This week, Future Startup caught up with Tanvir Haider Chaudhury, CEO of Kazi Food Industries Ltd, one of the fast-growing CPG companies in Dhaka, about Kazi Farms Kitchen, the frozen and fast food brand of Kazi Food Industries, and the future of frozen food and ready-to-cook food market in Bangladesh. We talked early days of Kazi Farms Kitchen, how it has grown from a tiny operation to the undisputed market leader in the frozen food market within a few years and built the largest fast food restaurants chain in Bangladesh, the dynamics of frozen and ready-to-eat and cook food business, Kazi Farms Kitchen’s ambition and much more.
Thank you for agreeing to this interview. First of all, could you please give us an overview of your frozen food business as well an overview of the industry? How big is the market, annual growth etc?
Tanvir Haider Chaudhury
We started our frozen food business about four and a half years ago with processed meat products like sausages, nuggets and meatballs and so forth. At that time, our understanding was that this is a nascent market - it was about 150 crore for the entire market - and there is an opportunity to build a consequential business. Although we started with meat products, very soon got into other flour-based frozen food items like frozen parathas, samosas, etc.
We now have a comprehensive range of SKUs ranging from meatballs and sausages to various types of samosas, singaras, dalpuries, alupuries, keema parathas, and so on. We have also expanded into shrimp based products such as shrimp nobashi and a long range of other items.
At Kazi Farms Kitchen, we’ve also franchised out the brand to small franchisees who have small fried chicken shops using our brand. Just about four years ago, October 2014, we launched our first franchise outlet of fast food, basically a small scale QSR, quick service restaurants, which serves basic fried foods like fried chicken, drumsticks, and same sausages, meatballs and nuggets as our frozen line. But they are fried and served to you. You can also buy frozen food and our ice-creams from these outlets.
We now have about 130 active outlets across 20 cities in Bangladesh. 60% of those in Dhaka. 21/22 in Chittagong. Rest is in other urban areas.
We went from basically zero in 2014 to 41 crore in sales in 2017. This year (2018) we are expecting to do somewhere north of 60 crores. The growth rate for us is about 43%. As of now, we are outpacing the industry growth by a good margin.
The industry is also growing very fast. Our understanding is that the industry is growing 15-16% yearly. There are other players in the industry obviously. Many of them have a comprehensive range of SKUs as well. But there was no clear category leader at that time. We took it is as an opportunity to be a category leader. The way coca cola means soft drinks and honda means motorcycle etc. There was an opportunity for a brand to come and be synonymous with frozen food. That's what we’ve tried to do. We already had the infrastructure from our ice cream business. We had depots and cold storage arrangement across the country. We could piggyback on that and make our products widely available. It worked to our advantage.
We consciously named it Kazi Farms Kitchen after our parent company. The parent company itself is one of the largest companies in the poultry and poultry-feed sector in Bangladesh. It is also one of the most respected companies in the market. People trust the brand and we wanted to leverage that and take it further.
As I said, we launched in 2014. Within a couple of years, we overtook other players who were dominating the frozen food market at that time. By 2017, we have become the undisputed number one in the country. This year we are leaving the competition far behind. We’ve also entered into dry fish, jams, jelly, and few shrimp items.
We also grew the franchise business pretty quickly. It has been a huge success. No other Bangladeshi company has been able to grow its network quite so fast. The only other company that has done well in terms of growing their network quickly is obviously CP. CP has done well. There was a point of time when they had over 270 outlets. Right now what we hear is that it has come down to 182 outlets because of various issues. I mean it is difficult for many franchisees to sustain themselves because they come into this business without knowing what is expected of them. There are various things happened in terms of city development authorities closing down certain outlets because they did not have proper validation and so on.
If we continue our growth at the rate we are growing now, we should be the biggest franchise network in terms of the number of outlets in Bangladesh very soon. That's where we are.
If you look at the entire market, it should be north of BDT 260 crore by the end of this year. Still not a huge market but it is growing at a very fast rate.
How do you see where is the market going down the line five-six years?
Tanvir Haider Chaudhury
We are living in a country where median age is in mid-twenties. A large segment of the population is teens or entering their teens. We talk about the demographic dividend, economic growth and so on. I think it is a function of all of that. The general trends are going in the right direction.
Then consider the state of women empowerment in Bangladesh. We are ahead of many other countries in Southeast Asia in terms of women's participation in economic activities. An increasing number of women are joining the workforce. It means there are many dual-income households. With both the partners busy working full-time, there is not much time left for preparing food and so on.
That's where frozen food and ready-to-cook food comes in. It is how it has become popular all across the world. It is also about a particular taste that you acquire. These are not indigenous food. Sausages, nuggets, and meatballs - these are not well-known food in our culture. But these are widely consumed now among a certain class of the population. This segment of the population, that I mentioned earlier, has been growing pretty rapidly.
I think the future is bright for this industry. I'm not going to put a number on it because prediction is a fools game. I think the kind of growth we have seen so far, it is going to accelerate.
What are the challenges for Kazi Foods Industries? What are the challenges for the overall sector?
Tanvir Haider Chaudhury
Any business that depends on a cold chain infrastructure is a complex operation. People are still getting used to the fact that there is a certain range of temperature that needs to be maintained when it comes to frozen food or ice-cream. If you don’t maintain the temperature within that range, product quality suffers. If you do maintain that's actually cold for a long period of time. Not many superstores are excited about that in Bangladesh.
While some of them maintain temperature range and other requirements, a lot of them don't. Consequently, we hear complains about the quality of our products. People don't understand that we have very little to do once products are supplied to the superstores and distributors. If it is provided in a proper condition to the distributors and outlets, then it is up to them to maintain the cold chain properly. If that does not happen, that's a major issue. Sometimes quality suffers. There is a lack of awareness here.
Then comes the distribution. You need refrigerated vehicles that maintain temperature properly. Various companies are developing their own cold chains in Bangladesh. This is a unique thing for our market. In nowhere in the world, it is an efficient way of doing (this) business. Generally, what happens is that there is an existing cold chain infrastructure that you leverage on. You rent services from that infrastructure. But we are in a situation where that's not happening in Bangladesh and different companies are trying to develop their own infrastructure, which is expensive.
That's an opportunity to explore then. That someone can come in and build a cold chain infrastructure and make money by renting it out. Or you can build it for yourself and also rent it out to other companies something like Amazon Web Services (AWS).
Tanvir Haider Chaudhury
That needs to be done in a more coordinated way. If certain cost is incurred then it makes sense for us to provide the service to other companies as well as they come and share the cost. There are these things to be considered. They are very basic things.
Then power outage is an issue. There has been a major improvement in terms of power. Still, there are power outages across the country. People are not sometimes aware of the requirements for keeping the products in proper condition. I have seen in markets/shops where retailers when they go off at the end of the business day they turn off the power. The freezers sitting right there stocking ice cream. They turn off the power thinking it's cold enough and it will be okay when they return the next day. But when they return the next morning, product quality suffers. Because ice cream melts and then they become frozen again. That's a horrible way to run cold chain business. Still, a lot of people are not aware of that.
What are other opportunities you see in the market apart from the things that you are already doing? How do you think about using technology in making distribution efficient, and in product innovation?
Tanvir Haider Chaudhury
We have branched out into a handful of things. We are into dry fish now. We do various kinds of dry fish, which is not, of course, a frozen product. Our process is we dry our fish in-doors in a solar oven so there is no need for DDT or anything because there is no insect.
I think there is a huge opportunity in frozen vegetables and fruits space and things like that. If you could build a strong brand, it should do well. Because people are conscious about preservatives nowadays and a growing number of people are turning towards healthy, organic vegetables and things like that. Fruits and vegetables, in terms of both export and the local market, is a big thing.
The challenge would be convincing people to pay extra for branded things because branded things are always going to cost more than non-branded things that are available at the corner shop. So why would a consumer be paying that extra money? You have to give a good reason for that. We have branded eggs but they cost more than regular ones. Do people accept the fact that this is worth paying more for because this brand means something? Kazi Farms Kitchen has been able to establish the fact that it represents certain values, it represents certain assurances, it gives you peace of mind that certain items not being compromised, so people are often willing to pay extra for that. So building strong brands that stand for something is an opportunity.
What does it take to build a frozen food business from scratch?
Tanvir Haider Chaudhury
Not compromising on what you want the brand to stand for. For example, for our chickens, we have promised that these chickens are raised on feed that does not contain any MBM, meat bone meal. That's a difficult thing to do because you have to ensure different sheds where chickens are reared on grains. There are debates about how harmful it is but we say that we don't put any tasting salt (monosodium glutamate) in it. So we make sure that we don't do that.
We ensure that there is zero antibiotic residue in our products. That is a difficult thing to do because the regular practice is you use antibiotic injections on chickens. As a result, people are consuming a lot of antibiotics without even knowing it, which is a dangerous thing. It is a major concern across the world. It is causing antibiotic resistance. So we have taken a strong stand on these things in order to build trust in the market.
What I'm getting at it is, you have to have some differentiating factors and you have to maintain that religiously. When that happens and you communicate that, then people start trusting you.
Note: This interview was conducted in October 2018