Franchise 2009 Food, Beverage and Hospitality

Thursday, November 26, 2009. Ashoka Hotel, New Delhi. Day 1 of Franchise India 2009. Continued from Franchise India – Entrepreneurship Summit 2009 – Specialty Retail.

Another interesting session was “Business Opportunities in Food & Beverage Sector”. The speakers were:

• Mahmood Khan, Hospitality Expert Virginia Tech, USA
• Pavan Gandhok, CEO, Litebite Foods
• Gary Moore, MD,The Pizza Co., Thailand
• Rakhee Nagpal, MD & Chairperson of DVS (Moderator)
• Luis Daniel, General Manager, KRR International
• Ankur Sharma, General Manager Business Development , Yo China

Mahmood Khan shared how more than 200 fast food franchise brands have been in developed in USA – a critical factor being ubiquitous Highways (necessitating “quick bites”). He claimed that F&B is a recession-proof business because people will NOT stop eating. His another observation was that today’s customer does not have patience. Technology plays a big role in dealing with customer’s “instant needs”. So, you need to know “real needs of the customer” and continually watch “where the technology is going”.

Pavan Gandhok, CEO, Litebite Foods, opined that the challenge is to present local cuisines in an interesting manner – these items (like vada paav, paav bhaaji, samosa) account for 70-80% of the market and whosoever cracks this code is likely to make lot of money.

Gary Moore, MD, The Pizza Co., was excited about India and said that India is the biggest potential market we have seen in a long time. He emphasized on having “systems in place”. He said, “Brand is a promise of consistency” and successful entrepreneurs achieve that by engineering opportunities for the long-term. Apart from adequate capital, an entrepreneur needs to ask him/herself:

• What have I developed?
• What have I grown?
• What is my passion?

Luis Daniel, General Manager, KRR International, (who started his career as a McDonald crew 25 years ago) shared that after about 3-5 years when operational systems of a business have been set (facilitating smooth expansion), an entrepreneur can “work less and make more”.

Ankur Sharma, General Manager Business Development , Yo China shared that capital needs of a franchise business range from Rs. 3 lakhs to Rs. 1.5 crores. At the smallest level, Kiosk models can yield 100% ROI in one year. A full-fledged restaurant model  can yield 30-35% ROI in one year.

franchise restaurant services market size

Days Sales Outstanding

Days Sales Outstanding (DSO) is your company’s average collection period.

The smaller this number, the faster you are in collecting money from clients.

[For the mathematically inclined, a more accurate measure of your Collection Department’s performance is the Percentage of Overdue Amount (monies beyond due date) to Total Due Amount (Total uncollected amount including fresh sales) - also, known as Days Delinquent Sales Outstanding (DDSO). See Advantage of using DDSO to measure the effectiveness of the credit department (http://www.encyclopediaofcredit.com/WebHelp/articles/risk_analysis/art730.htm )].

Depending on the nature of your business (for example, number of transactions, customer profiles, and competition), you may choose from a variety of strategies and tactics to reduce your Accounts Receivables Average.

Tip #1: Re-evaluate your Credit Sales Policy

Why are you selling on Credit? Why not Sell ‘Cash’?

Sell ‘Cash’! On Zero Days Credit! Even better, see how you can collect advance before delivering a product or a service.

Yes, you heard it right!

Question your product/service/marketing strategy – why are you selling on credit, at all?

Take a fresh look at your product/service basket and market segments.

Perhaps, you can identify products/geographical regions where customer will willingly/happily pay cash. This could be because your product or service is tightly coupled with (and/or is essential to) the customer’s workflow and you can create an edge over competitors due to stock availability, location, price, etc.

Create a marketing/selling strategy on how you can channel adequate energies and resources on finding and selling in those areas (Location/Features/Price) where customers will easily pay cash.

Tip #2: Create/Modify/Implement a New Credit Policy which helps you plug cash flow leaks

If you do not have a Credit Policy, create it to achieve clarity and consistency in giving credit to your customers.

If you already have a Credit Policy, revamp it to take advantage of changing market conditions.

Once you have an up-to-date Credit Policy, implement it with rigor and discipline. Make someone accountable to track Credit Policy deviations.

Tip #3: Have a New Customer Policy, Customer Retention Policy & Customer Firing Policy

Don’t do business with any and everyone. Do background checks before committing transaction with a new customer. Identify and give higher priority to faster paying customers. Fire your low-value slow paying customers.

Tip #3: Streamline Your Collections Process

• Insist on having your collection follow-up process move with clock work precision.
• Based on Due Date of Outstanding, schedule the escalation process – Emails, SMS, Calls, Visits and Legal Recourse.
• Ensure that the monitoring team regular sends New Customer Verification Reports, Credit Policy Deviation Alerts, and alerts on payment variations and disputes.

Tip #4: Update Your Customer Contact Details

Over a period of time, customers change their contact persons, phone numbers (including landline), email-ids and even physical locations. Having an updated customer contact database facilitates the collections process and this could be critical in following up on delayed payments and/or taking legal recourse.

Tip #5: Train Your Team to Follow up with rigor and discipline

A well trained tele-calling follow-up team knows when to use appropriate tricks of the trade – like calling on odd-hours, when to insist on cheque number, follow-up based on customer’s cash flow cycle, and so on.

Watch this space for more on each (and many more) of the above.