expanding the taste.pdf

8/14/2019 Expanding the Taste.pdf

1/16

1

Expanding the Taste

Can anybody imagine the quality of pizzas varying from one outlet to other? It can turn

out to be a big nightmare for any food chain company. But this can happen, if we have

a food chain run by umpteen number of franchisees and set of discerning customers

somewhere finding the difference. This however can be checked by executivestravelling from one end to the other of their territory, managing the quality problem

with the stuffs in the menu. Harried and worried, they end up with the soiled brand in

the country because of media picking up the news of awry customers from across the

country. Sounds Scary!! A eatery brand thus cannot afford to have too many

franchisees at the city or a cluster level. It would be difficult if a food brand goes for

500 franchisees. It also becomes very difficult to manage the operations and standards

of the franchisees across the country when the brand is going for expansion. Keeping

this in mind my company runs the business with the help of corporate franchisees at the

national level.

Company where I work is an international chain dealing in fine dines, quick service,

casual dining categories of eatery business. It owns three brands one deals in pure non-

veg segment, other in casual dining with its offering in pizzas and other fast foods. The

third one is into a sea food. We are present in the country with the first two, but the

third one, doesnt finds India to be a charming destination. Few of the outlet of the

third kind may find its place, being in Goa, Chennai or Coachin but then we cannot

have a food chain based on five to six outlets in any country.

When we look for our foray into any country we go for corporate franchisees. These

partners are ideally into food retail or hospitality business doing some 50 crores a year.These franchisees have a ready corporate set up, which reduces the learning curve by at

least two years. You sign on a dotted line and things start moving. In this, if we have

appointed the franchisee for any state, then that franchisee will solely be responsible for

opening the outlets in that state, and subsequent expansion and the business generation

in his territory. It becomes easy for us to manage. If we are thinking about U.P., what

we have to do is, just talk to a single entity and thats Done.

There is competitor of ours who operates in India with the help of two giant

franchisees. One franchisee looks after the north and the other, south. The two

franchisees are the joint venture partner of the competitor. When this competitor which

is a renowned international brand, came to India, there was a bee line of Indiancorporate groups who were interested in the franchiseeship of the brand. As they didnt

have the experience of running the food business so no one could succeed. One of the

party which had the good land bank in north, and businesses which had some leverage

with the food business became their franchisee.

In franchisee system the restaurant brand lends partner franchisee, the name and the

know-how. Franchisee partner establishes the restaurant and work on the expansion and

management of the chain. Franchisees pay certain royalty from the business they

generate out of the reputation of the fast food brand. Even when the single brand

retailing is allowed in India, still these international food chain shirk away from

committing for 100 percent stake. Why anybody would go for investments in the set-upand the time, when the franchisee partner system can take up the load. Thus they save


2/16

2

up on cost, and believe in skimming the cream out of the reputation of the brand they

have.

Treading Cautiously

We run the business with the help of 11 to 12 business partners. We have divided theterritory among all these partners to run the show in the country. We are currently

aiming those territories which are ready to take up the consumption of our brand. Not

only the consumption but consumption: more frequently and of bigger bill size. The

territory for the brand and product like us comprises metros and cities having more

propensities to consume our product. When we are talking of territory, it doesnt

matters that what state we are talking about, but actually how many potential cities the

state has. In this context, Maharashtra and Karnataka would fair better than U.P. and

Bihar. In other words Mumbai, Pune, Nasik, Nagpur would fair better than Lucknow,

Agra, Allahabad, Varanasi, Kanpur combine.

There is the situation where many regions are lying virgin and the company has not yetexploited the potential of the territory. The franchisees that are making money, doing

good, also want to expand. They demand territories from us. They will say, Give me

Rajasthan or give me Jammu. This type of call is always there from our franchisees.

But we dont handover any territory, easily. We are very careful and thoughtful before

committing ourselves to such types of demand. First we assess the capability of the

franchisee. If a franchisee has the capacity of opening five stores every year and if we

ask him to takeover Madhya Pradesh where the potential is four stores per year then we

have to see whether the party is capable enough to leap frog from opening five stores

annually to nine stores a year. Whether the party is operationally sound or not, whether

they have the required finance or not. So, we demand to showcase the proof of their

capabilities. And once, we decide we start managing and guiding them for expansion.

So we see the capability of the party for sustainable expansion over a long term.

Initially we made a mistake by appointing many small partners who opened two to four

stores, were not very ambitious about growth or may be, they lacked the capability for

required expansion.

We also start building pressure on the franchisee to create the organisational set-up.

Organisational set up here means that he should have a cluster guide over every five

outlets he opens. When he is expanding he has to have these cluster guides who look

after five outlets. On many occasions the region is big and a cluster guide is looking

after just three stores in three different cities. But as more stores open in the cities, therequired span of control gets filled. There comes a time where number of stores swells

to such a number that a new cluster guide has to be appointed. These cluster guides

belong to franchisees, are paid by them and are the part of the organisational set up of

the franchisee. It is mandatory for them to have the set up as required by us. There are

crew members who are looked after by assistant managers, and then managing all the

affairs of the outlet is a store manager. This is in general the team which works in case

of an outlet of any fast food retail chain. Cluster guide manages the operations of all the

stores in consonance with the store managers.

The advantage, the franchisee system has, that the company can penetrate the market

with the same focus. Had this system not existed, it would have been difficult to expandin different territory with the same intensity. Suppose we were for our stores launch in


3/16

3

Rajasthan without the franchisee system; might be that we would have missed the focus

in expanding in Maharashtra or Karnataka, which actually is simultaneously taking

place with the Rajasthan launch. This, perhaps we will not miss, if we are having a

franchisee system with different franchisee partners looking after different areas. My

Karnataka franchisee is there concentrating in Karnataka, doesnt gets affected by our

launch in Rajasthan. Similarly, Maharashtra region franchisee would be concentratingin Maharashtra. Franchisee concentrates in his territory, thus is able to expand faster

then what the company can do without the franchisee system. They have the area focus;

they know the consumption pattern, the order mix of customers and the type of

locations. Factors which work well in Punjab may not work in U.P. In U.P. all this

would be different than Punjab. Thus franchisee masters in the regional consumer and

business insights thus can bring very quick results for the company.

We have one another state which lies largely untapped. Few of our pizza cum snacks

outlets are there but as far as our non-veg category is concerned we are totally absent.

This is because, that state predominantly has vegetarian driven population and to think

about a non-veg business would be too early to commit. It is not, that we will not enterthe market but would not, until we add few vegetarian products in the non-veg

category. Few, we have added but, few more options which breaks the barrier of the

people and attracts them to consume something in the store. Right now we havent

decided whether we will be going for the company owned stores or the franchisee

owned stores. Chances are that we will not go for company owned stores as the market

doesnt looks to be very promising vis--vis our products. Company owned stores

would be a good bet for Rajasthan which is a big tourist destination. So there can

always be a company owned stores in the cities like Jaipur and Udaipur.

We have one partner in Punjab. Haryana, Jammu and Kashmir as a territory are vacant.

We have not yet allotted these to anybody. Here we are clear that for meanwhile we

dont have any ambitions for these two states. We know that this is not the right time.

May be market takes 2-3 years to evolve and then in 2013 we may decide to go into the

state. We will then see which franchisee partner is near to Jammu and Kashmir and

who can leverage his supply chain better than any new partner. Probably we ask our

Punjab franchisee to expand or may be somebody else. Franchisees also love this

situation and certainly would like to grow with us. In case my Punjab franchisee is not

keen to expand in Jammu and Kashmir, then we will look for some other franchisee

partner and still if nobody is ready we shall go, scouting for new partner. But this is

quite an abnormal situation. Since the time I am in the company, no franchisee partner

has been recruited. We are growing with same partners and they are also keen inexpanding with us.

We too..When we entered India, we as company were not allowed to invest, so we had to enter

through a franchisee route. Our franchisee system was working for our non-veg

speciality brand and the pizza cum snack food brand, we realised that our pizza

business was not so profitable as our non-veg business. Sales and profitability were

more in this business than pizza one. Keeping this in mind the obvious choice for us

was to have company owned stores in the non-veg business and to have franchisee

route in pizza business. There are countries where pizza consumption is good but has

low response to our non-veg business category. Like in Japan we have hundred percent


4/16

4

franchisee approach for non-veg business category but for pizza the stores are company

owned.

Out of our 12 franchisee partners there is a mix of big and small both. In my company

the two major business - non-veg speciality and pizza business are handled by different

franchisees. However this is not a condition. We have one very big franchisee partnerwho looks after our business in four states. We found them capable and therefore gave

them the responsibility of handling both the brands. Our pizza business in India is

hundred percent franchised while the non-veg speciality business is fifty percent

franchised and fifty percent company owned. Company owned outlets are there in all

the big metros like Chennai, Bengaluru, Mumbai and Delhi.

Chennai, is a good market for us. There we chose to open company owned stores. This

type of market where there is the scope of company owned outlets is called as equity

market. When we entered into Chennai, we entered through franchisee route. Our

franchisee there opened one or two stores and then never expanded nor showed any

interest for expansion. Even till date, he has those stores. We have no reason to take itback as he is running them well. This was good in a way that we got an opportunity to

open company owned stores that too in a potential territory. At that time there was no

clause for opening up of some minimum number of stores in the contract. We have still

not included in the contract, but we take the commitment from franchisees that you

have to open minimum five outlets per year with us. However currently, we are getting

growth from our existing partner so there is no point to recruit new partners. This is the

best situation wherein we are getting the required growth from a partner whom we

know, who understands our business, our culture and our business philosophy.

In Delhi rentals are skyrocketing. If we talk about Cannaught Place there, the rentals

are near to five lakhs rupees for a thousand square feet space. To recuperate this

amount we have to generate an average sale of rupees one lakh daily. With this sale, we

only will be able to absorb our rentals. Now if we give this to franchisee and ask him to

open the outlet, then to cover the same rentals he has to generate the sales of rupees 1.5

lakhs daily. The reason for this is that he has to pay the royalty. So his burden to create

sales increases. The other reason for which we go for self-owned outlets is the sales

potential and profitability in the cities like Delhi. We will or in fact any sane person

would like to go for reaping the maximum benefits out of such situation. The additional

purpose for which we will like to have the company owned outlets is to be present with

some highest level of standards in some flag bearing locations in the country.

Benagaluru is also the key city but the rentals are not as high as Delhi or Mumbai, but

the sales are. This is the best situation for the company to open its own outlets. The

company however would open its own outlets, only if the city or the area has potential

of minimum five outlets. This is to leverage supply chain advantage. If we go with a

single store in any city then the food cost increases by 5 to 10 percent, thus eroding our

margins. We are not present in Jaipur but we will see if we can open the stores

simultaneously in Jodhpur, Udaipur and Bikaner. We should at least have five to six

outlets in the area, then only our cost can be kept under control. This is clustering

approach to launch of any retail brand. Entering in Jaipur and opening just two outlets

doesnt make much sense. This has serious implication on food chains where the

material is highly perishable in nature unlike any fashion or a handset retail chain.


5/16

5

We do have constraints with Franchisees. If you go to company owned stores, you will

find different level of quality; you will find employees having high energy level. People

and their commitment towards the customer would altogether be different. Perhaps this

one may find in franchisee stores too, but may be sometimes there customer find some

variation in quality of food, quality of interaction etc. So in franchisee system there are

hiccups also, but then we have to see the trade-off. Many times they are weak onoperational side, and then its the duty of the company to keep regular checks to keep

them on toes. The customer shouldnt find any difference between the franchisee

owned and the company owned stores.

Ground or First Floor

We are not expanding much in our pizza cum snack food business. Quite a handsome

amount of sale is coming and we are into consolidation phase of this category. Actually

to put the things in the right perspective, we are not expanding aggressively. The

difference in the two business is that non-veg business comes into quick-service

restaurant category and our pizza cum snack stores comes in the fine dinning category.If a family decides to have their food outside in any fine dinning restaurant then, its

quite likely that they already would have decided where they will dine. Our pizza

business falls in this category. If a person visits an outlet, he will comfortably sit, would

take soup, would take starters and then would give the order for the main course. He

will at least spend an hour there. If a person is shopping there in Lajpat Nagar market,

feeling little bit hungry, notices McDonalds or Nirulas there, he would easily barge in

with loads of shopping bags and would like to quickly finish it up and leave for his

car. The point is that pizza chain is planned destination brand while non-veg one is

impulse driven category.

Taking up my old point here that rentals are very high in Delhi but to elaborate more,

like if we go for ground floor, rentals are extremely high than the first floor. For first

floor rentals come down to sixty percent of the ground floor and if we talk about the

second floor, it further comes down to forty percent of the ground floor. There were

many areas in Delhi where it was very important for us to be present but the problem

was the space. We said, why dont we go for the first floor?We opened one or two

outlets of our non-veg brand in the second floor. We were very happy to get space in

the prime locality of the capital but as three four months passed we saw slippages in

sales. Sales were down and they were not ready to move upwards. From this, the major

learning came to us was; non-veg business is more convenience driven and consumer

doesnt likes to climb to second floor, especially when he is looking to consume thestuffs quickly and conveniently. If a customer sees two brands, one is on the ground

floor and other one on the first floor; chances are that he enters the restaurant on the

ground floor. Its another issue that if the restaurant on the ground floor is too crowded

then.., or if he is thin and athletic then, he may choose to climb the first floor. Situations

are always there but then we are talking about the probability of people visiting the

ground floor restaurant will always be more. In pizza one, which is a destination

category, if it is present in the first floor the customer can take efforts to climb to the

first floor, but not in the impulse category.

In the mall or out of..


6/16

6

When we are hunting for location, mall happens to be an obvious choice. ground floor

entrance shop. While talking to the developer, the first preference we give to ground

floor entrance shop. But now mall managers are going for zoning up of mall. Like,

ground floor is dedicated to the family stores, second floor, dedicated to the womens

category, third floor could be the general category, top could be the food court. Ourstudy indicates that seventy percent of the people, who go out for shopping, end up

eating something in the mall. This is with all the age groups. So if eateries are just near

to entrance or on the ground floor, then chances are that the person will eat and go

away. Many would never go inside the mall. This is especially true for B types of cities.

Mall developers therefore put food on the top floor, so that a visitor comes across the

brands while going up on the top floor. Food thus acts as a destination category.

Food joints still can be seen on the bottom floor but either in case of a small mall or the

mall belonging to a small developer. Fact is that, in both the cases the negotiating

power of any renowned store brand is more. If a small developer is negotiating with us,

its very obvious that they will like to have big brands like Haldiram or McDonalds intheir mall. Their desire is more to have us in their mall. Here our stand would be that

we cannot be in your top floor, we want space on the ground floor and that too at the

entrance. He is bound to agree to our wishes, as his footfall will increase because of our

presence. Other than the zoning restrictions, we never like to enter the mall, anything

less than the ground floor. If food court is there then we can think of having a small

store. But if any of our competitors is present on the ground floor then we will never

agree to be at any disadvantageous location in the mall than our competitor. We will

not like to get lost in the mall, when our competitor is sitting on the prime location.

There is a situation where an eatery brand is present on the ground floor as well in the

food court. This happens in case of massive malls where footfalls are very high. As the

mall is big, exposure of all the zones of the mall is less to any visitor. In such case, we

will like to be present in more than one location. Being present in the mall has its own

advantage. When a family is there and everybody wants to have the food of their own

choice then we can be present as an additional option in the food court. If we are not,

we might lose chance of some additional sales. There is the criterion of such a mallit

should be more than four lakh square feet and minimum number of anchor tenants

should be three. In Mumbai and Delhi it may go upto having five anchor tenants.

Anchor tenants here I mean Pantaloons, Westside or Big Bazaar or a multiplex type of

outlets.

There are malls who lease the shops on the basis of the tenant mix or the type of store

brands they will like to have in their mall. Other situation is that mall sections or the

group of shops are sold to investors. We as a brand are very careful in entering those

malls where the shops have been sold to investors. Here the developer wants to get rid

of his burden and quickly want to realise back his money. Investor also is not very

much interested in which brand is coming but just want to ensure that money should

start trickling in. These types of malls lack proper tenant mix and therefore are unable

to attract decent footfalls. Now in any such type of mall, I will like my store to be at the

entrance. So the situation is something like where I am sitting in the front of the mall

and am able to attract the crowd from the street. I will not be concerned, what is

happening inside the mall. The idea is that such type of location then acts as a highstreet location for me.


7/16

7

It is not that developer would not be helping the investors in bringing in the brand.

Tomorrow, if mall doesnt works, it will not create much difference to the investor but

certainly it will hurt the reputation of the developer among the retail fraternity. Mall

developer tells that Spykar is ready to come at hundred rupees square feet but the

investor is not ready to offer, anything less than one hundred fifty rupees. Investor isconcerned more about his profit instead of the health of the mall. In contrast, if a small

investor is there he might even give at eighty rupees square feet because he feels, Six

months have passed and still there are no takers of my shop. So in such situations the

brands may get good price. But then there are investors, who have a very high holding

capacity. They will invest four-five crores rupees, and will forget as four-five crore is

not a big amount for them. They have other businesses too. They are least concerned

about the tenant mix or the importance of bringing in some good retail brand. These

types of investors spoil the market.

and Metro

Metro stations are emerging as new growth opportunity for eatery outlets. We areworking on location in one metro station which has five exit points. On one of the exit,

we planned to have our store. Next exit to that had our competitor. Both locations

were very good, both had good visibility. But to our dismay, we noticed that there was

more activity near the exit where our competitor was located, while to our side, where

we were to open, there was less activity. We thought, is this because of the presence of

our competitor or is it a natural flow culminating out of metro. We hired one agency to

observe the footfalls Results were interesting; it said that footfalls were more on our

side. On our competitors side, traffic was less but either it was slow or was bit holding

out there. This finding comforted us and we went with opening up of store.

Negotiating for SpaceWhen we are in search for some property we take help of some brokers. Brokers have

the information about each and everything: the client, the space, the locality, the other

tenants etc. When I am in search for some good location, I enquire about the holding

capacity of the mall developer. This becomes very important in negotiating the deal.

From this, I know how far the discussion can stretch two months or five or eight.

From this information, I decide that how tough I have to be during the negotiation. I

question myself, is this the only property of the owner on which his whole earning

depends or he has many other properties or has several other businesses to bank upon?

If the person has many properties or businesses then he commands strong negotiation

power but if it is the lone property he can be weak a contender on the negotiation table.If its the only property then the person thinks that six months have passed and if

somehow the space is leased out then some money may start pouring in. Thus, this

comes out to be a very important point that how keen the person is about renting his

space.

Before going for any negotiation, we try to pick some information about landlords

background. When we meet the landlord first time, we dont do anything, present our

brand, tell about the company. We see his property, listen about his price and come

back. We dont talk about selling, or competitor or anything else. Just plain-simple

eulogizing our brand, and end the meeting. We dont put any counter offer, dontshow

any interest and should not even, reflect from our face.


8/16

8

Suppose we have to open a store in Gomti Nagar in Lucknow then I will try to assess

the potential of the trade area. This we try to know in terms of, how many families in

the area, belong to SEC A, SEC B and SEC C. SEC is basically a socio-economic

classification given by NCAER, where the population is divided on the basis of income

and education. This job, we give it to an agency, who submits the report having all the

detail, of the trade area. Here we come to know how many households are professionaland have car, how many business families are there, about the working population, how

many colleges and coaching are there. We try to know whether this location has

prominent market and houses offices. Is this a residential area or residential area having

upmarket households, or an area dominated by the presence of young population

because of having some medical college or an engineering college?

After knowing the potential we try to assess, how much sale per month can we get in

this area? Once we know that we can get say, fifteen lakh per month, then from this, we

can workout how much rent we can pay. The world standard for rentals are not more

than 5 percent of the sale, but in India where organised retailing is new, it can go upto

ten to twelve percent. Also that the property prices are high sale is less because ofinertia towards the new way of consumption and shopping. Thus with the outlet

potential of fifteen lakhs per month, the rentals in no situation can be more than one and

half lakhs. This varies from one state to another; like in Punjab we have five to seven

percent as the sale is high but in Delhi its ten to fifteen percent because the property

prices are high. So one or the other reason may upset the whole profitability of the

outlets in any area. We therefore work in backward fashion. First we estimate the sale

by considering the trade area and then we arrive at a rental which makes the outlet

viable in the long run. Its not good for any brand to keep opening stores for closing

them.

The day comes when I am with the landlord. I am there with my working, which shows

that I can pay upto two and a half lakhs but to my amusement, landlord asks for 2 lakhs

as rent. Hearing this, I should quickly agree and should close the deal but NO. I know,

when his starting price is two lakhs then he must have kept some buffer for negotiation

and that would be anywhere between one to one and a half lakhs. Considering all this

only the landlord has asked for two lakhs. To this, I will put my price as twenty

thousand. Through this, I will like to know, what his bottom price is; to what extent he

can come down? This is very essential in negotiation. We have to bring the asking price

to a bottom rock level. Chances are, we get one lakh as final price. Against this a poor

negotiator may end up paying one point five lakhs. If I am successful in getting even

fifty thousand as discount, then during poor sale scenario, the same discount may lendus some cushion. Best part of negotiation, is both parties are satisfied that they gained

something out of negotiation.

If the same technique, I use with a landlord in CP, he would say, Yaar, dont waste my

time, there are hundreds of them queuing for my property. We therefore have to see

the situation. Same thing if we do with some landlord in Agra for location away from

market. He would be ready to give the property at favourable price. For him other than

the money, he can always flaunt in society for having such a prestigious brand as his

tenant. In negotiation, it is very important to know the mind of the landlord. To know

how much keen he is, to have our brand in his mall. For prestigious brand like ours, we

can easily gauge the eagerness, especially if that location would be the first one in thecity to have our brand. Perhaps, it is difficult to know for a mediocre brand. If I get,


9/16

9

even faintest of idea that the owner is eager to have my brand; I would nail him on

negotiation table. Same way if he comes to know that we are dying for his location; he

can always play with us. Suppose, even if I am dying for his location then its very-very

important for me that it should not get reflected on my face. I should show, as if I have

plenty of options with me and I can get space anywhere. But if I am going to Greater

Kailash or South Extension, then I cannot use this tactic. The landlord there will get mesurrendered on his term that is why, premium locations are exponentially higher priced

than a not-so-premium one. Contrary to it, if I am going to Jaipur or Indore, I am more

in a position to play the negotiation game. Some terms and conditions are absolutely

non-negotiable; we can do without them, so those he has to agree.

When we are done with the first meeting then we should wait. Yes, I said WAIT.

Now second round is about the test of patience. We have met the mall manager or the

landlord, we have talked about our brand.., his location and now, we should wait. The

winner of the first round will be that party who will not loose his patience. The person

who is not able to wait and makes the first phone call would be a loser. For all such

situations, I would decide never to make a phone call. If he calls me then it shows hisinterest to have my brand in his property and same from my side. If, I make a phone

call then it shows that my brand is eager to be in his location. But then, it should also

not happen that we are waiting for his phone to keep ourselves strong on negotiation

and finally come to know that somebody else has taken that location. So what we

should do is to take broker into confidence. Broker works for us to get properties for

our brand. He forwards our interests as he earns in long term by associating with us. He

of course earns from landlord also, but he earns more from us because of more

business. Thus we can get to know from the broker that how much the landlord is

eager, how much he is keen for my brand. I, many times will ask my broker to

negotiate on my behalf.

It is however, always wrong to think that broker is pro-me. Inspite of above situation,

might be that the broker is with the mall owner because of being an old associate of the

builder or the mall owner. This I should know by judging and asking about his other

clients. We should not expect broker to be loyal to us. So what we do is, we lie to him.

If the landlord is asking for four lakh and my price is three, I will tell him, I cannot go

beyond two and a half because my sale cannot cover this much of rent. He will

negotiate between us. He will push me, coaxing, if I can increase by twenty five

thousand he may try to close the deal. The beauty is that I should still stick to my two

and a half. He will go away. I will wait for four days. If I dont receive the phone call, I

will give that amount and close the deal. There could have been the chances that phonecall would have come from their side and they concede to our demand, so four days for

this. But finally I should close the deal to avoid any chances of losing the site.

Into the Mall

There is a mall in Agra which was started five years back, got completed in year or two.

My Delhi franchisee partner for my snacks brand closed the deal with them at two

lakhs. Later on because of some problem the mall got stalled. So the deal never got

matured. My franchisee partner in Uttar Pradesh for my non-veg brand called me to

have a look on the location so that we can then proceed accordingly. Before meeting

the owner of the mall, we already had few locations for consideration. We went to themall. The mall was very impressive. It had the grand look. With three atriums, all shop


10/16

10

had equal visibility. Food court was more on cultural linings and had big dinning space.

I was sold on the mall and from the very moment I wanted to have my brand in the

mall. When this was happening to me, I checked myself so that the feeling of awe

should not get reflected on my face during the talk.

We went to meet the owner, he was there in his makeshift type of office. We shookhand. After introducing myself, and exchanging cards. I said, I came to Agra to

consider the location in civil lines. We were just passing and then thought, why not to

take more information about the market in Agra? Vivek Malhotra, that was his name.

He was the nice gentleman in his late thirties, very ambitious and bold. Ok.., its very

nice to see you here. So you will be here in Agra for few more days , he enquired. I

said, No I am pushing off to Delhi, friday again, I will be back to finalise the location.

I created an environment, as if I have already made my mind to finalise the civil lines

location. I asked about his opinion about the potential of international eatery brands in

the city. He started telling me about the potential of the market, These two years itself

lot many brands have come up. Many of them, I know personally, and they were not

interested till our mall came. Seventy percent of the stores in our malls are internationalbrand. They were very happy to see my mall, especially because of our location. He

started selling his mall, during the conversation. I told him, Yes, your mall is also

good, but still lot many people from creamy class prefer purchasing from brands

present in the high street location. For us civil lines location is really good, as the mall

culture is yet to catch-up in Agra. Little bit fumingly, No, No..., how you can say

that? Brand who are to come up in my mall are testimony to the fact that people prefer

shopping in Malls. In fact, I will advise you to take one location in my mall. Now this

was what I was waiting for. I said, No Agra doesnt has that potential, but yes I can

talk about this mall too, with my boss. Ok, I would like to push-off. It was nice talking

to you, Bye, and I left.

I came back to Delhi. While watching news in my room in hotel, fondling with remote,

I was contemplating, what are the chances that he will call me? I replied myself

assuring, Vishal, he will call you tomorrow, as already I had tossed that day that I will

be returning back to Agra. Thinking all this, when I slept, I dont know. Next day,

while I was talking to my boss in my head office, my phone buzzed. I saw my mobile, I

smiled, it was showing Vivek Malhotra. I received the call, Hello Vishalji, myself

Vivek Malhotra. Who I paused, acted as if I have not saved his number on my

mobile. Me Vivek, to whose mall you came to see in Agra. Oh, sorry, sorry.., Yes

how are you? I said, acting apologetic. Vishal ji, I wish that when you come

tomorrow to Agra, before finalising location, if we can talk something fruitful. I said,about what?About my mall, I want that you should consider it as one of the option.

I replied, but Vivekji we are towards finalising the civil lines location. He ardently

requested, What is the harm in talking may be that you like it. I said, Ok, I will try to

come with many pauses in between. Yes, yes, ok then I will be waiting for you. He

actually confirmed my visit on my behalf. I disconnected the phone, thinking, how

ignorant he is? When his location is the main focus for me, he believes that he is a

bystander! I was happy that first act of the drama has gone as per my script.

I was expecting one more call from him. On Wednesday, I deliberately made late to

Agra. Finally, I reached to his mall. Actually I was more eager to meet him, actually

we both were eager to meet each other. The stage was set for negotiation. He took mefor a round of his mall; he took me to the food court. Everything was splendidly done,


11/16

11

but I, in no way was alloying myself to show that I was impressed, which actually I

was. He started showing me different locations which might suit me. All stores were of

equal size with counter and kitchen at the back-end. After having the look, he took me

back to his chamber within the mall. So you liked it? I said, Its wonderfully built.

Looking over me, So, what about considering space in my mall. I casually asked,

What is the rental? He told, We are charging, two and half for the space you saw. Itold him with bit surprise, You signed for one and half, two year back with my other

brand, thats what my colleague told me, He said, Its two years back, but now the

rentals have peaked up in this area. I retorted, and then you will also have common

area maintenance charges, which I have not to pay in civil lines location. His point had

the logic, but I showed as if I was not much impressed with his point. Then I took my

bhramashtra and fired, but my budget itself is fifty thousand for this brand in city like

Agra. He was appalled to listen this from me. What are you talking about, he said. I

told him decently, Yes this is the budget, we are working with. He in counselling

tone, that is right for civil lines type of location, here you will get four times more

footfalls, why dont you raise your bars.To keep the dialogue open, I told him that I

have to ask my boss, but really I am afraid if we can go upto, what you are expecting. Isaid, Can you give me some price on which I can talk to my boss. Confusingly he

blabbered, Yes, I can think, but I can decide only after talking to my managers. I said,

then ok, you convey me your price, till then what I can do is that I will not finalise the

location, but I dont have much time as I have to open my store by Diwali. He assured

me, Yes, I will come back to you with some favourable price. I said goodbye and

came back. I was satisfied with the way everything has gone so far.

I kept waiting for his phone. Heart was saying to make a call. Fingers were restless to

dial, but I controlled. After three days, his phone call came. He said, We havedecided

to give you a discount, but please dont open it to other tenants, now he was playing

with me. I was eager to hear about the discount he has decided to extend it to me. He

said, We will be charging two lakhs, this is very competitive rentals considering the

sale which you will be doing here. Unimpressed I said, Vivekji, I told you, give me

some price on which I can convince my boss. Yes, bit surprised, but this is good

price. I told, Had you given me something nearto one lakh, I would have tried to go

for your mall, but now, its difficult to think you as an option. I then consoled him,

Vivekji thank you for everything may be in future we can do business, best of luck

then. This I saidwith bit of calculation, as my broker had told me that Vivek Malhotra

is very eager to bring my brand into his mall. No, No, No why you are thinking this

way, give me more time, I will work out something. This diwali you will see your

brand in my mall and not anywhere else. Give me two more days. I said, ok, butplease inform me quickly.I said with some pain.

Cutting short for the readers, epilogue of the whole episode is, I was able to get the

location at one lakh thirty thousand instead of two lakhs, which actually we were ready

to pay. Thus we saved seventy thousand. This comes out to be eight and half lakhs per

annum which can go a long way contributing to the bottom line of the company. Vivek

Malhotra, from the beginning was interested in our brand. He knew, how it will add-up

to his reputation by having our brand in a tourist destination like Agra. He only had one

mall, therefore his stakes were high. He would never have wanted to miss the

opportunity to have our brand in his mall. Finally, All well that ends well.

Inching towards Carpet Area


12/16

12

After deciding on location other technical issue is to know the right size for the outlet in

any given location. Its a big science to check that we are neither over-carpeted nor

under-carpeted. There might be a situation where we feel, had we gone for more carpet

area we would have fully exploited the potential. This is the situation of under-

carpeting. In over-carpeting on the other hand, space is more than the footfalls. So

deciding about the carpet area is a crucial decision. Restaurant generally is divided intotwo partskitchen, that is back-of-house and the customer area, that is called as front-

of-house of the restaurant. We go for three thousand square feet as the base size for the

outlets, with the kitchen area and queuing area taking half of it. With kitchen area

generally being the same, we have to decide about the sitting capacity, which results

into our requirement of the size of the outlet.

Once, when we were going for deciding about the location in Nehru Place, the

landowner gave me his price which actually meant that the particular outlet should

produce one lakh sales per day. How we went was, that first we, assessed the amount of

sales per day which can easily absorb the monthly rentals that was one lakh per day. All

the days will not have equal sales; tuesday having the least i.e., about thirty to fortythousand, would peak to one and half to two lakhs during the weekends. For Sundays,

then we work out, what would be our footfalls during the peak hours from six to nine in

the evening, and then precisely how many people will be there in my restaurants during

any peak hour. This data we got from one of our outlet in another, similar type of

location. With table turnaround time of twenty minutes, we came to know about the

maximum space requirement. From this, we arrived at the requirement of four thousand

five hundred square feet at that location. We in this type of situations are concerned

about, whether we have enough number of seating capacity to accommodate the

customers. If I am unable to do so, then we would not be able to achieve the sales of

one lakh per day. On this ground, I will reject the site. So, its not the question of

rentals but whether I am getting the required size as per the demand of the location.

There is no point to sit with an outlet of the size, anything less than four thousand

square feet in the location like Nehru Place. If we dont follow this principle, we cannot

maximise the revenue for the company.

With regard to how many outlets we should have in a city, every retail brand has its

own policy. Primarily, it depends on the sophistication level of the customer but as far

as numbers are concerned, we follow a policy of having one outlet per ten lakh

population. So, as far as Agra is concerned I have the opportunity of opening at least

two more outlets but we chose to move slowly on this. This has its own benefit,

currently I receive enquiry from five landlords, but as more people will see my outletdoing well, more enquiries will come to me. This increases bargaining power of my

brand. So before going for second outlet just now, may be, I give one year waiting to it.

It also aids in terms of getting more number of ready customers for my brand.

Restaurant chains, therefore should adopt go-slow-technique in opening up of their

outlets.

Scientifically SpeakingRetailing business is full of scientific principles used to increase the footfalls, or

enhance the exposure of some items on the shelf, or even how to make the crowd move

faster or slower in the department store. Food retailing too uses such types of

principles. One such science we use it is in our menu board. Any dish which is new orwhich we want to push more, we put on the top left corner of the menu display board.


13/16

13

What happens is, when we see the menu we start from top left corner of the menu

board. Its very rare that we start from the right side. By the time we reach half of the

menu we already have decided, what to order. Chances are very less that we will go till

the end. This comes from our reading habits, the way we read.., its from left. If we

have to create a menu board for our restaurant in Greater Kailash, a very posh locality

of New Delhi, we will put our most expensive dish on the top left of the board. In ouroutlet in Pune with young population as catchment, we might put more affordable item

on the top-left.

Boneful ConflictsCompanies because of the lure of big money keep themselves involved in opening their

own stores. They however have to rely on franchisee network to expand and exploit the

vast potential of the market. This embroils certain conflict between the company and

the franchisees. Off-late we had to open our non-veg brand outlet at Connaught Place.

There were five sites for consideration. What happens that thirty to forty brokers who

work for us would be bringing in the same location as an option for us? Our franchisee

of fast food business was also approached by these brokers, thus offering samelocations. It so happened that franchisee and we zeroed in on the same site for our two

different types of outlets. This created some differences with the franchisee as he was

not ready to give up that space. The reason for this had the weight. It was a site in the

corner, looking towards two intersection roads with ample amount of parking. We too

were not ready to easily give away to his wishes. Our feeling was that non-veg brand

had more potential to exploit the trade area. I then called him to my office and

explained him the proposition, what is good for the brand, which brand can grow more;

of course I showed him some carrots. We promised to consider him whenever we go

for expansion in Rajasthan. Thus the conflict was resolved. Later on, we fulfilled our

promise by making him franchisee for Rajasthan.

During our expansion mode we enjoyed expanding in Punjab. Punjab is very rich,

people have lot of money. There are investors, who have big money. These cash rich

investors always look for some good investment opportunity. Most heartening thing

about these people is that they take pride in associating with big brand like us.

Boasting in society that such a big brand is its tenant, adds lot to their prestige. To

accommodate big brand like us, they would even buy a land, put two three crores of

rupees and often would create a basic structure for us.

In Punjab, once I finalized one property on a highway for a franchisee. My franchisee

was also involved in the discussion from the very start. There were many optionsbefore us but we closed one deal, as their landlord appeared to be very fair and acted

mature throughout the negotiation process. One lakh was the rent of this five thousand

square feet plot and moreover we also had the scope of expansion with this person as he

had nine more properties on the highway. In the cities, change in location by 10 metres

can affect the sales in lakhs but on highways, few plots here or there dontcreate much

difference.

After a month of this deal, my franchisee called me and told me about another property.

This property was near to the location which we had finalised. Its rental was ninety

thousand. I remained unfazed to his point. We had not inked the deal, yet I was not

ready to change my decision. I explained that its very obvious, once, any such deal isfinalized, other landlords for the attraction of having a big brand and earning high


14/16

14

rentals will start offering the space at lesser price. I told him that you would find ten

more, offering some bargain deals. If we go by this, we would never be able to finalise

any deal. But my franchisee was more concerned about his profits. He told me, see,

for a company, itsnice to have all this big talk, but for us it will be a saving of one

lakh twenty thousand. I then had explained him assertively that here you are for the

growth, long-term growth and if you start evaluating your decisions on the basis oflakhs of rupees, how will you make crores. He somehow agreed or one can say I

prevailed upon him. As in any other business, we too, keep facing different types of

conflicts with our partners. We have to manage such conflicts, sometimes we impose

ourselves, and sometimes we give away. But finally we have to resolve and rise above

our petty interests.

HighwaysNew Hot Destination

Most of the retailers are making their next move to Tier II and Tier III cities. But I

have a different opinion on this. After the big metros, highways are the next best

location for eatery outlets, especially highways leading towards big cities. GoldenQuadrilateral project had made many to prefer highways over railways thus making it

an attractive destination for food retailers.

What happens, when one has traversed hundred to hundred fifty kilometres from Delhi?

..one will feel hungry, right! And will start looking for some eatery outlet. Will stop,

seeing the first decent one, because you dont know when the next one would come.

Our competitor has five outlets on highways leading to different cities from Delhi. We

have strategically located our outlets just two-three kilometres before our competitors

outlets. So what a motorist does is that he will stop seeing the first outlet, have the

stuffs and will leave. Once he traverses some distance, he notices other outlet. He

realizes that it was another good option but by that time he has already finished in the

first one. Here lies the advantage of putting your outlet before the competitors one on

the highway. Certainly over the period of time, people learn or may get the help of an

informed driver. But this situation is only with frequent traveller.

The science behind travelling between Delhi to Jaipur by bulk of tourists is that they

leave Delhi early in the morning and have their breakfast somewhere in between. From

Jaipur, they generally would leave in the evening, will avoid any break, in haste to

reach quickly to their hotel in Delhi. So what we do is that we plant our outlet

somewhere between hundred to hundred fifty kilometres on left side of the highway,

little before the competitor. When we have to decide about the outlet on highway, wejust see, which are the best five stores of our competitors on the highway. We will

blindly follow, and open the stores near their location. This makes everything very

easy for us. We however dont copy, blindly. Once the competitor opened on right

side on highway near Ludhiana, we didnt copy him. We opened on the left side.

For highways, we hold ourselves a bit and wait for the competitors to open the outlet.

Their outlet act as a testing ground for the location. We many times go to an extent of

asking our loyal brokers, to motivate investors, to approach our competitor and tell

them that our brand does not have plan for this year. We in a way help our competitor

to finalize the location. Once we get the news that papers have been finalized and the

deal is done, we then move on to decide on our location in such a way so as tomaximise advantages for us.


15/16

15

On highways, other good location is toll booths. We try to locate our outlet within two

kilometres before or after the toll. Preferably it would be after a toll booth on the left

side. This is because its near the toll booth that the traffic slows down and starts

thinking of having some snacks or a meal and then one sees a stores sign. Moreover

after the toll booth, once as people get mentally relieved, then would like to relax andmunch upon something.

Highway is very interesting thing but riskier too. As the companies move on retail

bandwagon, highway offers immense opportunity for growth, especially for food

retailers. Little knowledge is dangerous as goes the adage, is very pertinent in

realizing our highway dreams. For going into the highway, itsvery-very important to

go for the masterplan of the highway, because one never knows that when a flyover

comes. And the moment it comes, the store becomes zero, absolutely dead. Panipat is

one such example. It lies in the way to Punjab and was a bottleneck for the smooth

movement of traffic to Punjab. There were many food outlets on the outskirts. Then,

government thought of a flyover bypassing Panipat city. Main footfalls, they weregetting was from the fleeting motorcades to Punjab. Once the whole traffic was

bypassed through a flyover, all malls having such type of outlets became dead, no

business at all. So it becomes very important that we, very carefully should go through

the masterplan which are made by NHAI. Whenever any investor comes to us,we ask

him to come with the masterplan. We take utmost care. These deals are long term and

requires lot of patience as an outlet takes time to pick on highways.

Last four-five years have evinced the concept of having eatery outlet within a petrol

pump on a highway. So a oil company before going for expansion may ask a different

food chains for a tie-up. If they agree for some locations, they may purchase more land

to accommodate such types of outlets. But somehow this concept didnt caught the

fancy of Indian people. They say, they dont get the feel. Its like joining toothbrush

and shoebrush. Separately both have the utility but when joined together, they become

dysfunctional. This doesnt works so we try hands on something else. Apparel and

footwear companies open their factory outlets as a part of their marketing strategy. So

when we are talking to a landlord for a location on a highway, we will suggest him to

talk to such companies. We in a way try to create a hub. Knowing that a renowned

food chain is there, other companies also become interested. They feel assured of

getting handsome level of footfalls for such locations. For the benefit which a landlord

might get because of more retailers, we bargain further in rentals with the landlord. We

also can take advantage in terms of converting a drive-through layout to, where we canget the advantage of a food court because of the presence of other eatery outlets.

To be on highway the biggest issue is that whatever land is available, is agricultural and

to create any commercial property, the land has to be converted into commercial land.

This is called as obtaining the CLU, and is to be obtained from state government.

Conversion charges are very high and they run in crores of rupees. Therefore the land

cannot be converted into commercial land by any modest landlord. Once we were

looking for establishing the outlet within two kilometres away from the outskirt. As our

competitor was sitting at two kilometres from the exit of the city, we wanted to locate

ourselves within this two kilometre stretch. Problem was that as we had to open before

our competitor, options were less. Five options were available of commerciallyconverted land.


16/16

16

In Punjab, we finalized one location where the landlord had very small shop on his four

acre land. We finalized everything, LOI was signed, internal approvals were made,

design was made. Design is made at the very advance stage. Itsan expensive affair.

Nearly everything was done. After this, just signing up of agreement was left. Title

search of the land is done during the signing-up of an agreement. During the titlesearch, it came out that some of the land has been converted but the portion in which

we were there was not. We complained to our landlord. He didnt want to lose us so he

approached the state government. There he was told that whole land that is 4 acre has to

be converted. Cost was so prohibitive that it was impossible for the landlord to get it

converted. We finally shelved the plan for that location.

Measuring the visibilityOn highways, visibility is of great importance. Outlet sign should be visible from far-

off distance. Glowsign visible from the long distance alerts the driver to take decision

and slowdown. For measuring the visibility, the industry has one balloon test. Here

what we do is that a person is asked to raise the balloon at the location, for which wewant to test. We would then see that from what distance it is visible. This helps us at

what angle and height the visibility is high. Best locations are those where the road

curves a bit and for such locations the signs have the maximum visibility. We also

make our signs very big. One such location of ours has a very big logo of nine hundred

square feet. This particular outlet makes a turns of rupees two crores per month. So the

point-visibility pays in the long run.

Visibility of the location on the curves is high but it goes with one precaution. If the

road is bending right then we should not locate our store on the right side of the later

part of the curve and if it is bending left, then the store should not be on left side. Road

bending right has more visibility for the location on left and same otherwise.

On the highways, food brands generally put their boards or hoardings. It will display,

so and so after twenty kilometres, after ten kilometres, again one board will show

just tenkilometres away. We have three outlets on Delhi Jaipur highway.

What we have done is that once a person comes out of one store, there will be a sign

Next outlet at 250 kilometres stone. However, it is quite unlikely that one will eat in

the same food brand the same day, but it gets registered in his mind.

Highway is very-very interesting topic. I get very excited about highways. When I

joined the company, I wanted to do something new. My MD told me, why you dontdo something on highways. I took as an opportunity. I then made up my mind to study

the highways and launch our brand on highways. I deep dived into it and today I float

on immense learning from highways and continue my learning from the every changing

landscape of highways in India.

expanding the taste.pdf

Documents