Wednesday, September 10, 2008

Malls getting less lucrative for restaurateurs now

Ever since the mall culture crept in and malls presented themselves as lucrative retail environs, restaurant owners are divided on whether to set up shop within malls or to opt for high streets.

However, there are examples galore that increasingly, restaurants outside malls are pipping those within them in the revenue stakes. And if some players are to be believed, malls’ high operational costs (rentals and ancillary costs) are impacting feasibility of restaurants, driving them away.

According to industry estimates, there are up to 50-60% more expenses attached for restaurants in malls as compared to those in other retail locations. Take the case of the home grown brand Nirula’s which has only 15-20% of its outlets in malls. Their share to the company’s overall revenues is also the same.

Says Sudipta Sengupta, senior VP, marketing and sales, Nirula’s: “We conduct studies before opening outlets and have found that in malls, the operational costs increase as we have to pay substantial additional charges, over and above the rental. At present, our outlets outside malls are doing better business. We have the first mover advantage while setting up in high street retail locations, and manage to get preferential rates.”

Similarly, Tapan Sinha, COO, Republic of Chicken (ROC) feels that premium retail locations other than malls are the best bet for opening fine-dining restaurants, especially in tier-two towns. Although currently 60% of our revenues come from restaurants within malls, in future the ones in other retail locations will overtake them. This is because there is greater scope for business in restaurants in other retail locations.Even in the tier-B towns it is more viable to open restaurants in premium retail locations outside malls. We will try to maintain a 50:50 ratio of restaurants in future.”

The Alchemist group promoted Republic of Chicken, a chain of fine-dining restaurants has five restaurants inside malls and an equal number in other retail locations. The company plans to open upto 200 restaurants by 2010. According to industry sources, on an average if one restaurant opens up in a mall there are three which shut shop.

Besides the higher rentals in these malls, it is the low footfalls which drive restaurants to close down. It is widely held that standalone restaurants with high proportion of sales through food delivery, are better off coming up in ‘catchment areas’, places that are easy to reachwhere consumers have high spending power (read disposable income).

Agrees Zorawar Kalra, MD, Punjab Grill and Street Foods of India (SFI). “Operational costs in malls are very high, with common area maintenance charge itself being upto 100% of rental. High street locations are ideal for fine dining restaurants. For SFI, 60% of our revenues come from standalones within malls and the rest through those at high-street locations. The reverse is true for Punjab Grill,” he informs.

Punjab Grill is a fine dining restaurant, SFI is a chain of Quick Service restaurants. (QSRs). Kalra plans to set up 25 more SFIs and two more Punjab grills by the year-end. Many restauranteurs in the Rs 25000 crore Indian Food & Beverage industry like Dominos India feel the need to set up shop in catchment areas, irrespective of being within a mall or without. The company has 210 restaurants at present, with only about 10% of them in malls.

“For us, the location is not as important as providing value to consumers in terms of the product and service. Oflate, malls have seen a decline in footfalls but we have been insulated from it because of our delivery oriented business model and strong consumer perception,” opines Dev Amritesh senior VP marketing, Dominos Pizza India.”We will continue to set up shop in very good catchment retail areas. Those are the ones that drive our sales,” he adds.

Source: The Economic Times

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