The Provident Fund Bomb - Good in some ways but a setback for small businesses & professional entrepreneurs

The government 2 months ago finally issued a notification increasing the wage limit for PF coverage to Rs.15,000 from the current Rs.6,500. While this is good for the labour force in the long term, as they will have a significantly large PF kitty in the future, it will be a setback for small businesses who have crossed the 20 employee threshold across the industry. Kindly see my previous post detailing PF for restaurants - http://restobizindia.blogspot.in/2014/08/pf-is-there-way-to-get-out-of-it.html.

While I feel quite good that the labour force will eventually benefit from this, I also feel that this will make things more challenging for entrepreneurs and for those trying to run businesses professionally.

For the restaurant business in particular, this will mean a few things:

1) Staying small (as in just 1 unit) will make even more sense now, as opposed to having a few units: With just 1 unit, the number of employees can be kept below 20 (atleast officially) and restaurant businesses can avoid getting themselves registered for PF. This will further reduce the interest amongst professionals looking to start-up scalable restaurant businesses as their margins will come under additional pressure.

2) Really large restaurant businesses will have minimal impact as they already cover all their employees under PF. Smaller businesses earlier had an option not to cover employees whose basic + DA was more than 6,500. Now that limit has been increased to 15,000. This effectively means that almost all employees will have to be covered under PF. If the basic + DA of an employee is 10,000, a total PF contribution of Rs.2,400 will need to be made. If the employee's CTC is kept the same as it is now, the take-home salary of the employee will go down by Rs. 2,400 (almost 25% of the current take-home salary of a employee earning Rs.10,000). So the businesses will have no choice but to increase the salary to offset this reduction in take-home.

Based on this and the already existing challenges, I will work on a post on some of my predictions for the restaurant business in the near future. These will be particularly applicable for those who want to run a professional & fully compliant restaurant business with an aim to attract investors and build a large business.Watch out for this post. 

Grant Thornton Report on the Indian Food & Beverage sector

I have nothing to do with study or the report or with Grant Thornton. Someone forwarded the info to me and I am simply sharing this for the benefit of those in the F&B industry. 

Report can be downloaded from here:

http://gtw3.grantthornton.in/assets/Grant%20Thornton-CII-Food%20and%20Beverage%20sector%20-%20the%20new%20wave.pdf

Indian Food & Beverage Sector

The new wave

August 2014                                                                                                        

As knowledge partner for the “FOOD & BEV SUMMIT 2014: Conference on Indian Food Sector – The New Wave”, organised by the Confederation of Indian Industry (CII) on 22 August 2014 in Mumbai, Grant Thornton in India is delighted to release the report “Indian Food & Beverage Sector: The new wave”.

The report examines the growth potential of the Indian food and beverage sector. It suggests that while some of the Indian players are making use of newer technologies to increase production, meet international quality standards and thereby increase profitability, since the industry is largely unorganised, the adoption has been sporadic.

Stressing the need for the growth of this sector, Pirus Khambatta, Chairman, CII National Committee on Food Processing and CMD, Rasna said - "A developed food processing industry will reduce wastages, ensure value addition, generate additional employment opportunities as well as export earnings and thus lead to better socio-economic condition of millions of farm families."

"A number of policy and procedural initiatives are required to give impetus to this sector. Despite constraints linked to infrastructure, market access and funding, dynamic businesses operating in this sector have made their mark on the global stage," said Harish HV, Partner, Grant Thornton India LLP.

Commenting on the outlook for the sector, Shanthi Vijetha, Director, Grant Thornton India LLP, said, “The future of the food & beverage sector looks promising with the growing demand due to change in the consumer's lifestyle and consumption patterns including food habits. While the Indian agriculture sector is gearing up for supply with support from government, food processing is expected to play a key role in bridging the gap between the demand and the supply sides and addressing the key concerns of the sector – rising food prices and high levels of food wastage.”

We hope you will find this report informative and we welcome your feedback.

For more information on topics covered in this report, or to get in touch with our subject matter experts, please contact us on: E: contact@in.gt.com or M: +91 9930001230.

About Grant Thornton in India

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Upsouth vs Sri Krishna Kafe in Koramangala

I have been observing a very sincere attempt at creating a McDonald's of south Indian food - Upsouth, from the folks who started the blockbuster restaurant "South Indies" in Bangalore. With a background in the industry (their family owns the Arya Bhavan chain in Tamil Nadu) and deep pockets (the owner is a successful tech entrepreneur) and a visionary young CEO, they have all the right ingredients to carve out a success story. Their execution from the layout, ambience, hygienic feel of the restaurant, menu design, branding is top-notch. The 2 locations I have frequented (JP Nagar - now closed and Koramangala) are also excellent for a business of this nature. The pricing too is exceptional value for money.

Despite all of the above, I feel very sad whenever I visit their retail outlet in Koramangala as I did when I used to visit their outlet in J.P.Nagar. The reason is that they just don't seem to get enough customers. I do hope I am wrong and that they are doing well, but my analysis says that they are bleeding and badly at that.

On the contrary, a first floor and second floor slightly dingy restaurant opposite Upsouth in Koramangala - Sree Krishna Kafe, seems to be overcrowded on most days. They have been around for a while and that helps a bit, but their customers don't seem to be flowing into Upsouth. Upsouth had the same issue in their JP Nagar unit, where a Darshini/Sagar opposite them seemed to be overcrowded all the time.

Based on this I did a quick survey of several folks on the Koramangala road visiting either Upsouth or Sree Krishna Cafe. After quickly chatting with about 20 people, here are some of the raw comments:

1) Upsouth looks expensive. I don't want to spend money on idlis and dosas.
2) The Sree Krishna Cafe owner sits at the restaurant and ensures quality. Upsouth seems to be run by some uninterested managers.
3) I want to eat my dosas in a leaf and stainless steel plates, not fancy plastic plates.
4) Once I tried Upsouth, I am hooked onto it. Better food, better ambience and a cleaner place.
5) I like Upsouth - clean and hygienic
6) Not sure why the restaurant is always empty. The food is quite good and very cheap.I want to be served, not pick up stuff. The fancy beeper stuff is useless.
7) I have been coming to Sree Krishna Kafe for 6 years now - their consistency and taste has been fantastic. I haven't gone into Upsouth - now that you are asking, maybe I will go there once.
8) They should do burgers not dosas.
9) They are in my office food court. Just because they have a restaurant here does not make them serve better food than in my food court. It is the same s*** served here, probably at a higher price.
10) Upsouth looks like a rich guy's restaurant. I am more comfortable at Sree Krishna Kafe - more homely.
11) I am completely confused by their menu - combos which have stuff I don't like/need. Too confusing.
12) The Upsouth coffee is good. Better than Sree Krishna's.

Understanding this consumer behaviour pattern puzzles me. Upsouth has done everything right by the book - great ground floor highly visible location, clean contemporary interiors, good food at value for money prices and yet, they seem to be lagging behind the Sukh Sagars and the Sree Krishna Cafes by a long distance. Calls for a detailed analysis on the consumer mindset I guess?

A unique innovative solution to the water glass problem – simple but WOW in my opinion

I was driving from Chennai to Bangalore recently and stopped at the spanking new Murugan Idly Shop on the highway for dinner. As soon as we were seated, we noticed 4 stainless steel glasses resting on the table. They were not really water glasses – they were about 2/3^rd the height of a typical stainless steel tumbler and had several holes in them like a design. So you can’t pour water into them. They looked more like some sort of holder – a large toothpick holder. The waiter came with the menu and 3 disposable glasses for the 3 of us on the table, simply placed the disposable glasses in these stainless steel holders and filled water in them. I was stunned with what I would call a fascinating innovation that solves a real and practical problem for restaurants in India. How do you ensure providing clean, hygienic water glasses to customers, while still giving them a feeling that this is a full service restaurant, rather than a food court type set-up? The stainless steel holder with the disposable glass inside was very nice to handle – you felt as though you were drinking water from a real glass, and also re-assured about the hygiene factor. All 3 of us at the table asked the same question – why didn’t anyone think of this before?

I chatted up with the restaurant manager nudging him to see if I could take one of the stainless steel holders as a sample. The answer was “NO” – so I took pictures. Upon probing a little, the manager told me that the owner of Madurai Idly Shop, Mr.Manoharan, had personally thought of this idea, got the stainless steel holders designed and manufactured by a vendor. Now several people had started copying this idea.

I would like to say “KUDOS” to the owner of Madurai Idly Shop, Mr.Manoharan for this innovation and wish them all the best with their business. This also highlights the fact that several such innovations are needed in the restaurant industry that solves a real problem and improves the customer experience. 

Water glasses in restaurants

How often have you visited a restaurant and found that the water glass smells bad or looks not so clean, has specs or has drying marks? You tell the waiter to get clean glasses or on several occasions, simply drink the water straight from the bottle. Here is the reason why this happens.

First off, what types of glasses are available, what types are used at restaurants and how are they cleaned?

1)      A water glass made of glass:

o   The price of these glasses range from 8 bucks a glass (the basic Yera ones) all the way upto 100 bucks (Ocean) or even more, with several options along the way.

o   The most effective way to clean these is to use a dish-washer. This ensures that the glasses are dry and quite clean and do not smell. Several of the star hotel restaurants and fancier restaurants in India use a dish-washer. But what about the 90% of the stand-alone restaurants?

o   The non-dishwasher method is the following: Used glasses are kept in a glass rack, sent to the washing area and essentially a pipe with hot water is used as a hose and the glasses are clean. Then they are dipped in cold water. Post this, the glasses are wiped with a cloth and placed in a clean glass rack. As you can imagine, the process above is tedious, requires a bit of effort and space (which is sorely missing in most restaurants), require the wiping cloth to be very clean (??) and hence invariably leads the glasses to be cleaned not so properly. The process also requires the glasses to be handled multiple times causing breakage quite often.

o   An easier way to clean is to not clean the glasses at all. Simply shake the rack, fill water, shake it again to remove overflowing water and serve it back to the customers. While seemingly gross, this method is used extensively in banquet style settings with huge volumes and unrealistic service level expectations.

2)      Stainless Steel glasses (technically these can’t be called glasses, but I am ignoring this rule) – These cost the same as the above glasses made of glass, but are easier to clean, less prone to breakage and lasts longer. The shine goes away quite quickly though and impacts the presentation

3)      Acrylic glasses – These are plastic/acrylic glasses which look very close to a real glass, but are less prone to damage and last longer. These cost between INR 50 to INR 150 depending on the quality of the glass. Again the trouble with these is that the glasses lose their shine quickly and start looking old making them not so presentable.

4)      Disposable glasses – These transparent plastic glasses cost between 10 paisa and INR 3 depending on the quality. There are some really nice disposable glasses out there now.

Ask any restaurant owner and chances are that he/she would say that they would love to simply use disposable glasses and get away from the pain of cleaning the glasses, handling breakage, managing the labour needed for this etc. But this option is not viable owing to the customer expectation when they visit a restaurant. The presentation is very poor with disposable glasses, the glasses move around when empty making it not so easy for the waiter to refill the water at the table. Essentially it downgrades the value of a restaurant, especially those with table service. Disposable plastic glasses works in a QSR type setting, especially those restaurants which use a self-service model. Several of the Indian QSRs also provide steel glasses and in some ways the onus of ensuring the final cleaning process is with you – the customer. But for most restaurants offering table service this is not a viable option yet.

Given the above, most restaurants simply buy glasses once every 6 months or so and replace them.