achieved while at the same time reducing costs in the supply chain through

greater efficiency,

lower inventories

shorter lead times.

Communication

The communication strategy would involve meet ing a lot of potent ial clients in the beginning &

carrying out direct marketing of the service

Advertisements in trade journals and similar publications

Holding seminars & workshops in conjunction with government agencies

Pricing

Pricing would be dynamically decided depending on the capacity utilization of the whole chain

The price charged would be higher for the value-added service being provided.

Special prices could be negotiated with the customers who enter into a long-term contract

The competition charges a price equal to INR 1600 per pallet.

Operations plan:

Logistics

A hub and spoke system would be utilized for the distribution of the perishable commodities

Hubs would have state of the art cold storages so that the perishable stuff does not leave the cold chain

Financial plan

The capital expenditure for the project.

The project is to be financed by a capital structure of 50:50 debt/equity. The revenue model is based on

the utilizat ion of the storage services, transportation services, or a combination of both, plus value

added services would be charged more. There are a few uncertainties regarding the project. They are:

high demand risk, electricity fluctuations & charges, fuel for the trucks, objections by the trucker’s

union, objections by local wet market operators & political interference.

3

Table of Contents

1. Introduction 2. Service Description 3. Industry Analysis 4. Customer Analysis 5. Marketing Plan 6. Operations Plan 7. Financial Plan 8. Uncertainties 9. Conclusions 10. Financial Projections

4

INTRODUCTION

This report is a detailed business plan for a privately owned cold chain infrastructure service provider.

The aim of the report is to clarify the business goals & the means to achieve them. It will also serve as

a standard against which the actual performance of the business can be checked in future to determine

if it is on the right course. The rationale for setting up of this business venture is linked to the need fo r

setting up a cold storage infrastructure in India, which is as follows:

In order to service so many outlets throughout the country, India has a unique but unsophisticated

network of up to 6 or 7 intermediaries between the primary source (producer & growers) & the end

consumer

Because of the presence of so many layers & the lack of adequate storage facilities, 35 - 40% of all

perishable food produce in India is spoilt before reaching the end consumer

Food forms less than 14% of o rganised retail t rade in India, while an average Indian middle class

consumer spends around 50% of his/her income on food & food products. This mismatch is purely due

to infrastructure constraints

Shortage of cold storage facilities & refrigerated transport equipment lead to inefficiencies in handling

perishable products which manifest themselves in the wastage, which according to some estimates, is

more than the total production of fresh fruits & vegetables .

As most of the companies in the food-processing sector are in the Small-Scale Sector (as part o f

Government policy) economies of scale is very difficult to attain in storage & transportation. This

builds the case for a service provider to whom these small companies can outsource their storage &

transportation functions. However, there is a no commonly understood or accepted definition of a state -

of-the-art cold chain in India. There is no defined common goal. There is no evidence of an industry

association, or other organizat ion, in which common understandings could be formulated, or in which a

common voice could be developed to propose changes in tax laws that would assist the development of

the industry. Moreover, the lack of understanding of a state-of-the-art cold chain extends to the higher

levels of state government planning & policy making causing plans to be developed that ignored the

basic economic p rinciples of the business. There is, however a great deal of private enterprise interest

in building the cold chain, & some state government organizations willing to consider public & private

participation

The issues to be addressed include:

Whether newer refrigeration technologies can provide lower costs of cold storage services;

How the scale of operation of cold storage facilities has an impact on capital investment & operating

costs;

Whether perishable foods distributed by cold chains are safe;

Whether the cold chain industry requires any safety regulation;

How to increase the demand for refrigerated products;

How food imports impact cold-storage services. The cold chain infrastructure would basically consist

of cold storages & refrigerated trucks. Along with the above mentioned infrastructure, the service

would be provided using the following:

Hub & spoke network

Use of vehicle routing algorithms to optimise

Use of technology to improve service levels

Process orientation

Cross docking Cold Chain In

SERVICE DESCRIPTION

5

The retail outlets, where we do our purchases of the food products, or for that matter the

restaurants where we eat, are just the tip of the iceberg. The products travel a long way

from all parts of India. To make it happen efficiently, a new system of food transport

needs to be developed - what is called as 'cold chain', in India. This system procures

ingredients from their places of growth & manufacture, spread across vast geographical

area & brings them to the centralized distribution hub. At this hub, the products are

stored in controlled conditions. From here, all retail supplies move on to the customer’s

premises on a daily basis. By transporting the products at a particular temperature, the

cold chain ensures freshness & adequate moisture content of the perishable food

products like fresh fruits, vegetables, meat, sea food etc. This temperature is maintained

inside the storage chamber of the specially made refrigerated trucks throughout the

journey. The drivers would be instructed specifically not to switch off the chilling system

even in case of traffic jams to save electricity.

The business would provide complete solution for operational logistics support. The

challenge would be in handling India's weak logistics infrastructure & the ability to

meet the strict standards set by the customers for safe & timely delivery of material to

each outlet as well as the physical movement of material & inventory control in a

country with unreliable roads & other basic infrastructure bottlenecks. To meet

customer’s high standards, the business would ensure that requirement for quality,

temperature & packaging are met. At the same time, unused capacity in the vehicles

would be used to transport goods from other vendors, which might not require

refrigeration, which would help the business deliver the lowest cost with the highest

quality.

Just-in-time delivery

The parameters of cost & quality matter only if the final product reaches the customer

each time, every time. While the quality is easily maintained at the source of the supply,

it becomes all the more important to retain the same quality once the products reach the

customer’s premises. All along, the focus would be on smooth feeding of the retail outlets/restaurants

with optimum quantity & yet keeping inventory for the customer under control.

The business would not only provide outward movement of perishable food products

from the villages & the places of manufacture, but also would utilize the return journey

of the trucks to transport goods for daily consumption into these areas. This would result

in the capacity utilization of the trucks. But servicing widely dispersed, relatively small

population clusters would be a logistical complication of its own, let alone, with poor or

lack of adequate road infrastructure. However, the rural market is so significan t that it

cannot be ignored & presents a lucrative opportunity to exploit the return journey of the

trucks. Rural retail establishments represent 68% of the total retail trade in the country

& are growing at a faster rate than the urban areas.

INDUSTRY ANALYSIS

6

The cold storage industry in India is over a hundred-years old. It has adopted gradual

change in technology. Cold storage units in the 1960s were built only for storage of

potatoes & potato seeds but as the commodity base increased, different types of cold

store facilities were built. At present there are 3252 cold stores in the country with an

installed total capacity of 8.7 Mn. tonnes & further 250 cold stores are under

implementation. On establishment of all the cold stores, the total capacity would increase

to 10 Mn. tonnes. But growing needs indicate that it is likely to fall short of the

requirement by 0.5 Mn. tonnes during the peak period.

Out of the total cold storage capacity in the country, nearly 48% (4.83 Mn. Tonnes) of the

share is with a single state i.e. Uttar Pradesh where the cold storages are mostly used for

potato & potato seed. It is followed by West Bengal with a cold storage capacity of 2.24

Mn. tonnes (Share 26%). The Western part of India has a cold storage capacity of 0.5

Mn. tonnes, out of which the State of Maharashtra has a capacity to store 0.35 Mn. Tonnes.

The rank wise commodities stored in the cold storage are potatoes, apples, spices, dairy

products, marine products, other fruits & vegetables. Nearly 80% of the capacity gets

utilized in the storage of potatoes & potato seed.

The major commodities transported by reefer trucks are:

Cut Flowers & grapes from production location to air port. Majority of floriculture

units owns such vehicles.

All Ice cream products.

Chocolates

Fish & Meat products for domestic & export purpose.

All frozen fruits & vegetable products.

Pharmaceutical Products.

Dry Fruits

Apart from the reefer trucks, reefer containers are used for exporting grapes, apple &

pomegranates. There are no Indian reefer container companies leasing out the containers.

MAERSK or American Presidential Lines lease-out most of the reefer containers from

abroad to Indian exporters. A few trials were recently conducted on shipment of mangoes

by adopting special containers with controlled atmosphere technology.

Mumbai sea port & airport are principal export points for high value produce from

Northern & Western India to Middle East, North America & Europe. The Mumbai

metropolitan area is also a major consumer of high value products due to its higher

standard of living & large population from higher income group.

The export of fresh fruits & vegetables from the state has shown an increasing trend in

the past five years and has doubled in value and volume. The quantity of grapes exported

alone has increased from a negligible level to 15,500 tonnes (which is 75% of the total

Indian grape exports), in the past seven years & with an increase of 40% to 100% per

year over the previous year. Among other fruits being exported are strawberries,

pomegranates, mangoes & cashew nuts.

The growth rate of flower exports i.e. roses, has shown an increase of 536% in the past

five years. The value of roses exported in 1994 was Rs. 59 Mn. while in 1995 it was Rs.

180 Mn. and in 1996 it crossed Rs. 400 Mn.

Pack Houses

The pre-cooling capacity of Cold Storages & Pack-houses ranges from 4 tonnes to 10 tonnes per 6

hours cycle & the cold storage capacity ranges from 20 to 50 tonnes

Based on an average of 3 tonnes of pre-cooling and 30 tonnes of cold storage the capacity developed is

125 tonnes & 325,000 cu.ft. However, most of these facilities are used for two months while some are

used for 6 months.

In India, the horticultural p roduction is increasing rap idly with increase in the productivity & area

under fruit crops. Orchard g rowers organizations are very part icular in production of quality produce

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with the application of hi-tech methods relating to insec ticides, hormones & fertilizers. To assist them

better post harvest technology & infrastructure needs to be developed.

Infrastructure at Production Point

Scope exists in India for all those industries, which could invest in following areas

of agro infrastructure.

Roads, speedier transport facilities.

Storing & grading sheds.

Packing & grading infrastructure with controlled temperature.

Cold storage (medium capacity)

Store houses for storing packed material, such as insecticides, pesticides, fertilizers etc. Cold Storages

Nearly 80% of the cold storage capacity is owned by the private sector. The balance 20% is owned by

co-operative & public sector undertakings. The average cold storage capacity utilization in the private

sector is 70% & that of others is 50%. The capacity of these cold storage units range from 500 tonnes

to 1000 tonnes. The total capacity of these cold warehouses is approximately 50 Mn. Cu ft. However,

there is no cold chain as such in existence. In the early 1970s the cold storage was mainly used to store

potato seeds and a few frozen food products but later with the increas e in production of ice cream &

export of fru it produce pre-cooling, the cold store gained importance. Now there is substantial scope

for a cold storage chain.

Produce Flow

The agricultural produce flows from the production region to the markets. It flows not only to

destinations within the state but also to cities outside the state

The major markets receive the produce & redistribute them to the nearby regions or sell

the produce to the retailers within the city. The rapidly perishable produce such as leafy

vegetables coming to the marketing centers rarely goes to long distance markets. The

production of produce & its marketing is highly de-centralized, hence except for a few

fruits like grapes, oranges, mangoes most of the vegetables & fruits are available round

the year.

Transport Infrastructure

The major centers for marketing the agriculture produce are the metro cities & township

with industrial development. The production centers for vegetables are located in a radial

distance of 300 kms from the city o r township. Even if this is true there is some produce which has to

travel a long distance i.e. bananas are transported over 800 Kms to New Delhi or 400 Kms. to Mumbai.

The transportation mode adopted to transport the produce, coming from the villages or taluka p laces to

nearby places or distant cities, vary & depend on availability & affordability.

The following is the usage pattern for transportation of agriculture p roduce from production sources to

market yards.

1 Trucks ordinary 21%

2 Tractors 18%

3 Tempo-trucks 8%

4 Bullock-carts 49%

5 Others 4%

Total 100

The produce going through the wholesale market varies from season to season, fruit to

fruit, vegetable to vegetable, & location to location.

The mode of transport adopted for transportation of produce over long distance may be as

follows:

1 Unrefrigerated mode, traditional packing – 83%

2 Unrefrigerated mode, cartons & boxes – 10%

3 Refrigerated trucks 4

4 Freezer trucks (frozen products) – 1%

5 Railway – 2%

6 Air - negligible

8

Refrigerated Transport

Reefer transportation has been in existence for two decades but has now been considered

important with the increase in export of fruits & floriculture produce. Initially, reefer

transport system was used for transporting life saving drugs, ice-cream, frozen food &

meat products only. Presently only grapes & flowers are being transported from the

production location to the exit point at the seaport or the airport in reefer containers. The

flower exporters usually own refrigerated trucks & send flowers to the airports where

these are re-loaded on to 3-D containers.

The growth in horticulture exports will be on an average 7.5 % over the next five years.

The growth of major metropolitan markets such as Mumbai & New Delhi is expected to reach 8%.

This growth will substantially raise demand for transport services & infrastructure & hence the need

for reefer trucks.

Up-Coming Infrastructure Projects

Several recent infrastructure developments

Policy

The policy for setting up a cold chain infrastructure is investor friendly. The government has been

empowered to issue licences for establishment o f co ld storages. No permission is required from

revenue department.

Finance from the National Horticulture Board is available at 5% rate of interest to a limit

of Rs. 10 Mn. loan. Besides these there are subsidies on plastic crates, refrigerated trucks

and other miscellaneous items. Agriculture and Processed Food Products Export

Development Authority (APEDA) a Central Government agency offers subsidy &

financial assistance for market promotion, packaging materials & airfreight concession

for specific commodities for export oriented units.

CUSTOMER ANALYSIS

9

Who are the customers?

The customers of the proposed service would be large retail chain operators in the cities

who need to source fresh fruits, vegetables, meat etc. from the villages. Also, large

caterers/hotel/restaurant operators would be the customers of the service, as these also

need to have access to fresh food products. In this regard, it would be the endeavour of

the business to enter into long term contract with the customers to provide efficient &

value added service to them without bothering about scouting for customers in the

absence of long term contracts.

The demand for the service would be a derived demand with the end consumers of the

food products being the ultimate customers of the service. The demand for the service is

ultimately derived from the demand for perishable food products by the consumers. For

this reason, the business must closely monitor the buying pattern of the ultimate

consumers. The demand would tend to be volatile, because a small percentage change in

the demand by the consumers may cause a large percentage change in the demand for the

service due to the bull whip effect.

Most buyers in the business would prefer to buy total solution from the sellers i.e. to tal

supply chain outsourcing. Therefore, this total solution would be used as a marketing

tool.

What are the customer’s needs?

Two effects, one cause. The urban Indian cannot access ready-to- eat matar paneer for the

same reason as the farmer in the rural India loses 30-40% of h is produce every year - the country lacks

a cold chain infrastructure.

Due to a dearth of cold storage facilities, the seasonal production deteriorated rapidly &

had to be sold within weeks. A proper cold chain facility could also help meet the

demand-supply situation of various food products including fruits & vegetables.

There is a consensus on the issue of requirement of cold chain facilities & services in

India to help reduce post-harvest losses of fresh fruits & vegetables. The need to change

people's mind-set on eating stored food products is another area, which needs the

attention of both the Government & industry. The Government & the industry need to

work together to assure consumers of a safe & high quality frozen food supply. It is also

important for customers to understand that chilled & frozen foods in most cases offer

better quality, nutrition & value for money than the regular foods available in the

market place.

The dearth of cold chain facilities in India narrows down to the most basic of all

economic fundamentals, demand & supply. However, there are adequate cold chain

facilities for products that can bear the price, ice-cream & meat movements do not

suffer from lack of cold chain storage, & neither does sea food.

People do not yet perceive the value of frozen foods. A common perception is that fresh

vegetables from the neighbourhood vegetable vendor are more ``fresh'' than packed

vegetables in supermarkets. By cooling/freezing horticultural products, their freshn ess is

captured & retained as the rotting process is arrested at low temperatures. Shelf lives

can be extended by a few days/weeks/months depending on the product.

Once a demand for frozen/chilled products is set into motion, there will be a pressure

from the market to supply the products. More cold chains & cold storages will be set up

throughout the country. With larger volumes, the cold network will also become

economically viable. Most important, it can take care of the over Rs. 9,000 crore worth

agricultural produce that goes waste every year, purely for want of post -harvest storage

facilities. In fact, immediately after harvest, the produce contains field heat (akin to body

heat in animals). The sooner the field heat is removed, the longer the product can be

stored.

MARKETING PLAN

10

Marketing objective

Sales target is to have an 80% capacity utilization in the first year, thereafter increasing

by 5% every year till it is 95% at the end of the fourth year. Marketing objective would

be to enter into long term contracts with the retailers & hotel/restaurant owners to give

that level of capacity utilization.

Positioning

Increasingly, businesses are examining their logistics requirements & discovering that a

competitive advantage can be gained through better customer service in the delivery of

orders. In addition, these benefits can be achieved while at the same time reducing costs

in the supply chain though greater efficiency, lower inventories & shorter lead times.

Furthermore, due to the cost a developing systems & the challenge of matching

performance to promises, customers are increasingly turning to outsourcing their logistics

requirements. The business would be positioned to take advantage of this growth by

offering advanced supply chain solutions to customers seeking an effective method of

improving their own customer service and reducing costs.

Communication

The success of the business is based on the fact that the business would enter into longterm

contracts with the customers to provide complete cold supply chain logistics support

system. Therefore, the communication strategy would involve meeting a lot of potential

clients in the beginning & carrying out direct marketing of the service. The top

executives would have to convince the potential customers of the benefits of the new

service being offered.

In terms of the effort required as far as communicating the benefits of the new service is

concerned, the initial effort would be quite a lot. Once a few long-term contracts are

established & a presence is built in the market such that the market perceives the

benefits being offered by the service, then the incremental effort required to secure new

clients would be minimal.

In addition to direct marketing to the potential clients , the business would be advertising

in trade journals & similar publications communicating the benefits of the service &

educating the customers. Apart from this, awareness would be spread by holding

seminars & workshops in conjunction with government agencies like Agriculture &

Processed Food Products Export Development Authority (APEDA), ministry for food

processing industry etc. & other similar non-government agencies where beneficiaries

of the proposed service would be invited & their doubts & apprehensions cleared.

Pricing

Pricing of the service would depend on the service being offered. If the material required

special handling in terms of temperature & humidity control etc. then the price charged

would be higher for the value-added service being provided. Otherwise, the price charged

would be at par with the competition. Special prices could be negotiated with the

customers who enter into a long-term contract.

Ultimately, the pricing would be dynamically decided depending on the capacity

utilization of the whole chain. Since the business is highly capital intensive, in the short

run, it might be worth while to charge a price equal to the variable cost of operation. In

the market, for a similar service, the competition charges a price equal to Rs. 1600 per

pallet per year. This would be the initial offer price of the service that would be offered.

OPERATIONS PLAN

11

While establishing a cold chain, the essential components of the cold chain are the cold

storage & refrigerated trucks. Using these two, & efficient utilization of information

technology, a world class cold chain infrastructure can be built up.

Logistics

A hub & spoke system would be utilized for the distribution of the perishable

commodities. In a hub & spoke system, the shipment to a region is delivered first to a

primary hub & then transported to its final destination, whether by rail, road or inland

waterways. Similarly, shipments from the region are collected in the primary hub, then

transported to final destination. There are usually two primary characteristics that are

used to select the location of the primary hubs

(a) Tend to be geographically central to the region (with a substantial hinterland - that is,

it attracts a considerable amount of movement of goods that would in any case flow

through that city);

&

(b) Has the basic infrastructure like roads, power availability for the cold storages etc. in

place

The main purpose for this type of network is the precise timing of banks of arriving

trucks to offer a seamless onward transfer to banks of departing trucks & to maximize

the number of attainable connections for incoming goods, without the need for storage in

the cold storages. At the same time, the connecting times should be kept within d efined

& acceptable limits. Two major types of hub-and-spoke networks can be discerned, the

hourglass & hinterland networks.

Through an hourglass hub, trucks come in from one region, are consolidated at the hub

& diversified in the opposite direction. A hinterland hub uses spokes, short-haul truck

journeys to feed the hub & consolidate for long-haul routes. In the business, hinterland

hub would be utilized.

Cold storages

Construction of cold storages requires high-tech engineering services, whereas in India

currently, cold storages are being constructed & operated by people who do not have

any formal education in engineering & design. Across the country, there is no

standardization in construction & equipment of the cold storages. The practices are

rather localized & based upon erroneous concepts of heat transfer & principles of cold

storages resulting in substantial extra spending in construction & regular loss of energy.

Insulation plays a major role (nearly 80%) in the performance of the cold storages, but

not much attention is paid to this aspect during construction. In fact only about 10% of

the total cost of installation & machinery is spent on the insulation. The principle on

which our cold storages are being designed is again standing upside down. Our cold

storage engineers focus more on retaining coldness in the cold container than to make

necessary arrangements to retard the heat & vapour transfer from outside (higher

temperature) to inside of cold storage (lower temperature). Similarly, they resis t any

modern research about insulation materials & techniques of cold storage insulation for

energy saving.

Following are the design issues which would be considered while setting up of cold

storages:

proper temperature guidelines for fruits, vegetables & other important imported

perishable items,

the importance of humidity control to maintain product quality;

the use of ethylene oxidizers to prevent premature ripening of fruits & vegetables;

incompatible perishable food items & associated storage guidelines;

methods to improve air circulation/velocity in chiller rooms;

the importance of defrost cycles in cold storage facilities;

storage time limitations for various imported perishable foods;

methods to optimize stacking/shelving parameters in cold storage facilities; &

use of automated cold storage inventory control technologies.

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Keeping cold on the road

Cold warehousing facilities are one important link in the cold chain; temperature controlled

transportation is another. While all types of goods suffer from slow or

inefficient transportation modes in India, the problems are particularly critical in the

distribution of refrigerated & frozen goods, which require special equipment to

maintain product quality. India's rail system--historically best suited for the shipment of

commodities--is predictably a weak link in the cold chain.

Nonetheless, railways continue to be the most common channel for the large-scale

distribution of food in India, but it hardly includes frozen food products. Transporting

frozen goods by rail in India has enormous drawbacks, including the need for advanced

bookings & special connections. As temperature-controlled equipment is usually

unavailable, food products, in some cases, are s imply cooled with bagged ice & covered

with a blanket. Marketers of consumer-oriented, temperature-sensitive food products

have additional concerns, including excessive loading & unloading under less than ideal

conditions, excessive damage potential, & unreliable delivery times.

Fortunately, India's trucking industry is growing rapidly, fueled by the competitive

demands of free markets. Even though road networks in India are notoriously

underdeveloped, improved highway segments are making regional truck distribution a

more practical option for the food industry.

Such improvements are much welcomed, as the flexibility of truck transport makes it

especially suited to the movement of perishable foods. Many of India’s restaurants &

supermarkets require frequent deliveries of food products. By delivering shipments via

truck, the distributor can supervise door-to-door service to accommodate the demanding

schedules.

The increasing viability of t rucking in India has enabled some companies, like HLL & Mondelz (fo r

which I was instrumental in setting up their tailor made resources) to adopt an integrated India

manufacturing strategy & to attempt inter-regional transport. With the further development of road

network, several large international shipping & logistics companies would make inroads into India’s

distribution system, in some cases providing controlled-temperature trucking services. The business

licenses for these firms in India may also include warehousing in the specified scope of business, but

for the most part these firms concentrate on transporting goods

At the local level

Whether the goods travel initially by road or rail, efficient transport for the final few

miles of food distribution is essential. Traffic problems & regulatory hurdles make

timely distribution to retailers in Indian cities a challenge. Many of India's cities have

adopted traffic controls as a means of combating gridlock, & restrict trucks from

entering the central business district during daytime hours. When the truck enters the

central business district, the driver will likely have some difficulty finding a place to

"stop & drop." Using three-wheeled bikes with thermal containers on the back to make

deliveries to small retail outlets can be one viable strategy.

A last but critical link in the cold chain is food retailing. Despite the fact that Indian

tastes, customs, & culinary culture dictate a strong preference for freshness & a bias

against packaged foods, supermarkets are beginning to make their mark.

The advent of supermarkets in India also promises greater sales potential for chilled

products such as packaged meat or fish, which offer consumers the taste advantages of

fresh products as well as the flexibility to store the wrapped & sealed product in the refrigerator fo r

consumption a few days later. Meat or fish purchased at a wet market, in contrast, usually must be

prepared & consumed immediately. Consequently, packaging will p lay an increasingly important role

in cold chain management & the extension of product shelf lives. For example, the need for h igh -

quality, high-barrier p lastic packaging for vacuum or modified-atmosphere packing of meats goes

hand-in-hand with the development of the delivery systems to get these packaged products to the retail

outlet. While tradit ional Indian wet markets will continue to be a mainstay, the needs of urban

dwellers, with smaller household units, greater household discretionary spending, & more hectic

working days, favor the development of supermarkets and the popularity of chilled and frozen

13

products. And central- & local-level policies are encouraging the development of large-scale chain

stores.

14

FINANCIAL PLAN

Financial objectives

positive NPV project

operating profits from the first year

ROCE of 20%

Capital expenditure

Warehouses

Location:

Areas: 1 lakh sq ft (20 lakh cubic ft)

Capacity of 700 tons

Precooling – 12 tons per 6hrs cycle, Cold Storage: Remaining

With construction cost of Rs 150 per square ft, this works out to Rs 1.5 crore per

warehouse.

Cold Storage Equipment:

To maintain Temperatures below –15 degree celsius, Cooling capacity required for the

above areas is about 500 tons.

At a cost of Rs 15000 per ton, this works out to Rs 75 lakhs

For precooling the cost for 12 tons is Rs Rs 1.8 lakh

Approximate cost – Rs 77 lakhs

Backup Diesel Generator equipment (2 nos. @ Rs. 50,00,000) = Rs. 1 crore

Total cost of 2 warehouses (+ 15% for insulation) = Rs 5 crores

+ 4 forklifts each warehouse (8 @ Rs 5 lakhs) = Rs 40 lakhs

+ Cost of 80000 pallets (@ Rs 250) = Rs 2 crore

Pack Houses:

Capacity of 30 to 50 tonnes, Average 3.25 lakh cu.ft (20000 sq ft)

Total cost of construction = Rs 30 lakhs,

Cost of equipment (cooling + cold storage)- Rs 4.5 lakhs.

Total cost (+ 10 % for insulation) – Rs 40 lakhs

For 10 such packhouses, total cost – Rs 4 crore

1 forklift per packhouse - Rs 0.5 crore

Truck fleet of reefer trucks:

Estimated cost for a 5 ton reefer truck = Rs 16 lakh

For a fleet of 25 trucks, cost = Rs 4 crore; the fleet will need to be subsequently expanded

to 50 trucks for value added services like ‘Just in Time’ delivery (costing another Rs 4

crore).

Office + Logistic Systems:

Cost of Communications System: (2 option: VSAT link: One at Mumbai, Pune and

Nashik) - RS 10 lakhs

Computing Power (Server: Rs 1.5 lakh, 6 desktops – Rs 3 lakhs)

Office infrastructure (Rs 45 lakhs)

Website Design and Hosting: (One time cost of Rs. 20 lakhs, Hosting fees operational

cost)

So total infrastructure cost = Rs 22 crore

+ Working capital (Rs. 1 crore)= Rs 23 crore

Total investment in the project = Rs. 23 crore

Capital Structure

Typically, for infrastructure projects of such magnitude, the capital structure is in the

form of 50:50 debt/equity.

For equity, the customers who are targeted for long term contracts for the capacity

utilization would be approached to take up stake in the project. A few private equity

funds would also be approached. Development agencies also can take up equity stake in

the project if they find it viable & attractive. For debt, government agencies provide

subsidized financing for such projects.

Revenue model

Customers would be charged for the storage services provided in the cold storages

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Customers would be charged for the transportation services provided, with or without

refrigeration.

Higher charges for value added services like just in time delivery to customer’s

premises, specialized storage conditions for certain items etc.

The NPV of the project is coming out to be Rs. 4.2 crore at a discount rate of 20%

UNCERTAINTIES

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Demand risk

This is the most critical element of the project. This risk can be mitigated by having the

long term partners take equity stake in the project.

Electricity fluctuations & charges

The most important cost element is the electricity charges for the refrigeration plant. The

risk is both in terms of the supply of power as well as the tariff charged. To mitigate the

supply risk, a back up source of power is provided at both the cold storages. The tariff

risk would still be present in the project & it can affect the profitability to a large extent.

Fuel for the trucks

Most important cost element in the trucking business. Would be totally dependent on the

cost of the fuel prevailing in the market.

Objections from the trucker’s lobby

Fifty refrigerated trucks coming suddenly onto the roads would elicit negative response

from the existing truckers associations.

Objections from the wet market operators

Since this project would impact the wet market operators directly, they will have a thing

or two to say against this project.

Political interference

This is always present and no amount of planing can mitigate this risk. The best way to

deal with this risk is to be prepared for it and take it as it comes.

CONCLUSION

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Through the establishment of this business, it is envisaged that the following goals could

also be accomplished, in the larger interest of development of cold chain infrastructure in

India.

The development of an industry association would provide an opportunity for

members of the cold chain to develop commonly accepted understandings & to

speak with one voice in favor of constructive changes in government policies to

increase the rate of growth in the industry.

Standards for the handling & storage of all perishable items would improve the

quality of fruits & vegetables, which would increase the price & consumption,

which in turn, would provide a better return to the farmer.

Thinking of the cold chain as a pipeline through which perishable products flow from

the growing site to the point of consumption would enable the public sector planners

& managers to identify bottlenecks which break the chain or damage the products.

Considering the encouragement of private sector investment & participation with

the public sector at critical points in the cold chain, for example, airports, terminal

markets, & field chilling might help remove the critical bottlenecks that are

reducing the quality of products.

A public sector focus on major infrastructure factors critical to the cold chain,

including highways & interference with the flow of traffic, for example, octroi

taxes, would enable the cold chain to make vast improvements.

There would be certain social benefits attached to the development of this project.

High standards of hygiene & cleanliness - reduced risk of disease

Reduction in wastage - lowers costs to end consumer

Fewer intermediaries - producer receives higher prices

Organised sector entrant builds economies of scale & scope - cold chain instead of

many cold storages