Mast Kalandar (2)

MastKalandarSuccessStoryofaYoungIndianEntrepreneurCasestudyReferenceno8130141ThiscasewaswrittenbySKKohli&SNithya,AmityResearchCentersHeadquarters,Bangalore.Itisintendedtobeusedasthebasisforclassdiscussionratherthantoillustrateeithereffectiveorineffectivehandlingofamanagementsituation.Thecasewascompiledfrompublishedsources.2013,AmityResearchCentersHeadquarters,Bangalore.Nopartofthispublicationmaybecopied,stored,transmitted,reproducedordistributedinanyformormediumwhatsoeverwithoutthepermissionofthecopyrightowner.

ecch the case for learningDistributed by ecch, UK and USA North America Rest of the worldwww.ecch.com t +1 781 239 5884 t +44 (0)1234 750903All rights reserved f +1 781 239 5885 f +44 (0)1234 751125Printed in UK and USA e [email protected] e [email protected]

813-014-1 MastKalandar:SuccessStoryofaYoungIndianEntrepreneur

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Authors:Mr.S.K.Kohli&Ms.S.Nithya

MastKalandar:SuccessStoryofaYoungIndianEntrepreneur

Abstract:ThiscaserecountsthestoryofayoungIndiancoupleGauravJain(Gaurav)andhiswifePallaviGupta(Pallavi),whoquittheirwellpaidjobsinasoftwarecompanyinBangalore,tostrikeoutontheirownasyoungentrepreneurs.In2006,theystartedaQuickServiceRestaurant(QSR)MastKalandardreamingtodevelopitasanationalchaininduecourseoftime.MastKalandarwasthefirstofitskindinBangaloretoservehomecookedNorthIndianfoodandhopedtocashon theNorth Indiandiaspora in the city yearning forhomemade food.Criticswere skepticalabouttheprojectandpredictedanearlydemiseoftherestaurant.Thecouplewhohadnohandson experience running a restaurant or businesswere expected to lose their personal savingsinvestedtolaunchtherestaurant.GauravandPallavi,however,provedtheirdetractorswrong.In2008,Mast Kalandar received its first infusion of funds from venture capitalists. This enabledthem toopen additionaloutlets inBangalore andexpand toother cities such asChennai andHyderabad.Subsequently, itreceived itssecond infusionoffunds in2010andaimedtousethistoscaleupto100QSRsby2012and laterto500across India.However,theroadtoexpansionwasexpectedtobetough,sincehurdlessuchascompetition,changingattitudeofcustomersandcuisine preferences would test the scalability of their existing business model. Furthermore,industrychallengessuchasrisingrentalcostsand,hiringandretentionofhumanresourcecouldbedifficulttomanageduringthecourseofexpansion.Itthusremainedtobeseen ifthesetwoyoung entrepreneurs could build brandMast Kalandar and enable it to break the barriers ofplannedgrowth.PedagogicalObjectivesThecasestudyhelpstounderstandandanalyse: EvolvingIndianQSRs BusinessModeladoptedbyMastKalandar Challengesfacedbyafamilyenterpriseontheroadtoexpansion.


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CaseStudy"Witheverincreasingpoolofworkingpopulation,nuclearfamiliesandaprogressivemiddleclass,thedemandforfastfoodalreadyontherisewillseeatremendousgrowthinfuturealso."1

RituChaudhri,VPMarketing,Nirula's2

In2006,ayoungIndiancoupleGauravJain(Gaurav)andhiswifePallaviGupta(Pallavi),bothpassoutsofpremierengineeringandbusinesscolleges,whohadworked in IndiaandabroadwereworkinginasoftwarecompanybasedinBangalore.GettingNorthIndianhomefoodinBangalorewasaproblemformostoftheNorthIndians.NorthandSouthIndiancuisinewereverydifferentfromeachother.AtypicalNorthIndianmealwaswheatbased,withdals,curriesthatweremildandmade inghee, thick,creamy lentilsandvegetables.South Indiancuisinewas ricebased; itwashotcombinedwithlentils,coconut,dryandcurriedvegetablesandyogurt.TherewasnotasingleNorthIndianrestaurantinBangaloreservinghomecookedfoodatareasonableprice;thisirritantgavebirthtoabusinessidea.3Gaurav took this idea forwardanddiscussed itwith restaurant& foodchainconsultantsandaconsultantchef.InFebruary2005,thecoupleresignedtheirjobsandtooktheplungetobecomeentrepreneurs.TheysetupacompanynamedSpringLeafRetailPvt.Ltd., inBangalore,tostartMastKalandaraNorthIndianQuickServiceRestaurant(QSR).4Theyoungcouplewithnohandsonexperienceofrunningabusiness investedtheirpersonalsavingsofINR1.8milliontostartarestaurant.5Thestaffthatcameonboard,on learninghowthecouplewouldgoaboutrunningthe restaurant, smirkedand tittletattled that thepersonal savings that the young couplehadinvestedwouldvanishinnotimeandpredictedanearlydownfalloftherestaurant.6

But the coupleproved their criticswrong. In2008,MastKalandar received its first infusionoffundsfromventurecapitalistFootprintVentures.7ThisenabledthemtoopenadditionaloutletsinBangaloreandexpandtoothercitiessuchasChennaiandHyderabad.Subsequentlyitreceivedits second infusion of funds in 2010 from Helion Ventures and Footprint Ventures.8 MastKalandaraimedtousethistoscaleupto100QSRsby2012andlaterto500outlets.9Intheinitial

1Fastfoodindustryonfasttrack,http://www.financialexpress.com/news/fastfoodindustryonfasttrack/742086/0,January25th20112ArenownedrestaurantintheIndianhospitalityindustrywhichoperatesrestaurantsunderthebrandnameNirulas,casualdiningoutletscalledNirulasPotpourriandtwoHotels.2013,AmityResearchCentersHQ,Bangalore.Allrightsreserved.3NarayananJaya,MASTIforthetastebuds!,http://www.thesmartceo.in/Industries/foodandagriculture/mastiforthetastebuds.html,February15th20114OberaiVrinda,CreatingripplesinQSRsector,http://www.indianretailer.com/interview/sectorwatch/foodandgrocery/CreatingripplesinQSRsector175/,October27th20105KumarAmit,EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,http://articles.economictimes.indiatimes.com/20120423/news/31387025_1_restaurantsbusinessmodelplanetasia,April23rd20126DharmakumarRohin,ANorthIndianRestaurantinSouthIndia,http://www.business.in.com/article/workinprogress/aNorthindianrestaurantinSouthindia/22502/0,February22nd20117NairPRadhikaandGhoshAhona,VentureCapitalist'sroleinstartinga'startup',http://articles.economictimes.indiatimes.com/20110531/news/29604252_1_vcshelionventurepartnersearlystageventure,May31st20118ibid.9ANorthIndianRestaurantinSouthIndia,op.cit.


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phase,restaurantsweretobesetupinmetrosandClassAcities.10However,challengessuchasevolving consumer tastes and aspirations, inflation, increasing rental costs and, hiring andretentionoftalentedworkforcewereexpectedtoimpedeMastKalandarsgrowthplans.QSRsinIndia:TheDesiTouchIndia had been renowned for its wide range of cultural cuisines.11 The countrys food andbeverages industry had began flourishing and transforming rapidly, since 2002.12 The casualdining restaurant business (CDR) and the quick service restaurants (QSR) were particularlywitnessingexcellentgrowth.ThisgrowthwasattributedtotheincreasedexpenditurebyIndiansin restaurants.13 The trend of eating outwas driven by both the urban youngsters and theelderlypopulace,visitingfastfoodoutletslocatedatvariousplacessuchasfoodcourtsinoffices,shoppingmalls,airportandrailwaystations,andhighwayoutlets14(ExhibitI).AccordingtoSamirKuckreja(Kuckreja),MD,Nirulas&President,NationalRestaurantAssociationofIndia15,Thereisavastpoolofworkingpopulation,nuclearfamiliesanddualincomehouseholds.Themiddleclassisprogressingwithhigherdisposable incomesandgreaterexposuretomultiplecuisines.Eatingouthasbecomeanintegralpartofoursocialfabric16(AnnexureI).BenefittingtheCDRandQSRplayersfurther,wasthegrowthportrayedbytheTier1andTier2cities,similartothatoftheirurbancounterpart.17Estimated tobewortharound,$8.6billion in2012, the Indian restaurantindustrywasprojectedtoachieveagrowthof$12.6billionby2015.18GrowingataCompoundAnnualGrowthRate (CAGR)of17%, the Indian foodservices industrywhichwasvaluedat INR750billion in2012,wasexpected tobeworth INR1,370billionby2015.19ThemarketofQSRsworth$600millionwasestimatedtobethefastestgrowingfoodservicesector,withaCAGRof2530%.20

10CreatingripplesinQSRsector,op.cit.11GohilNeha,QuicktakeonQSRbiz,http://www.franchiseindia.com/articles/Opportunity/LowCostFranchise/QuicktakeonQSRbiz550/,May21st201212ibid.13AnnammaOommen,FastFoodRapidGrowth,http://www.ibef.org/download/FastFood_150410.pdf14ibid.15TheNationalRestaurantAssociationofIndia(NRAI)istheleadingassociationforstandaloneandchainrestaurantsofferingIndividualandCorporatemembershipforalltherestaurantsinIndia.16BarariaAnu,ClashoftheQSRs:Homegrownv/sForeignbrands,http://www.indiahospitalityreview.com/features/clashqsrshomegrownvsforeignbrands,May17th201217FastFoodRapidGrowth,op.cit.18QuickServiceRestaurantIndustry:ComingofAge,http://www.eoscapital.in/images/QSR_Eos_Capital.pdf,May201219SethiAtul,Healthygrowthinfoodbusiness,http://articles.timesofindia.indiatimes.com/20120902/india/33547942_1_foodcourtsyumrestaurantsfoodbusiness,September2nd201220QuickServiceRestaurantIndustry:ComingofAge,op.cit.


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ExhibitIFrequencyofEatingOutinIndia

Source:IndianRestaurantReport,2012Source:SethiAtul,Healthygrowthinfoodbusiness,TheTimesofIndia,September2nd2012,page15

Thearrivalofmultinational fast foodplayers suchasPizzaHut,McDonalds,KFCandDominosPizza,marked theentryof fast foodorQSRs format in India, in themid1990s.21McDonalds,during itsentry in1996 intothe IndianmarketservedanAmericanbasedmenu,forgoingbeef,whichwasanimportantelement.22SinceamajorityofIndiansdidnotconsumebeef,McDonaldsreplaceditwithmutton.23CommentingonthesameVikramBakshi(Bakshi),MD,ConnaughtPlazaRestaurants24 opined that, We thought that we could just replace one red meat with theother.25However,thatdidnotconvincethe Indianconsumer,sincetheydoubtedthatmuttoncould be mixed and served with beef unintentionally in restaurants.26 Consequently, likeMcDonalds, many players attempting to comprehend the Indian taste preferences, gave anIndianflavortothemenu,differentiatedofferingsandsuitablyrestructuredtheiroutlets,togainappealamongstindividualsandfamilies.27AjayKaul(Kaul),ChiefExecutive,JubilantFoodWorks,saidthat,Iwouldcallitarevolution.Theconsumersevolved,thetastesevolved;themenusandformats followed.28 ItwasMcDonalds again in the forefront to localise themenu. Its stronggrowthwasbackedbythepriceandmenuadopted; inordertoIndianise itsmenu,McDonaldsintroducedtheMcAlooTikkiBurger,hadpricedachickenburgerbeginningwiththepricerangeofINR20.29Bakshiappendedthat,Wemadealotofmistakesuntilwegotitright.30 21FastFoodRapidGrowth,op.cit.22KazminAmy,Fastfood:Attentiontolocalpalatespaysoff,http://www.ft.com/intl/cms/s/0/9e877ef00acf11dfb35f00144feabdc0.html#axzz1ymOwXHhY,January28th201023ibid.24ConnaughtPlazaRestaurantFranchiseisoneofIndia'smostpopularfoodandbeveragefranchises.25Fastfood:Attentiontolocalpalatespaysoff,op.cit.26ibid.27FastFoodRapidGrowth,op.cit.28Fastfood:Attentiontolocalpalatespaysoff,op.cit.29FastFoodRapidGrowth,op.cit.30Fastfood:Attentiontolocalpalatespaysoff,op.cit.


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InIndia,NirulaswasthefirstIndianbrandwhichofferedfastfoodsuchaskebabplatters,Indianthalis31Italianpizzasandicecreamsduringthe1950s.32But,thesuccessandgrowthoftheIndianfastfoodsector,waslargelyattributedtotheforeigncompanies,whichhaddevelopeddifferentformatsand standards.33ThegrowthofQSR format initiatedby the foreignplayers,urged theIndianbrandstoofferethnicIndianfoodinthesimilarmethod.34Itwasfoundthatofferinglocalcuisines and tastes in an organised manner, within clean and hygienic air conditionedenvironment attracted the consumers and prompted them to spendmore for these facilitiesprovided.35Subsequently,havingobserved theneed for traditional Indian food served throughtheQSRformat,afew Indianplayerschosethe organisedtraditionalQSRmethod, inordertocapitalise the demand.36Nevertheless, it had aided inmaking these brands noticeable in theIndian fast foodmarket.37 Following similar steps,DheerajGupta,MD, Jumboking38 appendedthat,WesternQSRmodels like,Dominosetcwhichareknownworldwide for itsservicesweremy inspiration. Iobservedthe Indianmarketandrealisedtheneedforabranded IndianburgerchainandIstartedaVadapavrestaurant,Jumboking.39Similar to the requirement of a branded Indian burger chain like Vada Pav, the demand forfreshly cooked food with an essence of the local taste was growing amongst workingprofessionals.Workingprofessionalswiththeirbusy lifestylecouldhardlyengage intheactivityofcookingandwerealsostrugglingtofindmakeshiftarrangementsforthesame.40Thisdemandin themarketwas identifiedbyMastKalandar.41 StartedbyaNorth Indian coupleGaurav andPallavi in 2006, Mast Kalandar, served authentic, vegetarian, homemade styleNorth Indianfood, inBangalore.42Gauravopined that, Wed like to thinkofourselves in the homemealreplacement category.43 The menu at Mast Kalandar was a mix of recipes inspired fromdifferentfoodscookedinhomesacrossdifferentstatesofNorthIndia.44Havingachievedprofitsequivalent to the investmentwithinayearofstarting thebusiness,MastKalandarwas lookingforward to achieve a turnover of INR 500 million during201213.45

MastKalandar:EvolvingaNewBusinessModelWorkingprofessionalsGauravandhiswifePallavi,wereacouplefromtheNorthernpartofIndia,employed inBangalore,aSoutherncity inIndia.46GettingNorthIndianhomefood inBangalorewasaproblemforthecouple.47Nevertheless,despitetheadequacyofrestaurantsofferingNorth 31Thaliisaplateortrayonwhichfoodisserved.AnIndianThaliconsistsofamealcomprisingofseveralsmallmeatorvegetabledishesaccompaniedbyrice,bread,etc.,andsometimesbyastarterorasweet.32ClashoftheQSRs:Homegrownv/sForeignbrands,op.cit.33ibid.34QuicktakeonQSRbiz,op.cit.35ibid.36ibid.37ibid.38JumbokingisachainoffastfoodrestaurantsbasedprimarilyinMumbai,India,offeringtheMaharashtrianregionaldishvadapav.39QuicktakeonQSRbiz,op.cit.40ANorthIndianRestaurantinSouthIndia,op.cit.41ibid.42ibid.43ibid.44EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.45ibid.46ibid.47GauravJainandPallaviGupta,MastKalandar:In3years,wearelookingat100branchesacrossIndia,http://yourstory.in/2011/03/gauravjainpallaviguptamastKalandarin3yearswerelookingat100branchesacrossindia/,March31st2011


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Indianfood, itstillremained inaccessibleonaregularbasis,sincethefoodwaseithercostlyorextremely spicy or unclean.48The city thus had a paucity of restaurants which served clean,authenticNorth Indian food at reasonableprices.49 This facturged the couple to launch theirinitialoutlet.50Gauravopinedthat,WhenwewereinBangalore,wenevergottoeathomefood;this triggered thebusiness idea.51Consequently,Gaurav resignedhis job in2005, inorder toimplement his idea of beginning a restaurant.52 Taking the step forward Gaurav added that,Afterquitting, I immersedmyself in research for thenext11months,hashingoutabusinessmodel,decidingonthe intricaciesofrunningtheplace,thevendorstobecontacted,thevenueand,ofcourse,thebrandname.53Thecouplealsogainedanunderstandingabouttheprocessesinvolved in theoperationsof a restaurant. We alsohad tounderstand everything about theworkingofakitchen, from the sourcingof ingredientsand food storage to themenu,addedGaurav.54Arrangingforthefinancialresources,GauravandPallaviinvestedtheirpersonalsavingsof INR 1.8 millionto start the restaurant.55 Subsequently, in February 2006, the couplesuccessfullybegantherestaurantMastKalandar(MK).56SituatedinoneofthegrowingsuburbsofBangalore,thisfirstoutletoccupiedarentedspaceof3,000sqft.57TherestaurantadoptedtheconceptofofferingtraditionalIndianfoodthroughamodernperspective.58By serving fresh,hygienic and tasty food,MK catered to theworkingprofessionalswhowerehealth conscious.59 Offering freshly cooked food, enabled MK to set itself apart from itscompetitors.60 The restaurants business model which was developed based on this aspecthelpedMK inaccomplishing itstaskofservingfreshfood.61Gauravappendedthat,Iwasclearthatthefoodhadtobecookedfresheveryday,andwecontinuetoholdtruetothisconcept.62Tobeginwith,thedecisiontoavoidhavingdeepfreezerssupportedMKinitstrysttoservefreshfood.63Wewillnothavedeepfreezersinourkitchensbecausewewillonlyusefreshingredientsinourcooking,likeinourhomes64,saidPallavi.MKthuscreatedauniquesupplychain;groceriesforalloutletswereprocured,diced,blendedwithspicesandparcookedinacentralisedkitchen.Thiswas later transported to theoutletsacross thecity,where itwas fullycookedandservedfreshasandwhentheorderwasplacedbythecustomers.Temperaturecontrolledboxeswhichpreventedthefoodfromspoilageforaperiodof10hours,wereusedtotransporttheunfinisheddishesfromthecentralisedkitchentotheoutlets.ThiswholeprocessstructuredasamodelwastermedasthehubandspokemodelbyMK65(AnnexureII).

48EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.49ibid.50ANorthIndianRestaurantinSouthIndia,op.cit.51KrishnaVishal,SeedingAQuietRevolution,http://www.businessworld.in/businessworld/businessworld/content/SeedingQuietRevolution.html?storyInSinglePage=true?storyInSinglePage=true,July9th201152EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.53ibid.54ibid.55ibid.56ibid.57ibid.58MastKalandar,www.helionvc.com/spotlight24.html59CreatingripplesinQSRsector,op.cit.60ibid.61ANorthIndianRestaurantinSouthIndia,op.cit.62EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.63ANorthIndianRestaurantinSouthIndia,op.cit.64ANorthIndianRestaurantinSouthIndia,op.cit.65ibid.


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MKretainedtheauthenticityofflavorbymakinganaffiliationwithvendorsfromvariouspartsofthecountry.Whilepapads66,picklesweresourcedfromRajasthan,MeerutandJaipur,thespicesandjaggerywerebroughtfromKumaonandUttarPradesh,respectively.TheremaininggrocerieswerepurchasedfromcompaniessuchasMDH67,Safal68andAmul69.70AccordinglyPallaviopinedthat, Because our food is going to be just like homemade food, we will use only qualityingredientsweuseathome,suchasMDHspicemixes,Annapurna flour,sunfloweroilorAmulbutter and cheese.71 The menu had been confined to vegetarian dishes, since the ownersclaimedthatavegetarianrestaurantdrewthevegetarianaswellasnonvegetarianpopulation.72Furthermore, itwas also decided by taking into account the factors of target customers andbrand loyalty. We cater to a rather niche audience, who prefers to visit only vegetarianrestaurants.Sincecustomersarenolongerloyaltoaparticularbrand,wethoughtitsfinetorunavegetarianrestaurant73,saidPallavi.Besidesthefreshlycookedmealsandthetargetaudience,theotherprominentfeatureofMKwas preplatedmeals.74Havingdrawn inferencesfromtheforeign countries,Gauravadded that, whenwewere travellingabroad forwork,we saw thisconceptof preplatedcombos inothercuisines.Westartedwonderingaboutwhynoonewasdoing it in Indiaandwe felt that therewasaneed forsuchaconcept.75Thebasicpreplatedmeals in MK consisted of varied dishes, offered in a price range from INR 79 to INR 129.76Furthermore, italsoprovidedcombos individuallyforthevariantsofrice,breads,curries,andacombocustomisedspeciallyforkids.77Preplatedcombosgaveanopportunityforthecustomerstotasteavarietyofdishesandsimultaneouslyofferedtherestaurantachancetoalterthemenuwithdishes,keepingthesalabilityaspectinmind.78MKsuccessfullyearnedrevenuesequivalenttocapital investedwithinaperiodofoneyearandalso opened another branch in the city.79A turnoverworth INR 2.5million, post one year ofcommencing operations80 attracted investments from venture capitalists. The initial phase offundingfromFootprintVenturesin2008wasfollowedbythesecondphasefromHelionVenturesandFootprintVenturesin2010.81Coupledwiththisfactor,increasedpreferenceandrecognitionfromthecustomersadded immensevaluetoMKsgoodwill.82Sharingtherecognitiontheyhadreceived Gaurav and Pallavi added that, We have been covered on many TV channels andMagazinesbothIndianandInternational.Wehavebeenvotedamongstthebestvegetarianplace

66Papadisatypeofflatbreadorwafermadeoutofoneoracombinationofrice,flour,lentils,potatoes,chickpeas.67MAHASHIANDIHATTI'(MDH)isoneofIndiasleadingproducerofreadytousegroundspicesandblendedspices.68Safal,theFruit&VegetablebusinessinitiativeofMotherDairyFruit&VegetablePvt.LtdinIndiafacilitatesadirectlinkbetweenFruitandVegetableGrowersandConsumers.69GujaratCooperativeMilkMarketingFederationLtd.(GCMMF),isIndia'slargestfoodproductmarketingorganisation,providingmilk,milkpowder,healthbeverages,ghee,butter,cheese,Pizzacheese,Icecream,Paneer,chocolates,andtraditionalIndiansweets,etc.underthebrandnameAmul.70ANorthIndianRestaurantinSouthIndia,op.cit.71ibid.72EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.73SharanyaC.R.,Peoplearenotbrandloyal,http://www.dnaindia.com/lifestyle/conversationcorner_peoplearenotbrandloyal_1554084,June12th201174ANorthIndianRestaurantinSouthIndia,op.cit.75GauravJainandPallaviGupta,MastKalandar:In3years,wearelookingat100branchesacrossIndia,op.cit.76MenuRegularMenu,http://www.mastKalandar.com/regularmenu.html77ibid.78ANorthIndianRestaurantinSouthIndia,op.cit.79EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.80ibid.81VentureCapitalist'sroleinstartinga'startup',op.cit.82GauravJain,PallaviGupta,Founders,MastKalandar,http://yourstory.in/2009/08/gauravjainpallaviguptafoundersmastKalandar/,August22nd2009


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in Times of India food guide for several years now. The Gourmet program onNationalGeocoveredusinthebestrestaurantsintheworldforservingFineFastFood.83

Mast Kalandar, expanded its footsteps to other Southern cities in India such as Chennai,Hyderabad and in the west to Pune in 2008, 2009 and 2011 respectively.84 With employeestrengthof600,MKhad35outletsacrossBangaloreandtherestofthecities.85Aimingtospreadits wings further, MK was looking forward to scale up to 100 outlets, achieving a pan Indiapresencebytheendof2012.86Thecoupleaddedthat,Wearefirstlookingtoreach100storesinthemetroandClassAcitiesinIndia.87Anoverseasexpansionwasalsobeingconsidered.88TheRoadAheadMKexpectedtoachieveaturnoverworthINR500millionin201289andalsoaimedtoopen500outlets.90 However, experts opined that MKs expansion plans was surrounded by severalchallenges.91TheexpansionspreechosenbyMKwascriticisedbyexpertsonthegroundsoffewfailurecases.ForinstanceYo!China92tooklargefootstepsofopeningtoomanyoutletsinvariouslocationsandformats,whileKaatiZone93hadfailedtostriketherightbalancebetweensalesandthe format of the restaurant.94 MK however claimed that they were slow on the expansionprocess. Wearentgoingoverboardandopening10 storesamonth.Were taking it forwardsteadilyand thatshelpingusgroweverymoment,appendedGaurav.95MKsexpansionplansincludedenteringtheNorthernpartsofIndiainordertoachieveanationalpresence.Rightfromthe timewe started,wevebeendeveloping itwith the ideaofbecoming anational chain96,addedGauravandPallavi.Butanalystsdoubted iftherewouldbeanydemandforNorthIndianfood in cities likeAhmedabadandGurgaon.97But,Gauravwas confident that thepresenceofworkingprofessionalsandtheshortageofrestaurants inthehomemealreplacementcategory,wouldkeephisbusinessprofitable.98Well,this isaquestionthatwethinkabouta lotandthegutfeelingisthatitwillworkbecausetheneedremainsthesame.Therearealotofpeoplewhodonthavetimetocookandtheywanttogooutandeatnice,healthyfood,opinedGaurav.99Accordingtoanalysts,offeringavarietyintastesinordertosatisfythedemandacrossdifferentsectionsofthesocietyhadbeenconsideredasoneofthenormsforIndianQSRs.100ExpertsthusfeltthatMKwouldhavetomodifytheirmenuconsideringnotonlytheirdemographicaspectbut

83ibid.84EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.85ibid.86CreatingripplesinQSRsector,op.cit.87ibid.88ANorthIndianRestaurantinSouthIndia,op.cit.89EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.90ANorthIndianRestaurantinSouthIndia,op.cit.91EntrepreneurialventureofGauravJainofferssimplefood&savvyreturns,op.cit.92Yo!ChinaisIndia'sfirstandlargestchainofferingIndianChinesecuisineacrossthecountry.93KaatiZoneisachainofIndianfastfoodrestaurantsspecialisedinofferingKatiRolls,isstreetfoodoriginatingfromKolkata.94ANorthIndianRestaurantinSouthIndia,op.cit.95GauravJainandPallaviGupta,MastKalandar:In3years,wearelookingat100branchesacrossIndia,op.cit.96ibid.97ANorthIndianRestaurantinSouthIndia,op.cit.98GauravJainandPallaviGupta,MastKalandar:In3years,wearelookingat100branchesacrossIndia,op.cit.99ibid.100ChandramouliM.Divya,Thebusinessofquickservicerestaurants,http://www.thesmartceo.in/thebusinessofquickservicerestaurants.html,June15th2011


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also the localpreferences.Kanwal Singh,Cofounder,HelionVenturePartners101,opined that,Theywillneedtoreinventthemselveswitheachnewregion.Evenwithinregionstherewillbequestions.Forinstance,canIgotoCoimbatoreorMysore?IfIdo,willIneedtoopenupcentralkitchens there?102 The changing consumer preferences, was further adding to the formerissue.103AccordingtoAshishKapur,CEO,Yo!China,Everycoupleofyears,consumerpreferenceschangeduetotheirexperienceswithnewerfoodandretailformatsandhigherincomes.Inorderto be relevant, you need to keep reading that correctly.104 In order to have more repeatcustomers,Yo!Chinahadreworkedtheirmenu,interiorsandusedearthenpotstoservefood.105

Analteration in themenuwasexpected tocausescalability issues forMKsbusinessmodel.106However,thecoupleclaimedthatthechoiceofmenuwasmatchedwiththescalabilityaspect.The decision to offer fresh food and avoiding freezers was considered to be novel, therebyprovidingopportunitiestoexperimentonlyaswhentherestaurantexpands.Gauravaddedthat,Whenwearedevisinganyprocessoranymenu item,wearelookingatthescalabilityacrossalarger network.107 He further opined that, With respect to the challenges, we have tounderstand thatnoone has tried to build a scalablemodel around the typeof food thatweserve, i.e.,fresh,healthyandhotNorth Indianfood.Themomentthatyoudecidetodofrozenfood,thechallengesarediminishedmultifold.Butinourmodel,wehavetomakesurethatthefood is nice and freshwithminimalwastage. So, there is a need for us to develop our ownstandardoperatingprocedures(SOP)andservicepractices.108Apart fromchallengesat the customersend, theother issuewhich troubled the industrywasrecruitingandretentionofhumanresources,highlighted industryexperts.109AccordingtoKiranNadkarni (Nadkarni),CEO,KaatiZone,Thekeychallenges forQSR in Indiaarehighrealestatecosts and staff turnover at outlets.110 While human resources related issues have been aproblem,MKdeclaredthat ithasbeencautiouswiththehiringaspect.Whenwererecruitingpeople,were hiring very senior peoplewho can handle that 100store or 200store level ofoperations, asserted Gaurav.111 Few experts recommended that these problems could behandled, iftheemployerwouldeducatetheemployeesaboutthegrowthprospectsofworkingwiththeorganisation.112SimilarlySinghappendedthat,demonstrationisalwaysbetterthantalk.Organisationscouldalsotieupwithlocalinstitutestolookatimpartingsoftskillstraining,inturn,theycancreatejobassurances.113Asquotedbyexperts,besidesthestaffturnover,locatingtheappropriatespacefortheoutletsinmetro citieswasexpected tobe tough.114AmitJatia,ViceChairman,McDonalds India,opined 101HelionVenturePartnersisanearlytomidstage,Indiafocusedventurefund,investinginhighgrowthtechnologypoweredbusinessesandconsumerservices.102ANorthIndianRestaurantinSouthIndia,op.cit.103ibid.104ibid.105ibid.106GauravJainandPallaviGupta,MastKalandar:In3years,wearelookingat100branchesacrossIndia,op.cit.107ibid.108ibid.109Thebusinessofquickservicerestaurants,op.cit.110NanditaVijay,KaatiZoneseekspartnersinSouthern,westernIndiatoexpandnetwork,http://www.fnbnews.com/article/detnews.asp?articleid=31933&sectionid=9,May22nd2012111GauravJainandPallaviGupta,MastKalandar:In3years,wearelookingat100branchesacrossIndia,op.cit.112Thebusinessofquickservicerestaurants,op.cit.113ibid.114KazminAmy,Indiasyouthsavourfastfoodchains,http://www.ft.com/intl/cms/s/0/f76642024fef11e09ad100144feab49a.html#axzz1wG2lc3yb,March16th2011


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that, Real estate is the singlebiggest challenge.115According toPrashanthPrakash,Partner,AccelPartners116,Whilehiring,retentionandbackendareinyourcontrolbutrealestatepricesare not so.117 Since early 2010, restaurant rentals had increased by 4045%.118 According toindustry experts expenditure on rentals being less than 15% of the restaurants income,wasconsideredas viable inorder toearn thedesiredprofits.119However,mostof the restaurantswerepayinghigher rents.120SatyajitPatnaik (Satyajit),MD,Ummami121said that,"Weexpectedrent to be 1015% of our revenue in our business plan. Right now, it is 33%."122 A rentalexpenditureof30%on revenueswasconsideredasahugeburden tobear foranewlystartedrestaurant like Ummami.123 Finding this difficult, Satyajit added that, "We are just aboutmanagingtobreakeven."124Ahighrental,hurtingthereturnswasthuscitedasoneofthemajorreasonsfortheclosureofseveralrestaurants.125Considering the high rental space, the format of the stores too played an important role.Generally the kiosk and outlet formats were provided by the QSRs.126 MKs outlets were allowned by the company themselves and it had decided to continue with the same whileexpandingtoo.127AminimumofINR4.5millionandspaceaccountingto1500sq.ftwasnecessarytosetupanoutletofMK.128Onthecontrary,capitalworthINR0.8million,andspaceoflessthan100sqftwererequiredtosetupakiosk.129Businesseswhichhavetestedboththeformatsfoundthe kiosk formateconomically viable. For instanceKaati Zonehad triedboth the formats andidentified that thekiosk formathelped inmaintaining the rightbalancebetween the revenuesand the expenditure.130Highlighting the advantages of the kiosk formatNadkarni added that,Investmentinakioskformatislessanditispopularandnumberoffranchiseesiswillingtosignup.The investment is lowandonlytwopeoplearerequiredtooperate itandyourbreakevensaleislowandreturnsarealsoveryattractiveforthefranchisee.131InMarch2011, theoverall inflation ratewasestimated tobe8.82%.132Rising costs, turningaburden to theQSRs, forced them to increase thepricesof theirofferings.133According toKaul,InflationarypressurehasforcedustoundertakeapricehikeandwerevisedourpricesagaininAprilthisyear.134Consequently,DominosPizzainIndiahadreviseditspricestwiceinaperiodof 115ibid.116AccelPartnersisaglobalventurecapitalfirminvolvedinearlyandgrowthstageventurecapitalinvesting.117Thebusinessofquickservicerestaurants,op.cit.118Highrentalseatintorestaurantsmargins,http://articles.economictimes.indiatimes.com/20110907/news/30123105_1_rentalsrevenuesharemodellandlords,September7th2011119Highrentalseatintorestaurantsmargins,op.cit.120ibid.121UmmamiisamulticuisineupscalerestaurantinGurgaon,India,offeringworldcuisinessuchasJapanese,PanAsian,MediterraneanandIndian.122Highrentalseatintorestaurantsmargins,op.cit.123ibid.124ibid.125ibid.126Thebusinessofquickservicerestaurants,op.cit.127CreatingripplesinQSRsector,op.cit.128SeedingAQuietRevolution,op.cit.129QuicktakeonQSRbiz,op.cit.130Thebusinessofquickservicerestaurants,op.cit.131QuicktakeonQSRbiz,op.cit.132TrivediDivyaandMenondBundu,Bittenbyinflation,fastfoodmakersraiseprices,http://www.thehindubusinessline.com/industryandeconomy/marketing/article2021527.ece?homepage=true,May15th2011133ibid.134Bittenbyinflation,fastfoodmakersraiseprices,op.cit.


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sixmonthsin2011,duetotheinflationeffect.135Inflationledtoasloweconomicgrowthin2012,therebydecreasingtheconsumerexpenditure,particularlydiningout.136AccordingtoKuckreja,In last fourtosixmonths thegrowthofrestaurantbusinesshaswitnessedan impact.Aweakconsumer sentimenthas resulted in loweringofhousehold spendoneatingout.137However,QSRs had beenwitnessing an annual growth of 25% to 30%,while retainingminimum grossmarginsof20%onoperations138(ExhibitII).

ExhibitIIGrowthofProminentQSRs(June2012)

DishingOutStrongGrowthCompany SameStoreSalesGrowthin%(YoY)

MadOverDonuts 20MastKalandar 1520

GlobalFranchiseArchitects 1520JubilantFoodworks 30

Source:Companyinformation/brokeragereportSource:Quickservicerestaurantsbuckslowdown,http://timesofindia.indiatimes.com/business/india

business/Quickservicerestaurantsbuckslowdown/articleshow/14450052.cms,June28th2012According to Joseph Cherian, CEO of Global Franchise Architects (GFA)139, "The food andbeveragespace,especiallytheQSRcategory,willremainconstantintermsofgrowthdespitetheeconomicenvironment,asthissectorisbeingdrivenbytheyoungergeneration,whocontinuetospend."140 Furthermore, Gaurav appended that, "What shields the QSR category from aslowdown ispricing.Today,QSRsgiveyoutheoptiontoeataheartymealforunderRs115."141But,accordingtoafewindustryexperts,onlyafewoftheseplayerswereperformingwell."NotallQSRsaredoingwell.Theonesthataredoingwellarethose thathavebeenabletoprovideaffordablepricepointsandmostimportantlyholdtheirpricepointsinaneconomylikeours,andhavealsobeenabletoprovidegood,cleanandhygienicfood"142,assertedJacobKurian,PartnerinNewSilkRoutePartners.143Besides other hurdles,MK also hadmany competitors to tackle. Burrp.com, an online urbanlifestyle guide revealed that cities like Mumbai and Delhi individually had close to 50,000restaurants.144 Furthermore, fewof the competitorswereon theexpansion scale.WhileKaatizonewaskeenonachievingpanIndiapresence145,Nirula'shadannouncedinMarch2011tostart50newoutletsinIndiawithin12months,byinvestingINR150to200million.146Italsorevealed 135Bittenbyinflation,fastfoodmakersraiseprices,op.cit.136JaipuriaTimsyandGuhaTalrejaVishakha,Restaurantshitasconsumerscutdiscretionaryspends,http://www.financialexpress.com/news/restaurantshitasconsumerscutdiscretionaryspends/958373/0137Restaurantshitasconsumerscutdiscretionaryspends,op.cit.138DhamijaAnshul,Quickservicerestaurantsbuckslowdown,http://timesofindia.indiatimes.com/business/indiabusiness/Quickservicerestaurantsbuckslowdown/articleshow/14450052.cms,June28th2012139GFAisaleadingmultibrandbuilder,operator,andfranchisorofspecialtyretailbrandsworldwide,operatingQSRbrandssuchasCoffeeWorld,PizzaCorner,CreamandFudge,andTheDonutBaker.140Quickservicerestaurantsbuckslowdown,op.cit.141ibid.142ibid.143NewSilkRouteisaleadingAsiafocusedgrowthcapitalfirmfocusedontheIndiansubcontinent,aswellasotherrapidlygrowingeconomiesinAsiaandtheMiddleEast.144SeedingAQuietRevolution,op.cit.145KaatiZoneseekspartnersinSouthern,westernIndiatoexpandnetwork,op.cit.146Nirula'saims50outletsin1year,overseasexpansionby2013,


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its intention to expand internationally by 2013.147However,Gaurav and Pallaviwere positiveregardingtheirexpansionpace.148Gauravassertedthat,ThefactthatmywifeandIarentfromthefoodindustryis,insomeways,aplusbecausewecanthinkdifferentlyfromthem.Ofcourse,theminusiswehavenoexperienceofpitfalls.149However,analystsdoubtedthesuccessintheprocessofexpansion.Singhassertedthat,Therewillbemany losersbecausethepressuresofmanagingachaincanbedaunting.150HowfarMastKalandarwouldmodify itsuniquebusinessmodeltoaccommodategrowth,andwouldovercomethebarrierstoexpansionremainedtobeseen.

AnnexureI

IncreasingPerHeadDisposableIncomeinIndia(US$)

1,110

2010

1,230

2011e

1,360

2012f

1,530

2013f

1,700

2014fe=Estimate;f=Forecast

Source:CompliedbyAuthorfromHowKFC&McDonaldsplantotargeteachotherinIndia,http://articles.economictimes.indiatimes.com/20110828/news/29935857_1_kafeccinokfcs

krusherscolonelsanders,August28th2011

http://articles.economictimes.indiatimes.com/20110316/news/28697932_1_newoutletsnirulasceooverseasexpansion,March16th2011147ibid.148ANorthIndianRestaurantinSouthIndia,op.cit.149ibid.150SeedingAQuietRevolution,op.cit.


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AnnexureIIHubandSpokeModelMastKalandar

Source:ANorthIndianRestaurantinSouthIndia,

http://business.in.com/article/workinprogress/aNorthindianrestaurantinSouthindia/22502/2

Documents

Mast Kalandar (2)