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Sep, 10 2012

COOKING PROFITS IN DESIGNER KITCHENS

Born out of western lifestyle, the modern kitchen concepts loaded with high-tech equipment and accessories offer both élan and ease. Foreign brands are finding India a hospitable destination. Further, franchising is adding spice to their market success.

TODAY’S kitchens are smart and comfy, unlike in the past when they were a mere utility space with a humble burner, some cooking vessels and little paraphernalia, to cook food. These days, people use kitchen not only for food preparation and storage but also for dining, spending time with family and even for party and entertaining friends. In many homes, due to space constraints, there are open kitchens, thus every inch of available space needs to be well utilised.  People desire a well-planned, hygienic and an aesthetically-built kitchen that suits their modern lifestyle.  Here customised kitchen solutions come in handy. It is said that kitchen is the heart of a home and perhaps in keeping with the spirit of this proverb, the cash rich Indians are not shying away from spending hefty amounts on designer kitchens. No wonder, kitchen brands are cooking huge profits.  European manufacturers dominate the global modular kitchen market, and in kitchen appliances and accessories segment also, international brands rule the roost. They are popular among Indian consumers too. Therefore, rising demand and vast market potential have led several international brands to enter India's kitchen market. To increase their presence, they seek local partnerships. With many brands focusing on franchising to fuel their expansion, they offer lucrative business propositions for prospective franchisees. Let's discover the dynamics of Indian kitchen market and promising franchising business opportunities therein.

Market drivers

The kitchen industry can be broadly segmented into modular or bespoke kitchen, appliances (cooking and non-cooking) and accessories (fittings & furniture). Conspicuous by the absence of many organised players in the Indian kitchen market, it is difficult to exactly estimate the industry size; still it is regarded as a billion dollar industry. The market's momentous growth can be credited to factors like rising incomes and spending, changes in life style and consumption patterns, the growing creed of working women and a trend of nuclear families.  A booming economic reality and the housing sector have further catapulted the demand. Also, not so well-heeled consumers are able to climb up the spending curve due to their easy access to hire-purchase schemes and consumer loans. Primarily an urban phenomenon, the trend is fast percolating down to smaller Indian cities as well.

Prominent brands

Most of the foreign kitchen retailers, having presence in the country, cater to the elite. On the wish list of buyers, are the leading brands like Veneta Cucine, Poggenpohl, Del Tango, Cucine Lube, Hacker and Siematic. Renowned high-end appliance and accessories brands, namely Hafele, Bosch Siemens, Hettich, Miele, Weber and Paykel & Fisher have also generated an aspirational worth. However, in the kitchen equipment category, the price range is more inclusive. Already, established international home appliance majors like Faber, Haier, LG, Whirlpool, Kenstar, etc., offer affordable to high range kitchen products.

Franchising fuels growth

The Indian kitchen market is still developing. For some brands franchising has been a way forward in the local market and they have wholly or partly franchised their operations. Already established in the Indian market, brands such as Hafele, Aran Kitchen World, Haier and Whirlpool have leveraged the business model, whereas brands like SieMatic and Spar Arreda have also joined the franchising bandwagon.

Founded almost 90 years ago in Germany, Hafele is the world's leading manufacturer and distributor of sophisticated hardware fittings used for interior design, including kitchens. The company has presence in 40 countries with its own subsidiaries. Hafele India Pvt Ltd was established in 2003 and has its own design centres at six locations. Why did the brand select franchising for business expansion? Juergen Wolf, Managing Director,   Hafele India Pvt Ltd, explains: “The franchise route seemed obvious, given India's size. It would have been prohibitively expensive to attempt to open company outlets at so many locations out of our own steam. It would have simply not been financially viable”. By the end of 2012, it will have 52 Hafele franchise shops up and running.

In 2009, another German customised fitted kitchens brand SieMatic entered India by signing German Building Technologies (GBT) as its master franchisee. The company has already opened the brand to the projects market for fully fitted designer kitchens and is now seeking to establish a distribution network across all states of India.

Italy-based Spar Arreda, which sells kitchen as well as other home furnishing items, entered India in early 2010 via distribution route. The brand took franchise route in 2011 to further expand the brand. K A Sahir, Director of Spar Arreda India Pvt. Ltd, says: “We took the franchise route as it is actually the fastest way to increase the number of outlets throughout the country. It also allows franchisees to derive the satisfaction of having their own business, thus motivating them to maximise sales.”

In 2008, Aran Cucine, the largest exporter of modular kitchens from Italy, has joint-ventured with Kitchenworld, a company backed by Chennai's Bohra Group.

Braving hurdles 

Whether new or already established, home grown or foreign, the brands have to face hurdles and competition. Ravi Dutta, CEO & Managing Director, GBT India, says: “Positioning SieMatic in the Indian market was fraught with many challenges, as most international kitchen brands that mattered were already established here. We needed to connect with the target users, therefore, it was paramount for GBT to christen and launch the first flagship store of SieMatic to succeed in the long run. According to him, a booming economy and lifestyle changes offer big business opportunity; however, low replacement demand and a longer gestation are the major challenges in the modular kitchen market. The paucity of quality outlets in the market, where the brand could present products in the right retail environment and deliver its promise, drove Hafele to launch its franchise concept. “Contrary to the sanitary and tile segments, the kitchen retailing has not moved up the value chain yet. Kitchen studios are starting to present their products in a better way, but here also much more needs to happen”, says Wolf from Hafele.  He also feels that in the absence of strong local brands in its business segment, Hafele can add fantastic value. According to Sahir, by competing only with other European imports, Spar Arreda hopes to beat the heat through a better pricing edge in terms of excellent quality-to-price ratio. Its challenge is to educate both the operators and the clientele about the features of the European kitchens.

Besides such obstacles, the emergence of domestic players like Timbor Cucine, Sleek, TTK Prestige, Godrej Home Interio, Kaff, IFB, Jaipan, and Maharaja Whiteline has also intensified the contest. Some of them have also entered the franchising arena.

Serving brand promise

Discerning Indian consumers nowadays want to buy world class products/services, and reputed international brands promise just that. Speaking on their brand's promise, Ravi Dutta says: “High quality, ultra-luxe international designs, exceptional aesthetics, great functionality, timely deliveries, cost optimisation and GBT's personalised customer service make SieMatic a promising brand for local markets.” SieMatic targets niche high-end signature cooking spaces. Apart from fittings for various interior design applications, Hafele sells kitchen fittings comprising appliances, sinks, taps and even lighting. Kitchens, which are equipped with Hafele fittings, ultimately provide superior quality and functionality, swears the brand. Banking on innovative design and finishes, Spar Arreda finds enormous business opportunities in imported kitchen market in India.  “The clientele we are targeting comprises the mid and the high-end clientele. Our brand is very promising for the local market as it encompasses a modern design, an excellent quality, united to a very good pricing,” says Sahir. Aran World offers innovative, functional and elegant range of premium and top of the line boutique Italian modular kitchens at competitive prices.

Simmering opportunity

Presently, Hafele has major presence in North and West India, with little presence in eastern part of the country. Now it is also focussing on the northern region. Continuing its franchise expansion drive, Hafele plans to offer on the average 25 franchise opportunities a year. In five years, the brand aims to have over 200 outlets in India. To partner Hafele, an area of 1,500-3,000 sq ft and a capital between Rs 20 lakh and Rs 35 lakh is needed. A franchisee can expect an ROI after two years.  Additionally, Hafele will also start rolling out a high-end appliances shop concept next year, providing another entrepreneurial opportunity for participating in the Hafele success story.

GBT plans to increase the availability of its brands by franchising. The investment for an exclusive SieMatic franchise store varies between Rs 3.5 crore and Rs 4.5 crore depending upon the city and location. Currently, franchise opportunities are open for Mumbai, Chennai and Hyderabad. The ROI varies between 35- 45%.

Aran Kitchenworld has 12 showrooms, of which 11 are franchise stores. With three franchise deals already signed, the brand is looking forward to reaching the count of 50 stores by 2013, confirms Rajesh Bohra, Chiarman & Managing Director (CMD), Aran Kitchenworld India Pvt Ltd.  Depending on city, an investment of Rs 18 lakh to Rs 1 crore and an area of 800-2,500-plus sq ft   are needed for its franchise.

Spar Arreda plans to grow its presence via franchising only. Currently, the brand has two outlets in Delhi, of which one is a franchise outlet.  It is set to add two more franchise stores in its network by the end of 2012. Aiming about 5-6 openings a year in key Indian cities in five years, Spar Arreda expects to have at least 35-40 franchisees throughout India. Its potential franchisee will need an investment of about Rs 15- 30 lakh and a display area of 150 sq m. The expected break-even is 9-12 months from inception.

Training & support

By associating with an international brand, franchisees can leverage a well-recognised brand name, but ample training and support remain critical to their operational efficiency. They need to be informed about products, marketing and retail practices for profitability and business success. SieMatic addresses initial as well as ongoing product training. GBT monitors the day to day activity and supports the sales process throughout, behaving like an Indian arm of SieMatic. Hafele's training department ensures that all its franchisees receive regular training for product and sales arguments. Its franchise operations team offers support as well. Spar Arreda also provides complete training, commercial as well as design support to all of its franchisees.

What’s in store?

With enhanced global exposure, there is increasing consciousness and acceptance of international brands among Indian consumers.  As more and more people are opening up to the international standards of utility, comfort and style for their living spaces, the country's modular kitchen market is expected to continue a good run in the long term. Moreover, to tap the market, several international brands will continue to select a franchise business model, dolling out lucrative investment oppor-tunities for interested entrepreneurs.

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