A rags to riches story of a roadside fruit vendor

Kovai Pazhamudir Nilayam maybe a mouthful for anyone outside Tamil Nadu but after you read about this company's trajectory from roadside vendor of fruits to regional retail king, the name just may stick around in your imagination.

The name means 'Orchard of Fruits' and is the first branded retail chain purely for fresh fruits and vegetables in the country.

While other chains such as Reliance and More have posted large losses (Rs 44 crore or Rs 440 million for Reliance, Rs 423 crore or Rs 4.23 billion for Aditya Birla's More), Kovai says that it posted Rs 3 crore (Rs 30 million) profit on revenues of Rs 150 crore or Rs 1.5 billion in 2011-2012.

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This is a world away from the 25 paise per day that founder Natarajan decided to save, along with his three brothers, for a rosier future in 1953.

Natarajan was 10 at the time, his father had died, and education was jettisoned so they could scrape together a living and survive.

Natarajan and his elder brother Chinnaswamy had recently joined a road side fruit shop, while his younger brother Kandaswamy worked at a petrol station.

"Those were really tough days, without any proper food and shelter," recalls Natarajan, who started his career as a cleaner in the fruit shop.

Twelve years later, in 1965, armed with in-depth knowledge about fruits, "especially procurement" says Natarajan, and fortified by the modest savings that the band of brothers had diligently squirrelled away, Natarajan and his brothers decided to open their own shop -- a 400-square foot establishment in Coimbatore.

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"We didn't want to be road side vendors and wanted to do something unique. We wanted to be known as a brand. We knew it was a big risk but we decided to take the plunge," says Natarajan.

Kovai was born.

Being a retail chain that specialises in only fruits or vegetables has its own challenges which are roughly the same today as it was back in the '60s.

One has to compete with carts that come right to your doorstep and sell you products that are invariably cheaper. Indians like to bargain, and Kovai's model back then (and now) was to sell fruits in kilograms (versus in dozens) and that too at a fixed price.

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(However, Kovai's large volumes and direct sourcing today actually help keep prices around 10-20 per cent lower than those of hypermarkets and street vendors and where most such chains falter in quality of product, Kovai's is regarded as excellent.)

In this sort of retail model, success hinges on the daily collection -- if the day's business matches the monthly rental, you're in the black.

The brothers, however, were paying Rs 100 as rent, but couldn't make more than Rs 30-35 in sales, which led to further hardship.

"We hardly earned any money and we couldn't support our mother or our younger brother's education, so we decided to join a mill on a shift basis."

Natarajan and his brothers finally realised that their only hope for success was in doing something back then that companies like Airtel have been feverishly pursuing today: Generating 'value added services.'

Besides fruits, the brothers started selling fresh fruit juices as well as sliced fruit in their outlet which allowed them to milk more revenue per kilogram of fruit rather than selling it whole.

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The slices and juices were able to garner them a 150 per cent margin.

This proved to be a life-saving strategy and allowed them to slowly consolidate their operations and expand.

Today, Kovai has expanded to 34 outlets, of which 24 are owned and run by Natarajan, while rest are owned and run by his three brothers.

Natarajan has also expanded into vegetables which forms 60 per cent of his business. Saloni Nangia, senior vice president & head, retail & consumer products, Technopak Advisors feels that regional brands like Kovai's are successful because they understand their customer's needs better.

"Also, the needs often change, which regional brands can adapt to faster," he adds.

Kunal Bhaktha, partner, Lastaki Advisors Pvt Ltd, an investment banking company says that another reason for their outsized success is because "the promoters have come from farming community, they know the pulse of the farmers and understand them."

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Along the way, Natarajan has also managed to fulfil the quintessential Indian fairy tale -- to educate his son Senthil to the extent that he eventually ended up at Microsoft as a product developer, which he quit six years ago to join the family business.

Now, Senthil is hoping to continue his family's remarkable journey by bringing a little bit of Microsoft to Kovai.
Technology to manage the business's supply chain is one such thing.

His other initiatives: Importing fruits like Apples, strawberries, and oranges from eight countries including the US, Australia, South Africa, Egypt and New Zealand, making them one of the largest fruit importers in retail; converting vegetable and fruit waste into manure or raw material for farmers in Kerala; launching a chain of juice bars (called Season's, with revenues of Rs 15 crore or Rs 150 million) and foraying into textiles (revenues of Rs 3 crore or Rs 30 million).

Senthil was also the brain behind the expansion of the business, adding 21 stores over a period of six years.

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"Now we are planning to add another 50 by 2015 with an investment of Rs 50 crore (Rs 500 million).

While the major focus will be in Tamil Nadu, we will also look at Bengaluru, Cochin and Hyderabad," he said.

He is in the process of raising Rs 25 crore (Rs 250 million) of private equity funding for this purpose.

Still, staying a regional king is one thing and expanding onto the national stage something else entirely.

Becoming a national chain requires deep pockets, a branding exercise with a catchy name (that people can pronounce across the country) and a vast distribution, supply chain and cold chain network.

Not having all the pieces in place could spell disaster as now-extinct retail chain Subhiksha found out and something that the heir to this empire will have to internalise if he wants to continue the magical journey charted by his father.