Tuesday, June 26, 2012

Why did Chili's in Old Airport Road, Bangalore, shut down? The Case for operating a Restaurant in a Mall gets stronger

I was driving through the Old Airport Road in Bangalore yesterday and saw that Chili's Bangalore had shut down  :-(.

An iconic brand like Chili's shutting down their first unit in India is not a good sign. When I tried to think through what may have gone wrong, the old saying that the Restaurant business is about "Location, Location & Location" came out on top. But the location Chili's had picked was actually not a bad one - just a little inconvenient and not very upmarket. The place was on the main airport road with great visibility, near a busy junction with a number of offices and residences in the neighborhood. Parking was a bit of an issue, even with a valet option available. On top of it, there was a hugely successful TGIF in the same area validating the market potential there. So I am thinking that there is more to the story than just the location.

Chili's today has 7 locations in India - all in malls across Mumbai, Delhi, Pune, Hyderabad & Bangalore. It looks like they have chosen to go the Mall route, like many other restaurant brands. Malls offer some big benefits to restaurant brands - they create and manage infrastructure suited for a restaurant - everything from providing AC points right into the unit, to taking care of power back-up, sewage and water connections, garbage disposal, centralized parking and great visibility options. On top of it, they have a maintenance team that is reasonably responsive to take care of any issues. With a movie theatre thrown in, malls become a weekend destination for families, creating a great captive customer base. 

This shift in strategy to move to malls, the operational hassles in a stand-alone unit with the place and a not-so-great business in terms of revenues may have Hope their new strategy works out well for them.

Wednesday, June 6, 2012

Air-conditioners for a Restaurant

If you are starting a restaurant, chances are that you will want your restaurant to be air-conditioned. Unless you are in a mall, you will need to invest in your own ACs. With the brands and varieties of ACs available in the market, it is quite easy to get confused.

My Recommendation:
1) If your budget permits, go for Cassette ACs. If not, stick to the wall mounted Split ACs.
2) Brands: Pick the Daikin Inverter ACs if you have the budget available. Go for Voltas 3 Star ACs, if you want the best bang for the buck.

How much will you need to budget for?
You will end up spending atleast 30-50K per AC (including the AC & stabilizer purchase and the installation costs) for each split AC and about 60-100K for each Cassette AC.

The Analysis and the Reasons for the Recommendations:
For a restaurant, you cannot use the same yardsticks that you would use for buying a AC for your home. You will pretty much need to run the ACs throughout your operating hours. Even if you are looking at only a lunch & dinner place you are looking at 7-8 hours of operations everyday. Secondly commercial electricity costs about 2 times more than domestic electricity - there is a slab based rate structure in place, but you can safely assume that your bill will be atleast double that of a residential electricity connection for the same number of units consumed, if not more. 

Secondly most ACs have a typical life-time of 3-5 years. Given that you will be using the ACs continuously, chances are that the ACs will last only 3-4 years. So it will again be wise to go for ACs that are more reliable and are known to be long lasting to help you squeeze out the maximum life out of them.

Given this background, it will be wise to invest in ACs that consume minimal electricity and are highly reliable to ensure that your investment is protected for a long time frame. Unfortunately, ACs that meet these requirements are typically quite expensive. Based on an assessment I did recently for buying ACs for a restaurant, here are the key things you need to assess:

1) Type of AC: You have 2 options available - the ceiling mounted Cassette ACs or the wall mounted Split ACs. The Ceiling mounted Cassette ACs are embedded into the false ceiling (without compromising the interior design of the restaurant), provide 4 way air-flow thus covering a larger area more efficiently and are available in higher capacities (upto 4 Ton). The only negative with the Cassette ACs is the cost. These tend to be almost double the cost of the split ACs, the installation is also more expensive (longer piping, wiring etc.) and will require a false ceiling. The Wall Mounted Split ACs are the most cost efficient option available today. The entire AC unit will be visible in the restaurant and in a number of cases, even the stabilizer and the wire from the power points will be visible. This will impact the interior design of the restaurant to some extent, even if you skilfully cover a couple of the components of the AC. Additionally, you will need to plan out the coverage area carefully and install the ACs accordingly. 
2) AC Tonnage required: While this will vary to some extent depending on the way your restaurant interiors are laid out, the guideline you can use is 1 ton for 150 sft carpet area. 
3) Star Ratings: These denote efficiency of power consumption with a 5 star rating being the highest. Most shops/dealers will quite rightly tell you to go for 3 Star ACs as they offer optimum efficiency at reasonable price points. The new Inverter ACs have efficiencies better than a 5 star rating.
4) Brands: For Split ACs you have several options today. The cheapest brand in the market today is Lloyd. Given that they have been around for a while and are beginning to press the pedal on their marketing now, Lloyd may not be a bad option. You will get a 3 star rated 1.5 Ton AC for under 30 K (with installation and a stabilizer). Next in the price point range are the LGs, Samsungs and Voltas. The LGs and Samsungs have really captured the home AC market and their service standards are quite good. Their pricing though is in the same league or a little higher than Voltas. The Voltas ACs are quite reliable, have been around for a while and have a nice support system for commercial installations. Blue Star and Carrier are also good options, but are more expensive than Voltas and seem to be more suited for large installations. If your budget allows it, go for the Daikin Inverter Split ACs (will cost about 50K per 1.5 ton AC including a stabilizer and installation). Check the ACs used by most retail stores and restaurants - especially in the newer stores they are opening. Chances are you will find the Daikins in a lot of them, primarily because of their lower power consumption, higher reliability and expected longer lifetime.

For Cassette ACs, you will be better off sticking to the commercial focused brands: Voltas, Blue Star, Carrier or Daikin.