Tuesday, August 30, 2011

Marketing Option Assessment - Deal Websites

The deal companies such as snapdeal.com, dealsandyou.com, sosasta.com, dealivore.com, koovs.com, taggle.com are the flavor of the dot-com boom cycle in India with companies like Snapdeal getting huge VC investments.

By design these deal sites are meant for businesses with unsold inventory to dispose off their inventory at very low prices. For a restaurant business, you technically don’t have unsold inventory that goes waste, unless the number of customers coming into your restaurant is so low that even your raw materials get wasted. Most restaurants quickly figure out how their volumes fluctuate through the week and plan their procurement and preparation accordingly to minimize wastage. Add to this the fact that the deal websites want you to offer big discounts (30% plus at a minimum, with 50-70% being their preferred discounts), to make the offer attractive to their customers. In addition they also charge a flat fee of Rs. 49 or about 15% of the sale value for each customer who buys their coupon. So you are probably going to end up losing money or barely covering your costs with the deals you are offering through these websites.
What is the real benefit you get from offering deals on these websites?
You can get a number of people to visit your restaurant and try out your offerings. The hope is that they will like the place and come again and pay your list prices. That is where the problem is – The customers who seek out deals are what I call “Deal Mongers”. Their decisions are heavily biased based on who is offering a deal. So they pick places who offer a deal – and someone or the other is offering a deal on these websites at all times. They are hooked to “Deals” rather than to “Brands”. Plus once they visit a place which offers a deal, the intrinsic value of that place in their eyes goes down. So unless the place offers a deal, they don’t come back. So you have a situation, where a lot of customers come to your place, use the deals (you lose money in most cases) and never come back unless the deal is there.
The other problem you have is that you will probably have a lot of these “Deal” customers visiting your restaurant during your busy days when you don’t really need them. The deal companies don’t want to place restrictions on the deals, as any restrictions would make their customer experience poor. So there is no way you can control when these customers show up.
The real benefit of offering deals on these websites is for a new business with an innovative concept. A new business can use “deals” to really entice customers to visit the restaurant. If the restaurant has an exciting innovative concept (e.g. Biere Club – Microbrewery, or Touche – Touch Screen Tables), then the folks who come, will talk about the restaurant and spread the word. The key would be to stop offering deals after the first month or two, so that customers don’t expect deals all the time.
In summary, I don’t believe the “Deal” websites are a great marketing option for restaurants, except for the new businesses with a very unique concept/offering.

Wednesday, August 24, 2011

Marketing Option Assessment - SMS Marketing providers like mGinger

Companies like mGinger send out offers to customers who have subscribed to their SMS based services. This is similar to sending out mass SMSs, except that they do it the legal way. It is illegal to send out mass SMSs, unless the subscriber has explicitly agreed to accept messages – I still wonder why I get so many junk messages. With mGinger, customers sign up for their services voluntarily. mGinger entices subscribers to sign up for their services by promising to offer them deals and discounts not available elsewhere. So if you want to use their large database available and send out a marketing message through SMS, you can pay mGinger to send out messages to a targeted list – they offer extensive refinement options, such as location, use profile etc. You can offer deals that make sense for you – say a 15% discount if someone shows you the SMS they have received from mGinger.
I believe that this is a viable marketing option for both new and existing restaurant businesses to reach a large targeted customer base in the area. Though the content you can send is limited through an SMS, it atleast gets the name of your restaurant out to a large target customer base and you may get a small percentage of the SMS recipients to actually visit your place to avail the deal.
mGinger charges around 30-50 paise per SMS. Bulk SMS services charge around 1-5 paise per SMS. In my opinion, the effectiveness of mGinger probably more than justifies their much higher cost. I would recommend that you try out both options and see which one is more effective for your business.

Wednesday, August 17, 2011

The Anna Hazare movement and implications for Restaurant Businesses

It has been amazing to witness the level of public (common man) support Anna Hazare has been getting for his "India Against Corruption" movement.

Restaurant businesses, like very other business and every individual in India, have pretty much accepted corruption as a way of life, whether it be getting and renewing their trade licenses & health certificates annually, complying with labour laws (which are so complicated that complying with them is virtually impossible), keeping the local policemen happy, keeping the local corporators happy, politically backed local associations which demand support for all sorts of festivals, events etc.

Most mature businesses now budget a monthly/annual amount towards miscellaneous cash expenses, a large part of which is bribes paid to the various individuals involved.

I would love to see a day when Restaurant business owners can go about their business without having to pay a bribe. The Anna Hazare movement and the events over the last 2 days seem to be a glimmer of hope to see a corruption free India.

Maybe it can start with all Restaurant business owners in an area getting together and trying to renew their annual trade license in Feb 2012 without having to pay a bribe.

"Jai Hind"

Tuesday, August 16, 2011

Will a first floor not really work out?

Will a first floor location for my restaurant business not really work out? I keep getting asked this question often.

The answer is simple & straight-forward: "No, It won't work out - Don't do it". The sooner you accept this the easier your decision making process will become. It is not worth the Risk, especially for a first generation entrepreneur with a new business concept. Wait till you find a place that meets your needs and your budget. Be prepared to make some compromises such as taking a smaller space in a ground floor prominent location.

There is a huge-huge difference between a ground floor and the first floor. It is a case of minimizing your chances of failure and maximizing your chances of success.

Check out for yourself how many successful restaurants are in the first floor - pick 100 and I will bet that over 95 will be on the ground floor. There is obviously a very specific business reason for this - every business would love the lower rentals of a first floor, but they still don't do it - How many McDonald's, Dominos or Coffee Days have you seen on a first floor?

Am I saying that there is no way you can be successful by opening a restaurant on the first floor? I am sure you can invest in a penny stock and become a billionaire - it is just a question of the probability of success and failure.

Friday, August 12, 2011

Billing System & Printers for Restaurants

Do you need a billing system and a billing printer for your restaurant?

The answer is "YES" - any restaurant (however small) will need to give its customers a printed bill. A manual bill looks ugly, is prone to errors and misuse and you pretty much can't track anything. So you would atleast need to buy a bill printer, if not an entire billing system which you can connect to a bill printer.

You have fancy "Restaurant Software" with tools for billing, inventory management, Order management etc. (A google search will give your some results). You will need a standard computer to run these applications. The software if used well, can give you extensive reports for analysis e.g. Revenue by item, Revenue by time of day etc. From an investment perspective, such software will cost you between 15K to 50K atleast with an annual maintenance contract of 15-20% of the license value. In addition you will need to invest in a computer with a genuine Operating system (totally about 20-30K) and a bill printer for printing out the bills (about 4-10K). You will need to buy a POS (Point of Sale) printer (Wipro Peripherals, TVS Electronics & Epson offer quite a few options at various price points)

For starters, I highly recommend the standalone Wipro Retail Billing Units and NO - I don't have any relationship or commission arrangements with Wipro for this. In my opinion, they just have a great & unique product suited for practical Indian needs - especially for small retail units. Their system does the job well, is inexpensive (around 8-10K) to buy and run (cheap cartridges and printing paper rolls), does not need a computer or any software, provides basic reports for analysis.

Once your operations are stabilized, you can evaluate and buy a good system patiently. If your overall project is large, then evaluating and buying a suitable system upfront will be required.

Monday, August 8, 2011

Our Story

A large number of readers have emailed me asking me about the restaurant business I run. I have been very hesitant to share this - have no clue why. But given the number of requests I have got, I am sharing our story below.

Our Story:
We (Srikanth, a college buddy of mine and I) invested our hard-earned post tax savings in the Restaurant business based on a strong interest in the business and a belief that if others can make a restaurant business work, we are also smart enough to do so. We hired a Restaurant consulting firm and used our brains to come up with an innovative concept - Everyday Healthy Food at Value Prices, and started “Café Aarogya” in Aug 2008. We worked really hard, were highly responsive to customer feedback, made no compromises on food and ingredient quality, invested in marketing (newspaper ads, flyers in newspapers, apartment notices, discount coupons, banners, online food sites, friends & families etc.) and explored every sales channel possible (Office Meals Catering, Individual Meal box Deliveries, Party Catering, independent Kiosk format with ready-to-eat food). We got written about very positively in newspapers (Times of India), Magazines (Femina) and were even interviewed on television (TV9).
After a few months, the writing on the wall was clear to us – we will not make money and will lose our investment and more money if we continue operating. But in our entrepreneurial zeal and refusal to accept failure, we refused to acknowledge this fact and so worked even harder, made changes to the menu, pricing and continued to believe that something would happen and things would work out. We also attempted to find investors to bail us out based on a nicely written and attractive business plan on paper. After about 12 months and having lost enough money, energy and enthusiasm, we decided to end the bleeding and accept the fact that what we had created was like an art movie – “Critically Acclaimed, Commercial Failure”.
Once the decision to shut down was made, we informed our staff about the decision, requested their support and promised an additional notice period pay post shut-down, helped them find other jobs, and attempted to sell the assets and transfer the lease to another restaurant business/entrepreneur (the offers were abysmally low as expected). During all this, some of the key staff and us, kept racking our brains about what else we could do in the space we had, without any additional investment. Out of this desperate situation and sheer survival instinct was born our Biryani business. Since the idea primarily came from Mani (the executive chef at Café Aarogya), the fact that he anyway had an interest to start a Biryani restaurant when he had the money,  we chose the name “Mani’s Dum Biryani”. We changed the sign-boards, designed a new menu and opened “Mani’s Dum Biryani” in Oct 2009.
In Jan 2010, we felt as though we had struck gold as we operationally broke even for the first time. Our energy and enthusiasm got a positive boost and we started focusing on trying to make the business profitable. By Jan 2011, we had experimented, refined and made some small investments to spruce up the restaurant. Our efforts finally bore fruit and we soon started making EBITDA to the tune of 10-12% of Net Sales per month on a consistent basis (like I have mentioned in my earlier posts, market norms are in the 15-30% range).
The journey has been painful – but we managed to hang in there and survive. Now we want to make an attempt to grow and build something meaningful and fulfill our dreams. In our minds, even if we end up with just creating a small restaurant business (say 10 restaurants in 10-15 years), we absolutely want to take this journey. Do check us out at www.manis.in

Saturday, August 6, 2011

How does a restaurant fulfill your food order?

Have you ever wondered how your order gets processed in a restaurant, especially when it is crowded?

Let's take a restaurant which uses pen and paper, the old school method - no fancy gadgets or systems yet. The waiter notes down your order on a small note-pad. If you watch closely, you will notice that the note-pad has 1 or 2 carbon sheets for making automatic copies as the waiter writes down your order. This note-pad is called a KOT (Kitchen Order Ticket) book. The waiter then tears the 3 KOT copies, gives one to the cashier for billing purposes, gives one copy to the kitchen coordinator - referred to as the "Barker" and keeps one for his reference.

The "Barker" then divides the food order in the KOT to the respective individuals/teams in the kitchen - the main cook(s) for entrees, a junior cook for starters, a junior cook for breads (Rotis), the pantry for salads, drinks, desserts etc. The "Barker" literally shouts out the order to the respective individuals, tracks the order with . Once the food is prepared, the barker assembles the order for a table, calls the waiter and hands over the food items to him as one whole order or in parts depending on the load and what he thinks is best. The waiter then gets the order to the table.

The cashier's job is to ensure that all the orders are billed and gives the final bill to the waiter when asked for.

As you can see, having a really good "Barker" (Co-ordinator) is critical at most restaurants and generally a tenured waiter is assigned this task.

There are some modern gadgets available now ranging from:

1) Wireless order taking machines, with screens in the kithcen, that send out the orders to the respective teams as soon as the waiter presses "Submit" and the info to the billing system directly - you will see this in a large number of restaurants in the developed world (US, Canada etc.) and a few high end restaurants in India.

2) A simpler variant of this is where the waiter submits the order to the cashier, who enters the information in a system that sends a message to the kitchen and stores the information for billing purposes.

3) Another variant is where the "KOT" book has just one page. The waiter submits the order to the cashier, the cashier enters the order in a system, prints 2 copies - one for the kitchen and the other for the waiter.

On a crowded day, you can imagine the confusion and the activity levels in an ala-carte restaurant. This is one of the reasons why buffets are very popular - takes the pain out of the order taking, fulfilling and billing processes.

For a new restaurant, should you invest in a KOT system? If you are a newbie, my recommendation would be to stick to the "Paper and Pen" approach initially, invest in a simple billing machine till you learn enough about your processes and invest in something that will suit your requirements, if required.