Breaking away from the perception of being a ‘one city’ brand, Kaati Zone is working on a pan India presence by cementing its hold on the south while establishing a stronger presence in west India

DIVYA M. CHANDRAMOULI

For any ethnic quick service restaurant (QSR) chain in India, change is best measured in numbers. This holds true for Bengaluru-based Kaati Zone, maker of kaati rolls or the Indian wrap, as it has gone from a total of 15 outlets in July 2011 to 32 outlets as of today. “One of the most significant changes is that we have progressed from being viewed as a ‘one city’ brand to a brand that has a presence across six cities in India,” says Kiran Nadkarni, founder and CEO, East West Ethnic Foods Pvt. Ltd., the holding company of Kaati Zone. Today, the QSR chain has outlets spread across Bengaluru, Chennai, Hyderabad, Coimbatore, Mumbai and Pune.

When The Smart CEO last spoke to Nadkarni (July 2011), he stressed on the importance of handling the backend first. In the past year, his focus has remained on strengthening the company’s supply chain management by making it more broad-based. “For us, it is important to keep increasing our efficiency in inter-city transportation in order to transport higher volumes,” shares Nadkarni. Recently, the company has made a decision to outsource its commissary, which it currently manages on its own. Nadkarni is well aware that such a change is crucial and cannot be achieved all at once. “We have begun the process and have established a few outsourcing partners. We expect the process to be completely outsourced in another six to 12 months,” he adds.

Westward bound

Nadkarni’s focus on stepping up Kaati Zone’s supply chain management is understandable as it will only aid the company in its effort to scale up. Currently, it has a strong presence in south India while it has made a recent entry into the west market. “At the moment, we want to create a good brand presence in Mumbai and Pune by increasing our number of outlets,” says Nadkarni. In this vein, the company is on the lookout for the right locations in these cities in addition to franchise partners whose vision matches its own. “Our franchise partners are our best ambassadors of growth,” states Nadkarni, while adding that the company is constantly looking for ways to better support them through marketing initiatives. Its present ratio of franchise outlets to self-owned outlets is about 70:30 and Nadkarni sees this becoming an 80:20 ratio in the future.

As for Kaati Zone’s expansion into other regions, Nadkarni is very clear that such plans can wait. In an honest admission, he says that the company will have to further examine its supply chain efficiency and look out for outsourcing partners before it can rush into expanding in the north or east. While most other QSR chains are heading to Tier II cities with gusto, believing the future growth story to be there, Kaati Zone’s primary target remains the bigger cities in the southern and western states. Nadkarni explains, “We would rather go for the low hanging fruit where there is a better return for our efforts and a greater chance of each outlet being profitable.” However, this does not mean the company will completely rule out at entry in the Tier II markets, it is just guarding itself from spreading out too thin. In fact, it is entering Kochi by this December and Nadkarni terms this an experiment which he hopes will pay off.

The challenge of funding

For Kaati Zone, it is clear that the primary revenue zone is the takeaway format. Nadkarni terms the kiosk format, which the QSR primarily operates, as a subset of the takeaway format. “We are very clear that Kaati Zone does not offer fine dining,” he stresses. At present, the company does operate a few restaurants and it would consider opening smaller format restaurants (500 sq.ft. to 800 sq.ft.) in the future, if funding presents the opportunity. And speaking of funding, Nadkarni says that it is the company’s primary challenge. Given that Nadkarni himself is an investor turned entrepreneur, he knows the importance of looking for external funding to support scaling up. “We are in talks with several private equity funds and we are also looking at non-traditional sourcing for funds,” he shares. He also knows that it is near impossible to set a time frame within which funding can be procured. “We will continue to focus on growth and when the timing is right, funding will come our way,” says a pragmatic Nadkarni.

His background allows him to be more understanding of the ground realities of operating in this business. The QSR industry is one where external investors will have to play the waiting game and few are willing. “Most PE funds are looking at a horizon of three to five years and even those who have invested in QSR chains have been unable to exit in such a short time period,” he says. Additionally, PE funds in India have found the going tough and this serves as an explanation as to why funding opportunities have been hard to come by for companies that are looking to move from a startup phase to a growth phase.

A secondary challenge is that of retaining talent. This is a problem that plagues the retail industry on the whole and is especially threatening to food retail businesses. “We are constantly in the process of hiring and training because we cannot afford to dilute customer experience through improper staffing,” says Nadkarni. Additionally, the company is working towards helping its franchises with training as it is imperative to maintain quality of staff across all outlets.

Looking ahead, Nadkarni has a simple mandate for Kaati Zone; be the best at what you do. Its mainstay is kaati rolls and it will remain that way. “It is not important for an ethnic QSR chain like us to keep trying different things. I am not here to mimic all the other brands that operate in the same industry,” says Nadkarni, while stating with refreshing clarity that “innovation is less about making changes to the menu and more about simplifying operations.”