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Serving fresh food at the lowest prices in a limited time has enabled many Agritech players to mark their position in the Indian Supply Chain and Market Linkage segment [VK1] - Ken Research

03-Aug-2022   Mr. Varun Khurana , Designation: Founder and CEO , Otipy    Author: Harsh Mittal

In India, the agritech sector has explored the key gaps in the traditional chain. Taking advantage of the issues in the existing methods players have been working to improve the shortcomings such as waste percentage reduction, quick delivery, and improved quality checks by moving the products directly from the farm to the end-users. Otipy is one such player that has worked on these challenges and tried to bring a profitable model that helps the end-user in receiving premium quality highly perishable goods, especially in the daily essential segment.

In conversation with Varun Khurana, Founder and CEO Otipy (operated by Crofarm Agriproducts Pvt Ltd), we attempted to seek his opinion and understand his side of the story about the changing fortunes of the Agritech Industry and how are companies gearing up for it.

Q1. What has been your company journey as an Agritech player?

The company was incorporated in May 2016 and successfully created a 6-year streak. The idea behind starting the business was to solve a problem in the fresh food category, which stemmed from my experience and learning from "Grofers. After "Grofers," I spent time at the farms, which made me realize that there is a huge gap between the quality required by the end-users and the quality produced at the farm level. Additionally, wastages are enormous, resulting in consumers having to pay a very high premium compared with the price at which a farmer sells.

We started as a B2B company and realized that margins in the business are low, credit periods are often high, and cash collection issues are prevalent. After spending four years in the B2B business, we launched Otipy, a B2B2C model for fresh produce where community leaders/resellers would generate demand and perform last-mile delivery. Additionally, the supply chain was designed for speed so that produce spends minimum time in the supply chain and hence undergoes minimum degradation and minimum wastage.

Q2. What have been your challenges as an Agritech Player in the market?

Dealing with fresh food comes with various challenges. While at Grofers, we saw that the revenue from fresh food contributed 2-3% while the complaints for the same category were more than 20%.

Managing quality in fresh produce is difficult given that it is not a standardized product and because the produce degrades rapidly. By building a speedy supply chain, we have been able to crack this reasonably.

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Additionally, leveraging the reseller model to perform consistent deliveries is a challenge. We have used technology to solve this.

Q3. What were the advantages of your current selling model? What is the value proposition offered by Otipy?

Better product quality at lower prices started resonating and helped us in scalability. We received a huge appreciation from the end-users in terms of the freshness and quality of the products and secondly, we managed to tackle the wastage percent which is generally around 35%, while for Otipy it is only 4%. This method has allowed us to offer lower prices compared to the other places.

Q4. How many users are connected to Otipy? Why is the churn rate higher for Otipy compared to other platforms in the same vertical?

We currently have 5 lakhs consumers and ~16-17,000 daily orders in Delhi NCR where each order is about 6 Kgs in volume. We move almost 100-110 tonnes of fresh commodities into the market daily.

Retention rate becomes high usually when a customer has placed an order more than 3-4 times but it comes with various challenges for example perishable commodities see a seasonal variation. Providing a standardized product throughout the year is difficult. These challenges are taken care of by changing the source of supply.

A good example would be Tomato. Now the tomato for Delhi NCR is sourced locally during the season, and after a couple of months, it is sourced from Bangalore.

Q5. What are the geographies captured by Otipy so far?

Otipy has been operating in Delhi NCR majorly but we have also expanded to Mumbai recently. In Mumbai, we first started our operations in the Thane area.

Q6. How does Otipy source its commodities?

The sourcing belt in India is huge. A lot of seasonal items are sourced from nearby belts, for example – in Haryana we would source from Panipat and Sonepat, in UP we would source from Hapur and Garh. Commodities such as Onion, Pomegranate, Oranges, and Grapes are sourced from Maharashtra We also source from Andhra which includes Watermelon as well as Papaya that serves Delhi throughout the year.

Q7. Otipy manages to deliver products very efficiently, how do you manage to supply good quality products on time? Does Otipy maintain inventory?

The supply chain is maintained on the Prediction Based Method. Items are procured as per prediction, and the app allows booking basis the same prediction; we don’t maintain any inventory. Most of the items come and go on the same day. Regarding the timeline, the goods reach us at 9:00 pm, and the packaging process starts at 9:30 pm. At 11:30 pm, most orders are packed, and at 3:00 am, all products are ready to dispatch.

Q8. Unlike other start-ups why did Otipy initiate from a rural-urban region?

Delhi market is tough and witnesses maximum seasonal variations. Otipy faced a lot of challenges initially but over a period of time, we overcame most of them.

Q9. Is Otipy willing to expand to other verticals?

Yes, broadly, our focus remains on the "daily essential items" but we have also included our own private label for bread. We will soon be adding other categories.

Q10. What is your plan in terms of deploying your recent funding?

Most of the funding would be used in corporate payroll, marketing and expansion.

Q11. How do you manage to keep your logistic cost so low which is ~INR 2-3/kg while other companies charge more? Do you think you can operate as an Omni player?

One of the primary reasons is the reseller model. Secondly, compared to the quick commerce where orders are placed throughout the day our orders are concentrated in 2 hours which brings an advantage to managing lower last mile logistic costs.

Operating as an Omni player is a debatable topic for us. Our wastage percentage goes for a toss. We don't want to start holding inventory. Out of 35% wastage percentage, 20% could be seen in the neighborhood stores. This process will hinder the fundamentals of our business model.

Q12. Do you think the quick commerce model is sustainable in the future? Do you think consolidation will help in future by charging a premium from the customer?

The burn rate is very high in this model. Considering the same model among other global players, funding becomes a problem over a period of time. Most investors lose interest which limits the overall funding for the lucrative operations.

Players may increase the delivery charges to sustain their model to back their finances. The moment the delivery charge increases, the end-user market will start to shrink; since the percentage of Indians paying for convenience is very low, the model may face difficulty sustaining in the future.

Consolidation may occur, but it doesn't guarantee that the model will thrive.

 Q13. What is the short to medium future plan of Otipy?

Our value proposition is designed for value conscious people. We optimize for wastage and other supply chain challenges. We are trying to provide goods at low enough prices without burning a hole in our pocket. Despite that, we are operating a 33% gross margin. All of our revenue is prepaid, we don't indulge in COD at all. We continue to march around that similar charter.

We will continue to expand in terms of offered categories. We will be expanding to other geographies as well very soon.

For any queries or feedback, reach out to the author at Namit@kenresearch.com

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