Marketing a Restaurant Business

Since the restaurant business typically targets end-consumers as customers, it is critical to create a “PULL” for customers to try out your restaurant. So from a marketing perspective, you will need to think like a FMCG (Fast Moving Consumer Goods)/Consumer services company. The trouble is that implementing a good Marketing plan costs a lot of money (when you look at absolute amounts required). Like in most businesses, you will want to allocate a portion of your revenues as marketing expenses – say 5-10%. For a FMCG company like ITC, their revenues for each of their products run into several hundred Crores – so 5-10% of such a large amount is substantial and lets them do some great things with their marketing budget. For a Restaurant business your annual revenues will typically be 1-2 Crores per annum per unit. So, unless you have a large number of units (like say Dominos Pizza), your marketing budget will be very small in absolute terms. So realistically, you cannot use some of the same marketing options that the larger players and other FMCG/Consumer services companies use, but will need to efficiently reach out to your target customers and create the “PULL” factor.

The biggest and the best marketing investment a restaurant business can make is by picking a great location that has very high levels of visibility. We have already beaten to death and even more the topic around the “importance of location”. This is just another nail in the same coffin.

The second best marketing for your business will come from “Word of Mouth”. You need a lot of your customers to talk about/recommend your restaurant to their friends. If you have read the book “Outliers” by Malcolm Gladwell, you need a lot of connectors and mavens to visit your restaurant, like your restaurant and then spread the word as much as possible.

As a restaurant customer, if you look at the number of new restaurants you have made a decision to try out – i.e. it does not include new places you go to because you are invited there by someone else, I can bet, without doing any kind of research or surveys, that over 50% would be because of its location –

1) You are in the area, the place looks like something you want to try out, or

2) You keep seeing the place so often (it is in your neighbourhood or in an area that you frequent) that you almost feel bad not to check it out.

The remaining 20-30% would be because a friend (someone you trust or someone in your circle who is considered a foodie) recommended a certain place.

So that leaves the other 20% or so new restaurants, which you have visited, to other marketing initiatives that have caught your attention – maybe an ad or a flyer or a review you saw.

If you get the drift of what I am getting at, 80% of your marketing impact will come from your location and “Word-of-mouth” referrals from customers who have visited you. So if you don’t get these two right, whatever else you try will make absolutely no sense and the results will leave you disappointed.

So in reality the remaining marketing options we are talking about are like the cherry on top the cake – they can help improve the number of customers visiting your place by a bit, but will probably not turnaround your business by opening the floodgates.

One caveat to the above theories: When you are launching a new restaurant, a number of these marketing options mentioned below may help drive the initial traffic to your restaurant and may be quite effective.

The secondary marketing options that are available to you and those that restaurants typically tend to use.

1. Advertising in Newspapers – Paid Ads
2. Advertorials in Newspapers – Paid articles written about your restaurant in a newspaper
3. Just Dial and similar Directory Services
4. Bill Boards
5. Restaurant Review websites such as Burrp.com, eveningflavours.com
6. Online Menu and Order enabling services such as Justeat.in/Hungryzone.com
7. Flyers in the Newspaper
8. Deal Websites such as Taggle, Snapdeal, Koovs, DealsandYou, Dealivore etc.
9. SMS marketing providers such as mGinger.
10. Google Adwords

Interview with the Founder of Kaati Zone

The post below is from http://bangalore.citizenmatters.in/blogs/show_entry/141-interview-kiran.

This was an interview conducted by Anjana Vivek, that was published in Citizen Matters on Apr 28. 2008. There are some useful insights - so I am sharing this through my blog. All credits and copyrights related to this interview belongs to Citizen Matters.

Interview: Kiran Nadkarni, Founder Kaati Zone

It gives me great pleasure to start the interviews on this blog with Kiran Nadkarni. Kiran is Founder & Director at Kaati Zone, a chain of quick service restaurants specializing in Indian foods.

Kiran was among the early VCs in the country. Prior to starting Kaati Zone, he has held positions such as President, ICICI Ventures, and Managing Director, Jumpstartup Ventures. He has been an entrepreneur for over three years now and has raised funds for this venture.

Read on to know more about why he turned to entrepreneurship and his experiences in running his venture started in Namma Bengaluru with global aspirations...

Question: You have been one of the early VCs in India, what triggered you to move from someone who invests in entrepreneurs to an entrepreneur who is invested in by someone? We have heard of many entrepreneurs who become investors, you are following the reverse route!

Answer: I had spent 18 years in early-stage venture investing, and wanted to rediscover myself in a way. I was living in the US during 2002-2005, when I first thought of doing the Kaati Zone venture. I felt there was an opportunity to take a brand in Indian foods to the mainstream US markets. Initially, I had planned my involvement in the venture to be much like that of a venture investor, providing strategic inputs to an operating team. However, when I returned to India, I realized my full-time involvement with the venture was very important for it to succeed. You can say, I got sucked into full-time entrepreneurship gradually.

Question: Why this industry, how did you zoom in on this?

Answer: I was living in the US from 2002 to 2005. I noticed that, while Indians were a significant minority in the US and Indian food is popular among locals, most Indians who entered this industry were targeting the ethnic Indian community and did not address themselves to the larger local population. I felt there may be an interesting opportunity to take an Indian food brand to mainstream American market. We chose the quick service format, as it is a scalable business and one can build a significant company with this format. We studied the characteristics of and the current trends in the quick service foods industry in the west and planned our venture accordingly. We had planned to build out the concept on a pilot scale in Bangalore before moving to markets overseas, but things changed as we moved forward.

Question: Did being an investor in companies help you when you started your own venture?

Answer: My involvement as an early-stage venture investor in young companies did help in conceptualization, planning and defining strategies. However, I must admit day-to-day execution was something new to me.

Question: In your mind, what is it in your business that has helped you raise venture capital funding for your company? Any lessons you learnt that you would like to share with entrepreneurs re the fund raising process?

Answer: An early-stage investor assesses three important parameters in a business. He invests in the management team, a business idea that is scalable and can be built into a large enterprise, and a product offering that stands differentiated in the marketplace. My prior experience in venture industry clearly helped me define the initial goals to be achieved before tapping external capital. We invested in a central kitchen that serviced all outlets and demonstrated the hub-and-spokes model that can be scaled. We established a unique identity for Kaati Zone through our products and packaging that signified quality, health and elegance. We built a strong customer base not only for dine-in but for take-away and deliveries (including bulk deliveries to over 80 corporates in Bangalore, many of whom are multinational corporations). We have also ensured that we have retained most of our talent (from restaurant manager level upwards) during the difficult phase of our company. We have achieved it through regular interactions and communication about our vision, growth plans and innovativeness. Our team members have seen opportunities in Kaati Zone and have benefited from our growth.

Question: What is the best thing about being an entrepreneur?

Answer: The idea of introducing innovation in marketplace and making it a success drives the entrepreneurs most. I have also enjoyed charging up my colleagues with entrepreneurial zeal and passion. Young companies are usually unable to hire the best and most experienced talent. The entrepreneurial passion among team members can, to some extent, make up for this handicap.

Question: Is there anything you dislike about being an entrepreneur?

Answer: There is nothing about entrepreneurship that I dislike. I have always respected entrepreneurs and the spirit of entrepreneurship. However, I am extremely disappointed with the system within which we expect our entrepreneurs to deliver success.

• There is not much early-stage venture capital in India. Most investors focus on late-stage private equity deals of multi-million dollar size. I can count only a handful of silicon-valley style venture firms who are willing to back start-ups. Even the silicon-valley based venture firms which have entered India are shying away from start-up deals. I would have liked the Indian national financial institutions, banks and insurance companies to create a pool of capital that could support private initiatives in venture capital to support start-ups and young companies. The Small Business Administration (SBA) in the US contributed significantly to the growth of venture capital industry there. We require similar initiative to create an ecosystem of risk capital.
• The large-scale corruption in different agencies of Central and State Governments takes a heavy toll on young companies.
• Entrepreneurship is a high-risk game, and failure is part and parcel of it. Unfortunately, failure carries a stigma in our society and among investors.

Question: Are there any other insights / learnings / experiences you would like to share with an early stage entrepreneur in Bangalore or someone who is thinking of becoming an entrepreneur?

Answer: Here are a few suggestions for potential entrepreneurs:

• Entrepreneurship is a tough business. It requires staying power and perseverance on the part of entrepreneurs. Do not get into it because it appears glamorous. Attempt it only if you are passionate and are willing to hang in there for a long-term.
• Plan a business that can be built into a large enterprise. Very rarely do venture capital firms invest in small niche businesses.
• Innovate and stand differentiated in the marketplace. Build entry barriers for competition.
• Work actively to hire and retain quality talent. With most industrial sectors booming, employment opportunities are aplenty and retention of staff a very difficult task. This is a test of leadership skills of the entrepreneur.
• Leverage your contacts and networks to grow the business quickly. Also, focus on growth of topline even if it means sacrificing profits in short-term. Profits will grow with scaling up of the business. Venture capital investors like a growing business. They may not necessarily like a business that is profitable but growing moderately.

Ping Restaurant & Dessert Bay - Bangalore: Death of a GOOD Concept & Seemingly good Business

I was driving through Koramangala today and noticed that the "Ping Restaurant & Dessert Bay" had closed down. In my assessment, Ping had gotten a lot of things right.
1) The Location - Great single storey building in a prominent road in Koramangala with parking available quite easily around the area.
2) The Concept - Focused around Dim-Sums with a larger Chinese style menu. The quality of the food seemed to be pretty good going by all the reviews.
3) Sensible Pricing - Priced reasonably well. Average spend per customer - approx. Rs. 200-400 with some value lunch offers. Value for Money for customers while allowing enough margins for the business to make money.
4) The Setting - Quite unique and nice with a mix of outdoor and indoor areas with water bodies. A unique visible kitchen area.

With a good location, a nice concept, good food, sensible pricing and a nice ambience, the business seemed to have everything needed for success. Within a short time they also built up quite a fan following - 172 reviews of Burrp (one of the highest number of reviews for a restaurant in Bangalore on Burrp), won a Times Food Guide award for best Chinese food. So this restaurant shutting down came as a surprise to me. Yes, there were some service issues according to some Burrp reviews in the last few months, but that alone could'nt have been the reason for this unique restaurant to shut down. An interview with the folks behind Ping would probably give us some answers - I hope to do this soon and do a post on the blog.

Featured Business: South Indies (Billion Smiles Hospitality)

 Billion Smiles Hospitality, Bangalore (www.billionsmiles.in) is the company behind “South Indies”, “Bon South” & “Up South” (earlier Daskhinadin).

The information below is based on my research and analysis alongwith excerpts from an Interview with Venkatesh Bhat, CEO, Billion Smiles Hospitality Bangalore.

About Billion Smiles:

·         A company with a mission to create iconic brands in “South Indian” cuisine across categories – Casual/Fine Dining, Quick Service Restaurant (QSR) and Catering

·         Founded by the younger generation of a family which owns and operates “Arya Bhavan” restaurants across South India.

·         Backed by a successful entrepreneur with the financial capability to support the business for several years till it takes off.

·         Currently operates “South Indies”, “Bon South” and “Up South” in Bangalore and Pune. Soon to be launched in Hyderabad

The Billion Smiles Story:

A young 19 year old, Vijay Abhimanyu, from a family which owned and operated several budget south Indian restaurants “Arya Bhavan”, wanted to be an entrepreneur and take south Indian cuisine to the next level and create an iconic brand like “McDonalds” for South Indian cuisine. He also saw a huge business opportunity to create a casual dining south Indian restaurant. The only options in the market were the local budget south Indian joints (like the Sagars, Saravana Bhavan etc.) or the premium south Indian restaurants within 5 star hotels like “Dakshin” at ITC.

To fulfill his dream, Vijay managed to convince Venkatesh Bhat, the South Indian Corporate Chef at the Leela Hotels, to join him as the CEO of the company with a market salary and stock options, and attempt to build a large company with strong restaurant brands focused on South Indian cuisine. They partnered with a marketing agency “White Canvas” to define and design the brand identity.  Critical to this dream was a hitherto not so well known fact that Vijay’s dad was super rich (he had started a technology company and sold it to a MNC for a lot of money) and was willing to virtually write a blank check to Vijay for his dream.  But it still takes guts for a 19 year old to do something like this – Bravo Vijay!!

In March 2007, Vijay & Venkatesh, launched their first restaurant “South Indies”, a pure Veg Casual/fine dining restaurant offering south Indian cuisine from the 4 southern states, in a great location on the Indira Nagar 100 Feet road. South Indies was an instant hit and operationally broke even in the 2^nd month. My estimate of the investment made in the first unit is upwards of 4 Crores.

In the next 4 years, they have managed to add 2 South Indies restaurants (1 in Bangalore and the other in Pune), 1 Bon South restaurant (a South Indian Casual/Fine dine restaurant that also served non vegetarian food) and 2 Up South Restaurants (their QSR brand).

Vijay and Venkatesh were very clear that their vision is to create a large company and an iconic brand and all decisions they made were based on this long term vision and not in chasing short-term profits. There were pluses and minuses to this approach. They did not compromise of the quality of the staff they hired & offered them market leading employee benefits, they procured the finest quality supplies and prepared great quality food. In hindsight, they feel that they may have gone over-board with a few things – e.g. buying very heavy guage steel utensils that would last several decades rather than good quality utensils that would have more than done the job. The problem: The utensils they bought were almost 3 times as expensive as the ones that would have more than served their purpose.

 According to Venkatesh, having a long term vision and the financial backing to experiment, learn and innovate were the only reasons they were able to do what they did. If this were a business with a motive to make profits quickly, things would have been different. They kept aggressive but easy to understand targets – food costs below 30% and sales of INR 30 lakhs per month.

Vijay and Venkatesh run Billion Smiles like a professional corporate entity – no operational short-cuts. Everything they do is based on a well thought out and documented process – right from the recipe used to prepare a dish, to doing home delivery to distributing flyers.

With all the knowledge they had gained with South Indies, they invested in creating their second brand “Bon South” – a casual/fine dine south Indian restaurant that also serves non vegetarian food options and served alcohol. They leased an old corner house in Koramangala (on the 80 feet main road), pretty much tore down the house and built it to suit their concept and launched Bon South. Again, Bon South gained popularity quickly, though in our assessment, this venture was not as successful as expected. Add to this “Not-so-great” performance, a huge water logging issue with the building, they decided to shut down Bon South at that location and move it to Mantri Mall in Malleswaram. 

They then launched a QSR concept “Dakshin-a-Din” at the Mantri Mall. The idea was to use the same kitchen and back-end facilities for both their QSR brand and Bon South at Mantri Mall. Daskhin-a-Din was rebranded as “Up South” and is currently doing quite well at Mantri Mall and probably subsidizes “Bon South” to some extent.

Following this, they launched a second South Indies in Infantry Road – infact, this opportunity came to them. The owner of Hotel Chevron on Infantry Road, and a South Indies fan, approached them to use his terrace area to launch South Indies there. The terrace area was designed for an Italian restaurant initially. This unit is now their best performing unit both from a revenue and profitability perspective.

They have now managed to launch South Indies in Pune – in partnership with a local Pune resource. They have also launched their first stand-alone “Up South” in Jayanagar.

Key Challenges:

1)      Bangalore Metro: With the Bangalore Metro taking off, their location was impacted heavily. Sales dropped heavily by about 60% and after intense debates on whether to move or not, they took a decision to hang in there and support the business through the difficult times, till the construction work was done and revenues would perk up again.

2)       The Location Issue with Bon South: They learnt it the hard way that what looks good initially may come with a lot of problems later. The building they had leased for “Bon South” in Koramangala, had huge water logging problems and they were pretty much forced to move out of that place and take a loss on the investments they had made there.

3)      Procurement Issues: Even with extensive checks and balances, they have had issues with suppliers submitting wrong bills and have incurred losses because of this. With 4 years of experience in their bag now, they have refined their processes to make it as error-free as possible.

Vision and Future Plans:

Their vision is still intact. They believe that they have created the building blocks to rapidly create a large and robust business. Their specific objective is to create a large Rs. 200 Crore company which can do an IPO in the next several years.

Key Lessons for Readers:

·         Having a big vision and plan is fine, but you better have the financial muscle to support your vision and plans.

·         Building a brand and creating a large company is a painstaking process, especially in an operations intensive business like the “Restaurant” business. So you will need to be very sure that you are in this for the long run. Success will take a long time to come and the work will be very hard.