Indonesian chicken startup’s 20x revenue jump sees it take off

Indonesian chicken startup’s 20x revenue jump sees it take off

Monday, Feb 13, 2023

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Arief Witjaksono, a serial entrepreneur from Indonesia, tried to enter the country’s poultry business by building his own chicken farm in 2018. However, he soon became aware that the industry’s lack of transparency could dampen the trust of farm owners.

“At one instance, there was a poultry broker that promised to distribute my chickens. But after I gave the chickens, he just ran away [without paying me],” Witjaksono recalls.

However, poultry is a promising industry in Indonesia, where chicken consumption is expected to grow by a further 13.5% to reach 9.3 kilograms per capita by 2029 from 8.2 kilograms per capita in 2022. The archipelago’s 270 million people can consume more than 2.2 billion tonnes of chicken meat a year.

Witjaksono, along with his friend, Rymax Joehana, an ex-Boston Consulting Group consultant, decided to build a solution to help farmers produce more and do business more efficiently. In 2019, the pair established a poultry startup called Pitik.

Pitik’s main revenue driver is selling chicken feed to smallholder farmers and buying back the chicken when they’re ready to be harvested – which takes around 35 days. The company then distributes those live chickens directly to wholesalers and wet markets.

The poultry firm said it made US$12.2 million in revenue in October 2022 – a 20x growth from the US$600,000 it made in the same month a year earlier, as per a recent presentation seen by Tech in Asia. However, the firm declined to confirm these numbers.

Leader of the coop?

Those figures represent a huge revenue spurt for a startup in a year. Pitik told Tech in Asia that it has also registered a positive contribution margin – total sales after deducting variable costs. The company made a marginal operating loss of about US$400,000 in 2021, as per VentureCap Insight (VCI) data.

That said, the firm’s revenue is still far lower than the earnings of publicly listed poultry firms like Charoen Pokphand Indonesia (CPI), the country’s largest poultry-feed and processed-chicken producer. The subsidiary of Thailand-based conglomerate Charoen Pokphand can make US$150 million in average monthly revenue from broiler sales.

The Alpha JWC Ventures-backed Pitik says it sells 4 million chickens on average from farmers to wholesalers every month. In comparison, Chickin, an East Ventures-backed poultry firm in Indonesia, says it sells 3 million chickens per month and that it had made an operating profit at the end of 2022.

BroilerX, another Indonesian poultry startup, tells Tech in Asia that it has distributed 1 million live chickens in four months. Both Chickin and BroilerX were founded in 2020 – a year after Pitik.

The three startups still focus on Java Island, leading to unavoidable competition. However, Witjaksono says the market is huge, considering there are hundreds of thousands of small chicken farmers in the country.

Having raised a total of US$14.5 million, Pitik was valued at US$64 million after its series A round in May 2022, as per VCI data. Besides Alpha JWC Ventures, it is backed by Wavemaker Partners, MDI Ventures’ growth fund, and Arise.

Chickin is valued at US$10 million and has raised US$2.5 million in seed funding led by East Ventures, as per VCI data.

BroilerX is bootstrapped with an investment of US$200,000 from the CEO and founders. The company tells Tech in Asia that it’s currently looking to raise US$2 million in pre-series A funding at US$6 million pre-money valuation.

Currently, Pitik has around 250 employees, with half in operations involving visits to farmers to monitor feed quality and the growth of chickens. This is on par with Chickin, which has around 300 members.

Pitik is trying to broaden the margins of smallholder farms – which also face tough competition from firms such as CPI and Singapore-based Japfa – by bypassing poultry traders and processing plants. That said, questions remain on whether Pitik can survive the volatility in demand and if its tech-driven offering is enticing enough for farmers.

Demand is tricky

Pitik’s other co-founder, Joehana, says that one of the biggest challenges in Indonesia’s poultry industry is demand volatility.

“There are months that our numbers are positive, but at some point, there is a possibility for it to become negative,” he explains. He adds that demand fluctuates as many in Indonesia still consider chicken a luxury food.

Moreover, price hikes in chicken feed due to the ongoing Ukraine crisis has pressured margins in this industry, as any rise in chicken meat prices hurts demand.

Witjaksono says that the poultry industry in Indonesia was hit by the fuel price hike in October 2022, for instance. Without being specific, he says that demand was lower at that time.

However, demand has recovered with the holiday season approaching – especially Eid Al-Fitr in April, when chicken sales hit their peak.

Due to economic turmoil, the firm decided to hold back its expansion, including its plans to expand into Sumatra island last year. It currently covers 48 districts across the entire Java island.

Tech to build loyalty

Joehana says Pitik has seen organic growth for chicken farmers due to the transparency it offers. It can also process payments in seven working days unlike other distributors, who usually transfer the money after months.

“We give a clear partnership scheme and profit calculation, with a legally binding contract. We also share post-harvest reports to the farmers,” Joehana adds.

Another point of attraction for farmers is the IoT tech that Pitik offers for free. The firm can provide equipment that alerts farmers when the chicken coop’s temperature is too high or too low.

In the future, the firm aims to develop technology that can alter the temperature – by turning on a fan automatically, for instance. However, other poultry startups like Chickin and BroilerX also provide similar solutions.

According to Witjaksono, coop temperature is important to a chicken’s growth: “If the temperature is too high, the chickens won’t eat. But when the temperature is too low, the feed will be turned into energy rather than meat,” he says.

Witjaksono says the startup has used the money from its last fundraise to develop chicken-processing capabilities, adding a new revenue source. Currently, it sells processed fresh or frozen chickens to hotels, cafes, or restaurants, which offer better margins than selling chickens as live birds.

“However, those processed chicken only counts for less than 10% from our whole transactions. But we plan to scale that up this year,” he adds.

Pitik can also look to grow its financing business – loans to chicken farmers to help enlarge their coops and ramp up production. However, Witjaksono says the firm is still “in talks” with some partners to provide the service.

While the domestic chicken meat market is volatile, exports to overseas markets might help keep the firm’s topline steady.

In the middle of 2022, Singapore opened the doors for poultry imports from Indonesia. However, the contract for the supply of 1,000 tonnes of frozen chicken to Singapore for the year went to CPI, the largest player.

Pitik may have found a niche, but to scale, it will need to take on the bigger players in Indonesia’s poultry business.

(Tech in Asia)