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17 Dec

A bit of better butter makes the bitter batter better.

Betty Botter bought some butter,
But, she said, the butter's bitter;
If I put it in my batter
It will make my batter bitter.
But a bit of better butter,
That would make my batter better.
So she bought a bit of butter
Better than her bitter butter,
And she put it in her batter
And the batter was not bitter.
So t'was better Betty Botter
Bought a bit of better butter.

Before refrigerators were invented, our ability to store foods was limited. We would buy only as much as we’d need for a day or a part of the day.

Fruits, vegetables, meat, and dairy — any food we consumed had a limited life before it would rot and become unfit for consumption. And perishability was one of the biggest reasons why we didn’t consume more than what could be stored or saved.

Refrigerators changed how perishability was defined. They relaxed the major constraint of squeezing the entire supply chain — right from sourcing and manufacturing to distribution and consumption — within a span of 2-3 days.

Now, producers did not have to worry about excess inventory going bad if not consumed within a day or two. They could focus on increasing production and scaling up as inventory preservation was now a solved problem, as long as retailers also had refrigeration facilities.

And as P C Musthafa, (CEO and Co-founder of iD Fresh Food) would find in 2015 trying to deliver the Betty Botters of India their batter, this wasn't an easy constraint to solve for.

“Back in 2005, we used to get idly dosa batter in a plain pouch with a rubber band on top. This batter had all sorts of quality issues and service complaints. And that’s when we thought of trying to fix the problem ourselves. So, we started from a 50 sq. ft area of the kitchen. It was not an easy job as it took us 9 months to sell 100 packets a day, and it took us 9 months to get 20 customers. But once we had these 20 customers and were selling 100 packets a day that gives us confidence. And that’s how it started.”

— P C Musthafa

In 2005, when iD first started selling just one product, it observed that if it sent 100 packets of batter to the market, 90 would come back unsold.

By the third year, they were selling about 3000 kg of batter every day, and about 25% of it would be unsold or returned. This amount of wastage directly threatened how scalable the business could be.

For iD, it wasn't enough to be a fresh-food manufacturing business; for success, it had to think of itself as a fresh-food distribution business as well.

The number of returns and unsold inventory became the inflection point for the company and they decided to switch from established distribution to building their own delivery team.

After building their own delivery team, they zeroed in on the stores that kept refrigeration on throughout the night. They discovered that only 12000 of 65,000 retail outlets in Bengaluru did so. In order to reduce spoilage, iD decided to place their products only at these 12000 stores.

The logic was that the business otherwise did not have control over how delivery took place. Once produced, the retail store's refrigeration decided if the product reached the customer without getting spoilt. But the end consumer did not care if the manufacturer was responsible or the retailer was. All they cared about is that they were being sold a spoilt product.

Perishable goods get wasted in two ways: either the commodity is rotten over the course of transfer within the supply chain or there is a market glut, and more quantity than can be sold is supplied. In either case, the consumer doesn't care. But the producer has to.

For iD, how the retailers stored the product became equally important as the product quality itself. Because what good is even an exceptionally good product if it gets spoiled by the time it reaches the consumer?

To fix this issue of scale to sell in more than 12000 outlets, iD, with the help of its delivery team, used geotagging of every store. This ensured that whenever its salespersons were out in the field, they didn't miss out on any store. The geotagging system also helped salespersons to take the most optimal path and sequence to cover all stores in a given area.

In combination with geotagging, iD started using SAP's Enterprise Resource Planning (ERP) system to capture supply and demand data. Currently, it uses data over the past 8 years to intelligently predict supply and demand for the very next day — the exact quantity that will be sold at a store tomorrow and supply only that amount, thus successfully tackling the problem of wastage.

"Most supply chains go from factory to warehouse to store and it takes 10-15 days. However, we manufacture our products overnight and deliver the product next morning. So, to crack this segment you need to have a unique supply-chain to enable delivery of fresh products."

— Rahul Gandhi, iD's Chief Marketing Officer

In essence, for iD, arriving at process-market fit was arguably even more important than arriving at product-market fit.

And I think it holds some good insights into how changing consumer demands can push businesses to innovate on newer axes.

Perishability is not new. The problem has existed since we realized what rotten food can do to our bodies. Refrigeration resolved this issue for households and manufacturers. But a lot of local retailers still did not have 24x7 refrigeration facilities.

Consequently, FMCG businesses solved for it by making processed foods that didn't spoil easily, and loading them with preservatives.

But with Covid-19, consumer demand for freshly produced and delivered products increased significantly, along with a demand for organic foods free from harsh chemicals or preservatives.

Trying to make idli dosa batter last longer on shelves by loading them with preservatives wouldn’t have helped iD.

To build a brand that was trusted and accepted by health-conscious consumers, the only option was to innovate on the delivery process axis. Their promise was fresh delivery of batter and to service that claim they perfected a process that solved for product shelf life, without messing with the product itself.

This brings me to an insight that I've written about before.

As a business, you let your final value proposition to customers shape your constraints, versus letting constraints shape your final value proposition. The former leads to more creative solutions and optimizations while the latter is a competitive race to the bottom.

By not going for the low-hanging fruit — the processed food route — iD not only made a better product but also ended up creating a highly defensible moat in the form of its intelligent delivery system.

And the success of any business finally hinges upon this:

How creatively and efficiently it delivers its unique value proposition to its customers; how it doesn't allow unsuitable market constraints to constrain its product and creatively innovates around them.

A bit of better butter makes a whole lot of batter better for millions of Betty Botters.

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