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people 2013-10-15

Every business theoretically has its own margins

An interview with Pramod Arora, Group President, PVR Limited

By Deputy Features Editor
Every business theoretically has its own margins

In an exclusive interview with Franchise India, Pramod Arora talks about real-estate moving towards the e-commerce, getting the right combinations for the restaurant and about the non-traditional locations for food service.

What is the reason that real estate is moving towards e-commerce?

It happens when many of the formats are looking at reducing real estate cost to increase the business margin. Instead of taking a physical store, they can operate in the virtual world. For example, at Amazon, you book something at a discount and you end up getting the product at a cheaper price because the real estate cost is not there. They are trading in the e-space at a much lesser cost than the physical store.

Which is more profitable real estate or retail?

It is very difficult to say which one is more profitable. Fundamentally businesses are to earn profits. Every business theoretically has its own margins and it operates on those fundamentals. Many of the retail formats would operate on a bigger market anywhere between 7-12 percent and they are happy with that sort of margins but when you look at real estate, there are developers who will look at 30-35 percent margin. So, this question doesn’t have a straight answer and probably both of them have to be in profits in order to transit in this business.

How can one locate the right combination of high street, malls and food courts?

Every location strategically or intrinsically has its own advantages and disadvantages. When you look at high street you don’t have any common area maintenance but the flipside is that the place is not an organised destination. For getting into the mall, the camp rate is very high but the space given is very well organised and there is always a footfall coming in the form of tenants which becomes a complimentary footfall for any food court. This helps in generating revenue. When you talk about high streets, many of the formats would find it impossible to be absent in the high streets. High street consumers are very different from the consumers coming into a mall. So, as a format you need to be present at all three of the locations.

How do non-traditional locations for food service, such as hospitals, cinemas make decision on restaurant tenancies?

Most of the non-traditional format would end up taking the restaurant scene on the basis of it being a complimentary service to the vehicles. Instead of looking at it only as a revenue mechanism; they look at it as a strategic partner. Talking about the theatre or multiplexes, when you look at a restaurant in a multiplex, one of the things that you are looking at is that do the restaurants offer convenience to the consumers who are coming like either they want to have the food before the movie or after the movie etc. Similarly when we talk about hospitals, the primary business is not to generate money out of giving spaces to a restaurant. They will look at the health aspect first and at the food options as an extended service to provide convenience to the people at the hospital. They will also look if the food enhances their brand image.

Please tell us something about the new future of mall gastronomy?

Often food is of high impulse decision in a mall. When I am walking in a mall, my gastronomic jest may suggest having some Indian or Western cuisine. It is a high impulsive decision at the mall. And this low and high impulse drawing together create a great combination.

                                                                                                                      

Explain the term ‘closing the wrong store fast, yet getting it right’?

The earlier you close the lesser are your losses which potentially mean if you are reducing the losses you are profitable. So, what it means? Predominantly if you know you made a wrong location on the mall, the earlier you close your format, the better it is for you in terms of profitability otherwise you will not only loss your revenue, but your brand will also tarnish and diminish.

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