Is starting a Cold Storage business in India profitable?

Are you considering setting up a new cold chain business?

Now is the time! Retailers, restaurants, hospitals, florists and others use cold chain facilities to keep their products and goods safe during storage. Generally, in this business, the initial investment is higher compared to other small businesses. However, this type of business ensures a constant return on a long-term basis.

Cold storage is a profitable business both in developing and developed countries.

You will find two different types of cold storage according to the storage facility. One is specific for one product (example potato) and another is multipurpose.

However, multi-purpose cold storage ensures better returns and profitability overall.

Crisil also expects the cold storage industry to grow at a CAGR of 13–15% over fiscals 2019–23, mainly driven by rising demand for processed food, fresh fruits & vegetables, seafood and bio-pharmaceuticals in exports markets.

Need for Cold Storage

One of the major problems that Indian farmers face in selling their produce is storing and dispatching it at an appropriate time. Farmers/Food processors face difficulty in finding cold storage near their farms or proper cold supply chain to get their products from farm to market in proper conditions and stipulated time frame. When there is excess production, there is also a glut in the market and prices come down to unreasonably low levels. To get better prices, farmers must move produces to large consuming areas.

The major consuming areas are big cities and food processing industries that are usually thousands of miles apart. However, moving agricultural produces across the length and breadth of the country or exporting with limited Cold Chain Logistics is not a simple job. Raw produces are usually perishables and must be preserved until it is time ripe for realizing better prices or moving it over long distances. Additionally, changing lifestyle and demand for processed or packaged food is creating the need for cold storage solutions globally.

Investment Cost

The initial investment is definitely high in this business. Generally, the investment includes acquiring the land, building construction, obtaining permissions and licensing, arranging utilities like water, electricity, etc. Additionally, you will need to invest a major startup capital in procuring the cooling machinery. Generally, modern and updated machinery ensures better performance and long-term sustainability.

Craft a Business Plan

Starting a cold storage business demands strategic planning and careful implementations. Therefore, crafting a business plan or project report is the most important aspect of starting this business. According to your investment capacity, you will need to decide the business size. Additionally, you must have financial planning with a projected ROI and payback period. A business plan helps you in numerous ways. It helps in commencing the business properly, getting finance and ensures smooth operations.

Secure an Ideal Location

If you already have a building in mind, then you will be able to jump right in on the fun stuff, like how many units you will have and what kind of cooling system you will use. However, if you have not yet decided on location, you will want to make this a priority. Targeting a specific industry for your cold chain facility is a great way to start and could help you determine your ideal location. Location plays an important role in this business. You must secure a location either near the producing farms or consumer centers. Because you must cater to the local produce for your warehouse. Additionally, you will need to procure an approximate one acre of land for a multi-purpose/multi-commodity cold storage plant of 5000 MT capacity.\

Clear the Paperwork

Generally, this business attracts different licenses and permissions. In addition, it depends on the specific location where you are starting the cold chain business. Additionally, check the upcoming compliances and tax liabilities also.

Investment needed

The cost and investment will largely depend on the scale of the cold storage unit. However, according to experts, the estimated project cost for setting up 5000 MT Cold Storage may be in the range of Rs. 3 Crore — 4 Crores in Indian Rupees. The cost of land is an additional investment you need to make.

Arrange for Loan from Banks

Cold storage is a capital-intensive business. You must have an investment capacity of 3 to 4 Crores for commencing this business. Generally, you can set up this business with financial help from banks. In addition, check if there is any subsidy or Govt. grants are available for this business in your District/ State. In India, the National Horticulture Board provides financial assistance for cold storage businesses for the entrepreneurs. To set up a multi-commodity cold storage of 10,000 tonnes capacity, investment of around Rs 20 crore is needed with a payback period of 6–7 years.

Build Infrastructure

The next step is building the warehouse and installing the machinery. Consult with an experienced architecture firm for planning and building construction. Get the quotes from the reputed machinery suppliers. Choosing the right machinery is an important part of the overall performance of the store. In addition, check the price, customer feedback and guarantee periods. Ask the machinery supplier for on-site training. The current cold storage capacity in India is pegged at 37–39 million tons (MT). According to official statistics, there are about 7,645 cold storages in the country with 68 per cent of the capacity being used for potato, while 30 per cent is multi-commodity cold storage.

Promote your Cold storage

The overall success of running cold storage comes from the right advertising and promotion. In addition, you must start the awareness campaign when you start to build the store. According to the products, you want to accommodate, identify the target demographics.

Target segments include supermarkets, wholesalers, and warehouse companies in urban as well as electrified villages. In this business, your target audiences will be the growers, producers, retailers, distributors, exporters, etc.

Cold Chain Logistics- Changing scenario

This section summarizes the current state of cold chain logistics in india and changing trends to be followed for starting profitable cold storage business. This is based on extensive ground research by GWcold team including talking to all stake holders of Cold chain business in india.

1. The required capacity for cold storage in India is an estimated 350 lakh tonnes(lt) with current cold storage capacity standing at of 226.7 lt and a capacity of 53.55 lt was created under different schemes in last 5 years according to official sources.

Approx 49% of India’s total cold capacity is in uttar pradesh and almost 80% concentrated only in 7 states of india.

Figure 1: Cold Storage in India Infrastructure published based on NCCD data.

2. The agricultural commodity like potato has major occupancy of the cold storage across northern India. Now the trends strongly suggests development of multi product cold storage facility to increase occupancy and profitability.

3. The traditional cold storage with RCC buildings are now replaced by PEB structure facility with multi layer racking facility thereby exploiting the vertical space.

4. Highly mechanized docking system and insulation panel to reduce energy loss and increase efficiency.

5. Advance material handling and storage system fork lifts, BOPTs now being used for efficient handling experience.

6. Increase usage of software technology advance WMS system further adds to tractability and efficiency in cold chain logistics.

7. The frozen chamber capacity across India has seen huge growth thereby helping to promote meat, poultry and specialized chemical market.

8. The government of India has been helping to augment considerable boost in the cold storage development through its subsidiaries like MDH, NHB,NHM,MOFPI,APEDA,RKVY.

New Cold Storage set up- An Alternative approach

GWcold team during its research came across multiple cold storage which were up for sale or their owner wanted to give it to some other party on long term lease to operate. Our team has received various such inventories of Cold Storage complexes with multi temperature control facility in cities like Mumbai, Hyderabad, Dehradoon, Bhubaneshwar,Kolkata. This provides a rare and very good opportunity for investors or companies looking to expand and invest in green field projects in new locations. Our recommendations is to to test the market by refurbishing these cold storage units and check the viability before setting up the green field project. This would save cost and more importantly time to set up a new facility.

Contributed by GWcold Team

GWcold is storage and supply chain solution platform by godamwale dedicated exclusively for Cold supply chain. It provides end to end cold chain solutions (Storage, distribution, inter/intra city cold chain transport) across India for both short term and long term requirements.

For queries on this article or any business needs contact on info@godamwale.com or log in to www.godamwale.com