The dawn of professional restaurateurs is upon us says K.K Malhotra, president of Pan India Foods’ hospitality division. Until recently the president of ITC Hotels, he is busy nuturing the company into a foodservice powerhouse. Alan D’Mello reports.
From hotels to restaurants is an unusual move. What in this assignment convinced you?
KKM: When you operate hotels, you also operate restaurants, especially in India and with the ITC portfolio. The rules of business are essentially the same.
Also, I originally came on board for the hotel division, but the foodservice business took off first and needs a lot more of my attention. The hotel development continues with our search for good locations.
Why especially India? Is our approach here different?
KKM: Here, good restaurants are generally part of a hotel, generally five-star. While in the West, fine dining is best in stand-alone places since hotels are primarily room driven with basic F&B. The Indian scenario is changing though.
On landmark dining, ITC Hotels was the first to create restaurant brands. What are your learnings from that?
KKM: It is something I inherited and which I saw to term (Peshawar was created in his tenure). The policy is not
to chase fashion but to stay rooted in Indian heritage. For ITC, chefs are artists who are nurtured and invested in. You can see how well it has paid off.
Blue Foods does not seem to have delivered on its initial promise. Where is it stumbling?
KKM: This is a misconception. The restaurants are performing well and to their potential. From the macro perspective, our venture into food court management did us in. It is not our core competency and so we have exited it permanently.
We unfortunately looked at food courts and the high rentals were not feasible. From now on, Pan India Foods will be a pure restaurant company, not everything in foodservice.
You have a mid-sized brand portfolio with Coffee Bean and Tea Leaf becoming your first beverage brand. What are your plans here?
KKM: We will have the entire spectrum of brands. Development of QSR brands like Noodle Express is next in line. There is good scope for development here.
Noodle Express is a casual dining format, not QSR in the true sense. Are there plans for a real QSR such as McDonald’s?
KKM: McDonald’s style QSR is not our intention as such menus are too narrow. Our version of QSR is slightly different.
Investment fund pressures are a lot different from working with a stable giant like ITC. What are your deliverables?
KKM: This is the time for foodservice to grow in India. Until now, all Pan India brands were company owned and
operated. This will take us only so far. Franchise is our way forward, Gelato is the first brand to take this route. We are reworking all our brands in to viable franchises and are already master franchisors for Coffee Bean and Tea Leaf.
We will go where we can make money.
Franchising is essentially a legal arrangement and our legal system can be a quagmire as some have experienced. Do you faith in India’s legal system?
KKM: The issue of faith in India’s laws should not arise. A successful franchise, and we [India] already have a few of them, is one which the franchisee cannot replicate and where the brand pull is too strong to risk going alone.
To me, Indian cuisine franchises are risky as they can be easily replicated. It is easier for us to consider franchising because the big international chains have made people realise the format’s value. We are following in those footsteps.
You brought up viability earlier. What is going wrong?
KKM: Viability really depends on a few key factors; location, profile of the community, professional management and financial discipline. It is an eating business and these factors are more important than the format. Foodservice as a business is maturing only now.
Organised companies are the way to go. This is a tough business requiring a lot discipline. Also, one has to be organised to grow because it requires different skill sets. Individual operations generally do not have this and many loose the plot here.
One thumb rule is that half the new restaurants fail within 18-24 months. Your take on this?
KKM: Because they are operated on instinct not viability. Financial discipline is absolutely essential, especially in the key areas; funding, rent, design, electricity, purchase, staff and operations. For example, I would not advise a debt-equity ratio beyond 1:1.
Hotels sometimes got 1.25:1, but restaurants should not venture there. Rent is another big failure. Depending on the format, successful restaurants must never go beyond 20% of turnover on rent, though 15% is much safer. Issues like this matter.
In the ongoing economic meltdown, should owners shut the restaurant down if it is not doing too well?
KKM: The economy is not as bad as is made out to be in India. The foodservice business is profitable and as I said earlier, is in the growth phase. To answer your question, owners should shut down the business if they do not know why they are losing money.
If you do not know what is going on, then it is better to walk away. It is a business after all.
Most new restaurants put a lot of emphasis on their interiors and experience, and expect guests to come to them. What do you think of this?
KKM: The term is destination restaurants. It can be a viable strategy only if owners develop it into a powerful brand.
This takes time, complete commitment and discipline. There are four key aspect to this; food consistency, exceptional service, a recognised value for money proposition and very strong marketing. These aspects have to work together.
Good marketing really helps but need not be expensive. I advise managers to focus on positive word-of-mouth (WOM) marketing. It is the most effective, honest way and will establish the brand. Analysing WOM feedback is excellent insight into what you are doing right and wrong.
