05 February, 2018
31 October, 2014
28 September, 2013
I was recently at Forum Vijaya Mall (Chennai), one of the newest in town. It was a Sunday and I was there for lunch, but the upper level of car parking was almost empty around noon, which took me by surprise. However, I was told two days later by someone who works for the Mall that there were over 45,000 footfalls on that day. The Restaurant that I was supposed to visit was located on the second floor of the Mall. As is usually the case, I checked the reviews of the restaurant on the Zomato app on my iPhone. Most of them had written good things about the place and its menu, not to forget their wonderful service. Here is a sample;
After such a good meal, the bill came to around 2500 bucks. "Not bad at all!", we thought, given the amount of food we had eaten. The service too was perfect. The waiters were very watchful, responsive and most importantly, proactive. – Amruth
A great place with tastefully done interiors and food! The options on the menu are limited, but every single item you are served taste good and also look really good on the plate! – Nandhini
If I have to be perfectly honest, there could not be a more unfortunate location to host such a lovely restaurant. A mall in Vadapalani is hardly any place for a classy place like this. Where venue fails, Salt takes North Indian Cuisine and gives it a fantastic twist, to ensure they stand out from the others. I expect much more of this restaurant in the near future. – Vaishnavi
Apart from many reviews, the one above set me thinking. Are Restaurants in Malls a viable option as compared to those on high streets? Are Mall shoppers the right TG for specialty restaurants in Malls? For the cost of operation in Malls, do restaurants make any money at all as a business option? When I spoke to the gentleman who runs the restaurant, he mentioned that the rent is about Rs. 65 per sft per month. Assuming they have an area of 2,000 sft, their rent per month would be about Rs. 1.30 lakhs. Add to that all other expenses which would be around Rs. 2 lakhs pm. On a conservative estimate of Rs. 15 lakhs of sales per month and an operating margin of 50%, the store would recover its expenses and have an EBIDTA of about Rs. 2 –3 lakhs per month. Given the way the outlet has been done, their investment would have been about Rs. 70 lakhs. So, the restaurant makes about Rs. 25 lakhs in profits (before interest and taxes a year) and would take about 3 years to break even.
On the contrary, business would be double, if not more were it to be on a High Street. There are a number of good quality specialty restaurants that are garnering those numbers already. So, why do Restaurants still prefer Malls? Perhaps, Brand building and familiarity. I don’t see any logical reason why someone would invest so heavily in a Restaurant inside a Mall and wait for 3-4 years to break even, when it could be faster in a High Street. What works best are for established brands such as Rajdhani, Sigree, Mainland China, etc. which have built reputation over the years and have hence chosen to be within Malls to leverage their brand value. For first timers in the Restaurant business, Malls are probably not the place to be in. This is not restricted just to Chennai but to other cities as well. I was at Chandigarh a few weeks back and they have a brand new Mall called Elante. I was almost alone at Chilis on a weekday evening, which is located in the same floor as the cinemas on the fourth floor of the mall. Restaurants in India’s most successful Mall, Select City Walk face the same fate – Restaurants are empty through the week with weekends being their only busy times.
So, what ails Restaurants in Malls?
Mall shoppers are mostly for spending time, probably window shopping. Conversions for Retailers too is lower than on high streets. The sheer number of footfalls make up for lower conversions and therefore helps Retailers and Restaurants. Unless you are a destination such as a Shoppers Stop, Lifestyle, Café Coffee Day, Starbucks, Subway, KFC, Pizza Hut, etc. These are places which plan to visit and hence drop by. Eating out is way to expensive these days, given the cost of ingredients. And Restaurants are trying their best not to upset their clientele by absorbing losses as much as they can. But then, consumers are staying away from eating places on a regular basis, as was the case a couple of years ago. For example, a could of years ago, the neighbourhood area of Koramangala in Bangalore had almost 50 eating joints, a third of whom have closed over the last one year.
Mall hoppers prefer food courts instead, which are usually pathetically planned. Mall planners in India somehow do not build large enough food courts, with thousand of chairs and a breathable exhaust system, that are modular and scalable as and when consumers increase. Instead, they try to lease all counters at one shot thereby not having scope for further expansion in future. What would cost around Rs. 600 for a family of three in the food court would probably cost over 50% more in a fine dine restaurant within the Mall.
Restaurateurs would do well to experiment new concepts first on the High Streets. That is where people frequent. There are no SCAM, errrr CAM expenses (Common Area Maintenance) on High Street Locations and no restrictions to close the restaurant at a stipulated time. The biggest benefit of being on High Streets is that the signage builds familiarity among customers over time. No wonder, there are more successful restaurants in India and the world over on High Streets!
22 May, 2013
The Hotel Industry in India is facing tough times ever since the global recession occurred a couple of years ago. In my current role at Royal Enfield as Head of Business Development, I travel atleast 2-3 days every week across the country. Whenever I try to book rooms in small and big cities, the room rates just surprises me. I was trying to look for rooms in Hyderabad for stay over the next few days and was surprised to find discounted rates at 5 star hotels for as low as Rs. 5000 (USD 90). The Leela and Grand Chola – both touted as 7 star rated properties in Chennai are offering over 40% discounts on printed rates, to as low as Rs. 7,000 (USD 130). Same is the case in Delhi, Gurgaon, Mumbai, Pune and is even worse in smaller towns. I stayed in Trichy, a city in central TamilNadu which connects a number of other towns of prominence in business and culture within a 100 km radius during the first week of May 2013. On the MakeMyTrip mobile app for the Apple iPhone, I could get a double room for three adults and two kids for as low as Rs. 2,500 (USD 55). The room was quite large to hold a King size bed and two single beds. I have stayed in cities like Coimbatore, Dehra Dun, Jammu, Patna and many others for similar rates in well maintained properties. The outlook for hospitality in India as such wears a glim look and with increasing inventory and competition, not to forget the choices that customers make, the pricing is aggressive at most of the properties. This is where ancillary income to Hotels are helping them.
Most of the hotels have in-house restaurants, mainly to cater to resident guests. Many of them advertise these restaurants quite heavily, thereby attracting visitors through the year irrespective of peak season or otherwise for room occupancy. While this practice has been there for long, its quite evident these days with a number of hotels including some premium Hotel chains advertising in the media. What caught my attention recently was an ad (displayed above), by ITC Hotels, one of India’s largest companies in the hospitality space for their Cappuccino Restaurant at the erstwhile Park Sheraton (in Chennai) . They have advertised buffet options with prices! Do those patrons who visit these places really care for the price? I mean – everyone does. But then, do people care what the final bill is gonna be when they visit star rated hotels and restaurants? I really doubt. Restaurant incomes are an important source of revenue for Hotels. They contribute anywhere between 7-25% of total sales depending on how well these restaurants are positioned and popularised. Some of the restaurants in these hotels are even Michelin-rated – a rating by the Vehicle Tyres powerhouse Michelin which grades eating joints across the world and shares in a report that is published annually.
Suggested Reading: Franchising
Stand-alone restaurants are doing their best too, to woo potential customers. They advertise in leading newspapers regularly to attract attention and over a period of time become destinations. In some cases, they are located within hotels and Malls and in many cases they are located on High Streets. User reviews in sites and apps such as Trip Advisor, Zomato, Burrp! etc. help them gain more traction. Chains like McDonalds, Pizza Hut, Subway and Café Coffee Day advertise across the media regularly to pull customers to their outlets and many of them even offer complimentary WiFi as a hook to retain them.
Suggested Reading: Does Free Wifi help?
With inflation leading to peak rates of food items, it is becoming impossible to middle class families to venture out eating outside. But the upper-middle class seems to be slightly more insulated, fuelling the needs of these restaurants. While premium hotels and restaurants promise great food (quality) and a wonderful ambience, consistency is key. To retain existing customers and to attract newer ones. If you are planning a visit to a nearby restaurant this weekend, flip through the pages of newspapers or mobile apps and you may be in for a surprise at a hotel nearby you! Happy Dining…
Suggested Reading: Food Inflation
06 March, 2013
Recently, the Chief Minister of Tamil Nadu launched a populist move in Chennai to commemorate her birthday – a Government funded canteen that serves one idly (rice patty) for Re 1 (1 USD is Rs. 53 approx.) Yes, you read that right, One Rupee for a Idly. The move is aimed to cater to the needs of those under the poverty line and the poor, the working class such as drivers of autos, taxis, trucks and so on. This was a way Amma (mother) as she is fondly known as, appeased the vote bank. It is not sure how much this scheme is going to cause to the State. Ofcourse, these so called welfare measures are out of the state’s coffers – tax payers money. It so happened that the very next day since this scheme was launched, I was travelling through the Chennai Airport which is managed by Airports Authority of India, a government body which also operates the Airport in Kolkata. These two airports faced stiff opposition by the unions when the Ministry of Aviation privatized the other major airports in India in 2005 located at Delhi, Mumbai, Bangalore and Hyderabad. These six airports contribute to over 70% or more of the total air travellers in the country which is estimated at 110 million pax per year. While the Kolkata Airport has been recently renovated at a cost of Rs. 3,000 Crores, the Chennai Airport has been renovated for aorund the same cost and was inaugurated recently although the terminal buildings havent been opened up to the public due to lack of passenger amenities, a move that the Commercial Department of AAI conveniently seemed to have forgotten while planning the terminal building.
I was taking an early morning flight, a long one that too to Ahmedabad via Mumbai, an arduous 5 hour journey. And I was flying Spicejet, India’s most preferred low-cost airline which doesn’t offer complimentary meals on board, rather “sells” Cashews and Sandwiches at exorbitant prices. So I chose to have a quick breakfast before the Security Check for which I had quite some time. I walked up to the nearest F&B Kiosk which was serving hot food items. I ordered a plate of idly consisting two pieces and a Vada. The damage was Rs. 100/-. Yes, you read that right. Most passengers like me had no option but to pay such steep prices at airports to quench their hunger and thirst. What was more surprising is that the staff do not issue bills for every item sold on their own. Rather, the consumer needs to insist one of they really need one. I demanded one. And bingo, the staff tore a piece of paper from the manual bill book which had pre-written “Breakfast” in many of the bills. A closer look and the TIN numbers which are mandatory were indeed printed. But VAT or Value Added Tax and other charges such as Service Charge, Service Tax, etc. were not explicitly mentioned in the bill. I couldn’t blame the staff because they were just doing their job. I quietly paid the bill and proceeded to the aircraft. Afterall, this is not an isolated case at Chennai Airport. Almost all airports managed by AAI have the same issues more or less.
So, why are airport food products so expensive? To begin with, it’s the way the places are leased out by AAI. They follow an age-old practice of an out-dated tender system wherein those who qualify should propose a base price for the said location. H1, which is the highest quote gets selected. The tender period is usually for 3-5 years and doesn’t specify the architectural look and feel of the outlet. And most often, there is no seating option that is provided. This is completely contrasted by the approach taken by private Airport operators such as GVK and GMR Groups which manage Mumbai & Bangalore and Delhi & Hyderabad Airports respectively. The chosen partners need to submit and discuss schematic drawings and layouts with the airports and thereafter finalized. The design is not just contemporary but also functional and convenient. During my tenure at Bangalore Airport (BIAL) in 2006, we launched a global tender for Retail and F&B which attracted top players in the world to compete on a level playing field. The selection process was touted as one of the most transparent and efficient processes by international media which tracks Travel Retail.
AAI’s outdated tender system is the mother of all troubles. Coupled with it is its terrible space planning with outlets spread haywire here and there. Add to it, unqualified commercial guys who have no clue of global best practices and arbitrarily follow the H1 route to choose partners. It is quite obvious that they quote higher fees in the tender and therefore over charge customers. Branded players like Café Coffee Day, Subway, Pizza Hut, McDonalds, etc who also operate at airports follow a corporate pricing policy and provide bills with all statutory requirements. Due to high entry costs and related operating costs such as complimentary snacks and beverages to airport staff, most organized players do not even venture into this arena.
A popular Indian Aviation Entrepreneur who successfully started and shut a low-cost airline often used to quip that there is a private mafia now in the form of private airport operators. But then, the government operated airports are no better.
08 June, 2012
Franchising has been around for long. Many global brands such as Adidas, Benetton, Levis, Subway and a lot more have grown globally due to their extensive franchisee network. Even in India, Madura Garments (which owns brands such as Peter England, Louis Philippe, Van Heusen), Arvind Mills (Lee, Wrangler and Arrow), Nilgiris (a chain of Supermarkets), Gitanjali Limited (which retails brands such as Asmi, Gili, D’Damas, Lucera, etc.) Crossword Book stores, Barista (Café chain) and many other Retailers have grown their businesses through successful Franchisee Partnerships. Franchising offers a quick scope of expansion for the Retailer while the investment is incurred by the Franchisee. Many first timers and wannabe Entrepreneurs choose the path of Franchising because it is an easier model to crack – the brand (is usually) established and has equity in the market, which pulls footfalls in to the stores. In case the brand is relatively new, then the Franchise fee (usually a one-time fee paid by the Franchisor to the Franchisee) is low, keeping his / her investments within reach. Kaatizone, an Indian QSR chain with a presence largely in South India is on an expansion spree through Franchising. Mr. Kiran Nadkarni, CEO, Kaatizone told in an interview recently. “Franchising has helped us in two major ways: We have been able to generate momentum in expansion quickly. Secondly, the local entrepreneurial talent has helped manage the store operations and brand experience better. Since we are planning to set up a large number of stores, franchising is the best strategy for growth.” Kaatizone has 19 franchises in six cities now and is planning to expand across the country.
The gestation period for recovery of investment can vary from 6 months to 3 years, depending on the location of the store (Malls, High Streets, Corporate locations,etc.) product category, and Brand identity and recognition. Investments could vary from Rs. 5 lakhs to Rs. 2 Crores, depending on the Brand. Some Retailers charge a one-time Franchise Fee and others charge monthly/annual commission on Sales in addition.
Advantages of Franchising
Scalability of Business
The Franchisor would be able to scale up instantly by going through the Franchise model. The prospective Franchisees could be spread across the country and hence the business could be expanded quite fast. This is one of the most important reasons that Retailers choose to go the Franchising way.
Immediate availability of capital
The Franchisee brings in the additional capital that is required to invest and operate the business which is a very important factor for the Franchisor.
Day to-day Operations
Usually, the set-up costs, which are substantial are borne by the Franchisee. He also bears running costs such as daily operational expenses (manpower, electricity, housekeeping, interest on capital, depreciation, etc.)
Drawbacks of Franchising
One of the biggest drawbacks in Franchising is that the Retailer usually loses touch with the customers. The front-end is managed by the Franchisee and hence the Brand doesn’t have much role to play in the Customer Engagement as such.
Loss of Operational Control
The daily operations are managed by the Franchisee. Although there are parameters which need to be followed, there are occasions when the Franchisee takes things under his control which could be potential threats in terms of running the business.
Loss of Focus
Once a Franchisee believes in the model, he / she expand their business across various brands and categories. Therefore, the required focus on the business may dwindle over a period of time. It is quite unlikely that the Franchisee would spend the same amount of time and effort on businesses that don’t yield similar returns.
FDI in Retail has already opened up for Single Brand Retail and the country is eagerly watching the Government’s steps towards their decision on allowing FDI in Multi-Brand Retailing. This is indeed a good time for individuals and entrepreneurs in the making to take their first steps towards Organized Retail through a Franchise Opportunity.
Best of Luck.
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