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Aug, 08 2012

RECIPE FOR QUICK RETURNS

The concept of quick service restaurants (QSRs) has taken the globe by storm. It's now all set to catch investors' eyeballs looking to take a larger share of the profit pie in the F&B sector.

GRABBING a quick bite while on the go from a nearby QSR has become a rage in India's food & beverage (F&B) market. Thanks to the steady influx of internationally eminent food chains that have transformed India's F&B sector raking in profits for new as well as established investors. The concept of QSRs in India has always tended to be more metro-centric rather than the one to tap the small cities. As a value-for-money segment, QSRs alone have the capacity to buck the trend of economic downturn. QSRs announced their entry into India with McDonald's, followed by KFC, Pizza Hut, Domino's India, Pizza Corner, Subway, Kaati Zone, Jumboking and Quiznos. They have penetrated the market and their aggressive expansion plans are already underway.

Exploring ‘quick’ gastronomic delights

QSRs in India's F&B industry have shown a remarkable growth in the last decade. What has truly made the QSRs successful in India is their Indianised menu, quick service, hygiene and the ambience they offer. Today QSRs stand tall as global marketers are increasingly investing in India's F&B space to target a large base of consumers. According to industry insiders, QSRs will be the next big segment to thrive rapidly.

India's organised F&B market is all poised to rake in extra moolah by diversifying into small and larger formats as a marketing strategy to cement their market's position. Be it India or any other country, QSRs offer value-for-money food and they largely operate through self-service outlets. According to a report of Euromonitor: “The Indian eating out industry is estimated at $64 billion. The organised QSR segment accounts for nearly $ 13 billion. The industry is growing at a rapid scale of 25-30 per cent annually.”

Amid this growth trend “Subway is gaining dominance as the preferred choice of consumers looking for healthier alternative in the QSR space .The share of voice for Subway will be in double digits by the end of this year, with a projected increase of 15 per cent in the revenue .The target is to retain the position of being the market leader in our category,” says Manpreet Gulri, Area Development Manager at Subway India. Shedding light on the industry's reach, Kiran Nadkarni, CEO, Kaati Zone, says: “The QSR industry is sized at about Rs 6, 000 crore and is growing at roughly 30-35% annually. Most of the QSR market is still unorganised, while the organised market contributes only about 5-6% to the entire QSR market. Of this international players with Western concepts make up most of the organised market. The QSR brands offering Indianised products like us are still a small part. But we have now established the fundamentals of our business model and are now ready to scale up at a rapid pace.”

QSRs have garnered their own place in the F&B industry, as a lot of Indian as well as established foreign brands have fallen for franchising and thereafter they have been spreading their footprints in different parts of the country. Within a short span of time, the F&B industry has taken a 360 degree turn and the QSR format started attracting big investments. However, be it any format one chooses to operate in the F&B space, certain parameters pertaining to market potential, demographics, market-related research, eating-out habits and how consumers perceive the QSR concept are of great importance for creating a unique experience that is acceptable to consumers across the country. About the market-related research they conduct, Mohit Mathur, CEO, Quiznos India, states: “We spend a minimum of three months in market research before we launch our stores in any new market; if you see our growth we have now six restaurants in Hyderabad and two in Delhi and we have been actively doing market research on other major cities before we launch our stores.” For Quiznos India, the major research areas involve site selection, competitive landscape, regional food preferences, supply chain infrastructure and the cost of operations and purchasing power of guests.

Emphasising on this aspect Joseph Cherian, CEO for GFA Global and Pizza Corner, says: “Before every launch, extensive market survey is conducted in order to gauge product feasibility in the target area. Parameters such as location, proximity to the sourcing outlets, potential customer traits and their nature of preferences are among the factors taken into consideration before the launch of new products and services.”

On the other hand, Kaati Zone's CEO, Kiran Nadkarni says: “Given that we are a QSR format, we target areas where footfalls are high and where people are in a rush. So we are looking at malls, cinemas, highways and other transit locations like the airport.”

Made to order

Customising a product, menu and its price-points is not only restricted in case of global brands but also for domestic ones. As the concept of eating out more often by a young population and nuclear families is spreading like wildfire, the QSR chains have begun catering to local tastes to push sales. Another factor that's driving the culture of eating out is the retail sector that's becoming more organised with the inflow of foreign brands into India. For Mathur of Quiznos India, customisation is truly a game changer. About its benefits he says: “Our strength is our adaptability without compromising on quality and brand value; we are constantly improving our menus to suit the local taste and pockets. To quote an example, we are doing Pizzas at Quiznos, as an Indian guest loves good quality and reasonably priced pizzas; we are the only Quiznos in 36 countries serving Pizzas. We are currently working on exciting new line of products. These products are designed based on last six months of guest feedbacks. In the next few weeks when these new products are launched, they will be a game changer for us.”

Dishing out market solutions

India's F&B industry is struggling to deal with problems pertaining to selecting and finalising the location, high cost of real estate, staff retention, managing the supply chain, handling perishable food items and maintaining the brand's core standards on which their foundation lies. Elaborating on the challenges they faced, Nadkarni says: “High real estate costs and high turnover of manpower at the outlet are challenges that the entire QSR industry faces. Besides, the nature of this business is such that it requires a lot of time and effort before one can begin scaling up. We have spent six years in trying to establish the scalability of our business model. But now we are in the rapid expansion phase.”

About how he intends to break the obstacles, Gulri, says: “We face challenges with high rentals and we have a two-pronged strategy to overcome the same. First, we are very innovative with store design and try to fit in stores even in very tight locations. Secondly, we have a very aggressive marketing strategy that helps us with volumes and enables us to afford locations at higher rentals.” The best way to forge ahead in QSRs is by making a distinction in terms of selecting the menu, format, a highly profitable location, sticking to the Indian taste and experimenting with local cuisines.

A right location that drives huge customer footfalls also proves to be a value differentiator for a brand. Mathur says: “We have a detailed site selection criteria document that lists down preferences in details. In brief, we prefer street front and ground floor as we are a QSR and these two things let us cater to guests very effectively.”

However, Cherian observes: “We are a brand serving the mass. Generally, we focus on locations which are commercially viable and have the ease of accessibility.”

Relishing flavours of franchising

Franchising has turned out to be the favourite business route for spreading a brand's network. As compared to the complex nature of operating fine-dining restaurants, QSRs take a lead in creating a new growth story as investments are comparatively lower. On taking the bigger bite of the industry's pie, Mohit Mathur of Quiznos India, says: “Right now we are not looking at taking over the market share but are focused on franchise store profitability; we have set store profitability targets and as long as we can make sure our franchises and outlets are meeting the goals of profitability and guest satisfaction, we will accept whatever market share this approach brings to us.” Kaati Zone operates on various retail store formats that provide attractive returns to franchisees.

On providing training for their franchisees, Nadkarni says: “We understand that our franchisees are our partners and that in order for us to succeed our partners must succeed first. We will share our learning and use our resources and expertise to help them grow right from location selection to project implementation to operation and marketing.” On similar lines, Gulri says: “All of our franchisees go through an intensive two-week training course, which is a combination of classroom training and hands-on work at a fully operating Subway restaurant, which takes place at one of the several training centres around the world. Besides, ongoing support, mentoring and guidance are provided at local, national, regional and global levels from our development offices, regional and country offices as well from our world headquarters.”

About how franchising is an apt model for expansion, Cherian says: “As a brand headquartered in Switzerland, we are constantly looking for expansion. From that point of view, franchising works ideally for us, especially for establishing our business overseas. Our vision is to become a leading multi-brand builder, operator and franchisor of specialty retail brands worldwide.”

Spreading aroma

Just like the foreign chains, Indian food chains operating the QSR formats have also put their plans in place to multiply their store count. Pizza Corner, a brand of Switzerland-based Global Franchise Architects, has plans to close the year with 105 stores, all of which will be franchise stores. When asked about the preferred retail format for their brand, Cherian, said: “Both the express and dine-in formats are equally profitable for Pizza Corner. However, the dine-in format ranging between 600 and 700 sq.ft for Cream & Fudge has proved more profitable than the kiosk models.”

Currently, Kaati Zone operates 30 stores, of which 20 are franchise stores. About their expansion aspirations, Nadkarni says: “By the end of 2012, we would like to be 90-100 stores strong. We want to maintain an 80-20 split between franchise (80%) and company-owned outlets (20%).”

Nadkarni is in favour of operating through small formats. He believes that small formats are more profitable because the investment and rental costs are lower. Hence, they can be set up more quickly and because of lower overheads the required break-even sales are lower which means a faster payback period for the franchisee.

Subway operates more than 37,000 franchise stores in 100 countries. By the end of this fiscal, it will add 340 stores to its total count. In case of Quiznos, they have eight operational stores and four are scheduled to open in the next four weeks. It will be a mix of company-owned and franchise stores. By the end of this year, 40 stores of Quiznos India are going to be operational 20 in Northern India and the same number of stores in Southern India.”

More fun for foodies!

Franchising today is touted as the catalyst for stimulating the growth of the QSR concept that's truly global in nature. Indian partners of international brands have diligently studied the market and customised their menus to target the consumers' ever-increasing inclination for eating out quick meals and this has resulted in a boom in India's QSR industry.

Finally, to build a sustainable QSR business, franchisors/brands need to adopt the strategy of customisation to tantalise customers' taste buds and also resort to scaling up their business by constantly innovating their services and tapping new locations that promise immense potential.

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FRANCHISE FACTS

Company Investment (in lakh) Area (sq.ft) Break-even RoI

Quiznos India Rs 30-50 350-800+ Subject to rent/ salaries 18-24 months

Pizza Corner Rs 60-65 1,400 -1,500 3-3.5 years 3-3.5 years

Subway Approx. 45 250-800 NA NA

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