Failures are often romanticised in the start-up ecosystem and projected as a ‘learning opportunity’ for founders. However, there is nothing exciting about the process when a founder leaves a trail of unpaid salaries, vendor dues, and even lawsuits. Ask a former executive of meat delivery company Fipola, which wound up operations in February 2023 after failing to raise funds. “Fipola was expanding quickly and launching stores without understanding whether the bets were working. The segment is riddled with challenges such as high cold chain and real estate costs. When you raise funds from outside, you are expected to deliver returns faster,” he says on condition of anonymity. The company, founded by Sushil Kanugolu in 2016, shut down in 2023 after funding dried up. Its journey reflects the state of the online meat delivery segment where several D2C (direct to consumer) companies have shut shop after failing to raise funds.

According to data from start-up intelligence firm Tracxn, the companies operating in the segment raised $440 million at the peak in FY22. However, funding declined to $113.6 million in FY23 and $8.8 million in FY24. The number of companies founded is 289, of which 128 have shut down, says Tracxn. The stagnancy is visible across the segment. Licious, the top company which has raised $490 million (as of September, 2024) in over 12 rounds and is the only unicorn in the segment, has seen growth plateau. It reported a total income of ₹685 crore in FY24, a fall of 8% from ₹748 crore in the previous fiscal, according to filings with the Registrar of Companies. The company, however, reduced its net losses to ₹294 crore from ₹528 crore in the previous financial year. The segment has also seen consolidation of late. IPO-bound Zappfresh acquired Mumbai-based Bonsaro in August 2024. In July 2023, the company bought Bengaluru-based Dr. Meat. TenderCuts was acquired by New Delhi-based Good To Go in a distress sale. The company had laid off majority of its employees and shut operations in several cities before the sale.

According to Avinash Chandani, partner, Deloitte India, the overall meat industry in India is valued around ₹1.2 lakh crore. Of this, ₹25,000-30,000 crore is organised, comprising new-age meat delivery players, regional retail chains such as Nandus, Green Chick Chop and Zorabian Chicken and companies operating in supply chain such as Suguna Foods, Venky’s and Tyson Foods. With an eye on this ‘meaty’ pie, D2C companies promised hygiene and convenience of and found quite a few takers, especially when Covid confined people to their homes. While most companies in the segment (249) were started between 2015 and 2022, according to Tracxn, Covid gave them a major push. The companies raised $440 million (their highest) and $148 million in FY22 and FY21, respectively.

However, as the dust settled, most consumers went back to buying from local shops. “During Covid, there was a big spike in the number of consumers ordering online. We assumed this will keep us growing. But consumers returned to offline retail. That led to stagnation,” says Nishanth Chandran, founder of TenderCuts. Anticipating this, several companies launched physical stores, which brought another set of challenges.

Offline Gamble

Fipola initially launched three stores in Chennai and later expanded across Tamil Nadu, Karnataka and Telangana. The company, while raising its fourth round ($3 million) from FMCG veteran C.K. Ranganathan in March 2022, announced plans to become the country’s largest D2C omni-channel meat and seafood brand. It operated 65 stores then. The aim was to cross 100 in a few months and 250 by the end of 2023. By 2022-end, however, reports said the company has spent all its funds and owes money to several vendors, besides salaries to employees. It shut down in February 2023. According to the executive quoted above, the company has not cleared dues of several employees despite a legal notice. Fortune India reached out to founder Sushil Kanugolu for comment; he did not respond.

Several others also had plans to expand rapidly and launch stores across the country in 2021 and 2022. In March 2023, FreshToHome, which had about 30 stores, announced a plan to open 100 new stores. TenderCuts announced similar plans in October 2021. The bet proved to be expensive for most. Licious, too, opened its first store in Bengaluru in August and plans to expand to 25 stores by the end of FY25. On top of challenges such as quick perishability and shortage of cold chain infrastructure, the companies had to pay high rentals, especially as they opened some stores at premium locations. A case in point is Fipola’s store in upscale Banjara Hills in Hyderabad. “It does not make sense to have a meat store at premium locations. Thin margins and price fluctuation make it difficult to be profitable operationally,” says Narendra Pasuparthy, CEO of hyperlocal meat retail chain Nandus Chicken, which operates over 50 stores in Bengaluru and Hyderabad. Nandus is part of the six-decade-old Nanda Group whose mainstay is the poultry business.

Lack of control over the supply chain also makes it difficult for companies to control prices. According to stakeholders, most companies source chicken, mutton and seafood from large poultry farmer groups, who have been around for several decades. Suguna Foods, considered the country’s leading poultry company, reported ₹10,100 crore in revenue in FY24. Venky’s, another poultry major, clocked a net revenue of ₹3,738 crore in FY24. Venky’s was launched in 1976 while Suguna was founded in 1984.

New-age companies have stayed away from poultry farming as it is more capital-intensive than delivering meat. “Lack of control over supply chain means these companies are exposed to the vagaries of the poultry market and have to take a hit on margins even when prices are down as the consumer is not willing to shell out more,” says Pasuparthy. According to industry estimates, the chicken meat business has about 30% margins; mutton is a little less. Margins in fish are around 25%. Value-added products such as spreads command 45-55% margins.

Last-Mile Delivery

Online meat delivery has its own set of challenges, especially due to high last-mile delivery costs. “The average order value is not high. When you add last-mile delivery costs to the customer acquisition cost, the numbers do not add up,” says Pavangopal A., a marketing consultant and former chief marketing officer of Nandus. According to industry estimates, delivery over seven kms on a petrol bike costs ₹40-50. In case of electric vehicles, the cost is ₹25-30. Online meat delivery players charge ₹300-370 for one kg of chicken. “Consumers can pay only so much for a commodity, even though the industry has improved quality tremendously,” says Chandran.

Given the challenges, experts think building a national brand will be tough and time-consuming. “There is perishability. Also, cold storages require heavy investment,” says Ashish Dhir, senior director, consumer and retail, at market research consultancy 1Lattice. Most family-run businesses in poultry have deep pockets but have not shown willingness to venture into the consumer business. And investors who have funded D2C companies want businesses to scale up fast and give quick returns, making it difficult for these companies to stay for the long haul.

Only time will tell if the segment has the capacity to reinvent itself for staying relevant.