Jumbo King: The Making of an Indian Fast-food ChainPublished: October 02, 2008 in India Knowledge@Wharton
You won't get much variety if you visit an outlet of Jumbo King, a fast-food chain that is expanding in western India. On offer are vada pavs (a potato-based patty in a bun), Pepsi and lassi. This is fast food Mumbai style. It won't cost you more than a dollar. (The basic vada pav costs just 17 cents and the most expensive 59 cents.)
"I was inspired by McDonald's: Behind the Arches, says Dheeraj Gupta, founder and managing director of Jumbo King, referring to the John F. Love book about the world's largest fast-food chain. "But my target is the suburban train traveler."
Most Jumbo King outlets are close to railway stations, with their constant stream of commuters as potential customers. Many stop in to pick up a vada pav. In a city where commuting can take two hours each way and the railways carry 6 million-plus passengers daily, this is often breakfast or dinner. "You can get a vada pav at a roadside stall too," Gupta says. The difference between Jumbo King and the stalls, he says, "is that we are hygienic."
Jumbo King is not Gupta's first venture. Shortly after completing an MBA from Symbiosis Institute of Business Management in Pune, he started Manali Foods to export sweets to places like Dubai, which have a large concentration of ethnic Indians. It didn't work. "I suddenly realized I was looking at the wrong market," Gupta says. "There were 800,000 to 900,000 Indians in Dubai; there were 2 million in [the Mumbai suburb] Malad alone."
Having made a choice about his market, the next key decision was the product. Gupta's family was in the hotel and catering business and also had run sweetshops. But sweets had flopped once for Gupta, and he now decided bet on Indian snack foods. He opened an outlet in Malad under the name Chaat Factory. (Chaat is the Hindi word for small plates of savory snacks.)
That worked. But Gupta soon discovered that the item on the menu that really moved was the vada pav. "We decided to stick to that alone," he says. Chaat Factory became a misnomer. When customers began complaining that there was no chaat in the Chaat Factory, the name was changed to Jumbo King.
From one outlet in 1990, Jumbo King reached 45 by early this year. It is targeting 250 this year, and has already forayed to Gujarat from its home state of Maharashtra. The initial investment was Rs. 200,000 ($4,300). Now, the company plans to pump in Rs. 75 crore ($16.1 million) over the next three years. The money will come from private equity.
More Company-owned Outlets
According to the company's plans, the funds will be used for setting up more owner-operated outlets (outlets are franchised now), and kiosks within malls, retail chains and airports. A deal has been signed with Bharat Petroleum for kiosks at gasoline pumps. And Jumbo King plans to move inside railway stations; talks are on with Indian Railways for outlets on platforms.
"Jumbo King is a brilliant idea," says Akbar Khwaja, managing director of United Pizza Restaurants, which has 62 franchised outlets in 26 cities. (Khwaja is planning to start a chain of franchised fast-food outlets called Satvik, serving "non-messy" items such as samosas, kathi rolls, paranthas, vada pavs and tikkis.)
"Jumbo King has hit the right chord for Indian fast food," Khwaja says. "According to a recent survey that [United Pizza] did regarding the top five Indian fast-food items across the cities of Bangalore, Mumbai, Pune and Ahmedabad, vada pav tops the list, followed by pav bhajji, kathi rolls, samosas and pakodas."
According to a 2004 online survey by ACNielsen, the marketing information company, India ranks high in fast-food consumption. The survey showed that 37% of the population ate at takeaway restaurants at least once a week. That was seventh globally and above the United States, at 35%. Of course, the U.S. market size is far greater, given price differences, but the trend is clear. "It doesn't matter where in the world you are or how well off, the fast-food culture has become a way of life for all of us," the Nielsen report says.
For Jumbo King, striking the right lode doesn't translate into operating a gold mine. Although mark-ups in the restaurant business can be as high as 200%, overhead is challenging. "Our margins are barely 10% to 12%," Gupta says. "But that's healthy."
Jumbo King made money from the first year, because it pared costs to the bone. "Initially, there was just my wife, a five-man crew and myself," Gupta says. Today, he has 30 people, including three in Gujarat. The outlets have their own staff.
"One of our first lessons was getting our target clientele right," Gupta says. He recalls opening a store in Masjid Bunder, an area classified as SEC C, a low socioeconomic classification that accounts for 21% of the urban population. More than 50,000 people went past the store every day, "but hardly any customers. It was a disaster. We found that, while we expected to reach SEC C, 75% of our customers were actually SEC A."
Buying Roadside Snacks from Mercedes
"The price-quality equation is a big item on the Mumbaikar's mind," says Harish Bijoor, CEO of Harish Bijoor Consults and a visiting faculty member at the Hyderabad-based Indian School of Business. "If that is met, the offering works. If not, it does not." Value is key in India, where it's not unlikely to see someone driving a Mercedes stop to buy snacks from a pavement stall.
But Gupta realized early on that he would have to work hard to gain customers. There was no money to spend on promotion. "We grew only through PR and word of mouth," he says. His wife, Reeta, was freelancing for certain newspapers around that time and persuaded friends in the media to write about Jumbo King. She says, "I found that the concept of hygienic vada pav was the subject of some curiosity. So my friends helped me give some initial news value to Jumbo King. After that I took care of marketing."
Reeta, a Symbiosis alumna, has since stepped out of an active role in the business. "[Following] our MBA, we had become a joke when we started Jumbo King. People said, 'You are MBAs competing with roadside vendors.' I had to be supportive. From selling vada pavs physically at the counter to filling feedback forms at railway stations, I got my hands dirty at every stage."
Today, Reeta is a sounding board for her husband while she tends to her own PR firm. The mom-and-pop operation has grown to a point where it needs to professionalize, so Jumbo King has brought in a professional CEO, Karandeep Singh, from Café Coffee Day. "My mandate is to make Jumbo King India's largest [quick service restaurant] chain in the next few years," Singh says. Other professionals have also come on board.
The expansion drive brings tough work, starting with getting the menu right. As many multinational chains have belatedly realized, the Indian food market is fragmented. What works in one state may not in another.
Jumbo King has already experienced that. In Gujarat, there are some items in addition to vada pav on the menu. Gupta justifies the variety. "In its formative years, McDonald's tried their new products in one location," he says. "If it worked, it was introduced all over. The Butter Jumbo King, first launched in Gujarat, is now available in other places."
The menu will change and perhaps expand, for Gupta doesn't see his business as just selling vada pav. "We are in the business of catering to people on the go," he says. Besides, the vada pav that Jumbo King serves is different from the one it competes with in the streets of Mumbai. For one, it is larger. The bread is round. (The standard pav is square.) And the vada itself is flat instead of round.
India's Standardization Challenge
The McDonald's recipe for success is standardization. Is that possible in India? Bijoor thinks it will be difficult. "Take the taste of the humble samosa," he says. "Every region and indeed every town of India has its own samosa with a taste all its own. Arriving at the true-blue national samosa is a game of lowest common denominator taste management. When a national player puts it together, he puts it with the lowest common taste acceptance parameters of the people of all regions. What emerges is what I call the ration-shop samosa. The taste is acceptable, but it is not a taste to kill for. Local players are able to offer this. It is possible to go national with brands of snacks such as the samosa, but the approach needs to be as localized as possible, with local kitchens and local recipes that differ city to city. Recipes have to approach the highest common denominator taste palates of each city and not the LCD palates."
Khwaja of United Pizza disagrees. "Different tastes in food is certainly not an issue," he says. "There are items which are popular all over. If McDonald's can come and sell a concept like burgers to Indians across the country, why can't Indian food do well? The time is now ripe for Indian fast-food chains to catch on because the Indian middle class is getting more brand-conscious."
Branding may evolve with expansion. Jumbo King's message in Maharashtra is "the hygienic vada pav." That's what differentiates it from the vada pav available at half the price from a cart perhaps just 100 meters away. In Gujarat, where vada pav is less known, it is being sold as "Mumbai's favorite fast food." Explains Gupta: "When we go to other states, we will probably say that this is what Mumbai eats on the go, and try a Bollywood connection. Bollywood sells all over India." Will it work? The proof is in the eating.
Gupta inevitably will face competition. Some chains have already recognized that India's big markets exist down the price ladder. Domino's Pizza has extended its international Pizza Mania promotion to India. But while the cheapest pizza on its United Kingdom menu costs £4.95 ($9.11), in India the cheapest is Rs. 35 (75 cents). In India, you have to order at least four pizzas for free home delivery. But that works out to just over $3.
Another U.S. chain, KFC, has launched a snack box for Rs. 49 ($1.05) and a chana snacker for Rs. 25 (54 cents). Like the Domino's Pizza Mania fare, these are not targeted at the bottom of the pyramid, but at middle-class customers seeking value.
Gupta isn't fazed. He points out that the Future Group, which runs national-level stores such as Pantaloons, Big Bazaar and Food Bazaar, had started a chai (tea) and samosa chain some years ago. Called Chamosa Bars, about 200 were set up. They failed. The business was not big enough. "You need to be an entrepreneur to do something like Jumbo King," Gupta says. "You can't be part of a larger group. This is a maverick kind of business."
Jumbo King's Competitors
That may be why Gupta doesn't see the existing players as competition. This includes the multinational chains; the Udipi restaurants that dot Indian cities, serving similar fare but without common ownership; and even the low-price Indian Railways catering service, which has outlets at stations.
Bijoor disagrees. "In the foods and snacks business, everyone is competition for everyone else," he says. "A snack is an impulse item. When the impulse strikes, one looks at local availability, compares offers, taste needs and prices, and decides. All this in a nanosecond. To that extent, the Jumbo pav and McDonald's compete with one another."
United Pizza's Khwaja sees it another way. "The real competitor for Jumbo King is not McDonald's but the man selling vada pav on the roadside. They must turn each of them into a Jumbo King franchisee."
Jumbo King's next challenge is getting the money together for expansion. Gupta will need funds because he is changing his model. "Currently we are into 100% franchising," he says. "In the future, the ratio will be 70% franchisees and 30% company-owned outlets." Jumbo King gets 10% of sales from franchisees as its fee.
Both models have worked in India. Explains CEO Singh: "Café Coffee Day is a chain of company-owned stores and Jumbo King is into franchising. But at the bottom of it, both are a bunch of young guys trying to create a big brand."
Gupta says finding private-equity funds won't be a problem. But what will make or break the chain is this, according to Khwaja: "Indian fast-food chains have not caught on because of the mind-set of Indian entrepreneurs. They under-invest and expect quick profits. Indians typically like to have complete ownership of their business, and so we end up having small companies. In the chain-food business one needs to have long-term vision and large investments."
"The absence of Indian fast-food chains is not because of differences in taste or food habits," says Bidisha Nagaraj, Café Coffee Day's president of marketing. "The entry barrier is not so much the palate as the investment that is required. Rentals themselves are a huge cost. If one is looking at a chain of 100 outlets, it can be a huge amount for a small entrepreneur to invest."
"Jumbo King has a great product and a great concept," she adds. "What it needs to do is to work on its distribution model. It needs to look at being present in places like cinema halls, food courts of shopping malls, railways stations and airports. As there is only one product, they can also look at backward integration to bring about more economies of scale."
Jumbo King may sell just vada pav. But, in terms of management strategies and decisions, it has a lot on its plate.