Mainland China – Speciality Restaurant Chain

Mainland China Chain of Restaurants An average Mainland China store is built over a space of 4,000 sq. ft, which is typically leased for a period of about nine years (12-15 years in some cases) with a lock-in period of 2-3 years. Typical rent escalation is about 15% every three years. Capex incurred (including civil works, equipment, etc.) to make the store operational is to the tune of Rs 25-30 mn. Targeted revenue from the average store is `50 mn, which typically takes about four to six months to achieve.

The management said that they continue to see pressure on demand, especially on weekdays. A key reason for this is discretionary corporate spending is not increasing leading to lower footfalls; the timing of revival in spending is difficult to ascertain. Weekends are doing well on a relative basis.

Low same-store sales growth driven by a subdued demand environment coupled with increasing costs, especially raw materials and employee expense are creating negative operating leverage. This is impacting profitability acutely, with both EBITDA and PAT down substantially in the past few quarters.

The company currently employs 4,600 people and employee expenses for the company stand at around 22% of sales. Employee turnover at the mid-senior level is negligible; however, at the junior level attrition is to the tune of 3% per month as poaching is highly prevalent in the Indian food services industry. The company plans to open about 10 to 12 stores every year with about half of them being in the Chinese format. On the store closure front, they have closed six stores in the past two years across formats. They also have three Mainland China stores under their watch-list as they are making cash losses in these.

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