The Foreign 'curry' challenge in India

As per Third Eyesight, a consulting firm - The number of international brands continued to grow each year at a steady pace until the early 2000s and took off exponentially thereafter. It is growing with each year passing. The brands prefer mostly franchise route for entering India. However, few also choose licensing and JV’s. Fast food is not a new concept in India. With roadside shops, chat places and other easy pick eatables, Indians have always been very well aware of the offerings. But with the entry of McDonalds, KFC, Pizza Hut, Dominos and many others in the Indian market, whole scenario changed. Indians have loved the westernisation of Indian fast food. Like a tikki in a burger with a little twist is now recognised as Aloo patty.

Another brand, The Chocolate Room is an Australian brand and entered India via the franchise route. Chaitanya Kumar, Chief Managing Director, The Chocolate Room opines: “Indian franchisors are very eager to get franchise partners for their brand. But once they get an investor, most of the franchisees face problems in inadequate awareness of brand, training, communication, quality and customer service standards. Lack of franchisor's follow up's and support to the franchisees results in rumors about the brand in the market place. Few of the major challenges for the restaurants here are fragmented market, operational challenges, real estate, manpower and supply chain.”

License intricacies and challenges to run a resturant

In India, obtaining the requisite licenses, e.g. health license, food safety license, police license, No Objection Certificate (NOC), from the fire department and the state pollution control board, and so on is a major obstacle hindering the smooth operations of a restaurant. The process is not centralised as yet and requires filing applications with individual stakeholders, which involves a lot of paperwork and is a time-consuming activity. The licenses required to start a restaurant are the same throughout India, except in some states like Maharashtra. A player needs approximately 12-15 licenses just to open a restaurant. In comparison, the licensing requirements internationally are not as intricate as in India.

As a result of globalisation and consequently diminishing trade barriers, our economy has opened new avenues of opportunities. With these opportunities, comes a great deal of challenges that threaten the success of business. Multinational brands on entering a new market, sometimes strive to create a competitive advantage over local established brands. There are a lot of challenges that an international food service brand faces when entering a market like India. According to Manpreet Gulri, Country Head, Subway Systems India Private Limited: “some of the major challenges are adapting to the local taste and preferences, developing familiarity with ethnic differences and abiding by them, operating under the legal framework of the market, establishing a connect with the consumers, keeping with the brand value and maintaining standardisation in the systems and also a few challenges related with the supply chain.”

Engaging the local customer

A major challenge for an international Quick Service Restaurant (QSR) brand is to engage the local consumer. Keeping in view the local preferences, Subway has adapted to the local palate by introducing vegetarian and non-vegetarian offerings such as Chicken Tandoori and Paneer Tikka. For a sensitive market like India, vegetarian and non-vegetarian service counters are kept separate as far as possible. Another challenge is to have a system in place wherein standardisation of the products and their quality is ensured throughout the market which is why, Subway franchisees are supported by locally-based Development Agents and their staff that provides additional business expertise. This helps in running the operations smoothly.

Gulri of Subway adds: “In food service industry, there are no set formulas or shortcuts to excel in the business. An idea that works for other countries might not work in India. The key to gain an edge over the established home-grown brands is: Research – Adapt - Innovate.”

To conclude, in order to create and sustain a global competitive advantage, multinational companies today need a systematic approach to research, renew and enhance their core capabilities before entering a new market. Localisation strategies like competitive pricing, store expansion, delivering value for money products and engaging with the consumer can help one operate successfully under such circumstances.

Other major challenges for restaurants in India:

Rising Food Cost- Inflation in food prices which have gone as high as 20 per cent as compared to the last fiscal. This compels the players to keep revising the menu and prices.

Fragmented Market and Increasing Competition- The unorganised nature of the industry creates challenges of unclear format segmentation, varied consumer options for eating out and the lack of best practices for food services outlets. This makes it difficult for the players to engage and retain consumers.

Manpower Issues- The Indian hospitality industry is highly labour-intensive, but the availability of trained chefs, managerial staff and other support staff is low. According to a study by the ministry of tourism, the current supply of skilled/ professionally trained manpower is estimated to be 9% of the total manpower requirement. Given this shortfall of quality manpower and the industry’s high attrition rate of 20-25%, the cost of labour is high. Players therefore have to invest in the in-house training programmes.

Real Estate Issues- High real estate rentals and costs, and labour costs impact store profitability. For a food services outlet, real estate (rentals) is the second major cost component after raw materials and accounts for 12-15% and sometimes even 20% of total revenues. Further, labour costs are also high in India. People get low salaries, productivity is low, and thus there is a requirement for more employees. The high labour and real estate costs, coupled with the high service tax on property, are exerting pressure on store profitability and consequently deterring the growth of food services outlets.