When celebrity chef, Sanjeev Kapoor, opened his first restaurant (Yellow Chilli) in Ludhiana, in 1999, he offered all his signature dishes at less than half the price of what a consumer would have paid in a five star hotel. Kapoor was clear that he would not operate as a high-end luxury restaurateur. He had realised that the market was in the value segment (between the Rs 500 - Rs 700 per person price point) and it is this segment that would help him build a robust business model.
In a conversation with Ajita Shashidhar, Kapoor talks about the inefficiencies that exist in luxury restaurants and why the value segment makes better business sense. Excerpts:
Q- You are known to be a high-end luxury chef, what made you foray into the value format?
A- Value is something that is expected by Indians in all categories even in super fine dining, fine dining and casual dining. The reason why casual dining has survived is because the social need to eat out has gone up. So, that has in some sense helped this category not stagnate. Out of home consumption has gone up, earlier one could meet people even in parks, at home, but that has virtually stopped. Now, if anybody says let's meet, it's assumed that we are saying let's meet at a restaurant. Even if it is let's meet at home, invariably it will be a restaurant food that will walk in.
When we launched our first restaurant in Ludhiana, I was a chef in a five star hotel. Everyone then asked me why I was getting into value dining, as a brand I should be in fine dine. My logic at that time was more driven by the fact that I knew the inefficiencies of that business which were being paid by the consumers. I wanted to do a model where the inefficiencies are removed so that people get the same food at half the price. You are not using cheaper chicken or paneer and it is not frozen food; you are offering the same stuff but less than half the price. The only thing that is different is positioning, may be the profile of the people who come in will be slightly different, you may be alienating some people who may not want to be seen in a cheaper place. But I was clear that this is the market where India should be.
Q- When you say inefficiencies, what really are the inefficiencies?
A- Multiple. When you stay in a hotel, you may not use the pool or the spa, but you are still paying for it. For instance, when you book a party in a hotel, hotels do a rate, where they would throw in a beer or a glass of wine. Since I never drank, I used to ask them what about people like me, I feel cheated. I would tell them that we should do a rate for vegetarian and non-vegetarians even in coffee shops. People used to tell me that it will not work in hotels. Consumers may not talk about it, but if you are becoming relevant to somebody, you will have more respect. When I say inefficiencies, it also includes how you peel a potato or how insensitive are you to the area in the kitchen that you are using, how sensitive are you to the electricity that you are using, it is a direct conversion of the share of wallet that a diner is willing to pay. If you don't get into the last digit or last decimal then there is some inefficiency which is there, which sooner or later people would find out.
Luxury and super luxury are fantastic for celebrations and that market will always be there. Earlier, the frequency to eat out was much lower, it has gone up now. Consumers are spending more often, so they want to have reasonably priced places, because if you are consuming something more you look at budgets. They don't want to pay for somebody else's inefficiency.
When we buy clothes we may not understand the mark-ups, but when we are buying food, we immediately understand what is the cost of conversion and what is the right price we should pay. So, in such a scenario you always have to make it very efficient. Any inefficiency that is there, consumer will resist it. If we know that, then stick to a market which is neither bottom do the pyramid nor top of the pyramid, it is the mid-segment.
It is not that challenges are not there in the value segment, challenges are there everywhere. I was having a chat with our corporate chef three days ago on our new menu, and I told them that we need to come out with smart options in terms of the ingredients we use and yet give people what they want. At times we use expensive ingredients when they may not be needed. For example, I told them there is no need to add cashew nuts in samosas. It doesn't add value. Similarly in terms of gravies, they can be made lighter, one can use seasonal ingredients, offer seasonal menus so that the price is cheaper. It's also nicer and better.
When you are running a top end restaurant, there are certain perceptions you need to create, or there are certain perceptions people are comfortable with. A casual dining restaurant also has air-conditioning, there is good food, offers good service, what may be missing are the table cloths, but gone are the days of table cloths.
I was in Dubai recently and I had a meeting in a five-star hotel lobby where we ordered tea. My instructions were we want English breakfast tea, extra hot, with hot milk on the side, with a pre-heated cup. People in a five-star don't give you a decent cup of hot tea. In a hotel, food from the kitchen goes to the side board where the waiter will take the service gear from the side-board and then go and serve. Finally, when it reaches the guest, its already cold. You are thinking you have added some value, what have you done? I have this constant issue about the food going to the side board. Why can't it come to me directly? When you go for breakfast to a five star hotel and ask for juice, they will invariably offer you juice which they have squeezed two hours ago. You have to tell them I want freshly squeezed juice. These are the mindsets which makes cost of execution very high for the high end hotels.
Q- You also have your chain of high-end signature restaurants. What is the logic behind setting them up when there are so many inefficiencies in a fine dining restaurant?
A- We have one in Dubai, in a hotel. Here, we have adopted the franchise route. We are opening one in Abu Dhabi shortly. When it comes to fine-dining, we are mostly looking at having them in five-star hotels , only because hotels can afford them. But the focus is on how to make them efficient, despite being part of a hotel. How do we make sure that the outlet is profitable? We got an invitation to set up another Signature by a hotel chain in the same market, but we felt that having more supply would impact profitability. When you look at luxury brands like Hermes, their Berkin bag is never available. They will charge lakhs for one bag. Can they not produce more bags, of course they can. But the only way to keep it profitable and keep up the demand is to follow the rules of economics, which is control supply. If your supply is controlled and the demand is more than supply, it will be profitable.
Q- So, your fine-dining formats would be restricted only to the global markets. In India, it will value all the way through?
A- Fine-dining is something that I have done all my life as a five-star hotel chef. For me the challenge was to play in the value segment.