Licensing -- a major challenge for the restaurant business in India, say experts

By Biprorshee Das , afaqs!, Mumbai | In Marketing | February 09, 2011
In a panel discussion at a retail event in Mumbai, experts from major restaurant brands in the country spoke of what they thought were the growth stimulants and challenges for the industry.

In one of the panel discussions on the first day of the Asia Retail Congress 2011 held in Mumbai, experts discussed the stimulants and challenges for growth in the restaurant industry.

The panel comprised of Samir Kuckreja, chief executive officer, Nirula's, K Ramakrishnan, president, marketing, Cafe Coffee Day (CCD), Sanjay Coutinho, chief executive officer, Barista Lavazza, Gaurav Ahuja, chief operating officer, Red Ginger Hospitality India, and Kapil Malhotra, managing director, Total Solutions Incorporated.

Kuckreja, who chaired the session, opened the discussion by presenting certain facts about the restaurant industry in India.

He stated that the Indian restaurant industry worth Rs 43, 000 crore is growing at the rate of 5-6 per cent annually, although the majority of these restaurants fall in the unorganised segment which comprises 84 per cent, as of 2010.

Kuckreja said that the key drivers of the industry are the changing demographics of the country, increasing prosperity, greater exposure to various lifestyles, and the willingness to experiment with various cuisines.
Among other opportunities, he said, are the various locations that restaurants can tap into including airports, railways stations and bus terminals. He also noted the rise in popularity of food courts in medical institutions, educational institutes and office complexes.

Highways, Kuckreja noted are still untapped business opportunities for the organised sector. According to him, smaller formats such as kiosks will get more popular in the days ahead, and the expansion of branded restaurants into smaller cities will further boost the growth of the industry."

Kuckreja emphasised that strategic alliances are the way to go ahead and the franchisee route is a proven business model. "It is a huge opportunity to grow business through the franchisee route. It is growth for the brand. It gives the brand ways to reach the customer in new cities and areas. It is a great source of ideas, and a great way to refine costs without impacting quality," he said.

Among his recommendations on behalf of the industry to the government was a revision of the tax structure. He advocated the exemption of service tax and rationalisation of the excise policy across the country.
He also spoke against the archaic licensing rules in the country and supported the financing of restaurants by banks and financial institutions, without using land as a collateral.

"We contribute to the economy in many ways, from tax revenues to being a large buyer of goods and services. We offer tremendous scope for growth and could be a much larger tax source to the government if our growth is adequately tapped, our potential is harnessed and licensing is improved," said Kuckreja.

The next speaker Ramakrishnan, who was representing the category of cafes, stated that one of the key stimulants for growth was the change that had come about among customers in the "need for a hangout". "A hangout is no longer a place you should need to travel to, but expect at an arm's length. From that perspective, people want to hang out in one locality, rather than travel to a certain point," said Ramakrishnan.

He also spoke about the tendency of the young population, which the cafes primarily target, to consume collectively. The endeavour on the part of cafes, therefore, Ramakrishnan said, should not just be to work towards increasing the size of groups at cafes, but also develop their ability to cater to the requirements of these groups.

While speaking of the many challenges that the restaurant business faced, Ramakrishnan decided not to dwell upon high real-estate prices and manpower costs, but focussed on the interests of the consumer.

He spoke of how cafes are down in the pecking order as compared to restaurants, in terms of the percentage of people visiting them. According to him, the challenge for them lies in building the business through their regular patrons, and not through those for whom cafes are irrelevant.

Ramakrishnan also said how cafes must increasingly refresh their marquee products, and when it came to licensing, must not be treated like a restaurant as cafes are clearly unique in nature.

Coutinho, who represented the same category, said he noticed the changing culture of the Indian population, which is willing to travel extensively and experiment with food. According to Coutinho, this fact is a major growth stimulant for the business.

Coutinho pointed out that India's economy is one of the best in the world to invest in, and with its promise to be even more robust in the years ahead, it would drive consumption in the future.

Another key challenge, according to Coutinho, is the rocketing real-estate prices, which serve as a major deterrent for the industry. "Today, we are seeing unheard of prices. When your leases come up for renewal, you end up paying anything between 50-100 per cent higher than what you have been paying. It is ridiculous. All the hard work that you have put in so far is wasted, and you have to start all over again on a new property," he said.

Logistics, too, were a challenge ahead, noted Coutinho. According to him, there is huge scope for development in the country, but the infrastructure is not keeping pace with it.

Coutinho, like Kuckreja and Ramakrishnan, called for a re-look at the licensing system.

Ahuja spoke next about the positive trends that were being observed. He talked about high disposable incomes and the frequency of eating out, though this was not as frequent as compared to other countries, things are changing for the better. He also noted how suggestive selling is increasing in smaller cities.

"Earlier, noodles meant just Hakka noodles to us. Today, we are telling our front-end people to up the sale of burnt garlic noodles and people are trying it out. This is a positive trend, which helps us not just to launch new products, but also increase profitability," said Ahuja.

While Ahuja, too, considered the licensing system to be a challenge, he also spoke about the availability of trained manpower and the quality and the quantity of space available for restaurants being the other key test areas.

The last speaker of the session was Malhotra, who was not really from the restaurant industry, but from a research organisation that works with many food and beverage brands to help them understand the consumer better.
He said that brands in the category today are very open to gauge the consumers' expectations.

"Instead of offering something that they believe is good, these brands have started looking at what the customer exactly wants. Once the consumer gets involved with a brand, he starts feeling that sense of loyalty," Malhotra said.

Closing his discourse, he said consumers today are increasingly looking at innovation. He threw a questiont at the other panelists, asking them about the innovations they were looking at to ensure better consumer engagement.
In reply, both Ramakrishnan and Coutinho spoke of how CCD and Barista bet on the digital medium to connect better and receive feedback from the consumer.

"In the age of consumerism, it is important to wear the consumer's hat. We do a lot on the digital space. It is the medium that can be very interactive. We also look at innovation in terms of our products," said Coutinho.

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