“Club of Knowledge Hunters”

The Growth of Organised retail and entrepreneurship

Posted by retailigence on January 2, 2009

When she started a small business from her home kitchen, little did Lovey Burman realise that one day she’d have people in the city-and beyond-eating out of her hands. Today, the director of Kookie Jar Foods has her hands full, what with a Rs 15 crore-plus turnover; four Kookie Jar outlets and a loyal following including the Goenkas and the Munjals.

“We are looking at Mumbai for expansion, but right now we’re concentrating on Kolkata,” says Burman. In 2005, Satish Shetty started a chain-Ribbons and Balloons-of franchisee-owned cake and pastry shops targeted at an upper middle class and elite clientele. It took one year to break even. “We have been in profit for the last two years, while the number of franchisees has grown to 21 across the Mumbai metropolitan region,” he says.

Gone are the days when your popular cake or pastry shop found pride of place in the city centre mart, and the boy at the counter declared snobbishly everything’s sold out before 6. The growth of organised retail and the flutter of entrepreneurship amongst the educated youth has meant small desserts have translated into big, chic business.

And how! Some of these entrepreneurs are launching national, even international brands, and their own chain of stores which could fade many a bigger players into oblivion.

Sweet Chariot, a Bangalore-based bakery and confectionery chain, opened its first cake shop in Brigade Road. In the last couple of years, it has been on an expansion spree. Today, apart from 11 outlets across Bangalore, it has opened branches in Chennai, Hyderabad, Ooty and Pune. The company even has a new niche café chain, Java City, which has been opening outlets across Bangalore and in Hyderabad and Pune.

“I need volumes to sustain the business because of which it does not make sense to have just one café in a city. I need to have at least four cafés in a city to make business sense,” says Glenn Williams, founder of Sweet Chariot. The next step, Williams says, would be take the brand overseas.

Changing lifestyles, tastes and spending power are coming together in a perfect recipe to grow new bakery businesses like his, says Sunil Lamba, chief executive officer of Kwality Group which runs Bread & More, apart from fine dining restaurant chains Kwality and Gaylord. The group turnover is Rs 65 crore with a 30% growth rate. The bakery business started two years ago, already accounts for over 10% of the total revenues. Lamba says, “But for the recession we would have started Bread & More stores overseas by now.”

That said, the biggest challenge of these new brands is to live up to the organised players and the standalone neighbourhood bakery stores which draw in the consumer by offering nostalgia brands.

In Mumbai, Shetty says, the task of competing with the likes of Monginis and Birdy’s who had already established their foothold in the market was made easy with some innovative policies like operating on lower margins, offering incentives to franchisees by giving them 100% amount if the product does not sell in its shelf life and keeping a close check on quality. “We were serious about branding and used the uniformity aspect to help build the brand. I had seen a typical warm look in European shops, which we implemented here.”

Adds Chander S, chief executive officer of the Ahmedabad-based TGB Bakery, “Our USP is eggless cake and cheesecake (in a predominantly vegetarian market) that makes us stand out from other cake shops.” TGB Bakery, a Rs 5-crore business unit of the The Grand Bhagwati hospitality group, also imports some of its raw materials like sponge mixture, olive oil to ensure better quality products.

Burman of Kookie Jar too reiterates that it’s constant experimentation, quality control and price-consciousness that keeps customers coming back for more.

Another area where these small entrepreneurs score is that they can compete by offering speciality goods or superior local distribution services. Lamba, for instance, recruited people from Oberoi & Taj who got ideas and European tastes to the breads. “We have customers coming in for cakes that cost as much as Rs 15,000,” he says.

Bread & More supplies to foreign embassies, restaurants and hospitals. Also unlike, the established brands which targetted the hip and
happy, Bread & More positioned themselves as a brand for young women and children.

Burman is also moving her workshop to a six-katha plot at Kasba Industrial Estate and plans to open a central
kitchen at the WBIDC food park. For the Mumbai expansion, she is in talks to set up a joint venture.

Strategies like these, being brought to the table by younger and well-trained managers, are making the cut. For instance, the biggest difficulty in a business like this which involves products having a low shelf-life, Shetty says, is managing the supply chain management.

“The franchisees place their orders with us every evening and we have to deliver the goods by next morning that requires production to take place through the night,” he says. The franchisees get a fixed commission of 22.5% on sales and also stand to get additional amounts as incentives depending upon company policies, Shetty says.

And these winning formulae have drawn the attention of investors that include venture capitalists and private equity. Two years ago, private equity firm Actis invested Rs 300 crore in Bangalore-based Nilgiris for a 65% stake.

In 2007, the company branched off into Masala Bread, a mass market bakery chain, and Blue Oven, targeted at a more upmarket clientele. “Masala Bread is mainly targeted at weaning away the crowd from the local neighbourhood bakeries of Bangalore,” says Prabhu Ramachandra, director, of the century-old company, which has interests in dairy, bakery and retail.

Sensing the potential for growth and higher profits, these bakeries have started expanding into newer territories while also diversifying.

Shetty for instance plans to increase the number of outlets in Mumbai to 50 and also open franchisees in newer cities like Bangalore, Ahmedabad and Pune, for which he is open to taking funding from private equity players. TGB started out as a small bakery shop in the Ahmedabad hotel in 2005 has grown into nearly a dozen outlets. It is planning to set up one such specialty bakery shop in Mumbai and then go pan-India.

Lamba, who has 7-8 stores in Delhi, plans to open 100 stores by 2010 across four brands-Bread & More, Chopsticks, Kwality, and Gaylord. However, with the slowdown in the economy he has temporarily put his expansion plans on hold. “We are consolidating at present,” he says.

Besides targeting two more Kookie Jar outlets in Central Kolkata this year, Burman is chalking out plans to start a 4,000 sq ft outlet specialising in new-world cuisine and takeaways within six months. She also operates Mangio in Alipore, offering the latest trends in world cuisine.

So, what’s up for the good old cake shops? Well, they don’t seem too perturbed. Most say that the pie is big enough for everyone. As the small players in the segment gain strength, the bigger boys are growing with them as well. Monginis, the biggest player in the segment which was a strong brand in Mumbai has grown at around 500% in the past five years and is topping Rs 150 crores in annual revenues.

“We have 440 shops throughout India and have plans to expand further,” says marketing manager Virendra Ghole. Monginis is present in Cairo and there are also plans to expand in some other countries in the near future. This is one pie which is certainly growing.

With inputs from Anirvan Ghosh in Bangalore, Monica Behura in New Delhi, Sachin Dave and Ashish Agashe in Mumbai and Tapash Talukdar in Ahmedabad

Sources:-Economic Times


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