Saving the old “hotels”

Recently, an article on the CNN-IBN site about old eateries in Bangalore shutting shop made its way into my inbox a number of times. Read it the first time, and put a “well left” on all subsequent occasions. And recently, in response to some other totally unrelated post, someone wanted me to comment on it.

initially i thought it’s some arbit stupid reform-bashing left-wing article, so replying to it won’t make much sense. However, fact is that a few of these golden oldies are closing down, so I thought it does make sense to put in my two naya paise.

For the record, that IBN article looks like it is exaggerating. It just lists out all the good old eateries and says “that is on its way out”. Yes, one of the old places in Ulsoor has closed down. Dwaraka has had to shift. Some of them are still facing trouble, but a lot of them are still thriving.

My hunch is that the main reason a lot of these guys are having trouble is due to the sudden jump in the cost of real estate in Bangalore. Most of them are situated in really old buildings, and are paying a pittance for rent, at rates fixed ages back. So when the owner decides he needs to extract the “going rate” for his piece of land, either by remodeling it or by charging more from the tenants, long-term tenants, which includes these “hotels”, take the hit.

Let us start with a “hotel”, which in my opinion, has reacted really well to the changing scenario – Hotel Dwaraka (earlier on Bull Temple Road, now in N R Colony). Not only have they moved to a lower cost location, but they have also changed their fundamental format to one which drastically improves their revenue-per-square-foot – the standing format (Darshini model) which has been working so well in Bangalore. Of course they have taken care to still have a few tables and benches, not only for the old or infirm, but also for those who want to savor their coffee and maybe have long intellectual discussions. And while they have switched to the new format and location, they still serve the same good old “khali palya”, and (I don’t really recall prices at the old Dwaraka) still maintain reasonable enough rates.

Going beyond formats, and choice of location, I think pricing forms a key aspect for these restaurants. Given the current cost of space in Bangalore and rising labor costs, it seems like a clear case where the fixed costs far outweigh the variable costs. In other words, my hunch is that a larger portion of the 12 rupees you pay for a dosa at Dwaraka goes into paying rent and workers’ salaries than into the rice and urad dal and salt. An ideal case for implementing (under my broad definition) revenue management.

The basic concept is that when most of your costs are fixed, you need to sell as much as possible so that the fixed cost gets amortized over a larger base. Given that variable costs are small, even if you have to sell at a lower price it is ok – the lower amortized cost will take care of that.

In this light, if you are a restauranteur you don’t want customers waiting at your door waiting to get in. You want them to be all inside, and eating. You need to set the price appropriately enough that at all points of time, you are always full. And just full. Customers waiting at the door for tables to clear is an indication that your prices are set too low. Empty tables mean that you are too expensive!

Again I come back to the Dwaraka format here – by creating a mostly standing format, they drastically increased the capacity of the restaurant, and that is one of the reasons they have maintained the price of the dosa.? In this case, the “name” and low rates ensure that the extra space thus created is filled.

Getting back to business, another problem most of these old “hotels” is that they are all “tiffin only”. Thing is the good old days, in Bangalore, not too many people had their meals outside. It was always a snack, or breakfast, or “tiffin” (in Bangalore “tiffin” refers to a light snack ingested sometime in the evening – midway between lunch and dinner). So, if you notice, most of these hotels (Dwaraka included) are open from 7 am to 11 am, and then from 4 pm to 8 pm. And that, in my opinion, is just gross misuse of capital. Criminal, even.

When you have paid a fortune to get some lucrative space, the least you could do is to use it efficiently. What is the whole point in not using it at times of the day which are generally considered the most lucrative in most restaurant businesses? Here, I draw your attention to the Roti Ghar model.

Contrary to their name, they serve “tiffin” in the mornings and evenings. Of course, they also make roti and associated north indian stuff, and also sundry stuff like chaat and sweets and indian chinese. A true multicuisine restaurant. They have both a standing area and a proper sit-down portion. The key thing to note here is the way they make use of the sit-down area.

During “meal hours” (11 to 3 and after 7 pm i think), they serve only the high-margin north indian and indian-chinese stuff there. Low margin tiffin is not available then. During the rest of the time, when demand for north indian and indian-chinese is not much more than zero, they serve south Indian stuff! In effect, they ensure that occupancy rates at the sit down portion are high throughout the day – excellent management of seating space.

Similarly , I believe this is one of the reasons MTR started serving meals. Till about 10 years back they were purely “tiffin rooms”. Now, they also serve lunch and dinner (both to a set menu that changes every day).

Now, one option for these “hotels” is to go the MTR way and start meals. And get some return on capital during the “non-tiffin” hours also. Another (not sure if it has been explored yet) is to share facilities with a meals-only restaurant (and there are a lot of them around). The tiffin room functions between 7 and 11 am and 4 and 8pm. The meals section operates between 11:30 am and 3:30 pm and after 8:30 pm. And voila, the cost of real estate has been cut down by half! Significant savings indeed!

Of course there are other ways also to survive. Like Brahmin’s coffee bar still operates out of that little hole-in-the-wall space in order to cut real estate cost, and resembles a refugee camp on a busy saturday morning. Or like Vidyarthi Bhavan has allegedly decreased the size of its dosas in order to cut costs, while maintaining the price.

There are also other challenges – like the willingness of the younger generation of owners to carry on the business, but I’m sure there will always be people willing to buy such “classic” businesses. Or buildings being reconstructed for totally differnet purposes – like Bangalore Central has replaced Victoria. However, operating out of a different (and nearby) location is far superior to shutting down business.

There is no need for these hotels to shut down. The market for restaurant food in Bangalore is too big for that. I’m sure in every case there is always a way to keep them going, and keep them going profitably. All the owners/managers have to do is to find it. ??

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