Highly Fragmented Unorganized Sector
In 2016, 67% of the total market was run by the unorganized sector. This sector comprises a large number of small players. With a large number of players comes a wide variety of options for customers to choose from, thus a high competition among these players. The products are priced competitively due to which the players are not able to engage and retain customers. This makes it difficult for players to acquire customer loyalty.
Unique Selling Proposition (USP)
With the intense competition in the market, it is very difficult for a restaurant to have a USP that differentiates it from the others and makes it memorable to the customers. Without a USP, a restaurant is just one in a large pool of restaurants.
Cost of Operation and Profitability
Cost of raw materials, salaries, rent, and other operating expenses eat into the revenues generated by the restaurants. The pricing of the products needs to be at par with the competition to attract customers, thus restaurants may not have the option to increase their revenues, while at the same time incurring expenses that diminish the profitability.
Difficulties in Attracting and Retaining Quality Workforce
India is a country with ample labor force, but the availability of trained staff is low. According to studies, the current supply of skilled/ professionally trained manpower is estimated to be approx. 9% of the total manpower requirement.
The problem of labor is more prominent in the unorganized sector where the wages for labor are low. Low wages lead to low productivity. The labour is in constant search for better opportunities, leading to high turnover.
In the organized sector, with better management and deeper pockets, the restaurants will be able to retain their star employees by offering them good salaries.
Investment and Working Capital
A significant amount of investment is required to set up a restaurant. Investment in kitchen equipment, furniture, renovation, etc. can add up to lakhs. In addition, working capital is required for daily operations like buying cooking ingredients. Additionally, funds will be required to support marketing strategies, if any, like discounts and free items to attract and/or retain customers.
A restaurant in India needs a number of licenses to be able to operate, which is required for the regulation of the businesses. However, the problem lies in acquiring these licenses. Filing applications with each of the concerned departments is a long and tedious process in any state of the country. It can take anywhere from 6 months to 1 year to obtain the licenses and commence operations of the restaurant.
In India, the required licenses are around 12-15, which is quite high as compared to the licences required in other countries. In Thailand, only 5 licenses are required, 4 each in Singapore and China, while in Turkey, just 2 licenses are required.
Once all the funds are arranged, all license acquired, the efficient workforce is in place, the restaurant is now open for business. The hurdle faced here is the customers – the diverse and unpredictable demands of the customers. With little to low customer loyalty, the restaurant will have some days when there are a number of customers, and some days when there are a few. Additionally, in case of a newly opened restaurant, they will initially have a number of customers who will be visiting to try out the new place, which will reduce in number as time passes, unless the restaurant has a strong USP or offers or other marketing strategies.
At MARC we have helped many clients set up and run successful restaurants. We help our clients through market research to understand the demand better and develop a micro-location strategy to identify the best kind restaurant for a given location. Through this market research we help our clients develop excellent marketing strategies and polish their USP. We help develop business models that can counter the drawbacks of playing in an unorganized and fragmented market and hence unlock tremendous value for the clients. Profitability analysis and managing working capital are a key part of what we do, delivered to the clients as a one-time operations improvement or an on-going activity of monitoring the operations.