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A Double Topping For Growth

Meghna Maiti, Outlook Business
Mumbai, 22 August 2014

The first customers were the British in pre-Independence Delhi, who queued up at Kwality in Connaught Place’s Inner Circle for a cupful of Iqbal Ghai and Pishori Lamba’s hand-churned ice cream. As the years went by, even as Kwality and Gaylord restaurants became renowned for their food, it was the ice cream sold under the same brands that was the real commercial success — so much so that Kwality became generic for ice-cream for several generations of Delhiites.

The association with Kwality ended in 1998 when Ravi Ghai, Iqbal’s son and the second-generation businessman in the family, sold all marketing rights to Hindustan Lever (HLL) — but, by then, there were so many extended family-run offshoots and copycats that HLL allegedly had to buy the rights to the brand multiple times. Still, the Ghais’ connection with ice cream has continued — their Graviss group of companies has been the exclusive master franchisee for Baskin Robbins ice cream in India since 1993. There’s also a joint venture with the US-based Rich Products to make non-dairy toppings for the bakery and food service industries.

Last year, Graviss quietly stepped outside its comfort zone into the frozen yoghurt and meat business. The company acquired two Mumbai-based start-ups, 6th Street Yogurt and Meats and More, in January and May 2013, respectively, for undisclosed sums. While 6th Street Yogurt is aimed at the youth and health-conscious, Meats and More is positioned as a neighbourhood delicatessen store catering to everyday needs related to fresh and frozen meats and assorted snacks. “It’s an experiment that dovetails perfectly with Graviss’ existing portfolio,” says Sanjay Coutinho, a long-time Graviss hand who rejoined the company in 2012 as CEO after a brief stint as CEO of Barista Coffee. “The acquisitions have helped us synergise since all businesses are in the food and beverages space. 6th Street Yogurt forms part of the group’s resolve to tap into the growing quick service restaurant (QSR) space, positioned as a deli store catering to nuclear families. Through Meats and More, we are tapping into the growing specialty organised retail category,” he explains.

Catching A Trend

It was in the summer of 2011 and Asif Rizvi, who was then working as a sales executive with Hewlett Packard, was strolling down the historic Sixth Street in Austin, the nerve centre of the Texas city’s entertainment district, when the idea of getting into the frozen yoghurt business struck him. Rizvi shared the idea with his childhood friend, 26-year-old Zeeshan Kazi, who was a marketing manager with brand consulting firm DY Works back in Mumbai. A year later, the duo set up the first outlet of 6th Street Yogurt in Mumbai’s Kemp’s Corner in February 2012. By the time the company sold out to Graviss the following year, it had opened six more outlets, all of which offered yoghurt with toppings, smoothies, waffles and parfaits ranging from Rs 59 to Rs 280 with an additional Rs 25-35 per topping.

Meats and More, on the other hand, is the brainchild of Jai Kacherla. The store had a very low-key launch in May 2011 in Powai, a central Mumbai suburb, before expanding to Oshiwara in July 2013. It sells a variety of fresh, frozen, imported and exotic meats such as rabbit, quail, turkey, salmon and emu, as well as breads and salad dressings ranging between Rs 150 and Rs 2,400 per kg.

While the company is looking at high street locations for 6th Street Yogurt, residential locations will be the catchment area for Meats and More. Over the next year, the company plans to open five more yoghurt stores, investing around Rs 20 lakh per store on rent and fit-outs. It will spend an additional Rs 30 lakh on advertising and promotional activities. It is also experimenting with a café format, where customers will be served coffee and sandwiches in addition to yoghurts.

Meats and More, too, will add three more stores by 2015, spending Rs 20-25 lakh per store. “All these expansion plans will be financed through internal accruals,” says Coutinho, adding that the company does not need external funding. He declines to share financial details but according to filings with the Registrar of Companies, Graviss Foods reported a revenue of Rs 71 crore and PAT of Rs 2.65 crore in FY13. Expansion after this initial company-financed push will be through the franchise route, which is familiar territory for Graviss — 524 of Baskin Robbins’ stores in India are run by Graviss. With the two new businesses, Graviss is now aiming at a top line growth of 15% in the current fiscal. But then growth won’t come easy.

Sizing Up The Potential

Working in niche categories is always a challenge, something that Coutinho too acknowledges. “We have the mom-and-pop cold storages and unorganised markets to tackle for Meats and More. We are trying to understand the customers in residential areas around our stores,” he says. The meats business has to grapple with lack of awareness among customers and novelty of the concept but the potential is impressive.

In the case of yoghurt, the domestic market is estimated at around Rs 1,000 crore, comprising organised packaged yoghurt, its varieties and packaged drinks, and growing 20% per annum, according to Technopak. Not surprising then that there are several frozen yoghurt chains in Mumbai, including Pinkberry, Cocoberry, Yogurtbay, Let’s Go Froyo, Sugardaddy, Yoforia and Kiwi Kiss. But given that players like Sugardaddy and Let’s Go Froyo have already shut shops, is the city big enough to sustain so many yoghurt chains?

Devangshu Dutta, CEO of retail consulting firm Third Eyesight, feels that Graviss will have to differentiate itself from competitors in the yoghurt ice cream and meat spaces as consumers slowly warm up to exotic ventures. “To make a mark, Graviss will have to snatch away market share from the likes of Cocoberry, London Dairy or Haagen-Dazs,” adds Dutta.

So, how does Graviss plan to tackle the situation? “It’s still a nascent category. We want to get the model and the back-end right,” says Coutinho. To begin with, the staff is being trained in the art of selling and other soft skills and surprise audits are being conducted for accurate feedback. The other aspect that Graviss wants to focus is on the look and feel of stores, a marked change from the dingy and crowded neighbourhood abattoir and poultry shops. “We want people to walk into bright, well-lit stores that have a youthful and fun look and feel,” he adds.

In the case of frozen yoghurt, Coutinho is ready to experiment a bit more with the brand. “As we are investing more and increasing consumption points for our new brands, the 6th Street Yogurt brand will soon broaden out,” mentions Coutinho. To begin with, 6th Street Yogurt’s menu has been expanded to include flavours such as cranberry and green apple, and co-founder Kazi has come on board as vice-president, business development. “While the company has just piloted ice-cream roll cakes, it plans to come out with ice cream beverages too,” says Coutinho.

Meanwhile, the company is also working on building the brand and educating customers through social media and local store marketing. Since 6th Street Yogurt targets young customers, it has partnered with a design consultancy, DY Works, for creating new brand identities for both companies. For 6th Street Yogurt, DY Works suggested a brand core of ‘medley of good times’. “6th Street Yogurt stands for new experiences and tastes, where friends could connect over indulgent servings of frozen yoghurt. The strong, focused brand essence helps establish its unique place among consumers in a category of big players,” says Alpana Parida, president, DY Works. Similarly, Meats n More will work on the ‘sommelier of meats’ proposition, to showcase the wide variety. “The brand is strategically placed to occupy a middle ground. It offers superior hygiene and quality compared with traditional butcher shops and stands out in comparison with supermarkets through its personal connect and customisation options,” Parida adds.

Since the meat business in India is largely unorganised, Coutinho believes the challenge is more about sensitising customers about the hygiene factor. “People are often not willing to pay a premium for clean and well-packaged meat,” points Coutinho. Hence, while the company is investing in understanding its customers around the residential areas in which its stores are located, it is also trying to woo them with a hygienic and fresh ambience in its stores, home delivery services, etc. With the new look and feel, the company believes this meat business concept will resonate with working couples that are always on the run.

While the potential sounds huge, the going will be far from easy for Graviss. According to Crisil Research, the QSR market is expected to double to around Rs 7,000 crore in 2015-16 from Rs 3,400 crore in 2012-13, driven largely by store additions. However, during this period, same-store sales growth is expected to decline considerably due to intensifying competition in tier 1 cities, coupled with the economic slowdown. Harish Bijoor, CEO of Harish Bijoor Consultancy, says, “Graviss’ two new businesses are more of modern retail and high street brands. Their success will depend on Graviss’ ability to pump in more money so as to create a bigger brand pull out of these two local entities.”

Coutinho is not too perturbed about the future of the two new brands. “These are still early days for us to get the business model right. Our approach is to create entrepreneurs through a franchisee-led model by giving them the flexibility to go full throttle, the way I have in growing the business,” sums up Coutinho. Whether that leeway results in another winner beyond Baskin Robbins for the Ghais will only be evident in the time to come.

(Published in Outlook Business .)

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