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Oct, 22 2009

Tasty profits

With the food and beverages sector topping the business chart, it is easily considered as a feasible pick for entrepreneurs. Especially for the first-time entrepreneurs kiosks/stall is a low-cost and low-risk option to step up the ladder of success

Surpassing other sectors with its double digit growth, food & beverages (F&B) is today considered as the best performing sector, which offers low cost opportunities to the aspiring entrepreneurs even in the times like economic downturn. According to the consultancy firm McKinsey & Co, the retail food sector in India is likely to grow from $ 7,000 crore in 2008 to $ 15,000 crore by 2025, accounting for a large chunk of the world’s food industry, which would grow from $17500 in 2008  to $ 40000 crore by 2025

Low risk business

Although F&B is considered to be a high profitability sector, wherein the investment for partnering with the big brand goes up to crores, but those who wish to start their own venture can select the small format business within F&B sector wherein the capital investment is lower. To test the waters in the market, many entrepreneurs in the F&B industry are today ready to invest money in small format businesses. In this format of business, the individual can go in for a cart/kiosk or vending machine format. Interested individual can open up his own juice bar, café, bakery, confectionery, ice-cream cart or parlour and specialty food kiosk by putting in capital investment of Rs 40,000 – Rs 10 lakh with a minimum space of 6 sq. ft to 150 sq. ft. It is one of the profitable and low-risk sectors, wherein any individual can accomplish his dreams by quickly taking on franchise of well-established brand. Commenting on the success rate of F&B sector in India, Amitava Banerjee who runs Café Big Mo’s, elucidates, “Low investment F&B businesses have essentially seen success in recent times, mostly through the use of smart carts and kiosks placed at strategic locations. These have managed to attract huge footfalls at sales points, so much that even big chains are now customising their outlets to smaller models as in ‘express’ and  ‘stand-ins’.”

Nowadays, plethora of business opportunities is available for an aspiring entrepreneur in the F&B sector. Here, one can partner with the well-established brand to achieve high return on investment within a short period of time. Many of the skilful entrepreneurs in the F&B industry consider franchising as the viable business option to begin their career with. On this, Mohit Dhanjal, Business Manager, Retail & OOH, Hindustan Lever adds, “The model, by its very nature attracts a large number of ‘first timers’ into the business. Therefore, the propensity to expand over a short period of time is much higher than a capital intensive business.”

How profitable?

Talking of what exactly make entrepreneurs to start off with low cost business, Dhanjal explains, “Any low cost business at its core has simplicity in its business model. Therefore, it is easy to set up and run a low cost business. It also shows results in a short duration of time and hence, the model is fuelled by success. The very fact that large number of such concepts have proliferated over the past few years show the effectiveness and resilience of this format of franchising.” He further comments, “Low cost businesses are relatively recession proof and they don’t require large capital to start off.” On the other side, Virendra Ghole, Marketing Head for Monginis Food, highlights, “Low cost franchise business means not only lesser initial investment, but even less operating cost. This ensures lesser time required for the break-even point and faster payback of the initial investment and better profitability. It makes low cost franchise business less ‘risky’, which makes it very attractive to the investors.”

For example, in a kiosk/cart model, there are no expenses on furniture and fixtures, there is a 100 per cent salvage (recover) value, carts/kiosks are movable and they require low CAM (common area maintenance) charges. Adith Podhar, Co-founder and MD, Crepeteria thinks, “One of the major benefits is that the brand can reach out to more customers and markets as compared to a single stand-alone restaurant with the same investment.”

The success rate of carts/kiosk relies upon the concept of impulse buying. The products that are accessible on carts/kiosks are generally classified as impulse products. And at high footfall areas, consumers are easily attracted towards any food or beverage available at a kiosk/cart..

Set of choices

Since time and space fall short for delivery of delectables in case of a cart or  kiosk, it becomes necessary to do the right menu planning for the success of a small format model. Menu should be classified in such a way, that it caters to every age-group. Popcorn, chaats, ice-gola, soups, ice-creams, gelato, hotdogs, cup corns, french fries, rolls, juices, tea and coffee are usually sold through carts/kiosks. Talking about the menu that Crepeteria offers Podhar says, “We have an executive chef and hence menu is very location specific.We plan the menu on the basis of few factors, like location size, market demographics, age-group, gender, income levels, culture and competition. Like, larger the space, more the menu variety.”

Also, it is very important to bring about new products and update the menu from time to time which in turn generates better sales.

Franchisee fee

Franchising in F&B industry is contributing to the success of small format businesses. In franchising business, whether large or small, it is important that the franchisee maintains standardisation and offers quality services to the customers. Taking into account the good performance of the franchisee, the franchisor offers the franchisee a second franchise in which the franchisee is charged a very less fee. Podhar informs, “We offer single unit and multi-unit franchise for only Mumbai and Hyderabad, where we already have presence. And for cities where we intend to have presence we offer only master franchise rights for the entire city. We charge a one time fee of Rs 1 lakh for a single kiosk, whereas, for master franchise rights, the investment ranges between Rs 40-50 lakh per city.”

While on the other side, Rajgharia of Sweet World adds, “We offer multi-unit franchises. We don’t charge franchise fee, but we keep an interest free deposit of Rs 1.5 lakh which is fully refundable at the end of the franchise period.”

Managing supply chain

In the F&B sector, supply chain and logistics are very important for the success of a brand. The supply chain has to uphold the quality and standardisation of its products and the logistics should ensure timely and on the dot supplies. For example, Café Big Mo’s has its own distribution channels to route the supplies. Only proprietary preparations like seasonings and pre-mixes are directly supplied by the company.

Puja Mahajan of Yum!Yum!Dimsum informs, “We have our own vans which transport foods in insulated boxes within NCR and we do not charge the franchisee any transportation.”

Avinash Bharwani, Director, HAS Juice Bar says, “We have set up a warehouse where all sourcing and distribution happens from our end. We manage the entire supply chain and the franchisee only has to manage the outlet.” To manage the supply chain, Brownie Cottage has tied up with Blue Dart couriers to manage the outstation logistics.

While, Amit Roy Sharma, CEO and MD at Bloom Juices India, informs, “We source our products from vendors that are able to supply us raw material according to our product specification sheet. We have annual tie ups with these vendors. This helps us keep a check on the quality, price and quantity of the product.”

Draws and drags

The small format F&B sector, besides its merits, has some drawbacks too. Being a low cost business, it is highly competitive because of lower entry and exit barriers. Maintaining standardisation in terms of quality and quantity becomes a major challenge at times, and owing to less promotional activity it fails to generate visibility.

Support & training

The franchisors offer support and training to the franchisees for effectively running the small format franchise business. On this, Dhanjal informs, “Our company offers training in three formats, viz., induction, on the job and refresher. In induction, before the start of the business, franchisee and his staff are deputed to an existing parlour so that they observe and learn basic operations. After this, they both are trained at their parlours before it is launched. And lastly, periodic training is conducted on an ongoing basis to refresh and impart new skills and tools.”  For the franchisee’s support, HUL provides ice-cream freezer against a subsidised security deposit.. This helps reduce the investment, and standardise equipment usage and maintenance in the parlours.

Beating competition

Smitten by the gains accruing from small format business, big brands too are  contemplating to penetrate into small formats, where the earnings are as higher as one can imagine. For instance, the players such as, Coffee Day Xpress, Kwality Walls, Has Juice Bar, Cookieman, Café Big Mo’s and Leonidas are already available in big and small retail formats. They not only cater to metro cities rather they cater to tier II, and III cities also.

To survive in this highly competitive market, small brands are facing numerous challenges to position themselves in the market. Explaining this, Puttaraj says, “Many small companies do face challenges from big brands in the market, but in India it’s more about loyalty towards a particular brand or taste; it is thus very difficult to shift a person’s brand loyalty. Thereby, even with the existence of big brands, the smaller companies who have brand-loyal consumers will still flourish, while the others will probably fizzle out.”  He further says, “In today’s scenario, large companies do want to explore various formats where they would be more recognised and have a larger bandwidth. Even Coffee Day Xpress entered the channel to bridge the gap between café and vending machines. We saw the demand becoming higher for the quick on the go consumers. Thereby, CDX drove in mainly for people on the move, who could not only have coffee but also grab a quick bite.”

Every brand faces challenges in this competitive sector and to create its brand identity in the market it calls for strong marketing strategies and aggressive campaigns to make it acceptable in the market. Be it large or small players, they equally employ different strategies to reach their target consumers. For the success of small format F&B business, it is pertinent to localise the brand according to consumer’s likes, standardise products and services, gear up supply chain and logistics, and offer goods at affordable rates so as to attract the price sensitive market.

The road ahead

F& B industry is increasingly growing by leaps and bounds. Entering into business or taking the franchise of a popular brand is easy but taking it forward to success is an uphill task. Risks are involved in every business; one would not get an instant success until or unless franchisee works efficiently. The franchisee’s involvement in business is imperative to make it profitable. The scope of small format F&B industry is huge as it offers ample opportunities to the franchisees. Adding to his point, Ghole, argues, “In India ‘entrepreneurship’ is pervasive. People invariably aspire to become entrepreneurs, which is a great positive for any business which works in a franchise model. Low cost businesses can survive through franchise route since managing company owned shops is always expensive. Now, how well franchisees are selected, trained and supported, actually decides the fate of the business.”

Podhar believes, “Scope is huge, since more and more people today want to be their own bosses. But they cannot do it due to lack of funds and risk taking ability. Low cost franchising is thus a very good option for such individuals. Internationally, the wife starts a low cost franchise business and the husband supports it. If it grows to a certain size then the husband joins in the business. Thesedays many youngsters seek to start a small business of their own and learn on their way up to they realise their dreams. Indian middle class can also now start businesses with minimum investment and complete support.”

Anyone who wants to survive in this competitive small format business  is suggested to have at least prior business knowledge, conduct sector specific research, a know–how regarding the customer’s taste of the market where you plan to launch the brand, offering unique product at competitive prices, better customer service, check out the best retail locations to get better visibility which can generate better profits and timely marketing strategies to create consciousness among the target consumers about the product offered

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