Naturals Ice Cream And The Summer Of Covid-19
I bear good news. For fans of Naturals’ mango ice cream. It’ll be available in approximately two weeks. Yes, it’s late in the season, but the handcrafted ice cream maker, a Mumbai favourite, has reached out to farmers to source late season varieties.
Unfortunately, the other two bestselling flavours—lychee and kala jamun—are unlikely to be available any time soon, for reasons detailed later in the story.
On mango then falls much of the burden of pulling the company out of a revenue freeze.
Naturals shut all production and sales in mid-March when Maharashtra state imposed a lockdown, just days before the national one. By mid-April the central government permitted manufacture of milk products, but on discretion of states. Maharashtra, with the largest number of virus patients, issued guidelines for large-scale resumption of economic activity just a few days ago. Naturals has applied to restart its Mumbai factory, the only one it has. Only when that happens can the company consider reopening its 132 outlets across the country, mostly located in Maharashtra and south-west India.
We’re hopeful of starting cleaning and sanitising operations by Monday (June 8), after which it will take a week to fully operationalise the factory, said Srinivas Kamath, son of founder Raghunandan Kamath and director at Kamaths Ourtimes Ice Cream Pvt., the company that owns Naturals.
The factory employs close to 150 workers, mostly from nearby areas but some have returned to their homes elsewhere in the state.
Naturals will be reopening at a time when demand is usually at a seasonal low. As the monsoon covers India, ice cream consumption drops by a third, depending on the region, according to Kamath. Add the Covid-19 factor and he estimates demand in the next 3 months to drop 60-70% over last year.
As for the rest of the year, there’s no way to tell yet. But, it’s got to be better than the summer gone by.
March 15 - June 15 is peak ice cream season in India.
An entire summer has been lost, taking with it 40% of the company’s over Rs 160 crore annual revenue and leaving behind 56 tonnes of expired inventory. That’s over Rs 61 crore lost.
Thankfully, in early March itself the company started reducing production as the virus fear spread and demand waned.
It takes three days for an outlet’s order to be fulfilled by the factory. But unlike other packaged ice creams that can be sold for up to 3-6 months, Naturals, made mostly from fresh, natural fruit, has a limited shelf life of 15 days. That’s a blessing and a curse.
The short shelf life means lower raw material and finished goods inventory. That resulted in lower losses when the lockdowns kicked in. But now as the country reopens, Naturals will lose about two to three weeks in restoring supplies to its outlets.
15 of the stores are owned and operated by the company. 117 are franchisees. Of those 70% are self-owned properties and they seem to be tiding over the crisis. Those running ice cream parlours using leased spaces have had to defer rent payments by two months, Kamath shares. They are impatient for business to restart.
So are Naturals’ suppliers—milk and fruit farmers. Milk constitutes 80% of the company’s raw material, and the farmers it sources milk from are mostly dependent on the ice cream company. By February-end, they had been paid a 3-month advance to source more cattle, purchase fodder, book labour etc. But when it came to buying the milk, Naturals had no use of it. By then its factory, outlets, online sales had all shut down. Kamath says the farmers were able to find alternate buyers but at much lower prices. Fruit vendors also had to look for other customers. But now business conversations have resumed—and mangoes are on priority order.
No Scoops For Now
Naturals’ USP is that it’s artisanal ice cream. Handmade. Not entirely of course, but there is considerable manual labour involved compared to other brands, Kamath explains as he details the production process.
The milk is received in closed containers and processed in boilers to convert it into a thick malai (cream) base. That part is mechanised. But the fruit is sorted manually. Peeling, cutting, pulping is mechanised for some fruits like mango. But delicate fruits like lychee have to be peeled and pitted by hand. Once the ice cream is churned in machines, it is hand-filled into containers. “There is no filling machine in the world that can fill our ice cream. Because of the fruit chunks and air density of 20-22% (it’s thick ice cream),” Kamath explains. That’s why Naturals sells ice cream by grams not litres.
The brand line is “purposefully slow”. This manufacturing process is what gives Naturals ice cream its distinctive flavour. “If we mechanise it, we’ll be cheating consumers as there won’t be any fruit chunks in our ice cream,” he says plaintively.
Yet, customers will have to be reassured at a time when ‘handcrafted’ is less a badge and more a blemish. Kamath, in charge of marketing and retail at the company, has plans to showcase the production process and safety measures in outlets and on social media.
He intends to make two more changes.
No scoops in the near future. The ice cream will be sold only in sealed 500 gm packs, via outlets and through delivery apps such as Swiggy and Zomato. He hopes to soon introduce 250/300 gm packs as well.
Limited flavours on the menu. To begin with Naturals will retail eight flavours*. These have been selected keeping in mind seasonal fruit, that does not have to be peeled by hand, hence no lychees. And some year-round favourites.
“We’ll wait and watch for a month and see how purchasing patterns change,” says Kamath. He’d prefer a ‘happy crisis’ situation—make limited amounts and be sold out than have goods leftover.
Founded in 1984, Kamath Ourtimes has relied on promoter funds and bank debt to grow, there are no external investors such as private equity. As on December 2019, Crisil rated the company’s total bank facilities of Rs 48 crore at A-/Stable. Current outstanding term loans and working capital lines are at Rs 23 crore, Kamath says. The company hasn’t yet taken a moratorium on the loans. But, if June goes badly as well then we may consider it, he adds.
The recently expanded definition of MSMEs (micro, small and medium enterprises) has prompted Naturals to also consider availing of some of the government’s relief schemes—for instance the collateral-free government-guaranteed loan scheme.
But what would help more is a reduction in the goods and services tax rate of 18% versus the 5% and 12% that apply to other dairy products. Kamath says that’s been a long-standing industry demand and could help ice cream makers like him regain the 30% per annum growth witnessed in recent years.
In 2019, the ice cream and frozen dessert market stood at $2.3 billion, according to data by Euromonitor International. A handful of brands such as Amul, Kwality Walls, Mother Dairy, Baskin Robbins, Vadilal top the national market share league table, though individual shares are not published. Regional markets are vibrant with mid-sized brands like Cream Bell, Havmor, Naturals, Top n Town. At the bottom end of the market are many tiny local brands and unbranded vendors.
Despite the competitive intensity there’s room for expansion—according to one report, each American consumes 22,000 ml of ice cream in a year, that’s 55 times India’s per capita consumption.
‘Anything Is Possible’
In 2018, Naturals launched a rebranding exercise (It was earlier known as Natural) and set itself the goal of doubling store count and growing revenue to Rs 500 crore in five years. This year we opened 12 outlets, the most in any year, Kamath says with pride in his voice. The company’s retail network has grown from 40 outlets to 132 under his watch. But Naturals is now reconsidering sole reliance on outlet sales—in case a pandemic resurgence forces ice cream parlours to shut again. A previous attempt at stocking with hypermarkets wasn’t very successful, due to the brand’s short shelf life. We are mulling over flavours and variants that can last longer, so that we can also sell out of ordinary retail stores, Kamath says.
What else has this crisis taught him?
That “anything is possible”, says the law and business management graduate who joined the family business in 2009. That was when the global financial crisis was roiling the world economy. People used to joke that ice cream is recession-proof, consumers love ice cream in a crisis, Kamath reminisces. Maybe, not in this one.
Unless they change their minds when they see their favourite flavours return.
*Naturals Limited Menu For Reopening
- Roasted Almond
- Choco Bite
- Plain Malai
- Malai Korma (a best seller during Ramzan, back on popular demand)