How to Start a Cold Storage Business: Beginners Guide

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Cold storage is a fast-growing industry in India. Due to high demand, tax benefits, and superior profit margins, cold storage is becoming a popular business choice among budding entrepreneurs. In this guide, you will learn everything about the cold storage industry in India and how to start a cold storage business from scratch.

Cold storage industry in India

The food grain production in India as of 2020-2021 was recorded at 296.65 million tonnes. This figure was slightly higher than in previous years. With such a high amount of production, comes the need for post-harvest storage. However, due to insufficient cold storage facilities, India faces a loss of over INR 130 billion.

A 2015 study conducted by the National Center for Cold Chain Development (NCCD) established that cold chains have a huge socio-economic impact. These chains are crucial for the sustainability and growth of farmers across India.

Without cold storage facilities, the average farmer of perishable goods is forced to sell his yield to the nearest intermediary. Therefore, through adequate storage facilities, farmers can connect to multiple markets. The study also concluded that there is an increasing need to create end-to-end cold storage networks across India.

The cold storage industry in India is valued at $4 billion and is expected to grow at a rate of CAGR 17% during 2021-2025. In 2019, the country’s cold storage capacity was around 37-39 million tonnes. Comparing that with the annual production of perishable and processed goods, we can see an enormous gap. Thus, new entrepreneurs can tap into this largely unexplored market and capitalize on this business opportunity.

Related: Best Cold Storage Companies in India

Cold Storage Business Plan

Starting a cold storage business can be an expensive venture. Therefore, having a business plan will not only help you have clearly defined goals but also aid in securing a loan. Most business plans follow a standard template.

Refer to this business plan template to create yours. However, given below are some sections you must focus upon.

Industry Overview

This is an important section of your business plan. Researching your niche and industry reflects your understanding of the market. Here, write about the growth of the cold storage industry in India and in the local region where you intend to set up your facility.

Refer to multiple studies, analyses, and always mention factual and verifiable statistics.

You can include a list of competitors, how much revenue has been generated from this industry, your target market, how you intend to stay profitable, etc.

The idea is to describe the state & trend of the industry followed by positioning yourself. For further in-depth analysis, you can include a separate market analysis section later on.

SWOT Analysis

SWOT (Strengths, Weakness, Opportunities, Threats) Analysis is an effective tool to identify the best strategy for your business. Through SWOT analysis, you can easily spot the advantages and disadvantages of a business. Similarly, you can also conduct this analysis for a list of competitors.

This will help you learn from existing businesses and incorporate similar tactics in your plan. Finally, a SWOT analysis will provide you with a third-person perspective of your business plan.

Marketing Strategy

Due to the high demand for cold storage in India, positioning your business uniquely may not be too competitive. However, a clear marketing strategy is necessary to fulfill your long-term goals. An easy way to create a marketing strategy is by identifying your USP (Unique Selling Point). Does your cold storage have multiple chambers, blast freezing, or value-added services? Based on your USP, you can target the right audience.

Thus, create your campaign around your USP for the best conversions. Unlike other businesses, a cold storage business will need to expand over time to keep up with demand and profits. Therefore, having an expansion strategy will greatly benefit your business and also increase the chances of getting a loan.

Financial Plan

Budgeting is one of the most important aspects of a business plan. This not only includes the set-up and operational cost but also the sales forecast. The cost for setting up a cold storage business depends on several factors – the size of the land, desired capacity, number of chambers, type of storage, etc. Therefore, consider every possible factor to create an accurate cost breakdown. If you’ve done your market analysis right, creating a sales forecast may not be challenging. Keeping in mind the specifications of your cold storage and the current market trend, you need to calculate predicted sales figures for the following year.

Licenses required

Getting a license to start a cold storage facility in India is a simple process. Before applying for a license you must ensure proper safety and hygiene standards are met as per FSSAI (Food Safety Authority of India) norms. You will primarily require a Food Safety License. To obtain the license, fill out Form-B on the FSSAI website. Once you’ve applied, you must also submit the license either to the State Authority or the regional FSSAI office. Make sure you have the acknowledgment copy, online application form, fees payment proof, and license copy.

Secondly, you may require a license from the State Licensing Authority based on your annual turnover. If your annual turnover is less than 12 lakhs, you only need an FSSAI registration certificate. However, in the case of a turnover greater than 12 lakhs you will need a license from the State Licensing Authority.

Area/Land required

The land area depends upon the storage capacity and the type of product that will be stored. Cold storage units must ideally be located close to farms or consumer centers.

This is done to increase accessibility and reduce the cost of logistics. To finalize the land required, you will need to identify the total storage capacity of your facility.

For example, a cold storage facility with 5000 metric tonnes capacity will require approximately one acre of land. Therefore the minimum area that will be required to start a profitable cold storage facility is 1000 sq ft (0.02 acres).

Another way to calculate how much are you would require is by estimating the size of each cold chamber.

If you consider the average cold room to have a dimension of 14ft x 10ft x 10ft, then you can gain a rough idea of how many cold rooms you would require to meet your total capacity.

Machinery required

The machinery required to set up cold storage units primarily includes cold room refrigeration systems. These are refrigeration machines that are integrated into individual cold rooms.

The number and types of refrigeration units depend upon the number of cold rooms, size of the rooms, and functions such as blast freezing. Therefore, if you intend to set up a multi-chamber cold storage infrastructure, you will require multiple refrigeration systems installed.

The two main types of cold storage – frozen storage & refrigerated storage can also influence your choice of a refrigeration system.

Note: Due to the installation of multiple refrigeration systems, it is extremely important to also install powerful servo stabilizers and backup generators.

Servo stabilizers can prevent electrical hazards and safeguard your refrigeration systems during power loss. Stabilizers will help maintain constant efficiency and keep the costs down.

Apart from the core refrigeration systems, you will require plenty of logistical machinery. This includes forklifts, conveyer belt systems, control rooms, active cooling transportation fleet, and different levels of racking. With all of the abovementioned equipment, you can set up a fully operational cold storage plant.

Manpower required

Cold storage plants can be difficult to manage if you are understaffed. Therefore, the right team of employees will form the backbone of your business. For smooth operation, you need to fill the following roles in your team of employees:

  • Chief Executive Officer (CEO): The CEO will act as the frontrunner of the business. He/She will set objectives, oversee management, fix prices, create and communicate brand strategy, and evaluate the day-to-day operations.
  • Facility Management Team: This team will be your main workers that help run the cold storage facility. Headed by a facility manager, the facility management team will be responsible for technical operations, maintaining the equipment, handling goods, and other value-added services. The number of people on this team depends on the size and complexity of the facility.
  • HR & Marketing Team: The HR (Human Resources) team is responsible for maintaining proper communication within the organization, hiring employees, solving grievances, arranging appointments, meetings, and restocking office supplies. The sales and marketing team on the other hand will promote the business and follow potential leads. They are responsible for negotiating bids and making the business more feasible for the clients.
  • Accountants: Accountants play a vital role in managing the finances of an organization. They are responsible for preparing budgets, financial reports, and financial statements. They conduct analysis, financial forecasts, manage taxation, employee payroll, handle transactions, and serve as an internal auditor for the company.
  • Logistics & Security: This team oversees the transportation of goods to and from the source. This includes truck drivers and forklift operators. They run errands for the organization and deliver customer orders on time. The security team will consist of security officers and watchmen. They will safeguard company property against external and internal threats, manage incoming traffic into the property, and patrol the property.

Benefits of Cold Storage

Cold storage plants serve as price modulators and off-season reserves. They are essential for the growth of an economy. Some of the primary advantages of a cold storage facility are:

  1. Increasing shelf life of products: Agricultural products fall under the category of perishable goods. This means products such as fruits, vegetables, and dairy have a relatively short shelf life. If not consumed within a specified time, the products need to be discarded. This produces a lot of waste. Therefore, by putting them in a cold room, you can naturally extend their shelf life and prevent food wastage.
  2. Storing vaccines: Cold storage plants are extremely useful in the pharmaceutical industry. Certain vaccines require sub-zero temperature conditions for storage. Therefore, cold storage chains act as vaccine warehouses which further helps in the distribution of vaccines.
  3. Off-season products: Cold storage facilities allow consumers to purchase seasonal fruits and vegetables in off-seasons at an affordable rate. Mass storage of exotic or seasonal products helps restock the market when the season ends. This ensures the supply keeps up with the demand.

Is Cold Storage a Profitable Business?

If managed properly, cold storage facilities can yield high-profit margins. As mentioned above, there is a high amount of demand for cold storage facilities across India. To meet the growing demand, cold storage offers a lucrative business model.

India is an exporter of several food products such as blueberries, mangoes, etc. Therefore, cold storage plays a vital role in increasing the shelf life of such goods.

Investment and Subsidies

Setting up a standard 10 metric tonne cold storage facility requires a sizable amount of investment. Taking into account the cost of machinery, land, generators, electricity, construction, insurance, tax, etc., you will require an investment of up to INR 15 lakhs. This is an approximate investment that may vary. However, the cold storage industry is heavily subsidized. This helps cut down investment costs significantly. For an investment of up to 15 lakhs, a well-equipped facility can generate a gross annual income of over 10 lakhs.

The government provides plenty of monetary assistance if you want to set up a cold storage plant. The government subsidizes 40% of the total expenses of the project. This includes a 50% subsidy on the cost of machinery and North Eastern states receive a subsidy of 75%. NABARD, NCDC, and RBI provide easily available loans to set up cold storage facilities in India.

Cold Storage Training & Resources

To get you started, here is a list of resources. You can accumulate knowledge about the industry and the business through a combination of these resources.

Books on Cold Storage

  1. Warehouse Management: A Complete Guide to Improving Efficiency and Minimizing Costs in the Modern Warehouse by Gwynne Richards (Amazon)
  2. The Complete Book on Cold Storage, Cold Chain & Warehouse by NPCS (Amazon)
  3. How to Start a Cold Storage or Warehouse (Amazon)

Courses on Cold Storage

When it comes to professional courses for cold storage, there aren’t many available in India. However, the National Center for Cold-Chain Development (NCCD) provides training in setting up a cold storage facility. The organization releases yearly training schedules. You can either enroll in those or contact NCCD to arrange a training session.

Additionally, a 21-day certificate course, by IIM Ahemdabad, in Warehouse Design and Management is also a great option. This course will teach you everything you need to know about all types of warehouses (including setting up cold storage plants).

Experts & Consultants in Cold Storage

  1. Gubba Cold Infra – Cold Storage Design Consulting & Construction Company (Website)
  2. Hems Infratech Pvt. Ltd. (Website)
  3. National Center for Cold-Chain Development (NCCD)

Conclusion

Cold storage facilities are essential for the growth of our economy. The cold storage industry not only provides millions of jobs but also is a key player in the sustainability of the agriculture sector.

Following a detailed and structured roadmap, you can create highly profitable cold chains across India. Presently, there aren’t enough cold chains to fill the nationwide demand.Due to government subsidies and easily available loans, cold storage has become an efficient business venture in India.

Thus, using this guide and the resources at hand, you can begin creating your cold storage business plan today.

This post is also available in: English Hindi Tamil

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