Do the styles of Indian restaurants and global fast food chains differ so substantially that it is hard for idli-dosa operations to be run on the same lines as McDonald’s or KFC? It is a question to which there is no clear answer.
Let’s take Sagar, probably the most famous of the idli-dosa chains. When Jayaram Banan opened the first Sagar in Delhi’s Defence Colony in 1986, there were other chains serving south Indian snacks (Woodlands and Dasaprakash were the best known) but nobody had persuaded north Indians to make the dosa a staple. Sagar was a runaway success. The original restaurant has now expanded over many floors and seats over 200 guests at one time. But Banan also opened Sagar branches all over north India and promoted a (slightly) premium brand called Sagar Ratna. Today there are over 60 Sagars and Sagar Ratnas in north India as well as another 35 or so franchise operations.
And yet, all is not well in the world of Sagar. According to The Economic Times (14 November), Jayaram Banan and his family are battling the investors to whom they sold a controlling interest (around 75 per cent) in the Sagar Ratna company (which owns the Sagar and Sagar Ratna brands) two-and-a-half-years ago. Though Jayaram is still chairman, executive control of the company vests effectively with the majority owners, India Equity Partners.
The battle has reached the stage where the Banans are even willing to buy back the 75 per cent from the PE fund for roughly as much as they were paid for it, though they say (in a letter to IEP, quoted by The Economic Times) that "the business has been receding on many counts including quality, customer satisfaction, franchise satisfaction, profitability and growth."
Anyone who frequents Sagar – and most of us in north India have been to a branch of Sagar at least once in our lives – will ask himself or herself the obvious question. How can things have gone so wrong? How can a restaurant brand that was once a byword for good food, one that was admired for its success (it has won more than one HT City award in its time) have reached the stage where there are doubts about its profitability and concerns (on the part of the founder’s family) about the quality of its food?
Mystified by these developments, I phoned Jayaram. He said he was still chairman of the company and therefore would say nothing bad about it. "Sagar is my creation. I have put my life into it," he said, getting so overwrought that I began to worry where the conversation was headed. His son Roshan, however, confirmed that he had indeed written the letter to IEP quoted in The Economic Times, confirmed that he stood by its contents and said that his family was prepared to buy back the Sagar shares because "it is an emotional thing for my father that goes beyond business. Sagar is his life’s work."
I don’t want to get into the specifics about the battle between the Banans and IEP about which I know very little beyond what the ET article says. But my concern is this: can private equity take over a successful Indian food chain, put in its own management and run it well? Or is this nearly impossible to do?
I think that the first thing we need to remember is that Indian food is not like American fast food. A chimpanzee in a cap can be the chef at many American fast food outlets. Everything is pre-packaged or frozen, the fries, the sauces, the patties, the buns, the desserts etc, so the outlet is really chef-less. No skill is required to cook the food. In the case of chain restaurants with tablecloths, waiter service etc, the chef requires some skill but once again, this is minimal. The formula has been perfected over so many years that anyone who follows the manual will get the hang of turning out the food in a couple of days.
In the case of Indian restaurants, however, it is never that simple. At the Defence Colony Sagar, for instance, the cooks arrive at 4.30 in the morning and do a pooja. Then they start grinding the masalas for the day by hand. All masalas and chutneys are freshly ground. (If they run out, the kitchen stops making the dish. If they are left over, they are never kept till the next day.) Next, they put the sambar on the stove. And then they start worrying about the vegetables, etc. By 7am every morning, they are ready with the breakfast service.
What this means, in effect, is that the cost-savings available to Western fast food chains cannot be availed of in India. There are no huge packs full of chutney that is made in bulk in some central commissary. There are no frozen idlis. You simply cannot cut staff numbers in the kitchen.
Then, there’s the food itself. Many American fast food items do not have to be consumed at once. But though we have learnt to live with takeaway dosas at home, everybody who goes to Sagar expects his dosa to be freshly made and delivered to the table direct from the griddle. A cold idli will be sent back. So not only must you hire cooks who can turn out perfect dosas by the minute, you must also have enough waiters to ensure that orders are picked up and delivered instantly. Once again, there is no room for cost cutting or economies of scale. Hire inexperienced cooks and the quality of the dosas will fall. If there are not enough waiters, the dosas will get cold and soggy by the time they reach the table and customers will not come back.
Then, there’s the human element. Very few people who go to work at a KFC or McDonald’s outlet expect to work there for the rest of their lives. All HR polices are designed with this in mind. At Indian operations like Jayaram’s, in contrast, employees intend to work for a lifetime. So, they need to be treated differently. Most of Jayaram’s managers are people he promoted internally. For instance, Jayesh Shetty, manager of Swagath in Defence Colony, joined Jayaram at Sagar over 20 years ago as a cleaner. He was promoted to waiter, to captain and eventually to manager of Jayaram’s most profitable restaurant.
This style of operation is either family-like or feudal and unprofessional depending on your perspective. But it is a model that can only work in an owner-driven company, not in an operation run by Western private equity.
And finally, there’s the question of passion. There is no great passion involved in producing a Big Mac and large French fries. But restaurants such as Jayaram’s are about passion. Even now, he starts his day by visiting every single one of his restaurants in Delhi/NCR. Often he stands outside the Defence Colony Sagar, welcoming people and assigning tables.
I’ve seen him go ballistic with kitchen staff if a dosa is not right. If a customer complains to him, Jayaram will bow low and personally make amends. For a man who is now worth hundreds of crores (his other businesses include the Swagath chain, two hotels, a bakery chain, a company that makes packaged snacks, airline catering etc.), he can be astonishingly humble with customers.
On the other hand, there is a point of view which says that with the right systems, south Indian fast food can be turned into a quick service chain operation. India Equity Partners was founded by Sid Khanna, one of the most respected figures on the management scene. (His impressive CV includes a stint at Accenture and his contacts encompass the big names of Indian business.) Because IEP is in litigation with the Banans, nobody at the company was willing to be quoted by name. But the company’s view is that it has professionalised Sagar’s operations, opened a Dosa Academy, multiplied the number of outlets and taken the chain to a new level.
IEP does not dispute that there are profitability issues but says that these are inevitable because the company is in a growth phase and investment costs are high. It maintains that food standards are as good as they have ever been and says that it has professionalised the management of what was essentially a family-run mom-and-pop operation. Further, its executives allege that it is impossible to run restaurants in Delhi if your opponents can use the police and municipal authorities against you.
I got the impression that IEP is in this for the long haul, intends to open Sagar branches all over the world, and will not sell their shares back to the Banans. But Jayaram is a resourceful man who rarely gives up. His record is impressive. He ran away from home when he was a small boy, found a job as a dishwasher in a canteen in Bombay and has gone on to become one of the most influential figures on the Indian food scene. His style is street-smart rather than corporate. And as the battle between the two sides continues, it is only a matter of time before the sambar hits the fan.
From HT Brunch, December 1
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