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Feb, 04 2012

PLATTER OF PROFITS

Good returns come in small packages, nothing can corroborate this better than the tiny retail formats, carts and kiosks, as they spin more profits than big-box retailers. They may be small, but fruitful to invest in.

WHAT’S propelling franchisors to go for teeny-weeny retail formats? Is it an apprehension regarding high investment or venture's profitability or some other reason? Some franchisors believe that by diversifying into small retail ventures and multiplying stores, they can easily sustain their business in a highly competitive market. And that's the way forward as diversifying into small verticals eventually turns out to be the best bet for franchisees as such formats doesn't call for investing extra moolah.

Small formats are becoming favourites, as they can be positioned at atriums in malls, high-streets or commercially visible areas such as airports, railway stations or at government or corporate offices or highways and petrol pumps too. Today, brands like Amul, Kwality Walls, Coffee Day Xpress, Vadilal Happinezz Parlours, Go! Chaatzz.., Café Buddy's, Brewberry, Nirula's, Kaati Zone, Sweet World, YaYa's Café, Big Sandwich Company and Petawrap are some of the names that have spelled big success through these tiny formats.

Business potential

In the food and beverage industry, one can open a cart/kiosk in an area ranging from below 20 sq.ft to 500 sq.ft. Small format businesses are always in, as the start-up cost is low and one doesn't need to invest in the seating space. It involves comparatively lesser operational costs, restricted menu and limited staff. The question that often scares the franchisees is about paying higher real estate cost for owning or renting the space. In this case, cart/kiosk model certainly acts as a blessing in disguise for not only youngprenuers but for established franchisors/brands too, in view of the fact that a cart/kiosk model can be set up anywhere without any hassle. Several brands have launched their low cost yet money spinning verticals/retail formats to have a stronger grip in the market.

Devanshu Gandhi, MD, Vadilal Enterprise Ltd that operates Vadilal Happinezz Parlours, said, “The main reason for shifting to kiosk concept is heavy rents in malls and multiplex. Kiosks are managed in less space at a lesser rent and show better profit in the venture. It eventually increases the RoI for franchisees.”

Sudeep Gupta, Business Development, Café Buddy's Foods Pvt. Ltd, notifies, “In today's scenario, small formats are taking a big leap in retail industry. There could be several reasons for this. It's not necessarily the investment or venture's profitability that determine the format size, it could be logistics, product offerings, returns and operations etc.”

While as per Gandhi, “The current market size of the kiosks/carts in the F&B industry is about 15-20 per cent. The growth expected is 25 per cent CAGR as all the segments have plunged into the kiosk concept. Major growth drivers are increasing disposable income, changing lifestyle and a food habit wherein eating outside is a part of daily life and also increasing retail space in malls and multiplexes.”

Upside

The food and beverage industry is the only industry that assures rich dividends as investment and other expenses are negligible if one is willing to start with a small format. This is because they are meant for risk-averse investors who prefer safer investments that require low operating costs and high visibility, which increases the venture's profitability in no time. They help to balance sky-rocketing real estate prices and give on-the-go convenience to people.

Coffee Day Xpress President, A.G. Puttaraj adds, “Available in both indoor and outdoor modules, an 'Xpress' is a modular kiosk requiring not more than a space of 60sq.ft and can be set up almost anywhere. Besides its distinct beverage and food offering, the growth of Coffee Day Xpress also comes from its innovative franchising model, which promises profits right from the first month. The low investment-high returns business model has proved popular with entrepreneurs who are eager to cash in on the brand's “plug-and-play” kiosk concept.”

“At Brewberrys, kiosk module investment ranges from Rs 10-12 lakh. We ensure 40 per cent gross profits from the sales. Entire pre-opening process is well defined and includes standard drawings and formats provided by us. Training and recruitment is taken care by Brewberrys for the entire term of the contract. FOCO options are also open for some cities,” confirms Ankur Gupta, Director, Brew Berrys Hospitality Pvt Ltd.

As the market is catching up fast and many established brands have already entered the fray by diversifying into small retail verticals, it's now a new variable for investors to face cut-throat competition from unorganised market i.e. likely to beef up. It is advisable for new investors to design unique strategies so as to give edge to competitors in proximity. For instance, setting up a kiosk in an eye-catching location also works wonders, as it assures customer footfall and thus profits too. Franchisors prefer to have a minimum lock-in period of two to three years and in some cases, the lock-in period depends on location-type. Before freezing a right location, it is advisable to consider various factors such as accessibility, visibility, competition from brands, customer traffic and footfall.

Downside

Small formats suffer primarily due to the impermanency of location in mall atriums. Mall authority can anytime ask a kiosk vendor to vacate the location at any time. Other factors that hamper the growth include restricted menu that lacks variety, untimely supply chain from vendors, no option for delivery service, and difficulty in maintaining quality standards. As per Gupta, “The key challenge is to manage the operations with a small team. Pre-opening costs can also go out of proportion in case of remote location.” Vishal D Bhatia, Proprietor, Bhatia Hospitality, that runs Big Sandwich Company, enlightens, “Difficulty in obtaining a food service licence for a cart or a kiosk at high streets, competing with local carts and kiosks, maintaining high inventory for sudden rush due to limited space are some of the challenges.”

It's advisable to take cautionary steps by doing a prior market feasibility survey to understand the demand generation and then think of starting off the venture.

Road to success

Brewberrys operates 40 outlets and will soon be opening seven new stores in January, targeting 25 more stores in first quarter, said Gupta. Café Buddy's, on other side, operates 125 outlets, of which 60 are company-owned and the rest 65 are franchised. On spreading the brand's foothold in pan-India, he said they are looking to add 165 outlets by the fiscal year 2012-13. In case of Vadilal Happinezz Parlors, the company has plans to open around 50 more outlets by the next year. Go! Chaatzz.., a reputed brand promoted by the owners of Radisson Hotels, Park Plaza Hotels and TGI Friday restaurants in India, operates various retail formats viz, carts, kiosks, shop-in-shop, café style and large units that require an area starting from below 20 sq.ft and it goes up to 7, 000 sq.ft. By this year end Go! Chaatzz.. will be adding 50 more units to its portfolio.

Coffee Day Xpress plans to scale up its store count by adding 250-300 new outlets by this year-end across tier A and B cities. While, Big Sandwich Company plans to open 8 outlets by this year end, which will be a mix of company-owned and franchised outlets. As of today, Juice Lounge has 35 bars spread across two countries and 27 cities in India. Shital adds, “We hope to add another 75 Juice Bars this year.”

Like abroad, will these small formats create ripples in the India's food and beverage industry as well? On this, Gupta of Café Buddy's says, “Yes, gone are those days when we used to see these formats in London underground, Paris Metro or streets of Manhattan. Now, India is all set to explore and experiment different formats.”

So, it would be right to say that investing in small formats is just like a light at the end of the tunnel for not only franchisees but franchisors too, as the demand and potential of low-risk businesses is set to roll in good returns.

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