'We want to make the agri supply chain efficient through tech' an interview with Jehanzeb Nasir Chaudhri, founder Mandiexpress.pk

In the age of digital disruption, the possibilities for young tech entrepreneurs are endless. Though late to the game, Pakistani entrepreneurs have not been short of ideas. Some have worked, others faltered, many going out of business as rapidly as they came in. But of all the e-commerce ideas, selling fresh grocery online may be the trickiest-it has the biggest potential given the sheer size of the agriculture industry and the demand coming from Pakistan's burgeoning markets, but despite facing virtually no online competition, it is also the most difficult to successfully take off the ground and keep gaining market share. BR Research sat down for quick chat with the young founder and CEO of mandiexpress.pk, Jehanzeb Nasir Chaudhri to determine what the business model is, and how he is tackling this mammoth task four-year down the line since the launch.
Jehanzeb has a Bachelor in Economics and Communications from Lake Forest College with a Master in Data Science from the Institute of Business Administration, Karachi. He started practicing farming in his backyard as a hobby after spending three months in the rainforest of Maui Hawaii learning permaculture and organic farming. Following are edited excerpts from the conversation.
BR Research: Tell us how you founded mandiexpress and what was your motivation behind it?
Jehanzeb Nasir Chaudhri: I was studying in Chicago when I found out about this program called the Worldwide Organization for Organic Farms (WWOOF). I had no inclination toward selling sabzi or getting into agriculture before, but I joined this program in Hawaii for three months at an organic farm and the experience completely changed me. I went on a macrobiotic diet, which is based on organically grown whole grains and vegetables. Within a month, my body started to detox itself; I had immense energy. I realized that this is what I want to do in Pakistan. I started experimenting in my backyard with organic farming and after some success, I wanted to scale it; however, after talking to some farmers, I realized that I needed to go in another direction.
My next stop was the mandi. The mandi is a chaotic marketplace. There are about nine intermediaries between the farmer and the end-user customer-a product that a farmer sells for Rs 10, eventually reaches the consumer at Rs 100 with the middlemen collecting most of that revenue. And that's how the idea for mandiexpress was born. I thought before I could do any organic farming myself, I should create a platform where I can connect the farmer directly to the consumer, which could be done best with an IT infrastructure and data science backing it up.
BRR: Did you raise any funds?
JNC: Initially I financed the project myself since there were no investors willing to put money in a new idea with indeterminate returns. I was running the operations from home. In August 2015, we were incubated in Nest I/O, and I found a partner, Danyaal Balkhi who could come on board with me. We rented out a small place where we were delivering 120 orders day. We were then able to get an equity investor, but even that was not enough. This is a very capital intensive business.
BRR: Explain to us how the business model works?
JNC: We use a just-in-time model, which means, if a customer places an order today, he will get the delivery the next day. We aggregate all the orders overnight, our team at the mandi and at other various procurement points, purchase the orders that get delivered to us from 5am till noon, and we subsequently deliver to our customers after an in-house quality control check. This is also the main difference between any other vendor and us. For the sabzi wala or a retail store, the produce may be laying in inventory for days. When customers buy from us, it is a much shorter chain: from farm to mandi, and from mandi to us within a day. In some cases, it is directly from the farm to us, and onto the customer.
BRR: Walk us through the agriculture supply chain. Where does mandiexpress stand or hope to stand in that line-up? Do you want to replace the sabzi wala?
JNC: The farmer is in the middle of the village who links up with an agent. That agent links him to the nearest mandi where there is an arthi who is an auctioneer. His job is to auction and sell the produce in the mandi, which is typically bought by mashakhors who are wholesalers and day traders buying in bulk. The produce they buy will have all varieties in terms of size, quality etc. He will grade this produce, which he will then sell to retailers. This is the simplified version-there are other moving parts in the distribution network, which ultimately lead to the retailer that can be a sabzi wala or a big store.
In our operations, we work as both the wholesalers and the retailers. We have confirmed orders that we provide to businesses as well as households, something which the mashakhors cannot do, and to do this, we work with the arthis and in some cases the farmers themselves.
As to your other question, no we don't want to replace the sabzi wala. Our plans in the future involve partnering with the sabzi wala and in fact, it is the same for all the other links in the value chain.
BRR: What is your pricing mechanism?
JNC: This is an industry plagued with corruption. One of the largest markets in Asia feeds Karachi, which is the 6th largest population in the world. When you walk in the mandi, no one would tell you the price because they are playing on it. They size up the buyer and then give you the rate. Even the sabzi wala does that. So our costs fluctuate on a daily basis. We have a lot of tech that is working in the background. We have a mechanism by which we collect data on prices in the market, and based on that, we price our product and collect a pre-set margin.
On a micro level, price is dependent on the quality, and on a macro level, it is dependent on the supply-for instance, the price of tomatoes would depend on how many tomatoes landed in the mandi. But it is more complicated than that because within the same mandi, the same tomatoes can be priced differently based on the different auctions that are happening simultaneously. On any given day, there is no single price for a tomato. This is a data game.
In the more developed world, the farmer himself grades the produce, runs it through a quality control, brands his product, and prices it accordingly after packaging and weighing. In the wholesale markets, the buyer can pick the produce without having to sift through it. That is what we are trying to do.
BRR: What are your margins for different produce: vegetables, fruits, etc?
JNC: Our costs as I explained earlier vary; and we fix the margins taking into account the perishability, quality and volume. Typically, higher margins for highly perishable produce like lettuce because in that equation we have to consider wastage.
BRR: What is the share of produce that goes into waste for you compared to the industry?
JNC: For us, it is less than 0.2 percent, but the industry average is around 40 percent-from farm to the table. The reason is that we are on a just-in-time model. A big retailer based on the daily footfall procures the goods and hopes to sell it. We have confirmed orders before we go into procurement.
BRR: But can you continue with the same model at scale? Wouldn't you eventually need to build inventories?
JNC: We can easily scale it. We have a hybrid model in which we purchase from the farm directly, from arthis and from the mashakhors based on the volumes. Tomatoes and onions, which are typically high volume produce, come directly from the farm. The advantage of buying from the arthis is we can get the orders in bulk and the advantage of buying from mashakhors is that it is pre-graded.
BRR: Where is your demand coming from, and what is your customer retention?
JNC: Primarily, its young working professionals between the ages of 24-40. On a daily basis with orders of 100-150 orders, we have about 80-90 percent people who keep coming back. About 40 percent are probably in the Defence/Clifton area; 25-30 percent are in the more central locations like Bahadurabad and KDA.
BRR: Your produce online is more expensive than retailers including the sabzi wala. How do you justify that to an average customer?
JNC: I'll give you a supply chain example. The mandi starts at around midnight and the auction begins at 1:00 am and between then and 3:00 am, the mashakhors grade the produce. The peak buying is being done soon after the grading where the mashakhor is selling to retailers. The best quality produce is being sold at that time. By 5:00 am, the best product has already left the mandi, bought by exporters, hotels, and us. This is where the sabzi walas come in who purchase after 5:00 am onwards. The price goes down as the produce gets older, even by a day. That makes the difference between our price and the sabzi wala's price. But yes, it is hard to explain to a consumer that we are providing the best quality produce.
BRR: How do big retailers price their produce?
JNC: They have a smart system in place. The prices of tomatoes, potatoes and onions are the price indicators. They will make sure that the prices of these goods are low. But they will hike up prices of goods that the customer wouldn't have prior knowledge about, such as turnips. Fresh produce for them is a magnet. It pulls customers in and it has a very high buy-back--when they are coming to buy that cheap tomato on discounted prices, they end up buying other things.
BRR: At 150 orders a day right now, are you ready to scale or are you happy with your current customer base?
JNC: We don't want to do what others have done and failed. I have seen nearly 20-30 e-commerce companies hoping to do the same. But they came in, put a lot of money in, tried to scale fast and failed. Our vision is to provide a quality product and educate an average customer about the quality of food they are purchasing. We want to slowly grow with the demand to stay in the game.
BRR: But your current demographics show your customer base is concentrated in the high income areas. Is that the only market you want to tap?
JNC: It depends on how you think about it. We may not be supplying the produce to the houses across the city, but we are supplying to many sabzi walas in Karachi, which ultimately reach different income households.
BRR: Some believe that a major problem in the agriculture system is the existence of arthis. Farmers are cash strapped, arthis provide them with credit at sky-high interest which can go up to 150 percent, and they also get 80 percent of the profit earned on the produce they purchase from the farmers. So if you are working with the middlemen, are you really solving a problem?
JNC: In Pakistan, people don't like change. To change something, we have to start with baby steps. My goal, as I told you was to sell organic produce. It took me 4 years to build that customer base to be able to procure organic produce and sell it. When we started, we were primarily buying from the mandi and we had 1-2 farmers. Now we have about 20 farmers. We are slowly building a database; we are surveying different markets, and creating a network across the country. As volumes go up, we can work with more and more farmers.
BRR: But can you even go to the farmer directly? They rely on arthis for credit. How can you eliminate that important step?
JNC: There are many equations to this. One is that farmer doesn't have the funds. The arthi provides credit to a farmer in the form of inputs etc. and when the output comes, deducts the amount from that. Another equation is, they lend the money to the farmer, and whatever output the farmer produces will be bought by the arthi. A good farmer will get out of this cycle. He makes enough money because of the quality of his produce. Better quality is auctioned at higher prices. We have certain sympathy for the farmers but not all of them are the same. There are some farmers that are selling their produce at three times the price I am buying that produce at the mandi. What we are trying to do is connect with the farmers and ensure a good margin for them, but we seek good quality produce from them in return. We also direct them toward where the demand is.
As we are growing, we want to facilitate the entire value chain through technology. Our way forward is where we partner with all the players and regulate the system in the long term, rather than remove any from the equation.
BRR: Would you agree that poor marketing is a greater problem for Pakistan's agri exports than pricing and availability of inputs?
JNC: It is neither. The problem is of information sharing. People don't have the basic knowledge about how to export, they don't know about certification, regulations, export requirements etc.
They are mostly unbanked. Marketing will come after knowledge.