Mars under attack

PERFORMANCE APPRAISAL

Sanjay Narang

Three years ago, restaurateur Sanjay Narang's Mars Restaurants was on an expansion spree. With eight brands of food outlets "" Pizzeria, Dosa Diner, Trim With Taste (TWT), Roti, Just Around The Corner (JATC) and Birdy's, to name a few "" Narang had 30-odd outlets predominantly in Mumbai, with a couple in Pune and Chennai.

The Rs 30-crore venture was aiming to capture Delhi, Ahmedabad, Bangalore, Hyderabad and Kolkata and build a Rs 200-crore company by 2003.

When The Strategist featured the company ("Managing the food chain", January 9, 2001), even competitors waxed eloquent on this cost-effective method of running restaurants. At that time Narang was even looking at a public issue.

Cut to the present. The poster child of the restaurant business in Mumbai has become the industry's favourite whipping boy. "The water has dried up in Mars," quips the manager of an upscale Mumbai restaurant. Another competitor says, "Where are they? Nobody hears about them anymore."

The less-than-kind comments are not without reason. Restaurant concepts like Dosa Diner (south Indian cuisine) have been downing shutters across Mumbai and Pune. Roti (north Indian cuisine) has closed its stand-alone restaurants in Mumbai and is present at just one location in Pune.

The number of outlets of Birdy's, the confectionery and pastry outlet, has dropped marginally to 14, from 18 in 2001. (One reason for this decline could be the entry of Mars into the budget cakes segment with the Cake Khazana brand with 10 outlets.)

Other brands such as the self-service restaurant JATC have had a mixed response. While JATC has moved out of a prominent location in Mumbai's Churchgate, the Bandra outlet is still popular.

Health food outlet TWT had to shut shop even after a relocation. The only stand-alone restaurants that have weathered the storm are the Pizzeria & Pasta Bar, Not Just Jazz By The Bay (both located at Mumbai's Marine Drive) and Tendulkar's, the restaurant Narang set up with cricket icon Sachin Tendulkar.

All the other brands are shifting residence to the malls or multiplexes. For instance, the food court at the E-Square multiplex in Pune has six Mars food brands (JATC, China Joe, Dosa Diner, Roti, Pizzeria and Cake Khazana). And the gigantic Inorbit mall in Mumbai's western suburbs will also host Mars brands in a couple of months.

At the Mars Restaurants control-room near Mumbai's International Airport, Narang hardly presents a picture of a CEO whose ambitious plans have been grounded. Instead, he is focused on repositioning his stand-alone restaurants as members of food courts and ensuring that other projects, such as a six-acre country club in Mumbai, move on schedule.

Narang brushes aside claims that his restaurants serve expensive food and inconsistent quality "" the reason they're on the slippery slope now. The average bill per customer at each of his outlets won't be more than Rs 100 to Rs 120, he says; that doesn't include Not Just..., where the bill could be around Rs 250.

Narang adds that Mars keeps a close tab on quality of food and service through thousands of customer response cards that are compiled every week. He makes the point by flashing positive yearly customer response reports of his outlets.

But in the restaurant business, word-of-mouth is critical. Hasn't Mars' image taken a beating because of the here-today-gone-tomorrow nature of the restaurants? Narang retorts, "It is not about creating an image, but delivering a healthy bottomline. I would rather not have a fantastic image and a lousy bottomline."

In 2001, if the profit of Mars Restaurants was hypothetically Rs 10, it rose to a peak of Rs 30 by the end of 2002-03 (Mars declined to disclose actual figures).

At the time, Mars had 22 restaurants and 15 cake shops in three cities: Mumbai, Pune and Chennai. But then, as profits started declining by nearly 25 per cent, to Rs 22.5 in 2003-04, Narang launched a resizing operation "" closing unviable operations and shifting into high density zones like multiplexes and malls.

Today, with just 12 restaurants and 22 cake shops, Mars claims to have scaled back to Rs 30. "We are back to our peak in terms of profits despite having fewer outlets," says Narang.

Still, the Mars experiment with stand-alone restaurants has yielded several lessons. Narang says, "It's good food that is going to keep you in business. But just good food is not a guarantee of success anymore."

Lesson one: The location mirage
In end-2000, Mars launched three outlets of Dosa Diner, a concept inspired by the quick-service Udupi restaurants.

They scored high on the popularity charts, despite the fact that the Udupi culture was flagging in Mumbai. Dosa Diner gave the idea fresh wing by offering several twists in the cuisine "" chicken idlis, for instance.

At the time, Narang claimed that the three outlets hosted 700 to 800 customers on weekdays, while the number almost doubled to between 1,200 and 1,400 on weekends. Not surprisingly, the first Dosa Diner, at Bandra, broke even in three months, compared to the year-long gestation period for most Mars restaurants.

But the initial response was difficult to sustain. The Chembur (a Mumbai suburb) location of Dosa Diner is a case in point. When the 77-seater restaurant was set up in a cinema theatre in end-2000, it seemed a safe bet, since it was on a busy street, opposite well-known department store Akbarally's. Eager diners would form queues, waiting for a table at the restaurant.

The Dosa effect lasted some six to eight months. As the crowds thinned, Mars realised that a 77-seater place was too big for a suburb like Chembur. It was soon split into two, with another Mars brand, Roti, taking up the other half.

But this didn't work, either. In 2002, Mars replaced Dosa Diner and Roti with China Joe. That fizzled out as well, and by early 2004, the outlet was renamed Food Pavilion and served all three cuisines under one roof. A poster at the outlet ironically summed up the sentiment: "Our greatest glory is not in never falling, but in rising every time we fall."

Despite the optimism, Food Pavilion still failed to attract sustained footfalls and downed shutters a few months ago. Narang says that every new outlet attracts crowds and in this case the outlet failed because it was a "completely wrong location". He adds, "Location is not what it appears to be. It is not a magic formula."

He has a point. The Chembur outlet was located behind a bus stop at a busy traffic intersection; parking for diners' cars was behind the restaurant. Parking was naturally a problem.

Also, the outlet was located a few kilometres away from its catchment area "" the upmarket residential colonies. That's an awkward distance: too close to drive, too far to walk. All of which combined to turn off potential customers.

Location was a problem from the supply side as well. Like most restaurants in the country, the Chembur outlet was never built to be a restaurant.

"Generally, shops are converted into eating places," points out Narang. When Mars' refrigerated vans, which supply food to the outlet, parked inside the building, it would obstruct all other traffic.

How could Mars overlook these factors when it first opened the outlet? Narang defends himself. "We are in the food business. We are not demographic experts." Besides, he points out, by shifting into the food courts at malls all these problems are eliminated at one shot.

Lesson two: Customer perceptions are hard to change
In 1998, the first JATC, a self-service restaurant, was set up in central Mumbai suburb Bandra. When it branched out to south Mumbai "" outside Churchgate station "" there was little chance the place would not find customers.

After all, a million commuters passed by the outlet everyday. But customer response cards suggested that diners thought the salads weren't fresh.

About 100 metres away, another Mars outlet, Not Just Jazz By The Bay, served a popular soup, salad and sandwich lunch buffet. Narang promptly ensured the same salads made at Not Just... would be served at JATC as well. But the negative feedback continued.

Lesson three: Efforts must be equal to returns
In October 1999, Mars launched Trim With Taste, a low-calorie food outlet, in association with a nutritionist. This was one of the few occasions when Mars ignored the golden law of retailing "" location, location and location.

For a concept as niche and nascent as health food, TWT's locale "" a Bandra bylane "" attracted few takers. In early-2001, Mars moved TWT to a more prominent location.

But as it soon discovered, apart from the 100 to 150 regular customers (mostly models and film stars) who picked up packed food from the outlet, the concept had failed to acquire mass acceptance.

Eventually, TWT shut shop. "It was a case of too little returns for too much effort," says Narang. He is referring to the innumerable checks and balances that go into every Mars restaurant. For instance, all restaurants receive supplies from the 30,000 sq ft central kitchen (commissary) at Sahar.

In the case of Mars, the commissary has to serve the needs of eight to 10 different kinds of cuisine, so inventory management has to be all that more keen. Also, irrespective of the size of the outlet, the company has to expend the same resources.

For instance, all outlets are monitored by a network of quality assurance inspectors; and customer responses are tabulated and analysed weekly. The operational costs (food, energy, manpower, and so on) could, therefore, be as high as Rs 5 lakh per outlet per month "" the average for a 30-cover restaurant would be around Rs 3 lakh.

Lesson four: Loyal employees are as important as loyal customers
Mars places a premium of customer feedback. Detailed response cards were placed at each table in all the restaurants. And to ensure that employees did not conceal negative feedback at any outlet, the consumer response cards were numbered serially. If even one card was missing, employees at that outlet did not receive their perks.

Mars may have been one up on its employees when it came to tracking customer response, but in another customer loyalty initiative, employees outsmarted the company.

In May 2002, Mars launched a smart card called the "Mars value card". For every Rs 100 spent at any Mars outlet, a customer was awarded 10 points. Each point was worth a rupee and could be redeemed at any Mars outlet across the country.

"Every outlet will be fitted with machines that can be used for uploading and downloading points," Narang had told Business Standard at the time.

The unforeseen problem occurred in Birdy's, the cake shops. At these outlets, generally only customers who shopped for special occasion cakes or those who had the Mars value cards insisted on a bill. Others paid in cash, without asking for receipts.

It was a scam waiting to happen. At some outlets, employees signed on for Mars cards under fake name, made bills for the cash purchases and added the points to their own smart cards.

Effectively, Mars was losing 10 per cent of those sales to the fraud (10 points for every Rs 100). Of course, once the company discovered it was being ripped off, it discontinued the scheme and the erring employees were sacked in a span of three weeks.

How will getting into malls and multiplexes be the answer to Mars' problems? Narang says the Pune experience proves that it works. After Mars set up shop in the Pune multiplex, Narang claims customers in the city have gone up from 800 to 1,500 on weekdays.

The reason: more than 8,000 customers visit the multiplex even on a lean day. The other advantage is that in a food court, no competing brands can offer the same type of cuisine. Then, mall owners take care of the necessary promotions to attract footfalls.

Further, rather than the prohibitive rents for a stand-alone place, at the malls Mars has to pay only a percentage of sales. The large format retail spaces also take care of other customer concerns like car parking.

Narang still believes that his passion lies in innovation. "The risk of failure in innovation is much higher than in following the tried and tested route." But he feels that the success of Mars lies in adapting to changing times. "What works today might not work tomorrow," he says.

WHY MARS WAS OUT OF THIS WORLD
The Mars Restaurants concept was an unfamiliar one in the Indian restaurant industry. What made it so special?

• Multiple brands, each catering to different tastes and offering different cuisines: from pizzas to dosas, rotis to salads.
• A central kitchen, where purchase volumes helped achieve economies of scale. The quality of food was also kept standard across the chain.
• Avoiding real estate risk by leasing premises rather than owning them. Another benefit of the centralised kitchen: saving on kitchen space at the restaurant.
• Emphasis on promotional efforts. Mars experimented with ideas to increase customer loyalty and encourage visits to its restaurants