Troughs and Crests in Restaurant Chain Industry

Troughs and Crests in Restaurant Chain Industry

Revealed by “Sagar Ratna”

Jayaram Banan ,an unrivalled dosa king of Delhi. He runs Sagar Ratna, a restaurant that Delhiites love to frequent, especially on Sundays, after a long evening of cultural hobnobbing. Sagar Ratna has come a long way from its beginnings as a quaint 40-seater in a south Delhi residential colony over 25 years ago.

The chain now has 67 outlets spread across Haryana, Punjab, Uttar Pradesh, Rajasthan, Himachal Pradesh and the NCR. Such is the rise that PE investors have paid Rs 180 crore for a controlling stake in the operation. In 2000, Sagar Ratna’s turnover was about Rs 12 crore, which doubled to Rs 25 crore in 2005, and was roughly Rs 70 crore in 2011. The chain makes an impressive 15-20% profit. And all this success has been showcased to the world by a man who was born in a little village called Karkala, 30 km from Udupi. One of seven children, Banan never saw himself living a life in the village. And his ascent to the high flying life of a restaurateur started when Banan failed his school exams, stole some money from his father and ran away to find a life in Mumbai.

Sagar Ratna

Humble Beginnings

In Mumbai, he landed his first job in a canteen.He washed dishes in the canteen of Hindustan Organic Chemicals.His first promotion came within three months of joining the canteen where he was moved up to waiting on tables. Eight years later, Banan quit as night manager to move to the capital, where he started a canteen of his own at Central Electronics in Ghaziabad.
Banan realised there was an opportunity in food. Delhi was gradually becoming more cosmopolitan and the demand for food to match different palettes was increasing. And in 1986 he started Sagar, renting a shop in Defence Colony for Rs 3,250 a week where he served south Indian staples like idli, dosa and the like. “It was very difficult to pay rent but the restaurant picked up really fast,” says Banan. Sagar grew. Soon Banan rented adjacent shops and the floors above the restaurant to increase seating capacity. But Delhities couldn’t get enough of the “Madrasi” restaurant and the serpentine queues in Defence Colony continued. In 1991, Banan bought out another popular South Indian eatery, Woodlands. This restaurant was aimed toward the more affluent. Its location (in the famous Lodhi hotel) needed a different ambience than the bare minimum the Defence Colony outlet featured. He invested Rs 50,000 in furniture, increased the prices on the menu card and christened it Sagar Ratna. For a while it seemed the Sagar Ratna juggernaut would continue to roll unhindered. But the 1990s weren’t a good time to eat out. Restaurants were aggressively expanding but Sagar Ratna bucked the trend and in 1996 it branched out by adopting the franchise model.

Second Wind

Sagar Ratna’s growth story has been in spurts. Most of their 67 restaurants opened during the last decade and roughly 60% of the outlets are franchises. More than the loosening of control, which helped expansion, what’s really helped Sagar Ratna in the past decade is its decision to step out of its comfort zone of vegetarian cuisine to service a broader customer base. In 2001, Banan launched Swagath, which serves coastal and Chettinad cuisine. The restaurant very quickly made it to most lists of best restaurants in the capital. Swagath now has 11 outlets and earned over Rs 30 crore last year (It is run as a separate profit centre under the Sagar Ratna banner).
The smell of success reached as far as New York, where it tempted private equity firm India Equity Partners to taste the chutney. In August 2011, IEP shelled out Rs 180 crore for a controlling stake in the food chain. While IEP’s Arvind Nair moved in as CEO, Banan has stayed on as chairman.

And a Little More Spice

Sagar Ratna now plans to set up shop in other parts of the country. And that’s where it faces another challenge—it will now have to evolve and change its flavours according to the regional palette. The same sambhar that’s a hit with spice-loving Punjabis may not sell in, say, Ahmedabad (where people like it sweet).
Further, Sagar Ratna is absent almost everywhere except the North. That’s why it might not be able to compete with the likes of Saravana Bhavan in the South and the innumerable Udupi joints in Mumbai, which understand their markets inside out. This is what Sagar Ratna will have to master while it widens its presence. Analysts also argue that the new owners might, in their bid to create a uniform flavour, eliminate the “homemade touch” from the food. That would be disastrous, as would be any attempt to exchange the ‘family’ environment for a more sterile corporate environment.

Source : Business Outlook


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