Success Through A Portfolio Of Brands

You can't lose when you are in the food business. Recessions may come and go, but people still have gotta eat. Ergo, the food business is the most resistant to business cycles. Even Lee Iacocca talked about the food business in the same vein in his autobiography.

If you are talking about a roadside foodstall, you may be right. If you are talking about a bare bones Udipi restaurant next to your office complex, you may be right again. But go a little higher up the value league, where you are trying to meet demands of eclectic food-lovers, and you could be wide off the mark.

You may come twice to an idli-dosa joint even if you didn't particularly like the decor or taste of the food since the place is conveniently located. And cheap. But if you are paying a bomb for the food, you are unlikely to return too often if you didn't like the decor, the service or the food. In the upper reaches of the food chain, failure rates are equally high.

A new breed of food entrepreneurs is trying to change the rules of the game and increase the possibility of success. Meet Sanjay Narang. Sure, he runs the 30-and-odd Mars restaurant chain, but if its a chain, Narang is the main link. His restaurants are not run under one name, but several.

In fact, what Narang owns is a portfolio of food brands - eight of them at last count - and each of them offers a different cuisine. If you are a resident of Mumbai, you would be familiar with some of them: Dosa Diner, Trim With Taste, Roti, Just Around The Corner and Not Just Jazz By The Bay.

Meet Anjan Chatterjee. His eateries have less esoteric names, but he too believes in the idea of owning a portfolio of food brands. His company, Specialty Restaurants, owns popular eating outlets like Mainland China, Oh Calcutta!, Just Biryani, Mostly Kebabs and Sweet Bengal. Each different from the other.

Narang and Chatterjee are charting different routes to success, but common to both is the realisation that today's food connoisseurs are more demanding customers. They demand both variety and high quality. This makes the food business riskier than ever before. If food entrepreneurs have to offer greater choice and make huge investments in a restaurant, one failure can knock you out. But if you adopt a flexible strategy and avoid putting all your eggs in one basket, you have a better chance of success.

That's really one half of Narang's story. The core elements of his strategy include:

* Multiple brands, each catering to different kinds of cuisine. Thus, you have restaurants that cater to tastes ranging from pizzas to dosas, rotis to salads.

* A central kitchen, where purchase volumes can help bring in economies of scale and food quality can be kept standard across the chain.

* Avoiding real estate risk by leasing premises rather than trying to own them. A centralised kitchen also helps save on kitchen space at the actual restaurant location.

* Greater promotional efforts. Just as airlines adopt frequent flyer policies, Mars restaurants are experimenting with ideas to increase customer loyalty, and encourage frequent visits to their restaurants.

So far, the strategy seems to be working. Though Narang does not reveal figures, insiders estimate that the current annual turnover from Mars restaurants is upwards of Rs 50 crore. His competitors acknowledge that he is succeeding. Says Anjan Chatterjee of Speciality Restaurants: "Narang's concepts have a niche focus and (customers) have responded exceptionally well."

Not that Narang's is the only route to food nirvana. Chatterjee himself tries a different approach. Unlike Mars, he does not employ the central kitchen concept, and instead focuses greater attention on food ingredients and style of cooking. For instance, he imports ingredients for Mainland China's cuisine directly from China. And to ensure standardisation across six outlets of Mainland China across the country, he has an executive chef criss-crossing the country to ensure stringent quality control.

Clearly, there are several ways to propitiate the food gods. But Mars offers an interesting case study on how one can create multiple brands revolving around a core idea, thus improving the chances of success.

MARS - A CASE STUDY

Consider this. It usually takes around three years for a standalone speciality restaurant to begin to pay off. This is mostly because of high establishment costs - which can be as much as Rs 3-5 crore per restaurant, excluding real estate.

In contrast, most Mars restaurants break even within a year of operation with each outlet having a seating capacity multiplier of five or more (that is, five different guests dine on the same seat on any given day), which matches and sometimes exceeds industry standards. Dosa Diner reportedly broke even within three months.

How does he manage this? Narang views his business in much the same way a consumer goods company would. It is not a "mom-and-pop" shop. And like any other consumer business, he ensures strict control on costs and inventory and focuses on brand-building.

It's not an easy business. Speciality restaurants still account for only a minuscule share of the eating-out menu. According to a report by hotel management consultancy Mahajan and Aibara, an overwhelming 83.2 per cent of restaurants in Mumbai are multi-cuisine ­ specialty restaurants account for the remaining 16.8 per cent.

However, things are changing. Speciality restaurants are growing faster than multi-cuisine restaurants. That's why Mars' menu includes south Indian savories at Dosa Diner, pizzas and pastas at The Pizzeria, sandwiches and salads at Just Around The Corner and an assortment of rotis and parathas at Roti.

However, though speciality restaurants are growing faster, they also carry higher risks: customers seeking change will hop from restaurant to restaurant. They may also want different things at different times. In the upper-income set, food promiscuity is not unheard of. That's why Narang thinks he is on to a good thing with multiple brands.

Narang says that preferences in types of cuisine will change, but it is less than probable that all brands under the Mars umbrella will fail at the same time. Also, being specialised, operational costs (mainly on food) tend to be 25-30 per cent lower than multi-cuisine restaurants.

Still, initial costs are high. To set up each outlet in Mumbai, Mars incurs a one-time cost of Rs 50-75 lakh. Though this is substantially lower than other speciality restaurants, day-to-day operational costs (food, energy, manpower, and so on) could account for as much as Rs 5 lakh per outlet per month.

This is where Mars has established new management procedures which have earned it acclaim. First, Mars has preferred to lease rather than own its properties. The premises in which its restaurants are housed are "leased" from franchisees who become "partners" in the venture. They usually get a 6 to 12 per cent share of profits, depending on the location.

Though it is difficult to say how much this lowers Mars' costs, Anil Pathak, chief operating officer of Mars, points out that the risk element is reduced substantially as one does not have to invest in real estate. The downside in this strategy is that the owner may want a larger share of profits if the restaurant really clicks, but the immediate objective of low-cost entry is achieved. Players like Anjan Chatterjee are also taking note, and plan to look closely at this model.

CURBING COSTS

The real estate savings, however, pale into insignificance when compared to the cost reductions possible through a commissary. In the restaurant business, food accounts for anything between 30 and 45 per cent of operational costs. This is where Mars' safest bet comes in.

Till last year, Mars operated two central commissaries of 9,000 sq ft and 5,000 sq ft located in two Mumbai suburbs, Kurla and Sahar. It has since centralised ever further in a 30,000 sq ft commissary at Sahar, near the Mumbai international airport.

Commissaries are essentially central kitchen and management centres that supply clean, pre-cooked food to all the food outlets. For Narang, the commissary does more than just offer quality consistency. It also results in optimum utilisation of outlet space. This is particularly important in cities like Mumbai where real estate is expensive. In the case of standalone restaurants, nearly 50 per cent of the establishment space is allocated to back-room operations. The commissary helps Mars save 25 per cent on space at its outlets.

Another advantage the commissary presents is in minimising wastage. Mars estimates that wastage forms 5 to 6 per cent of food costs at other restaurants. With the commissary, Mars claims to have reduced wastage to a maximum of one per cent. Commissaries work better with fast food and speciality restaurants since the variety of food ingredients required is more manageable. Multi-cuisine restaurants have not been so enthused by the idea.

So far, commissaries have been tried only by the likes of McDonald's and Pizza Hut, or food chains catering to only one type of cuisine - like the Annapurna and Saravana Bhavan groups of Tamil Nadu. But Narang has taken the concept a little further: he essentially operates a multi-cuisine centralised kitchen for a group of speciality restaurants. And it's worked fine.

Mars' commissary has been able to leverage its centralised purchase mechanism to control costs. For instance, the commissary buys 250 kg of chicken and 300 kg of onions every day. The supplies are bought on a yearly contract basis which acts as a buffer against cost fluctuations.

This would not have been possible if each outlet were to make individual purchases. Each Dosa Diner outlet would need just 20 kg of chicken per day. The supplies received by each outlet are reviewed on a weekly basis and in cases of high wastage at specific outlets, the matter is taken up with the chef of the outlet.

Even in the case of new outlets, the potential is identified within a month. The supplies are delivered in 10 refrigerated vans to the outlets early in the morning, to avoid the heavy day-time traffic. In case of a shortfall, the outlet is replenished within two hours.

The management set-up at the commissary includes the head chef, who heads the kitchen, and a general manager, who looks after the complete operations. First, each outlet's daily stock level is identified in the course of an outlet's operation and supplies are adjusted on the basis of the daily variance in requirements. For instance, if an outlet requires 50 kg of onions every day, orders for three days ­150 kg­ are booked at any given point of time. If the outlet consumes, say, 30 kg less, the next order would be for 120 kg.

The commissary keeps tabs on quality through quality assurance inspectors at the point of delivery - that is, before supplies are loaded on to the refrigerated vans. These inspectors also conduct random checks at outlets on a weekly basis. The commissary looks like a fairly obvious type of structure for a restaurant chain, but in Mars' case, the commissary has to serve the needs of eight different kinds of cuisine, so inventory management has to be all that keener.

However, it's clear that the central kitchen idea may not work for everybody. For instance, Chatterjee says that Chinese cuisine requires elaborate preparation based on customer specifications, hence the concept of a central kitchen would not be feasible. This is where Narang's choice of cuisine plays a part ­ as analysts point out. The concept works because most of Mars' restaurants cater to "snacky" cuisine that lends itself to mass production.

CONVENIENCE IS PRIORITY

These initiatives will, however, bite the dust if there is a dearth of visitors at outlets and this is where ambiance plays a crucial role.

Mars has an in-house architectural department of 18 people, which works on designing the various Mars brands. It's this team that puts together an array of designs, be it the frontage sign of a huge banana leaf on which the Dosa Diner's plate-shaped logo is mounted, or the metallic decor of Three Flights Up. All this is obviously yielding dividends. On an average day, Mars restaurants play host to around 6,000-7,000 customers. This could go upto 14,000 on weekends. The average number of visitors per outlet per day is 275.

But more than decor, Narang says that convenience is the priority while designing any Mars outlet. For instance, while designing the discotheque at Three Flights Up, overcrowding near the bar was an issue at hand. Every night club experiences this problem during rush hour.

So a huge bar was built across the length of the room to ensure that, at any given point of time, guests were just four to five feet away from the bar. "The functional and operational layouts take precedence and only once they are in place are the looks or interiors of the restaurant dealt with," says Narang.

This process is a first in the industry where the norm is the opposite. The design team, however, has taken bold initiatives like having an open kitchen and huge glass panes in the front of most of its outlets, which give outsiders a view of what's happening in the kitchen. Narang says this portrays confidence to visitors that the environment is clean.

Narang, though, has his share of failure. Trim With Taste is a case in point. The low-calorie food joint was launched along with a nutritionist in the bylanes of the central Mumbai suburb of Bandra in October 1999. 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 foods, the location attracted few takers. Narang claims that the idea was ahead of its time.

But Narang has countered failures with flexibility. One example is Jazz By The Bay (JBTB), a theme restaurant on the coveted Marine Drive seafront. After a launch with much fanfare in the early-1990s, Narang found that the jazz theme was a misadventure. Jazz music had a limited audience, and also a shrinking one. Also Mumbai city had only a handful of jazz bands whose repertoire of 20 renditions could be a turn-off for frequently visiting jazz buffs.

Though Narang insists that JBTB drew packed houses in the first year of its launch, he quickly repositioned it as Not Just Jazz By The Bay from the second year of operations to include pop and rock. The repositioning led to a 25 per cent increase in the number of visitors. Quick thinking allowed him to snatch victory from the jaws of stalemate.

Mars also scored big with Dosa Diner, the restaurant which offers south Indian cuisine. That was a difficult one to pull off since Mumbai is choc-a-bloc with Udipi cuisine. You can't throw a brick in the city without hitting a Udipi restaurant. Launched at a time when the Udupi culture in Mumbai was flagging, Dosa Diner gave the idea fresh wing by offering several twists in the cuisine ­ chicken idlis, for instance. Narang says 700-800 guests visit the three outlets of Dosa Diner on weekdays and the number rises to 1,200-1,400 visitors per outlet during weekends.

RETAINING CUSTOMERS

To ensure that this success is not just a case of adventurous Mumbai-ites lapping up yet another fad, it is crucial for Mars to sustain interest in its outlets once the novelty wears off. Though Narang claims that there is no substitute for good food, a variety of customer-retention initiatives have been launched.

The primary among these is an elaborate guest feedback card which is presented to each customer at a Mars outlet - much like the kind that is offered at all upmarket eateries. The 30,000-plus responses that are received every week from Mars outlets across the city are computerised, tabulated and a summary distributed each week. Anil Pathak cites instances when consumers who had pointed to a lack of authenticity in the sambar served at one of the outlets was offered three options to select.

Another initiative is aimed at ensuring more frequent dining at Mars restaurants. Narang says that at most of his outlets the percentage of repeat clientele is as high as 50 per cent and at one of them (Just Around The Corner), it is 70 per cent.

A recent survey by Gallup Organisation on Narang's restaurants shows that awareness levels for brands like Dosa Diner among the 2,000 respondents surveyed was 50 per cent. And among the respondents who had visited Dosa Diner, 80 per cent were repeat clients (been to the restaurant for three or more times in a quarter).

To ensure customer loyalty, Mars has launched cross-promotion at four of its outlets, called Budget Busters. A coupon booklet costing Rs 299 is sold at Just Around the Corner, Dosa Diner, Birdys (a confectionery chain) and Pizzeria. Any customer buying this booklet gets freebies (buy a salad, and you could get a donut free) every time he eats at these restaurants. Narang hopes to extend this concept further by awarding points to frequent visitors. "More than 40,000 booklets were sold in the Budget Busters scheme," says Narang.

Mars is taking the concept forward by launching a smart card in May 2002 called the 'Mars value card'. For every Rs 100 spent at any Mars outlet, a customer will get 10 points. These can be redeemed at any Mars outlet across the country. One point is worth a rupee. "Every outlet will be fitted with machines which can be used for uploading and downloading points," says Narang.

Having tasted success with his speciality brands strategy, Narang is clearly hungry for growth. He has already set up outlets of Dosa Diner and Just Around The Corner in Pune and Chennai. Over the next two-and-a-half years, he plans to spread his presence to cover five more cities ­ Delhi, Ahmedabad, Bangalore, Hyderabad and Calcutta.

Delhi is the next major focus area as Narang feels that there is a potential for 20 outlets - enough to suit the central commissary concept. Also in the pipeline are a chain of Chinese food corners - 'China Joe' from Mars ­ to cater to Chinese food aficionados.

To bankroll his appetite, Narang obtained a Rs 20 crore loan from ICICI Ventures in July 2000, and he plans a public issue to raise more money when the time is ripe. By next year, he wants to grow his business to a size of Rs 200 crore. If he does that, he will literally have India eating out of his hands.

This article was published in the May 2002 issue of Indian Management