Paper Boat (1) is a brand of traditional Indian beverages and foods marketed and produced by Hector Beverages, headquartered in Bengaluru, India.
Hector Beverages launched Paper Boat in August 2013. It consists of traditional indigenous Indian drinks such as Jal Jeera, Aam Panna, and Aam Ras. Initially, the company offered these drinks in single-serving and flexible pouches. Since then, the Paper Boat has expanded its products offering to 500 ml and 1-liter tetra pack cartoons as well. The development widened Paper Boat’s reach to the multi-serve category (2).
The firm aims to preserve traditional recipes using innovation to make ethnic Indian drinks accessible to an urban market. It is also worth highlighting that Paper Boat does not use any artificial coloring and preservatives in its products.
In short, Paper Boat offers a fruit pulp-based beverage brand; while shifting its focus to the ethnic drink segment, it aims to bring back traditional rings of India into the modern context.
The brand was launched with Aam Panna and Jal Jeera drinks and later added a huge range of ethnic drinks to its portfolio, including Chilled Rasam, Nimbu Pani, Aam Ras, Kokum, Jamun, Kala khatta, Chilli Guava, Neer More, Kanji, Anar, and more.
Paper Boat also extended to the traditional food segment in 2016 by rolling out the Indian snack peanut chikki and books sticking to the core brand philosophy. Paper Boat foods strive to offer ethnic Indian snacks in modern packaging. In 2020, the company even tied up Accenture to increase its offering of different authentic tastes (3).
Tasting the Early Success
Paper boat, the traditional Indian drink brand after its launch in 2013, tasted success within short numbers of years while carving out in an entirely new segment in the beverages industry.
According to Neeraj Kakkar, the co-founder of Paper Boat (4), at that time, they thought that they would do functional beverages, non-alcoholic beverages, revolution, and at some stage, they realize that the influence has been coming from the west, the functional beverages which have worked well in the west.
However, what did truly like themselves was in Indian history; the drinks that have been with India for centuries, but the recipes have been passed from one generation to another. We Indians love Aam Panna, and at some stage, they started thinking if the company can roll out it as a brand in a packaged and hygienic form.
Shripad Nadkarni, an investor of the Paper Boat (5), stated that two things give him confidence that it can become a mega brand. One thing was that the entire ethnic drinks category was not just present in the country until Paper Boat came. So it was a foray into an entirely new category and the opportunity to do something pioneering, which got him more excited.
The second thing was when Shripad was together with Neeraj at Coca-Cola, he was the youngest and the brightest, which got reinforced when he came back from Wharton and met Shripad and asked whether he could invest in his new venture.
Shripad’s philosophy is that you always invest in people, and he believed that it is paid off with Paper Boat success.
Moreover, Nadkarni believes that brands such as Paper Boat can do well because they can tap into something deep in the consumer’s mind. At a mass level, a trend among the society that the company was tapping into was that while materially India was improving a lot, people also longed for simpler times. There is an authenticity of emotions beyond the product. If one can tap into a powerful human emotion, one won’t need a lot of money but consistent work, and Nadkarni believes it has worked for Paper Boat (6).
The Strategy of Paper Boat
In the early stages, when Kakkar went to Shripad to look for investors to launch ethnic Indian beverages, Shripad gave him two words, Authentic and Alive. Neeraj stated that everything he has done so far had used these two words since then, whether it is communication, design, recipe, or packaging.
The meaning of alive for Paper Boat is it is contemporary, young, fashionable, and cool. And authentic is innocent, pure, and natural. For Paper Boat, it has always been a mixture of these two things. Its packaging and stories are alive, and the drinks and its ingredients are authentic. These two words define Paper Boat’s journey.
In conventional consumer goods firms, there is always something about doing it and then keep improving it. Even though consumer feedback is important for technology companies to keep improving, they focus on adapting to new things (7).
These new-age technology companies believe that they cannot keep taking feedback, improving, and adapting all at the same time. And Paper Boat is also learning from the same. Now that’s the main difference between a traditional company and a new-age company.
One thing Paper Boat is proud of itself is what it has learned from Zara (8). The fashion company always introduces some special editions that stay on the shelf for only a certain time. It gave Paper Boat the idea for festival drinks and appointment drinks. So for Holi, Paper Boat launches Thandai, for Ram Navami, it launches Panakam, for Ramzan, it launches Sarbat, and more.
They make it only once or twice a year, let it be there in the market for about 15 days, and then move on. It creates a lot of excitement and offers consumers something new and also a feeling that one is a part of life during the festival. Such a way of doing business is very innovative, and nobody has done that in the normal Indian food and beverages segment.
For Paper Boat, there are eight or nine key products there all year long, everywhere across the country from which the company earns the most money. There are also products which are available only in a certain region. For instance, Paper Boat’s sol kadhi is only primarily available in the west region.
For Paper Boat, there are also certain products that they only launch at a particular time of the year. Certain products specially launched for the certain channel such as travel which they don’t sell anywhere else.
So, for Paper Boat, it is a mix. They are slicing and dicing their consumer segment in different ways and creating smaller groups of consumers that they want to serve (9).
Paper Boat’s Expenses
Hector Beverages, a Gurugram based firm (10) that runs beverage and snack brand Paper Boat has reported a 20% surge in its revenue in the financial year 2020. The organizations’ revenue surged to 235 crore INR in the financial year 2020 from 195 crore INR in the financial year 2019. However, its higher spending on new product launches and stock in trade resulted in losses stretching 60% from 60 crore INR to more than a hundred crore INR (11).
The revenues from operations have continued to be the primary income source for the Paper Boat. The company has earned 235 crore INR in the financial year 2020 by selling its fruit-based drinks and traditional snacks compared to 189.5 crore INR in the financial year 2019.
Its entire revenue growth has been pretty much from sales, indicating how the Paper Boat brand has penetrated the Indian retail sector.
It is also worth highlighting that Paper Boat has spent more than 324 crore INR in the financial year 2020, which translates into a 27% increase from last year’s 255 crore INR spend. The company’s expenditure on the purchase of stock in trade and material consumed added up to 175 crore INR in the financial year 2020.
Paper Boat has spent more than 97 crore INR on the cost of material and another 78 crore INR on the purchase of stock in trade in the financial year 2020. It accounted for about 54% of the Paper Boat’s total expenses in the year. It had to spend about 122 crore INR in this area in 2019.
The stock in the trade purchase cost of the Paper Boat has almost doubled in the year and added to a great extent to the higher expenses in this regard. It is directly related to Paper Boats’ new product launches in the snacks category.
Apart from package juices, Paper Boat is also foraying into other FMCG segments. After launching the traditional Indian snack chikki, Paper Boat also launched aam papad, coconut water, and several other small-size assortments to tap into the Indian tier 2 and tier 3 areas.
Apart from spending on these new rollouts, the company’s employee benefits expenses also observed an 84% rise to 46 crore INR in the financial year 2020 from 25 crore INR in the financial year 2019.
Even though Paper Boat observed uptake in sales in the financial year 2020, its D2C, direct to customer advertising spending, was reduced by 32% from 28.5 crore INR to 19 crore INR within a year. Moreover, Paper Boat’s distribution and selling expenses also dropped by 29% from 22 crore INR in the financial year 2019 to 16 crore INR in the financial year 2020 (12).
Paper Boat Investments and Funding
In March 2020, Paper Boat had secured 30 crore INR in two different funding rounds from Advent Management, A91 Emerging Fund, and Trifecta Venture. Hector Beverages had also secured ten crore INR in debt from Trifecta Venture in February 2020.
Moreover, A91 Emerging Fund and Advent Management in November 2019 had poured more than 9.99 crore INR each in Hector Beverages.
The company has secured about 103 million USD to date since its inception in 2013 from over 14 funding rounds. Its investors include Sofina Venture, A91 Emerging Fund, Catamaran Venture, Trifecta International, Advent International, and Sequoia Capital India (13).
The Low and High Tides
According to Kakkar, one of the biggest challenges he faced with Paper Boat was getting hold of authentic recipes and traditional sourcing ingredients, which he realized early in his venture.
Even though most suppliers were not ready to promise a steady stream of ingredients, the ones that Kakkar and his team got hold of didn’t assure quality. For instance, Kakkar and his stream struggle for more than eight months to get hold of high-quality Jamuns for Paper Boat’s Jamun Kala Khatta.
The case was also the same with mangoes. Even though producers were more than willing to supply the company artificially ripened mangoes, it was not acceptable for Paper Boat. Consequently, Kakkar and his team had to wait for more than two years to get hold of a regular supply of green mango pulp.
However, even when the company surmounted the challenge of putting a system in place to get regular sources of ingredients, another problem had cropped up.
Notably, retailers in upscale markets in India’s metro cities were not willing to stock Paper Boat’s products in the stores because they didn’t consider it premium enough. That’s when the founders of Paper Board hit the idea of making a splash with a series of front-page advertisements in leading newspapers.
According to Kakkar, it helped change the perception among people, and Paper Boat got a place on retail stores’ shelves. It is now available in 250,000 retail outlets, including a coffee chain Barista and aboard airlines such as Indigo.
Even though Kakkar believes that Paper Boat still has a lot to do and gets its act together, the founders and the team are glad to set sail (14).
Paper Boat Launches Online-Only Products
It is worth highlighting that beverage makers were among the worst affected businesses during the coronavirus resulted lockdown. Paper Boat also lost sales across modern trade channels and institutional sales to airports and airlines, which compromised its business’s large share.
Currently, Paper Boat has more than 250,000 outlets and is planning to increase it to 350,000 outlets this summer.
The big learning for Kakkar over the last few years was that distribution is a big moat in the country and will remain so despite the surge of e-commerce. So, if one has to build up a very sustainable, long-term firm in the country and go towards an IPO, which is the end goal, one has to build his own distribution network.
Notably, Paper Boat’s online sales share went up from 6% pre-lockdown to 15%. Consequently, the company is reviewing its plan to bring back its original launches, some of which are discontinued, for sale on e-Commerce websites.
According to Kakkar previously, Paper Boat used to launch several festivals only seasonal products. These products are very difficult to distribute offline as it would take time to launch them out in modern and general trade. The company is now looking to launch these products online.
The company is looking to launch one such traditional homemade drink Kanji, which is popular during Holi. At the same time, Panakam, which is popular in the south, would be relaunched at Ram Navami for online sales.
Since online is becoming such a huge play, it would allow the company to go back to its roots. Moreover, online sales also squeeze time for such launches. The company had previously discontinued some of its variants, and now it is looking to bring back everything as digitally native products.
During the nationwide lockdown, Kirana stores and e-commerce outperformed modern trade and large format outlets for staples and groceries. The year 2020 was particularly challenging for beverage companies that lost business during the summer months. Out-of-home beverage consumption, including street vendors, restaurants, cinema halls, railways, and airlines, constitutes a significant portion of the segment’s sales.
Paper Boat had to write off inventory worth more than 35 crores INR in the previous financial year as its summer rolled out for drinks coincided with the world’s most stringent lockdown amid the coronavirus pandemic. Its beverages which have shorter shelf lives, suffered significantly.
As other companies observe tectonics shifts in consumption, Paper Boat is also witnessing demand trends shift. It includes the move towards more packaged and hygienic brands, the sharp growth in online sales, and a resurgence of demand in tier 3 and tier 2 cities, which helps the company mitigate low sales in channels like aviation.
According to Kakkar, the good part is that after summer, growth rates in tier 2 and tier 3 cities across India are very encouraging, even though some of its channels are still not back.
Paper Boat is currently looking to turn profitable. In the financial year 2020, its losses touch to over 100 crore INR on the back of significant inventory write-off in March. The firm had closed the year with 230 crore INR in revenue. It expects to significantly narrow losses by the end of the current financial year and turn profitable in the financial year 2022 (15).
The Way Forward
As India had stepped into the coronavirus-resultant lockdown in March 2020, Paper Boat had decided to halt all productions and suspended production at all its manufacturing facilities. Even though the company had started its manufacturing gradually in May 2020, the initial months, particularly the initial quarter of the fiscal year 2021, noted no retail for the D2C brand.
Notably, the company has not yet been able to achieve its pre-lockdown sales figure.
According to Paper Boat’s financial statement, even though the COVID-19 pandemic has pushed the company’s several timelines, it has successfully navigated through unprecedented times. It is confident about the gradual resumption of the pre-lockdown sales figure. Notably, Paper Boat proactively adapts to the altering business demands and would stay prepared dynamically to do course correction if and when needed.
It is worth highlighting that according to Kakkar, Paper Boat is eying initial public listing ambitious in the upcoming few years.