Comeback kid?

Samir Kuckreja

If you turn the corner at L-block in central Delhi's Rajiv Chowk, you will run into a Haldiram's food outlet, which for many Delhiites, is a jarring realisation of the changing times. This, after all, was the flagship location of the legendary eating establishment, Nirula's, which Delhi residents regularly flocked to for mouth-watering savouries or ice-cream. Its other immensely popular location, near the Chanakya Cinema hall, also no longer exists. "That is part of life," says Samir Kuckreja, Managing Director of Nirula's Corner House. "Those were leased properties and we lost the leases. But we have three new homes in CP alone."

That may be so, but it could also be a metaphor for what has happened to Nirula's. In the past 15 years or so, Indian consumers have gotten increasingly younger and armed with more disposable income than ever. They've become hungrier for food outside home, frequenting fastfood chains such as McDonald's, Domino's, Pizza Hut, KFC and others-even fuelling the rise of formidable domestic players, such as Haldiram's and Bikanerwala's. Yet, Nirula's has atrophied, unable to exploit this valuable demographic, despite its storied brand name and once-loyal fan following, having ceded acres of ground to its more agile fast-food competitors.

Still, it would be foolish to write off this fast-food chain. For one thing, it has relatively new owners-Navis Capital found enough value in it to buy out the founding family for Rs 90 crore, three years ago, kick-starting a comprehensive makeover. Since then, Nirula's new management has put some "best practices" in place: It hired Deloitte for a lean manufacturing project, implemented SAP at the back-end, bought new machinery, and upgraded facilities. The partners with the franchises have invested close to Rs 50 crore since 2006.

In the meantime, Nirula's is chasing a path of growth by trying everything: venturing into new territories, embracing new formats and luring new customers. Primarily known as an NCR player, it is now spread across many north Indian cities and is planning to enter others, like Indore in Madhya Pradesh. Nirula's mode of expansion is diverse.

The chain has ventured into clubs, malls, fuel stations, bus stations, airports and railway stations in order to seek its consumers, and is even considering areas such as corporate parks, educational institutions and hospitals for additional outlets. Its formats range from hotels (just two) to ice-cream kiosks and pastry corners. In its menu, lower-cost options have made an entry. An example: Chillo-an ice-cream priced at Rs 15-which brought in new customers to its outlets this summer.

Of course, this kind of strategy brings with it the eminent danger of spreading the company's resources too thin. Not so, says Kuckreja. "In one sense, there is no direct competitor. We have a unique niche in the market. Most of our new growth is in quick service segment and in areas that have a high footfall and captive business," he adds.

So far, the strategy seems to have worked for the company. "Revenues in the past three years have shown a compound annual growth of 25-30 per cent, even as gross margins have improved by 20-30 per cent," says Kuckreja.Meanwhile, Nirula's has added around 27 outlets, and its new philosophy is "to communicate with the youth without alienating the other segments," according to Kuckreja.

Nevertheless, industry observers feel that other issues dog the brand. Nirula's fundamental message to consumers is still very turbid, they say. Plus, the wide range of items on its menus doesn't help. (see Solution-2). In other words, brand communication needs to get sharper, and that is something that, Kuckreja promises, is in the pipeline. Still, other problems remain: In some locations, you have to queue outside in the searing heat to order, then make a mad dash inside for a table. Maintaining quality service while growing rapidly will therefore be a challenge.

Still, fact is, Nirula's problem of plenty may actually be its biggest strength. Today, the average Indian family is riven with competing choices-the son wants a burger, the daughter an ice-cream sundae, the mother a pizza and the father, some good ol' butter chicken. Nirula's can appeal to all four in one go. If Nirula's sticks to catering to the diverse cosmopolitan palate-yet gets its service management right and creates some buzz around its brand- it may still have a shot at regaining its lost glory.

Avnish Bajaj

SOLUTION-1

'Identify a hero product'

Avnish Bajaj, Co-founder and Managing Director, Matrix Partners

Nirula's has diversified geographically into various markets at a time when there were issues in its core markets.

STRENGTHS: Nirula's was an extremely strong brand name. It introduced many new cuisines to the north Indian consumer in its heyday-be it pizzas, footlongs, or burgers. It was a pioneer and its ice-creams were also well-known. When I was growing up, Nirula's was the place to go to, be it for a family outing or as an after-school hangout.

CHALLENGES: However, Nirula's can also be a case study of a company that rested on its laurels. The delay in introducing systems, processes and professional management in the last decade or so has meant that the chain has lost its earlier differentiation and left the door open for new chains to enter the market, such as Domino's or Baskin Robbins, who have positioned themselves uniquely. In contrast, there is no clear product positioning for Nirula's. They also don't seem to have a clear customer profile/demographic that they are targeting.

WAY FORWARD: Nirula's needs to stand for something, not everything. I should be able to say, "if I want the best of X then I need to go to Nirula's." There needs to be that hero product that the chain can be identified with. It also needs to connect with the younger demographic, because Nirula's definitely does not stand for them anymore. Our investee company, Yo! China, has tried to have a clear differentiator. It delivers budget Chinese cuisine with fast service.
Moreover, Nirula's has diversified geographically into various markets at a time when there were issues in its core markets. The winning formula needs to be honed in 20-25 outlets for a length of time before the ambitious expansion-given the size of the NCR market, one would think it is large enough to serve as the geography for Nirula's to dominate .

To my mind, unless you have the product positioning right, you do not have a scalable business model-without which it is obviously tough to attract both capital and employees.

Rajesh Srivastava

SOLUTION-2

'Define the brand proposition'

Rajesh Srivastava, Chairman & Managing Director, Rabo Equity Advisors

I think Nirula's should stage a comeback like "Nirula's of old times is back." There is a vacant spot in the market.

STRENGTHS: Nirula's in its old avatar was a winner in three niche areas: fast Indian food, ice-creams and bakery and confectionery.

CHALLENGES: In its new incarnation, the chain is very confused because there is an odd mix in terms of formats, menu and price points. The connect to the consumer's pulse has been lost. For instance, the name card- Nirula's Potpourri-does not invite you for anything specific. There has to be a recall value for something.

WAY FORWARD: I think Nirula's should stage a comeback like "Nirula's of old times is back." There is a vacant spot in the market. But before that, the chain needs to sharply and carefully define the brand proposition for the customer. There are way too many right now.

The chain has also ramped up in recent times in areas further from its core markets as far as Uttaranchal. The business can no longer be run on wet market buying. It is important to concentrate on the back-end distribution and logistics, at the same time retaining the consistency in quality and taste. Hence, it will be good to consolidate outlets and concentrate on logistically "serviceable" radius in phase 1. This is essential to achieving cost efficiencies.

Retail and food service thrive on locations. And the new additions could do with improvements. Since the business is an extremely people-centric service business, hiring quality talent is important. All of that comes at a price and that is dependent on cost efficiencies and profitability. So, it is a bit of a chicken-andegg situation.

I think Nirula's should go for a complete overhaul of operations with a sharper focus on formats, menu, brand, ambience and consumer price points.