“When life pushes you to the edge, either of the two things happen – you surrender and fall or you resist and take a leap. Whichever action you take, will define your character. And shape your future.”
We were on the edge, when we had just started our franchisee network in the year 2007 with Ilol super market. Our franchisee at Ilol was dependent on us for procurements of products at an economical cost. With just two stores (Ahmedabad & Ilol) in our network then, the product procurement at an economical cost was out of question. This was a serious matter on our hands, which needed immediate action from our side. Franchisee business flourishes on mutual trust, if the trust is breached by either party, the relationship goes for a toss.
We started our franchisee model, by tapping the rural community base of ‘Cheliya Community’ – as they are popularly known in Gujarat. This is an enterprising community which has farming and cattle rearing as its occupation at a village level. Some of them have also ventured into restaurants businesses in cities and urban centres. Their Punjabi food-joints are quite famous. In order to tap their restaurant business we devised a backward integration strategy of creating a separate business of bulk supplies of food-grocery, spices to the restaurants. Most of their restaurants are located on highways and remote places. We knew that in such remote places they would be in need of a reliable HoReCa (Hotel/Restaurant/Caterer) supplier, who can provide them with these items regularly. We approached them with the idea of filling this gap.
This strategy of backward integration would help us in two ways:
- We would have the strength to negotiate bulk deals for many restaurants, rather than negotiating only for 2 retail stores.
- The bulk deal benefits can be passed on to our village franchisees, and thus we can procure products for them at an economical cost and fulfil their immediate need.
In order to have a more focused approach for the execution of this strategy, we launched a separate vertical with different sets of entrepreneurs – Hearty Mart Enterprise Pvt Ltd in 2008. The sole aim of the people working in this company, was to crack more bulk deals with vendors and sell the same to the hotels & restaurants. Gradually this idea clicked and it became a robust support of procuring products at economical cost, for our franchisee network. We created our private brand – GoodTime in this company. GoodTime is a range of spices for retail customers and it is sold through our network of supermarkets. We later on invested in the production facility at Dholka and started manufacturing spices for hotels, under the brand name – Chef ki Pasand. Today, we supply bulk food-groceries, spices, rice, ketchups and other food items to nearly 1000+ restaurants in the states of Gujarat, Maharashtra and Rajasthan. Hearty Mart Enterprise Pvt Limited has become a prominent name in HoReCa (Hotels/Restaurants/Caterers) supplies.
The success of Hearty Mart Enterprise helped in the evolution of a hybrid franchisee business model. We call it a ‘Co-operative – Investment Model’. When we realized that our HoReCa customers wanted us to add more diverse products like bakery items, tea and non-food products like paper napkins, aluminium foils etc. in our product-line, we started creating Strategic Business Units (SBUs) for these products. SBUs in our case, are run by entrepreneurs and are not wholly owned by us unlike SBUs of other companies. In this model, HM Enterprises holds about 15 to 25 percent stake, and the rest (75% to 85%) is distributed among those who run it. Thus it is a co-operative model with multiple partners investing in the firm. We take 5% as a brand fee from their profits and brand their company as – Hearty Mart venture and introduce them to our captive customer base of 1000+ restaurants. The Managing Director of HM Enterprise, works as a Group CEO for our SBU companies and rest of the entrepreneurs report to him for operational guidance. Most of them hail from a small village – Saathal, near Dholka town.
This co-operative investment model helped us in scaling our business and taking our brand salience upwards. We entered into bakery & café (Bakers Point), tea (Day Break), HoReCa, food-grocery retail, flour trading, paper products, packaging, hospitality products business and marketing & logistics business. As on date Hearty Mart is a network of 9 companies in different food-segments. In food-grocery retail, it is a chain of 14 super market franchisees at rural level, it runs 2 HoReCa depots (Surat & Vasai, Mumbai) and 21 young entrepreneurs work with the brand.
In the growth stage in order to scale up, a well-thought out plan needs to be implemented. Here I suggest the following 5 steps for effectively implementing an integration growth strategy:
Step 1: Market
The current market of operations is the best place to look for growth ideas. Penetrating the current market is easier to execute than expanding into a newer and unexplored market. At Hearty Mart, when we wanted to grow we focused mainly on food-grocery market and added bulk supplies to hotels and entered HoReCa segment, along with the retail of these products. We had the same sets of vendors in both the cases and hence things became much easier for us to carry out HoReCa operations.
Step 2: Integration Idea
Once the market is finalized, the next step is to devise an effective strategy to tap the market. An entrepreneur who manufactures breads, can easily make sandwiches and sell them to his current customers and grow. This is a forward integration strategy. But before plunging into it, he is expected to deliberate on the pros & cons of the strategy implementation. Hearty Mart Enterprise was a spice trading company in HoReCa segment, we implemented horizontal integration strategy by foraying into products like bakery, tea, flour etc. along with spices and rice for our same sets of customers.
Step 3: Funding
Once the integration idea (vertical or horizontal) is mulled over, the next step is to fund the idea. The cash-rich ventures, in the growth stage, can easily fund the idea and float wholly owned SBUs. But other companies with paucity of funds, need to think of alternative strategy. At Hearty Mart we came up with the innovative idea – ‘Co-operative – Investment’ business model to fulfil our needs for funds and manpower. Here the separate sets of partners come together to fund & run the vertical under the guidance of Hearty Mart.
Step 4: Roles & Control
It is essential to put in place a proper control system, that monitors the working and behavior of these SBUs. They are brand representatives in the eyes of the customers and hence it is essential that their conduct and behavior with customers, is in sync with that of the parent company. At Hearty Mart, we periodically visit our customers and take the general feedback of their experience in dealing with our other companies. We have formed ‘Corporate Group’ within our company and the entrepreneurs running these SBUs report to this group. Their role is to implement the ideas & strategies devised by the Corporate Group and achieve the growth target.
Step 5: Legal Contract
In any kind of business relationship, a legal contract is essential to safe-guard business operations and IPR. Under the guidance of a legal consultant, draft a contract which clearly mentions the roles and responsibilities of both the parties and financial implications involved. Legal contract can be similar to franchisee contracts but with slight modifications, depending upon the agreed terms & conditions.
Growth is achieved only when everyone in the system work in tandem to reach a common goal. James Cash Penney has wonderfully conveyed this thought: “Growth is never by mere chance; it is the result of forces working together.”
(Nadeem Jafri is the Founder & Chief Mentor of Hearty Mart – www.heartymart.com which was founded at Juhapura, Ahmedabad in 2004. Hearty Mart is a food-grocery franchise based retail chain with 14 stores operational in Gujarat today. It owns a 10000 square feet production unit in Dholka GIDC, which manufactures spices for HoReCa (Hotel-Restaurant-Catering) sector. Apart from this, Hearty Mart is a group of 9 companies in different food domains like bakery products, tea, flour trading etc. covering HoReCa customers of Gujarat, Maharashtra and Rajasthan).
