South Indian restaurant chain Sagar Ratna‘s new CEO, Murali Krishna Parna brims with confidence to take the chain to new heights with menu innovations, manpower development, and kitchen consolidation. Not only this, realising the increasing relevance of QSRs for the Indian market, Parna admits that Sagar Ratna is likely to enter the segment by this fiscal, and is working on certain business models to cater to the need.
Please brief us about Sagar Ratna.
Sagar Ratna is a vegetarian restaurant known predominantly for its South Indian cuisine. We operate both company-operated and franchisee-operated restaurants. Various models exist in our company-owned outlets, for example, base kitchen restaurants (where cooking is done in the premises), service kitchen restaurants (basic food preparation at base kitchens and final cooking at service kitchen), and kiosks (in food courts, etc). The food is prepared fresh every day in all base kitchens and supplied twice or thrice to service kitchens to maintain consistency in taste across our restaurants in the NCR. In other markets (mostly) we have independent base kitchens where the preparation begins every morning at about 4am. We take commission from franchisees; it is a negotiable margin decided during the 10-year agreement. The commision depends on location, investment, and the kind of market, and may vary between 10 to 15 percent.
We have 4 to 6 chefs in each restaurant depending on its size. We have different training programmes such as for beginners, for imparting new skills for personal and career development, for learning different cuisines, and FOH (front of house). There is a specific programme under the banner ‘Atithi Devo Bhava’ that focusses on training the FOH staff to treat customers as guests in their own homes.
In 2013, Sagar Ratna’s Malaviya Nagar outlet had to shut down because it did not have the license and for its low quality of food (after stake was bought by IEP). How do you plan to re-establish the brand?
The restaurant was shut by the authorities not because of hygiene issues but for not having a license for a restaurant operating over 12 years in the same location. There were certain issues with the landlord which led to this situation. The case is subjudice now as we have taken this to the court and arbitration procedures are underway to recover the cost of all damages.
Like all multi-chain retail stores there are a multitude of things that one needs to keep working on; there is no single thing that makes a huge revolutionary difference. I guess the days of a single competitive advantage over a longer period of time are over, and now is the time for transitional competitive advantage like situational leadership. We keep working on this across every aspect of the business, be it menu re-engineering, price management, people development, franchisee support, kitchen consolidation, brand image makeover, people development programmes for skill development (which helps people grow in the organisation), and new products (fusion dosas, summer flavours, etc).
What were the operational challenges you faced when you took over in January 2014 and how did you tackle them?
Sagar Ratna has multiple stakeholders in operating a successful business like the landlords of leased properties, franchisees, regulatory authorities, and last but not the least, employees. With change in the management followed up with rapid expansion, there were a number of issues. For example, for some perishable products like chutney, quality was an issue during the summer months; it would last for 3-4 hours during the winter months, but did not last long in the summers. As we do not believe in the frozen concept and like food to be fresh, we revisited the supply chain, made smaller batches, trained people on how to make it, packaged it, and fixed the required proportions. All of this helped us overcome the problem. Earlier, the chutney was prepared in bulk, and we had large restaurants with good turnover such as our outlet in Defence Colony, New Delhi, where the entire lot would be consumed, but in smaller restaurants it’s not so.
Another specific problem was manpower productivity. The overall cost of manpower should not be more than 15 to18 percent, and maximum 20 percent. But in our case it was 24 to 25 percent. Now, in smaller restaurants we have a higher number of multi-skilled people with a single person making idlis, dosas, sambhar, etc (earlier, we had one person making just one item). In large restaurants, we do need specialists but in smaller ones multi-tasking is a must, so we are working on it and training our manpower. With our efforts, we will probably reach 22 percent overall manpower cost by the end of this fiscal.
We are still grappling with a lot of other issues. Since this is a proprietory company, there was a single head making decisions for everything, but we are now restructuring the oganisation to a more decentralised structure. Empowering employees at the ground level is another initiative we have taken up; we are training them on how to take authority and more responsibility.
Do you agree that with franchising, maintaining the food’s consistency and quality often takes a backseat?
Maintaining quality is everybody’s duty and not just that of the chef or the QC team. While managing quality is more difficult with franchising, it is not necessarily true for all. Franchisees who see the long-term benefits align well with the requirements. It is difficult with a decentralised system to maintain consistency in taste, however, we are working towards standardised recipes, rigorous monitoring through a Quality Analysis team, and continuous training to bring in the required consistency. Uniformity in dishes is now a diktat more than a choice, but we have yet to implement it across franchisee-operated restaurants as well. Pricing has local relevance, hence, benchmarked with competition, locally or in certain categories, we do choose to take leadership pricing. Also, it’s more a function of what a customer will pay rather than what it costs.
To keep the South Indian food category exciting, in the recent past we did fusion dosas, hot garlic dosa, and chocolate dosa with ice cream. For summer, we are working on lemon chilly and chipotle, thus trying to be relavent as well as keep it exciting at the same time.
Do you think South Indian fast food can be turned into a quick service chain operation? Can the same level of success be replicated?
QSRs serve a different need gap as against casual dining formats. Given the recent market dynamics with increased impulsive eating out and convenience of consumption gaining importance, presence in that segment cannot be ignored. Indian foods, especially the cuisine that we operate in, requires accompaniments and indulgence with hands, and therefore, it’s a journey that may take some time for Sagar Ratna to cover. We are keen to tap this segment in a conscious, appropriate manner. Given our focus on innovations, we are working on certain business models to cater to this segment.
Why do you want to get into the QSR business?
QSR is our next focus because two segments growing faster than the market in F&B business are QSRs and casual fine dining. The international players’ modules are easily replicable in the country; we just have to adapt to it. We already have the product and just need to find out how to make it QSR convenient. For QSRs we want to be known for South Indian food so we will stick to it as far as possible. With the real estate prices shooting up we need to find a volume opportunity in smaller square feet areas and, therefore, a takeaway or delivery model is very important for us.
Please share details of your QSR plan.
Most likely, a separate QSR entity will be established this fiscal under the umbrella of the parent brand because the current Sagar Ratna outlet caters to a very good casual dining environment. The groundwork for the big shift has already begun as we are trying to spot the products for the QSR model. QSR outlets may range between 400 to 500 sqft, ideally located on high streets, and will primarily target the youth.
But first, we need to understand what kind of product can be made ready at the counter to deliver the moment a customer orders. It could entail packaging modification, innovation in the product, or a takeaway. For instance, we are looking at how to wrap a dosa to keep it crispy so that it is not soggy when the customer eats it. The main challenge is the accompaniments, that is, the chutneys and the sambhar. We have to spot 4-5 products that can be worked upon for the QSR model. We also need to take decisions like: do we need to make the dosa 10 minutes before the customer comes and keep it in the steamer? I see a solution there somewhere. We will also have to think of good price points starting at Rs 30 to Rs 50 in the takeaway format. Plus, the size of our QSR products will have to change.
We have taken the help of some college students to understand the kind of timelines that customers look for, and to do some market research for us in the NCR where our QSR format will be piloted. We plan to locate the QSR outlets mostly on high streets, but in the Delhi-NCR we will have more kiosks in shopping malls, as these are the new shopping destinations.
Only once we are successful with our company-owned outlets, will we replicate the format through franchisees. In fact, if our QSR model succeeds we will probably plan a roll out also. If for some reason we are not able to get our QSR plans functional this fiscal then it will happen by the next fiscal for sure. We will train our existing workforce (they have earlier worked in QSRs and fine dining) and help them relearn the skill and adapt quickly. Our overall current team size is around 1,600. Employees at franchisees would account for another 1,500, though they are not on our payrolls. Currently, we are trying to find all the possibilities for the QSR format while consolidation of current business, expansion, and experimentation remains the immediate focus and priority.
How otherwise do you think South Indian fast food business in India can be scaled up?
Different need gaps have to be met with differential format solutions as well, apart from menu re-engineering. Innovating the menu is a big focus. We did an exciting ‘Fusion’ campaign during the recent winter season, and we are looking forward to a ‘Flavourful Twists’ summer with our new introductions. At the same time, I agree that our current format doesn’t serve well the impulsive or planned needs of time-starved customers. We are working on the same.
What new trends are you observing in food chains?
Some of the general current trends are impulsive eating is growing faster than planned eating; centralisation of back-end supply chain has become a must for the QSR growth; format innovation is required for casual dining models to cater to time-starved customers; profitability in the casual dining format now depends predominantly on manpower productivity improvements; smart menu management without impacting the back-end deeply will be in play to ensure the best in a few items rather than a wide menu.
What are your marketing and sales strategy and expansion plans this fiscal?
Geographical expansion (in UP, MP, Rajasthan, Chattisgarh, Bihar, Jharkhand) for both company and franchisee operated models; more focus on driving footfalls; increasing average spend per customer through the year with existing and new product ideas such as our Flavorful Twists campaign, promotions, etc, to reach all customer segments in different times of the year.
We intend to open 15 to 18 restaurants this year out of which 3 to 5 could be company operated.
The expected investment for the planned expansion is ~Rs 2 to 3 crore. Our immediate focus is on achieving a 15 percent same store sales growth in the coming year. For this fiscal, we may close the year with Rs 75 to 80 crore (only from 49 company-owned restaurants).
