Karan Tanna, founder, Yellow Tie Hospitality speaks about the restaurant franchising scene in India and his company’s future plans
As India’s first organised restaurant franchise management company, what are your insights on franchise management practices in the industry?
Inspite of being the second largest populated country in the world, India does not even have a single homegrown brand that is more than 500 outlets grown through the franchise. In a country like the US which is one-third of India’s population, there are hundreds of brands having multiple outlets through franchising. This is evidence of the fact that India’s franchise management system is very weak and there is a huge scope for improvement.
In India franchising in the restaurant industry is not treated professionally and the mentality of the franchisor and franchise is very naïve; they are not focused on building up their backend infrastructure so as to support franchisee. Currently franchise is treated like a money spinner or short- term profitable business. However to make sustainable brands, Indian QSRs companies or Indian restaurant companies will have to start building up their backend very strong and establish very comprehensive financial model for unit level economics before they start franchise with a very good backend infrastructure and very robust unit- level economic model, franchising will become sustainable in India.
In the last few years we have seen a lot of ecosystem infrastructure being developed in terms of vendor base and supply development. A lot of homegrown companies are putting emphasis on strong SOPs and process. The franchise industry or restaurant industry in India is evolving and in the next decade will surely give India its first homegrown restaurant chain.
How do you select your franchise partner and what kind of support do you offer him?
We have very strict criteria to select our franchise owners. The first and foremost criteria is bandwidth commitment from the potential franchise. We don’t encourage investors who want to do a restaurant business for part-time. We would like to partner with people who want to take this business seriously as a full-time commitment, that is our topmost priority. Besides that, we do face to face meetings and gauge them on their willingness to understand and respect the standard set by brand. We do not encourage a lot of flexibility which compromises with the brand standards and lastly, we look at the capitalisation of the investor depending on the kind of model he buys to franchising of. We make sure that he has enough money to sustain six months of operational cost.
Yellow Tie provides and sells its franchise to an aspiring franchise entrepreneur after a thorough understanding of his/her background and interest. We help franchise owners with end to end solutions, from identifying appropriate locations, fit-outs and set-up, recruitment and training of staff. We also ensure smooth operations by giving all franchisees software to manage checklists and recipes, conduct audits and brush up trainings and lead all marketing and branding support so that the franchise just has to focus on delivering the last mile customer experience. We have also developed vendors and supply chain to be able to supply required raw material to the franchises, which reduces the dependency of the franchise owner on outlet level skilled staff. We ensure we help franchise owners, with all support to increase sales and profits making them sustainable. Yellow Tie charges a one-time fee and recurring royalty for supporting and sharing intellectual properties with franchises.
Tell us about your restaurant incubator initiative? How can it benefit India’s growing food startup community?
I started Yellow Tie Hospitality after taking an exit from Kuchchi King which we grew to 209 outlets. During that phase I learned franchising and wanted to make something substantial. Our vision is to give India its first homegrown restaurant chain. With that vision in mind, we have started the restaurant incubator through which we identify unique concepts which can be a category creator or category leaders and invest in those.
We invest in concepts which are not only unique but are also led by professional and long-sighted entrepreneurs. We have invested Wok this Way, which is India’s first only vegetarian healthy make- your-own-wok concept and Umraan which is India’s first QSR serving curries and biryanis from different regions of India.
We are very excited to identify such unique concepts in the market which have shown strong unit level economics and which have feasibility of scalability through franchising. Given that there is a model which we think can capture the market by plugging in Yellow Tie expertise and experience of scalability, we will be very happy to partner with more and more such young startups. With the infrastructure and experience of Yellow Tie partnership, any startup would definitely be benefitted to grow from one to 100 in a short time and not only that but also it will make the growth sustainable.
We also see a lot of food franchises failing. Comments.
Unfortunately India’s franchising market is not regulated, which means before a restaurant starts franchising it does not have to qualify to a lot of criterias, and because of this the restaurant starts franchising way too early without building up enough backend infrastructure to support the franchise. I think early intentions of brands to franchise and spread too thin across geographies and lack of focus, investment and building up a backend infrastructure to support the brands are the main reasons for franchising failures. Besides the entire ecosystem around franchising in terms of training, maintaining hygiene at the outlets, brush up trainings, audits and consistency of food supplied, are other reasons that contribute to failure.
Which of your brands contributes the most to revenues?
Our flagship brand Broaster Chicken, and our recent launch Dhadoom which grew to 20 outlets in the last one year contribute to over 60 per cent of our total revenues. There are various brands which are in launch phase like Just Falafel, Wrapchic and Teddy’s which have started to contribute a larger bite to revenues. Consequently in the next one year, we will see a very uniform distribution of revenues across all our brands.
Your plans to start a state-of-art R&D kitchen and your own fleet of delivery vehicles?
Yellow Tie already has a state-the-art R&D kitchen in place in Andheri in Mumbai. We have a dedicated team of eight chefs constantly working on research and development of new products. We work on any product 6 to 8 months before the actual plan launch of that product. We not only aim to establish the product with authentic and best acceptable taste but also scale up the recipe so that we can send the standardised consistent product to all our outlets across India, once we have developed it through a backend vendor.
Our R&D is a good combination of culinary skills and the science that goes behind scaling up various recipes. The R&D kitchen is decked up with all the required equipments for the kitchen with a small discussion room. We do not plan to own our fleet of delivery vehicles as we have partnerships with the supply chain companies that have a presence across India with good penetration in Tier II and Tier III cities as well.
We want to focus on supporting the franchise in their management and important functions like training, audit and leave the peripheral (but important activities like supply chain to the expert), hence we have our own outsourcing model for support activities like supply chain.
Your future roadmap? Does it include plans to take your brands overseas?
Yellow Tie Hospitality is growing exponentially and its India’s first restaurant franchisee management company and scalable restaurant incubator that invests in potential restaurant brands. The company scaled up brands like Genuine Broaster Chicken, Dhadoom and invested in young restaurant brands like Wok this Way and Umraan to grow them through franchising.
The company has the vision to be the largest restaurant franchise company by 2025. For the expansion, the company is also planning to take Genuine Broaster Chicken across 50 outlets by 2019.
The company also planning to enter overseas before 2019 end with 4 portfolio brands including Genuine Broaster chicken in South East Asia and 35+ Dhadoom outlets in the global market by the end of 2019.
The company is also focussing on the expansion and growth of other brand portfolios like Wrapchic, Just Falafel, Twist Of Tadka and BB Jaan.
By 2020, the company is also aiming to invest in 10 restaurant brand for incubation and scaling up.
Recently we have acquired the brand Chachago for which we procured the rights for the Middle East region, which emphasises our strong plans to grow brands across the world starting from neighbouring regions like the Middle East.
Does India have the potential to have a homegrown restaurant brand of international standards?
India is densely populated and the consumption of food is extremely high. The disposable income is increasing and the number of nuclear families are also increasing and thereby the eating out habits of people are also increasing day by day. Putting all these factors together there is the huge potential for India to produce a homegrown brand with companies like Yellow Tie who are pioneering the focus on franchising management and with support of backend infrastructure vendors like frozen material manufacturers and supply chain. We are very sure that India does have the potential of a homegrown brand and in the next decade, we will definitely produce a homegrown brand which does not just have 1,000 outlets in India but also makes a global mark. If brands start investing in the long term and the franchisee has the mentality of growing along with the brand, we are very sure the entire ecosystem will be very positive for the growth of homegrown brands.
The future of India’s restaurant industry @2020?
Indian restaurant industry is growing at more than 18 per cent CAGR and what is interesting is that the organised chain market is growing faster than the industry average. By 2020 we will have a restaurant chain market forming a substantial business pie of the entire restaurant market. By 2020 the restaurant industry will mature a lot due to evolving backend infrastructure, supply chain and logistics and vendor based and due to this we will have lot of familiar brands in various cities across the country. 2020 – 2025 will be pivot years in changing the current state of having no homegrown national brands to having a few homegrown national brands. We will see lot of Indian restaurant brands on the global map by 2020.
Sustainable practices in the Indian restaurant industry?
Indian restaurants are becoming more and more conscious of their responsibilities towards the world. A recent development, the ban of plastic in the Indian restaurant industry and the way the restaurant owners has supported the ban is an outstanding example of how the entire restaurant fraternity is encouraging sustainability. We see a lot of restaurants emphasising on avoiding wastage, on using the products which are organic and emergence of a lot of farm to fork restaurants which encourage fresh cultivation and vegetation being used in the kitchen. Besides this, there are lot of chefs who have started to advocate sustainability through their menu of philosophy. There is still a long way to go as far as the focus on sustainability in the restaurant industry is concerned but changes have started to happen and in next few years we will see more and more restaurant companies adopting the path of sustainability and fitting sustainability as part of their unit level economics and business models.