Licious wants to cross the road. But it risks getting cooked.

At a time when they have grown accustomed to placing orders online and getting all their needs delivered to the doorstep, the vast majority of India’s carnivores steadfastly continue to buy their meat and seafood at neighbourhood outlets. Like Geetha, they have little interest in shopping for their animal protein online.

And so, despite the emergence of direct-to-consumer (D2C) online retailers such as Licious, Freshtohome, Zappfresh and Meatigo over the last decade, the offline trade still has a stranglehold over India’s $31 billion (an industry estimate) meat and seafood market, commanding a share of nearly 99%. To put that in perspective, the size of the online industry was a mere ₹2,500-3,000 crore, less than half a billion dollars, in 2023, according to Satish Meena, an independent e-commerce analyst and advisor at research platform Datum Intelligence.

While no data is available on its breakup today, a 2021 study by consulting firm Redseer reported that seafood accounted for more than two-thirds—70%—of the overall market, followed by poultry at 16%, and mutton at 11%. Pork and other items made up the rest. The composition is unlikely to have changed much in the last three years.

Within the offline segment, there is a small organized section comprising retailers of frozen meat such as Godrej Agrovet, Venky’s, Suguna and Nandu’s, some of whom also flog their wares online. The rest is made up of small chicken, mutton and fish vendors, who rule the roost. A new contender is now looking to alter the pecking order. Licious, a category creator online and the largest venture-capital-funded company in the industry, has waded into the wet market.

If you can’t beat ’em…

Over the last decade, online retailers have tried to disrupt the market with technology but most could not get a handle on the supply chain, manage costs or compete with the pricing that offline offers. Licious, however, survived and grew bigger, despite its slightly premium model.

Valued at $1.5 billion, Licious, which was founded in 2015 by Vivek Gupta and Abhay Hanjura, has raised a total of $490 million from investors such as Mayfield, Avendus Temasek and 3one4 Capital. While the company raised capital during the highs of the early adoption and pandemic-stimulated growth, there is a realization now that the kind of growth it needs to justify its valuation cannot come from an online play alone. Hence the decision to go offline.

Moving offline is the natural next step for the online meat retailer, say the founders. But they will have to walk on eggshells as they feel their way through the new terrain. The offline market is a fragmented, price-sensitive space, with the carcasses of brands such as Fipola, which had attempted to conquer it earlier, dotting the landscape. Even food-delivery giant Swiggy had to close its meat delivery business last year. So, can Licious, with its premium-priced products, succeed where others have failed, especially at a time when its balance sheet is under pressure?

The online meat retailer, which had reported 65% growth in 2021-22, was expecting its revenue to surge 120% in 2022-23 over the previous year to ₹1,500 crore; instead, it grew just 10%, to ₹748 crore. Licious’ losses for the period, meanwhile, widened from ₹485 crore to ₹500 crore.

In comparison, Venky’s poultry segment saw its turnover increase from ₹1,429 crore in 2020-21 to ₹1,752 crore in 2022-23. Meanwhile, Godrej Tyson Foods Ltd, which retails its frozen products under the ‘Real Good Chicken’ and ‘Yummiez’ brands, and also sells live birds in the market, reported ₹981 crore in revenue in 2023-24 as compared to ₹1,003 crore the year before.

Licious’ disappointing performance is a red flag for the prospects of the online meat delivery business in India. When Mint met with them at their office in Bengaluru, however, Gupta and Hanjura put on a brave front. “Covid has confused the state of affairs for everybody," said an exasperated Gupta, when asked if growth had plateaued. “Online was growing at a certain speed, then covid caused a surge in growth for everyone. Nobody knows if it was genuine growth or not. Post-covid, the numbers fell but remained higher than the baseline. People have overread this growth and decline."

The company has opened its first offline store in BTM Layout, Bengaluru, and will be opening three more by the end of this month, the founders told Mint. Reiterating that the pressure in the online business has nothing to do with their taking the offline route, Gupta said, “This year, we are not going to open in more than 20-25 cities. If I had that much pressure from the online business, I would have opened hundreds of stores, as I am still holding a lot of cash." The founders claim to have ₹800 crore in the bank.

Gupta added that the founders had decided earlier that they would go offline only after the online business had become sustainable. “We have picked up the offline battle this year because we are operationally profitable and by March, I think we should turn fully profitable in the online business," he said. But with the company’s losses at over ₹500 crore in 2022-23, full profitability in 2024-25 seems like a tall order.

In the March quarter, the founders claimed Licious had recorded a 12% growth in its revenue run rate sequentially and 22% year-on-year growth. Despite this decline from earlier levels, Gupta insisted that the company would continue to see 20-30% growth in the online business over the next few years.

Industry watchers have a different view. “The days of hyper-growth online are gone. Back then, it was just starting, so the base was low and there was 100-200% growth happening," said Ankur Bisen, senior partner & head–consumer, food & retail, at Technopak Advisors, an advisory firm. “I don’t see that growth happening anymore in the pure online business."

The idea

Gupta, a chartered accountant hailing from Chandigarh, and Hanjura, a biotechnology graduate from Jammu, were working in corporate jobs in Bengaluru before starting Licious in 2015. The duo saw a gap in the meat market and decided to start a business focusing on quality and hygiene.

Explaining the rationale, Hanjura said, “The nation, even back then, had learned how to put idli-dosa batter in a packet, chocolate milkshake in a packet…But meat, which is most susceptible to contamination, was still being peddled in the wet markets." By and large, the Licious founders observed modern trade, general trade, big business houses and retailers had never done anything in the category.

“There was a core product, there was a supply chain problem, there was tech involvement, and there was an e-commerce angle. The business has a lot to deliver to consumers and that was the opportunity we looked at," Gupta added.

Initially, the idea wasn’t to deliver online or take the D2C route. But Hanjura and Gupta quickly realized that if the product lost its quality by the time it reached the customer, there was no point. “We decided to take the product to the consumer. What helped us is the fact that the average order value is high enough for a last-mile delivery, which is why we became a D2C company," said Hanjura.

Today, about 45% of Licious’ revenue comes from the sale of chicken, 20% from seafood and 18% from mutton. The rest is brought in by the sale of eggs and ready-to-eat products. While the company has also been offering its products online through quick-commerce outfits such as Zepto and Swiggy Instamart, it has no plans to follow in the footsteps of rivals Godrej and Venky’s, which have been selling frozen food through organized retailers for years.

The online business is currently operational in 20 urban cities. Entering the offline segment will facilitate the company’s entry into tier 2 markets, where people may prefer offline first over online, said Gupta.

The offline bet

D2C companies across categories have been opting for an omnichannel strategy for new growth. “Offline becomes an important channel as these companies also have to grow at a much faster rate," said Datum Intelligence’s Meena.

“You have clusters where people are ordering online but that's about it. It’s a big market and there are supply chain challenges, perishability issues, traceability issues," added Technopak’s Bisen. “So, in clusters that are not ready, or not mature to handle online, offline comes in," said Bisen.

“There was also covid-induced growth because everything else was closed. But after that, everything is now back to normal and people have not changed their habits significantly. There's a cost angle and supply chain maturity angle to it. So, that's why multi-channel is what people have reconciled with," he added.

In an earlier interaction with Mint, Shan Kadavil, founder of Licious’ primary competitor, FreshToHome, admitted that the company has also been facing a slowdown in online growth. FreshToHome, too, is counting on the offline business and the export market, where it has just begun operations.

For Licious, offline is an adjacent business and a long-term play. “We are not doing offline in a hurry," Gupta emphasized. “About 10 years later, the ₹3 trillion meat market will be, let's say, ₹6 trillion. How much will online be? Let’s just say online is now ₹5,000-7,000 crore. After 10 years, it may be ₹50,000 crore, ₹70,000 crore or ₹1 trillion. Still, ₹5 trillion will be sold offline. Then what is our reply to that? I think that is the aspiration with offline," he explained.

A costly business

Tendercuts and Fipola are among the startups that couldn’t survive in the offline meat arena. Tendercuts was acquired by GoodToGo, another meat business, while Fipola shut shop last year. The co-founders of Licious believe these companies failed because they entered the offline trade too quickly, without a strong supply chain or model in place. Tendercuts and Fipola started as omnichannel players but struggled to raise additional funding amid muted investor sentiment.

Gupta also noted that the companies were much smaller. “We are such a known brand that when we open a store, the consumer response is very different," he declared. But capital expenditure and competitive pricing are challenges for Licious as well.

Running your own store is a loss-making proposition, said an industry executive, requesting anonymity. “There are certain businesses that feel they can make money, but profitability may not come because of rental costs. It will end up in a few stores being profitable," he explained. Storage/refrigeration to maintain meat and seafood at the right temperature and enhance their shelf life is another big cost for an offline chain. “If your margin profile is very tight, how will you justify the operational expenditure," the executive wondered.

Licious, however, claims to be well prepared. Gupta emphasized that the company is ready for its offline venture with the online intelligence, supply chain and other integrations it has built over the last nine years. “I have a full supply chain network in Bengaluru—factories, vehicles, dark stores. I don’t need to invest in any supply chain. For us, offline is just one more outpost of sales, I don’t have any other extra cost for this business," said Gupta.c

The founders added that Licious would leverage the intelligence gathered from its D2C business to drive decision-making in the offline business. “We have a highly scaled-up D2C business in each of these catchments, so we already know something about them," said Hanjura. For instance, he explained, if there are more Malayali consumers in an area, more fish varieties would be offered.

Pricing premium

Licious’ products are priced slightly higher than the same items in a local shop. Gupta justifies this. “It is not a premium—if you ask me, that is a cost of quality," he told Mint. “Every category that gets organized is at some premium. For example, if you check the rate of flour and the starting pack of simple Aashirvaad atta, it will be at least 30% more expensive. Only thing is, when those categories got organized, there were large companies doing it; here our company is fighting that battle."

The founders do not plan to lower prices at Licious’ offline stores. “The pricing has worked for us online and it will work for us offline," asserted Gupta. The company’s chicken products, for instance, are priced ₹30 higher than similar items in the wet market, he pointed out.

But the offline stores may end up cannibalizing some of Licious’ online business. “Offline is a very competitive pricing market. If you are opening a premium store, it will attract a premium customer. But that premium customer may already be buying from you online," pointed out an industry expert, requesting anonymity. “It may lead to a marginal improvement unless you change your business strategy to a mass market play to grow the customer base. But lower pricing (to target the mass market) may not work from the unit economics point of view."

Moreover, many of the local chicken and mutton shops offer home delivery, with weight and cut customized to customer requirements, and this will be a challenge for Licious’ higher-priced meat just as it is for the company’s online business.

Datum’s Meena agreed that pricing would be a big factor in determining Licious’ success offline. “Online you are not competing with anyone because you are niche. The customer is ready to pay the price premium for the comfort. But now you are fighting on pricing with the local players and fighting with the convenience of the quick-commerce companies at the same time," he said. Quick-delivery platform Zepto, for instance, has launched a meat brand, ‘Relish’.

Profitability chase

Co-founder Gupta said Licious was close to a 27% gross margin, which was not the case two years ago owing to the cost of the supply chain. Wastage is also down from 7-8% two years ago to 2-2.5% now and should drop to 1% by the end of this fiscal year, he said.

The founders hope to close this financial year with a monthly revenue run rate of ₹100 crore, against the current ₹78-79 crore. But a look at the books indicates that Licious has been burning money online, and as it ventures offline, it will need to make further investments and face more competition.

Gupta and Hanjura know there are many challenges ahead and do not want to count their chickens before they hatch. “It’s a learning phase for offline. We will not press the accelerator until we get the engine right," said Gupta. However long that takes, one thing is clear: the Licious founders will no longer put all their eggs in the online basket.