From a single outlet in the 1950s to the current 605, Monginis Foods has chartered a steady growth path. Chairman and MD Zoher Khorakiwala traces the 100-year old brand’s eventful journey.
How has the franchise model worked for the Monginis brand?
Opting for the franchisee route has brought a great deal of advantage for Monginis. To begin with, and most importantly, we did not have to put our own capital at risk. No doubt we would have made more money if we had opened our own stores, but we couldn’t have grown so fast. Thanks to franchising, in the past 5 years alone, some 30 stores have been added. Franchising also gave us an opportunity to focus on business diversification – for instance, we were able to start a packaged cake segment.
What is the selection criteria for your franchise partners?
We select franchise partners based on their financial soundness; they need to invest Rs 1,25,000 towards deposit; Rs 50,000 as franchisee fee, and some more towards interiors and equipment as per our specifications. They also need to have an initial working capital of Rs 1,00,000 to finance the stocks of around Rs 80,000 and a market credit of Rs 20,000. Besides this, they need to have a property in a high visibility area such as a railway station, a popular market place, on the city’s main road, in a mall, etc. Experience in dealing with reputed retail brands would be an added qualification.
On an average an investment of Rs 6-7 lakh (excluding cost of acquiring a property on ownership basis) is required for opening a store. The franchisee’s earnings are directly proportional to the revenue generated by the store. We do not open stores which have a revenue potential of less than Rs 3.5 lakh per month. Our sales vary depending on city and location from Rs 3.5 lakhs per month to Rs 15 lakhs per month.
How do you ensure quality standard across all your stores?
We have a qualified and trained team of franchisee management executives who guide our franchise partners and help them in promoting their shops. We also have a team of auditors who regularly visit the shops and audit them on various parameters which are broadly classified under customer service, ambience, storage and stock management.
A new franchisee is typically required to undergo training for at least one month in a designated shop. Similar training is given to the shop manager, who may be the franchisee. Our CSPs (customer sales persons) are either recruited from existing Monginis shops or have some experience in the bakery or retail industry; but even freshers are considered provided they have the right attitude for selling. Our franchise agreement is renewable after every three years.
Apart from the franchise outlets, we also have franchise bakeries or production units, which account for almost half of the total production. The company monitors their quality by deploying its own executives within the franchise team. All products are made at these centralised bakeries and then sent to the various outlets, which also helps Monginis outlets to optimise their retail space. Monginis charges the franchisee bakers a royalty of 4 percent on their total sales to the outlets. Typically, a production franchisee takes three years to break even, although retail franchisees can become profitable within a year or two, depending upon the location.
Monginis has initiated a new business model through which it plans to expand into tier I and II cities. What is the rationale behind it?
As per the new model for tier I and II towns, we will begin with a ‘bake shop’ which will be situated in the most prominent location in the city. The bake shop will both make the products in a back kitchen and retail them. This way, we will be able to supply the freshest products and wastage would be minimised. We would also be able to cater to last minute orders.
So, to open a bake shop, the prospective franchisee must have premises on an ‘ownership basis’ at a prominent site, and the shop must have a minimum carpet area of approximately 1,000 sq ft.
An investment of approximately Rs 35-40 lakh (excluding premises) will be required. In case the shop premises are not large enough for storage, a separate place for storage purpose will have to be identified. Subsequently, depending on the response to the bake shops, satellite shops can be opened in the same city or in nearby cities, which will be catered to by the bake shops.
Which retail model works best for Monginis – franchised shops or other outlets? Which is the highest revenue generating store and market? How do you reward your franchisees?
From all our exclusive cake shops, we are able to generate a total of Rs 225 crore annually, and from the open market, that is the traditional retail stores and modern trade outlets, we earn a revenue of round Rs 30 crore per annum. Currently, there are 605 Monginis cake shops across 6 states (Maharashtra, Goa, Gujarat, Madhya Pradesh, West Bengal and Orissa), of which 225 are in Mumbai alone. So our major market is West India, which generates 60 percent of the total sales.
Our best performing store is in Borivali, Mumbai, where we get very high footfalls, and also because of the exemplary customer services provided by the franchisee. Customers keep coming back no matter how crowded the store is. We reward our franchisees by felicitating them during our Annual Cake Shop Franchise Conference.
Which are Monginis largest selling product categories?
Our largest selling category is celebration cakes, which contribute around 58 percent of the total sales, followed by pastries which generate around 21 percent of the total revenue. Our best-selling cake flavour is black forest. In fact, of the 190 sq ft area for display and storage, 81 percent of total counter space and 37 percent of total storage area is occupied by the celebration cakes and pastries. Other categories such as savouries generate 8 percent of the sales, packaged cakes and trading items (namkeens, wafers, candies, etc), 4 percent each; breads contribute 2 percent; cookies, chocolates and party accessories (caps, party poppers, face masks, candles, balloons, flowers, etc) add I percent each.
During Xmas and the period up to New Year, we witness soaring sales, and of course occasions like Easter, Raksha Bandhan, Bhai Duj, Eid, Diwali and Valentine’s Day also add considerably to our sales as we often offer themed products during these festivals.
What are your plans for increasing sales?
We are planning on expanding our reach and moving up the price ladder with the launch of more premium variants of cakes. We are also now focussing on meeting the changing demands of our increasingly discerning customers. We have identified two major trends – ‘vegetarianism’ and ‘health consciousness’ – and we are concentrating on these by introducing products that meet these demands. In fact, we have already taken some active steps to leverage on these trends, for instance, we have launched a TVC for our egg-less cakes, and alongside, we have expanded our range of these pure veg cakes. To address the demand from our health-conscious consumers, we have launched sugar-free cookies and a healthy range. We are now planning to introduce sugar-free cakes as well.
The tastes and aspirations of our customers have undergone a change over the years. Now they demand more exclusive and customised cakes and want premium flavours and value-additions. As a part of our pre-sales customer service, we send them reminders or information about our products; at the point of sale, we share information with them, and as part of our post-sales service we offer free home delivery. However, since we deal with products that are purchased for special occasions like birthdays, anniversaries and festivals, sales schemes such as discounts, promotions and loyalty programmes do not work for us.
Please tell us about your front and back-end infrastructure.
Our shops have an average of 200 sq ft carpet area. An undivided row of counters divides the shop into two parts. Cakes, pastries and savouries are displayed in glass counters, which are illuminated with a warm white light that renders an appetising glow to the products. Packaged products are displayed on shelves, along with party accessories and decorations. We also have self-service counters where customers can touch and feel the products before buying them. There are four to five employees in each shop, including a manager.
We have centralised bakeries where all the products are made and then transported to the retail outlets in their respective areas through our own logistics system. These bakeries are located in Mumbai, Bhiwandi, Pune, Nasik, Surat, Baroda, Ahmedabad, Rajkot, Indore, Goa, Hyderabad, Cuttack and Kolkata. Out of these, four are company-owned (two in Mumbai and one each in Hyderabad and Surat) and the rest are franchisees.
Our back-end infrastructure consists of a production unit, a cold storage system, and transport vehicles with a cold storage set-up. Cold storage is vital for our operations because 70 percent of our products are the cakes, which are made with fresh cream.
On an average, the minimum display and storage area/space at a Monginis store covers 86 sq ft for shelves and counter; 46 sq ft for back shelves; 20 sq ft for self service shelves and counters; and 37.5 sq ft for a deep freezer including shelves. So the total storage and display area measures up to 190 sq ft.
What kind of investments have you made with respect to technology up gradation/ modernisation?
Point of Sale (POS) softwares are increasingly being used by our franchisees to maintain inventory and a database of their customers. The POS helps them in taking important business decisions as well as planning new initiatives. Around 10 percent of the total investment goes into technology.
In 2005, we started our online store/portal where people can buy cakes online. It is positioned more as a gifting portal for customers wanting to gift customised cakes, or order chocolates, cookies, packaged cakes, flowers, greeting cards, candles, toys, etc. Orders received online are processed through our stores. We have invested quite a lot in this initiative, since we believe that e-commerce is set to become a big retailing channel in India.
What are the operational challenges at Monginis?
One major operational challenge which we are facing (and will continue to do so) is maintaining an optimum balance between ordering and selling. When the products remain unsold, they are wasted. But if we order a lesser number, it could lead to loss of sale. Currently, about 3 percent of the stocks remains unsold every day. Unsold products are returned to the company by the franchisee, which are then destroyed, and the cost of wastage is borne by the company, not the franchisee.
Our other issues are with respect to the laws and regulations. In the food sector, especially, there are several stipulations and strict controls, such as laws that prohibit unethical and unhygienic practices, etc. But, today’s discerning customers are more aware than ever before and can decide on what’s good for them and what’s not, so I think a lot of regulations are not really necessary.
What are your future plans?
Reaching out to more customers will be our primary concern, so we plan to take our store count to around 1,000 in the next 5 years in metro cities, including penetration into tier I and II cities. As discussed earlier, we are also focussing on our new business model of inviting franchisees for larger stores of up to 1,000 sq ft with an in-house kitchen since it is not viable to have production facilities for catering to small towns. As per our plans, over the next year or more, we will be venturing into 10 small towns in the states of Maharashtra, Madhya Pradesh and Rajasthan, where we will have one main store and a few satellite stores, with the large store supplying products to the smaller ones.
The company is also working towards increasing the turnover from its packaged cakes segment. Currently, we have 360 distributors for packaged cakes to the open markets, and we plan to increase the number to 500 by 2014. Packaged cakes account for 20 percent of our turnover; and over the next five years, we are targeting 30 percent revenue from this category.
*This interview was originally published in June 2012 issue of Progressive Grocer.
