$32 Billion Opportunity Discovered by The Thai Startup: What is The Recipe for Building a Scalable Business?

Jinny Kim

January 29, 2024

In this article, we talk about Freshket, a startup that is revolutionizing the food business market in Thailand.

Freshket operates an online marketplace that connects farmers, food suppliers, and restaurants. By applying technology to the business of delivering perishable food products, the startup has simplified the supply chain and increased trading efficiency. This has led to increased income for farmers.

‍

‍

An opportunity spotted while chopping cabbage

According to an report, Thailand's food service market is worth more than $32 billion in 2024, and is expected to reach $47 billion by 2029. That means there's plenty of room for Thai food startups to grow.

One of the fastest rising startups is Freshket, which was founded in 2017. Its potential was recognized in 2022 with a Series B investment of US$23.5 million.

Ponglada 'Bell' Paniangwet, CEO and Co-Founder of Freshket, was raised in a family that worked in agriculture for 25 years. Later, she started a food processing center with a friend, sourcing fresh produce from wholesale markets, cutting and processing it at the center, and delivering it to restaurants.

Paniangwet realized the need for a fundamental solution to disrupt the agricultural sector. She couldn't keep up four nights a week to fulfill orders for 10 customers.

The biggest problem with Thai agricultural supply hinged on the fact that the ecosystem was fragmented. Farmers struggled to find buyers for their products at the right price, and distributors had their own food warehouse and delivery practices. Restaurants and hotels in need of quality ingredients had to find what they needed from independently operated suppliers.

So Ms. Paniangwet came up with the idea to streamline the entire process of how fresh food is produced and delivered to customers. She teamed up with her co-founders. They started by opening a Freshket channel on Facebook to gather participants. Within 48 hours, they were able to connect with 500 restaurants and 100 food suppliers. It was a moment when they recognized the potential of their business idea.

Five years later, Freshket has evolved into an online distribution platform that allows diners to select fresh ingredients online, and then orders are placed through its own supply chain to the farmers and suppliers who meet those needs.

‍

(The startup has progressed from a small founding team to a company with over 100 team members. Source : Freshket)

‍

Why startups are building logistics infrastructure

In an interview with TechCrunch, the CEO explained that Freshket wanted to be "an enabler for the entire food supply chain". But it started out a little differently than it is today.

Originally, Freshket started as a B2B online business, an online marketplace that replaced the middleman and connected food producers directly with food demand.

However, the company soon realized that this business model had its limitations. For example, when a restaurant wants to buy tomatoes, they don't place an order to buy one tomato from 10 different farmers. They just want to get the best quality product at the right price.

On the other hand, small and medium-sized food suppliers can't handle both real-time delivery and quality control. This means that simply connecting supply and demand online doesn't solve the problem of fragmentation in the fresh food supply chain. The mechanisms were different from those of traditional e-commerce.

So Freshket pivoted 10 months after launch. They kept their online marketplace, but focused on building a supply chain to source and distribute fresh products directly from farmers. They acted as an aggregator for premium restaurants, hotels, and more. In an interview with MasalaThai, the CEO explained their strategy as an "upstreaming* strategy."

*Upstream: If the industry that makes products used by end consumers is classified as a downstream industry, the business that mainly makes materials for those products is called upstream.

Freshket's previous strategy of focusing on increasing the amount of food suppliers as an online platform has also been revised. Instead, the company reduced the number of suppliers from 100 to 35, while ensuring the quality of the products and reducing the complexity of delivery. In doing so, Freshket actually boosted farmers' profits. This led to a virtuous cycle where farmers focused on producing reliable products.

‍

A bold decision to pivot to B2C in 24 hours

COVID-19 was a huge crisis for Freshket. In 2020, the first lockdown in Thailand was imposed and every restaurant on the street was closed. 80% of Freshket's total orders were canceled. For a B2B business, that's a death knell.

So Freshket launched a B2C service within 24 hours. The company quickly opened a service to take grocery orders from individual consumers. Consumers who were stuck at home due to the pandemic wanted to order groceries online and stock up. And since the B2C business is cash-centric, it was easy for Freshket to secure cash flow.

Of course, pivoting from B2B-only to B2C wasn't easy. It was costly. B2B and B2C customers are very different, and it was difficult to understand B2C customers right away. Everything from the amount of food the average consumer puts in their online cart to the logistics and delivery system had to be updated.

During the pandemic, the startup decided to scale up. Within three days, it set up its own processing center to ensure a smooth supply of food. In an interview with MasalaThai, the CEO emphasized that "in the logistics business, scalability means supplier capacity.", adding that the company's strategy was to expand into B2C while continuing to invest in the logistics infrastructure to support it.

The timing was right. Since the B2C pivot, the average consumer ordering fresh produce from Freshket is estimated to spend a total of $2.9 million per month. According to the CEO, one ton of food is traded every day. This is largely due to Freshket's low prices compared to other B2C fresh food delivery apps (wholesale prices) and the variety of ingredients that can be utilized in premium restaurants with next-day delivery.

So what is Freshket's business strategy going forward? The founders continue to emphasize "digitizing the entire supply chain". Currently, Freshket is connected online from ingredient pickup to packaging, warehouse management, delivery, and order management system (OMS). This enables data-driven management to track the entire flow of food in and out and reduce costs.

As the offline fresh food supply chain is linked online, it is expected to create additional value. For example, it becomes possible to predict the demand for a particular product, measure the supply, and provide it to B2B customers. Services that recommend matching products to customers at the desired price could also be developed. As data is accumulated, financial services can also become a possibility.

‍

(‘Freshket Insight’ is an online app that helps small restaurants more easily manage their food costs. Source: Freshket insight)

‍

Takeaways from Freshket's journey

1.Execution is an essential skill for entrepreneurs

Fresket's founding story can be summarized as a succession of execution. When the founders discovered that both the givers and the receivers of fresh food were experiencing inconveniences, they immediately opened a channel on Facebook, where they confirmed the demand for an online connection for exchanging fresh food. I believe this is a great example for early stage startups to follow.

Even in a situation of great uncertainty like COVID-19, quick action is the key to turning a crisis into an opportunity. I am impressed by the determination and execution of the Freshket team, as they managed to launch a fresh food purchase service for consumers within a day after the lock-down, even though they knew very little about B2C services. Luck in business comes from execution.

2. Focus on the big picture and execute strategically

Of course, it's hard to succeed in business by just implementing any tactic. You need to have at least a basic strategy of what you're doing and why you're doing it before you execute with agility. Freshket quickly pivoted from its initial idea of a B2B online marketplace to supply chain digitization. The strategic pivot allowed them to quickly refine the actions they needed to take.

Strategy comes from the fundamentals of the industry and a "big picture" view. Freshket's CEO defined "product supply" as a key point in the business of fresh food distribution. That's how they were determined to invest heavily in building out their logistics infrastructure and integrating it with their online presence, despite being an early stage startup. This is why you need to constantly read the market and stay informed to be able to see the big picture.

3.Scalability comes from originality

Freshket is a unique case of a B2B company expanding into B2C. Its B2C business is competitive in its own way, which can be attributed to its 'premium strategy'. By filtering premium food ingredients and offering them to corporate customers, the company was able to sell cheaper, higher-quality food to consumers on the same basis.

Strategies can change. But the core value that companies deliver to their customers remains the same. Freshket's value proposition has always been to sort premium foods and offer quality products at affordable prices. By reducing supply losses, they've decreased costs, and by not compromising on product expectations, they've earned their originality. The business has been able to scale because it has embedded its core values over the years.

‍

💡 An example of Freshket recognizing a problem they were facing as an industry-wide problem and executing strongly to find a fundamental solution. Their genuine desire to solve a problem led to an originality that upheld their core values.

‍