After raising a Series B round in December 2014, Rajiv Subramanian plans to take bakery chain, Ovenfresh, to five more cities and 60 outlets by FY15
From day one of operations, Rajiv Subramanian, the founder of Ubiquitous Foods, which runs the bakery chain, Ovenfresh, had two clear goals in mind; one, to take the customer experience, branding and ambience from a modern retailer and combine it with the affordable price points of a Mom and Pop retailer, and two, to build a national, retail bakery brand in India. As he says, in India, the bakery segment is still unorganised, and there are several regional players and city-wide chains with no national presence. This is where Subramanian sees an opportunity, to build a bakery chain similar in scale to a Café Coffee Day or Dominos.
While Ovenfresh was initially bootstrapped, it raised its first round of institutional funding from Kalaari Capital (for an undisclosed amount) in May 2013. As a part of the deal, Rajesh Raju, the managing director of Kalaari came on board Ubiquitous Foods. And, during the early stage, the company’s market entry strategy was to tap the niche segment by opening outlets in IT parks and office complexes. Today, after setting up 30 outlets in Chennai and Bengaluru, most of which are in the corporate space, the company is looking to enter the high street retail space. “Given how crowded the marketplace is, if a company doesn’t focus on a niche or vertical in the early stage, it will become difficult. That’s why, when we noticed that nobody was serving the corporates on-campus, we took the plunge,” recalls Subramanian, and adds, “Having said that, our bigger ambition is to enter the commercial retail space and build a pan-India presence for the company.”
Subramanian indicates that his investors played a key role in the company’s successful move from the corporate to the commercial retail space. “Earlier, Kalaari had made a successful retail investment in MedPlus. So, they are well aware of the challenges faced by brands in this space, and can anticipate how things will play out. As a result, we get a lot of great advice from our investors,” states he. For instance, when Subramanian and his team were debating an entry into the high street retail space (commercial space), Kalaari’s experience in this domain helped them learn that setting up outlets in residential retail spaces would be more valuable than entering the high streets. “There are several residential retail spaces in each city, as compared to a handful of high streets, which are often crowded. Moreover, the former is low on rentals and provides a bigger opportunity to grow. This proved to be a vital learning for us,” explains Subramanian.
By December 2014, the company is looking to raise Series B, to fund its expansions. “We are at a stage where we find that the retail model concept itself is maturing. So, we want to capitalise on this opportunity and replicate our model in other cities,” indicates Subramanian. The company plans to setup 60 outlets by end of year and 200 outlets in three years. It also plans to enter five more cities, including Pune and Hyderabad. “Any new city that we enter, we will adopt the traditional approach of entering the corporate space first and then plunge into the retail space,” says he.
Taking the leap
In the retail space, Ovenfresh will be expanding into two outlet formats; a 100 sq.ft to 200 sq.ft kiosk, and a 600 sq.ft to 1,000 sq.ft café format. While the former requires an investment of around Rs. 5 lakh, the latter costs up to Rs. 35 lakh. Until now, the company has setup two outlets in Chennai, at Madipakkam and Velachery. “We typically choose a location which is central to our customers, be it residential or corporate. And, the biggest cost involved here is not real estate but capital expenditure,” points out Subramanian. Here’s why. Ovenfresh has setup two commissaries, one each in Bengaluru and Chennai, which supply to its outlets every day. As a result, its equipment costs are high and its real estate rentals and labour costs are low.
Focussing on process innovation
Ovenfresh, as a company, is people and process oriented and, as Subramanian points out, this is where its innovation lies. “We’ve adopted a strategy where we quantify every recipe, break it down into formulas to identify which goes into our products, and measure how much we need. And, we train our people to adopt this culture,” says Subramanian. In other words, the company has set a standard for the quality of products to be made, and that culture is driven through the entire organisation. “This way, we ensure that there is consistency in the output delivered to our customers every single day,” explains Subramanian.
Since Ovenfresh began its operations by focussing on the captive customers in the corporate space, it has not invested much in brand building. In fact, Subramanian points out that the company built its brand value merely through word-of-mouth. “As many say, a good product will in itself build a brand value for a company. That’s why, we’re focussing more on quality and improvising the product from time to time,” says he.
Commenting on the competitive scenario, Subramanian says, “Since the segment is still unconsolidated, our competitors are typically the mom and pop outlets and regional players. Our differentiation lies in taking the best of both formats; the price point from the former and customer service and ambience from the latter, and building a pan India presence.”
Into the future
Going forward, one of the key aspects that Subramanian will be focussing on is in training the front-end employees, who interact with the customers on a day-to-day basis. “The key challenge now is to hire good quality entry level employees and empower them, train them and give them enough information about our products, so that they can represent us well in our outlets,” states he.
Today, Ovenfresh has 200 people on board and records 4,000 transactions per day in Chennai, and 2,000 transactions per day in Bengaluru. All outlets combined (in both cities), it records a footfall of two lakh customers per day. “Five years from now, we want to position ourselves as the premier bakery retail brand in India. We’ll be looking at setting up 500 outlets in the top 12 cities across the country,” states Subramanian, on an ending note.
During Subramanian’s childhood, his mother, who held a masters degree in food & nutrition, used to run a bakery in the backyard of their house in T.Nagar. This was Subramanian’s first inspiration.
My mother was into commercial baking for almost 25 years and this experience is the core around which the company was built. Having grown up in the same house, going out and seeking a business partner was not something I was required to do either.
After graduating from IIM Ahmedabad, he had a brief stint with Lehman Brothers, where he learnt business strategies like taking a venture to the next level
One of the things that helped us when raising institutional capital (which is a rare sight for a business in our industry), was, having a mindset to scale from day one. Even when we were operating just two outlets, we employed a lot of shortcuts to work around our challenges. For example, many small businesses are people-dependant. A lot of knowledge resides in one person, say a Chef, who manages the entire operations at the back-end. Now, if that person quits, the business naturally suffers. So, to avoid this, we adopted an approach which was more process-driven. We broke down every aspect of the business, from production, to supply chain, to delivery into several processes so that the work was divided equally among all employees and was not dependant on one person alone. While I agree that on a small scale, it’s more convenient to rely on one person, when you setup 30 outlets, you can’t find 30 people that you can trust. Thus, adopting this approach helped us scale up our business easily.
A lesson he had to learn and unlearn during this period
During the early stage, we started offering our customers expensive Cappuccino in fancy mugs (priced at Rs. 40 to Rs. 50 per cup). We noticed that per day, hardly 20 customers ordered for one. Then, we stepped back and thought when we are drinking filter coffee at our home and office every day, why should we serve something that’s alien to our customers? So, we went back to our drawing board, pulled out the Cappuccinos and began serving filter coffee at Rs. 15 a cup. The result was the number of coffee orders increasing from 20 to 300 a day.
Raise Series B in December 2014 and setup 60 outlets by FY15 and 200 outlets in three years
Enter five new cities including Pune and Hyderabad
Hire entry-level, customer facing employees and invest in training them