Whirlwind return to India, Sri Lanka, reveals change
For a small amount of money, two snake charmers near our hotel in Sri Lanka offered to let us drape their snakes around our necks for a photo opp. We declined. Note how the snakes appear to have eyes on the back of their heads.
My second franchise trade mission to India was dramatically different from the first one a little over five years ago. But then so am I.
This time when I stepped off the plane after 20 hours in transit, it was early December, not April, and I wasn’t thrown off balance by the intense heat and pungent smell of sweat from so many bodies pressed into one small area. Unlike the first time, I found my ride to the hotel easily and instead of dropping the contents of my wallet on the sidewalk in my haste to find a tip for the young man who was following me around to “assist” me, I waited calmly in the parking lot, petting a stray dog that “worked” the patrons for scraps from a nearby coffee kiosk.
Trade missions are not for the tourist-minded. There is very little time built into the schedule for sightseeing or souvenir shopping. All the franchisors and tagalongs like me see are the airport, the hotel and what we can glimpse out the windows of our bus on the way to high-end shopping malls for real estate reconnaissance. Needless to say, we weren’t among the 2 million to 4 million visitors a year to witness one of the Seven Wonders of the World, the Taj Mahal.
The matchmaking trip for franchisors and investors was organized by the U.S. Commercial Service—Jennifer Loffredo in the U.S. and Mala Venkat in India—and Josh Merin of the International Franchise Association. The three of them did the planning, recruiting and endless phone calls to ensure everyone had suitors. I came into the process late, and by then several of the companies had started dropping out. I don’t think it was me so much as the timing.
The U.S. franchise trade mission participants posed with local staff and executives of the U.S. Commercial Service and Embassy in New Delhi. Mala Venkat, who supervised the entire mission, is pictured left, front row.
The uncertainty in the fall of the U.S. presidential election and its effects on the economy were paired with the Indian government demonetizing the 500 and 1,000 rupee, the country’s most-used currency, in an effort to stem failure to pay taxes on cash transactions. It’s hard to start a journey of a thousand-plus miles when you have cold feet.
Seven companies participated in the India leg of the mission: Bonchon Chicken, Carl’s Jr., Coldwell Banker Real Estate, Denny’s, Edible Arrangements, Golden Chick and Seniors Helping Seniors. But just two executives continued on to Sri Lanka: Bonchon’s Michael Kim and Rajendra Joshi of Golden Chick braved all three cities. Coldwell Banker and Carl’s Jr. were represented by their local franchisees, who conducted the interviews with candidates.
William Edwards of EGS represents Denny’s internationally and was the only repeat customer. He was the one who showed me the ropes of international dealmaking five years ago. On this trip he was accompanied by Doug Wong, senior director of global franchise development at Denny’s.
Edwards is a veteran of franchise trade missions, so he said it didn’t surprise him that it took this long to find the right partner for a market like India. The candidates they met with this time were all strong, he said, and the two were confident that a deal was close at hand. During those five years, Edwards as the consultant, and Wong as the inhouse expert, were setting the myriad proverbial ducks in a row for just this moment.
Signing a deal, of course, is not the only objective of the mission, as the organizers like to repeatedly point out. Just one of the benefits of going with a group is the numerous briefings by the diplomatic staff, not to mention their expertise in knowing who the local players with money to invest are.
EGS’ Bill Edwards, left, and Doug Wong of Denny’s met with promising candidates.
New Delhi was our first stop. The briefing started right after we all filled up at the complimentary buffet in the dining room. The breakfasts at the hotels (chosen so that we get the government rate) are one of the perks—everything from Asian and European favorites to a table spread with a variety of pastries to the equivalent of a Denny’s Grand Slam breakfast.
In a small room that later would be reconfigured for the one-on-one meetings, embassy officers and business leaders filled us in on the economy, legal regulations and the business climate. We also heard from a franchisee on his experiences with several American brands. Some of the typical hurdles to expect are the segregated markets within India that need customization, a need to educate workers, a lack of standardization and a government that is attempting to be more business-friendly, but with a country this large, “can’t turn on a dime.” Bribes are still an effective way to do business in India, but not a strategy American businesses can adopt ethically or legally.
“I don’t want to sugarcoat this,” Dillon Banerjee of the U.S. Commercial Service said. “India is 130 out of 189 countries in ease of doing business, (and is) ranked 76 in transparency, so there’s work to be done.” But there’s also a lot to recommend India: “3 million in the middle class, a young population, a record number of 165,000 students going to the U.S. to study,” which means they are familiar and hooked on American brands.
Even better, there are no laws specific to franchising and English is the language of business. No one discounts how much easier it is to communicate without an interpreter in the middle.
The cash crisis was also discussed at length, because the majority of transactions in India are in cash. The long lines at the ATMs and the difficulty in getting change are driving more and more people to use a mobile wallet app on their phones. The company behind the technology saw a “2000 percent growth in the last two weeks,” said one presenter.
“People (here) have mobile phones.”
As far as real estate: “Here you need to think vertical and not flat buildings.” Almost all non-mall retail locations are small, narrow shops. To get more space, a business needs a second floor. We witnessed this phenomenon first hand when we visited a Carl’s Jr. with the kitchen on the second floor.
One of three towers covered with elaborately carved figures at a Buddist temple in Sri Lanka.
While the franchisors conducted private meetings with investors, I listened to a young lawyer talking with the representatives from Seniors Helping Seniors, who are now area developers in the states, but originally from India. Bipin and Reema Nirola were patiently trying to explain how their concept of an active senior helping an infirm one with household and personal care would do well in India, but the young woman kept shaking her head and saying it would never work.
Indians don’t do discretionary or impulse purchases, she told the couple. “We buy what we need and save the rest,” she said, adding definitively, “Indians take care of their parents. We wouldn’t hire someone else to do their care.” Plus, she continued, the rich, who could afford the services, would already have servants to do the care.
Perhaps because they too are Indian, the Nirolas were undeterred by her arguments, leaving the room smiling to tend to their one-on-one meetings with investors.
We didn’t realize it at the time, but New Delhi would be our only chance on this trip to see the business landscape.
Our second day, we boarded a bus and visited two very different shopping centers before heading to the airport for Mumbai, where we barely spent 24 hours.
At the first stop, an outdoor lifestyle center, we were privy to a tour of the local franchise by the Carl’s Jr. franchisee. His older daughter, Sana Chopra, who heads up operations, told us about their experiences as franchisees as we sampled a chicken tikka masala burger, wasabi fries, hand-battered onion rings and a spicy veggie burger. I have to admit, they were tasty.
Fast-food concepts walk a fine line here. The experience needs to be American, but the food needs to appeal to the Indian palate.
No beef or pork products are used. “We don’t want to risk offending one person in the family,” she said. Once they have some longevity under their belt, they will introduce a lamb patty. They want to be sure they have customers’ trust first, she explained. Some restaurants substitute water buffalo for hamburger, and mutton was common on other chain’s menus.
Upstairs the kitchen is divided into vegetarian and nonvegetarian workstations. Workers are assigned one or the other station and their aprons are color-coded so they don’t mix.
Green signals vegetarian, red is for meat and neutral food preppers don black aprons. All employees are issued the three different-colored aprons and aren’t told until the morning of their shift the one they’ll be wearing that day. Which means they cart all three aprons back and forth each day, since there’s not room in the cramped quarters upstairs to store them. The manager’s office is standing room only, but that was a function not only of space, but workstyle, Chopra explained, since they want their managers out on the floor.
Dancing servers at a Johnny Rockets in New Delhi.
Chopra doesn’t want to turn the keys over to their vendors, so managers are required to stay after hours to wait for the next day’s orders to be delivered. There is only one steep, narrow staircase (no elevator), which means all the food for the downstairs dining room is carried down the stairs, and all deliveries are carried up.
The average check is 500 rupees (about US$7.32), Chopra said, and they’ll deliver orders costing as little as 100 rupees at no additional charge. Bike delivery drivers hang around the mall and are only paid when they make a delivery, usually about 1 percent of the cost of the order.
At the second mall, we talked with the local Krispy Kreme franchisee, who also fed us samples. This was not an outing conducive to calorie-counting. In addition to the typical sweet donuts, they sell several savory varieties as well, since Indians don’t routinely eat sweets in the morning. “It’s easier to change yourself than the market,” pointed out Rajendra Joshi of Golden Chick.
The Auntie Anne’s kiosk displayed a prominent sign advertising their pretzels are egg-free, which seemed like a disconnect to me until someone pointed out it was a nod to vegans.
Consumers, we were told, are value conscious and look for a deal in every transaction, which forces brands to compete on price by discounting. At the next stop, a Commercial Service officer in Mumbai explained they were well aware that this practice makes it challenging for new brands to stay in business while building a following.
We saw a number of women working in the fast food units in New Delhi, especially at Johnny Rockets, but it may not have registered with me had I not read an article in The Wall Street Journal about a steep increase in the number of women working in American franchises in India. In a country where men not only significantly outnumber women but hold the power, fast-food jobs have empowered women. Unlike in its native country, QSRs are aspirational brands in India.
Trekking to Sri Lanka
After the matchmaking meetings, where another full lunch was provided, four of us said goodbye to the rest of the group and boarded a plane for Colombo, Sri Lanka, an island country that is rapidly building its tourism trade.
Sana Chopra, director of her family’s Carl’s Jr.
We arrived at our hotel, which was attached to a major mall, after dark and were greeted by dozens of 10-foot-tall lighted statues of angels blowing horns. Ironically, in this predominately Buddhist country, Christmas was much more visible than the numerous larger-than-life images of Buddha.
At the briefing by the U.S. Commercial Service and representatives of the AmCham (American Chamber of Commerce), we once again didn’t get a sugar-coated version of doing business in South Asia. The good news is that in January of 2015, a new government was elected that is reform-oriented, unlike the old regime which was seen as creating massive debt for the country during its civil war.
But the new government is still in debt and there’s still corruption, we were told. While it’s hard for U.S. companies to “pick up business here,” there are 40 such companies already doing business in Sri Lanka, and the U.S. is its single largest trading partner.
Colombo, the capital, should be a franchise company’s first landing spot, and perhaps the only one in the country. While the roads throughout Colombo are good, there are only two major highways out of the city. There’s also a lack of internal airlines, making it difficult for tourists to get out to the beaches, and yet, tourism has grown 30 percent over the past three years. “There are 3 million tourists a year now,” Ravin Beanayake of Citibank said, and a number of new hotels, including U.S. franchises, are being built. In addition, there are four existing malls and three new ones on the horizon.
The middle class, which is always a barometer for how well franchises will do in a developing country, is about 35 percent of the population. Because of migration and the civil war, the population is older, since many of the young people were killed.
Colombo, however, looks like a thriving city, but because this was early December some of that robustness could have been the upcoming holiday.
Both franchisors were pleased with the quality of the investor meetings. The day’s itinerary was held at an ocean-side, historic hotel—where England’s Prince Philip’s first car from his military service in Sri Lanka was on display.
Five years ago, I declared myself a domestic thinker because I saw only the challenges. But as I said, I’m a different person today because of trade missions. I still note the red flags the local staff raises, but I’ve seen the good franchises have done. And I salute the people who have the vision to think locally—and act globally.