Forbes India 15th Anniversary Special

After Hard Rock Cafe, JSM is Hungry for More

JSM Corporation’s Sanjay Mahtani and Jay Singh have managed to create scale in the premium restobar space with international brands like CPK and Hard Rock Café and the homegrown Shiro

Published: Oct 1, 2013 06:28:49 AM IST
Updated: Sep 25, 2013 02:45:06 PM IST
After Hard Rock Cafe, JSM is Hungry for More
Image: Arkodeb Mukherjee for Forbes India
Jay Singh (L) and Sanjay Mahtani, co-founders of JSM Corporation

It was chance that led to the creation of the only homegrown brand in JSM Corporation’s vast portfolio. When Sanjay Mahtani and Jay Singh chanced upon a huge unused space at the Bombay Dyeing Mills in central Mumbai, they first thought it was too big for their requirement. “It was an empty warehouse, a dump. And it was 12,000 sq ft—I only needed 7,000 sq ft for Hard Rock Café [HRC],” Mahtani says. But they were unwilling to let go of the property. The two founders of JSM, an F&B retail platform, decided to use it for a luxury lounge: Since they only had a 250 sq ft kitchen to work with, they chose to do “an Asian-themed bar with tapas” and the first Shiro was set up in Mumbai in 2006.

Today, JSM has 24 restaurants, bars and QSR (quick-service restaurant) chains like HRC, California Pizza Kitchen (CPK), Mai Tai Lounge and Pinkberry through the master-franchise route, as well as three Shiros. It has also expanded to a staff of 1,600 and annual revenues of Rs 200 crore; this scale is what attracted Premji Invest to put in Rs 125 crore for a significant minority stake in December 2012.

There are other strong players in the premium restobar space, says Mahtani, 45, pointing to the likes of AD Singh (Olive), Rahul Akerkar (Indigo) and Riyaaz Amlani (Smoke House Deli). But he feels they do not have the breadth that JSM enjoys. With 14 outlets opening this year and 20 more in 2014, the business is set to grow aggressively, especially through CPK and Pinkberry, after a cautious but successful start driven by the cash cows, HRC and Shiro.

“Each HRC broke even in seven to eight months,” says Singh, 46, who spends more time overseeing the business as opposed to his hands-on, operations-focussed partner. “I always say that I have eight powerful engines: Five Hard Rocks and three Shiros.”

While JSM looks to work with suitable international brands, “we are kind of ‘format agnostic’ so we’re not looking only at fine dining or casual dining or bars”, says Singh.

Table For Two
They may operate a successful restaurant business together but the management styles of the duo couldn’t be more different. Mahtani spends time training chefs and monitoring outlet managers while Singh is focussed on bringing brands to India and launching new stores.  

After graduating from Brown University, Singh initially worked as an investment banker and consultant in New York, representing iron and steel workers’ unions in structured buyouts. “I was fairly anti-establishment,” he says. But a move to the world’s largest barter trading company, Atwood Richards, in Nigeria, where he would buy surplus stock like automotive parts and sell it to vendors around the world, brought him to Bangalore to set up the company’s India operations in 1996.

He soon realised there was nothing “happening” during the evenings. Sure, there were many bars. Yes, Bangalore was considered the ‘pub city’. However, the quality of those places did not live up to global standards and were a far cry from the bars he was used to in Manhattan; there was potential for much more. That’s when he met Mahtani.

“He gate-crashed my party,” says Mahtani fondly. The two got closer and when Singh decided on a whim to set up his own bar, 180 Proof (which, incidentally, sat on the same spot on Bangalore’s St Marks Road where the current HRC is), he invited Mahtani to the opening in 1997. At the end of the night, Singh, his manager and Mahtani sat down on the rooftop and Mahtani said, “You’ve got to be careful, keep your standards up, prepare for competition, etc.” The manager turned around and said: “No one’s going to touch us ever.”

After Hard Rock Cafe, JSM is Hungry for More
Shiro at Delhi. JSM has 24 restaurants, bars and QSR chains like Hard Rock Cafe, California Pizza Kitchen, Mai Tai Lounge and Pinkberry, as well as three Shiros

Mahtani took the words with a pinch of salt. He comes from a family crazy about food. Like Singh, Mahtani too has connections to West Africa. Although he comes from a film family (which owned Roop Tara Studios in Mumbai), his father moved to Nigeria 50 years ago to trade commodities. His polished diction reflects his time at boarding school in England (from the age of six), where his love of Asian food began. Around 1975, during visits from his father and uncle, a group of Chinese restaurateurs in the UK would invite them to try the food whenever they were hiring a new chef. “If we liked the food, they would hire the chef,” he says. Their approval mattered. “They knew we would bring our Indian friends and get them good business.” At seven, dim sum was his favourite food and by nine he was already experimenting in the kitchen.
Mahtani was meant to go to Babson College in Boston but chose to spend a gap year with his father’s company in Lagos, Nigeria, instead. His work led him to Bangalore; in fact, he ended up not attending university at all. He brought the global F-Bar to the city in 2001, building the bar from scratch, designing everything from uniforms to the menu. He virtually put Singh’s 180 Proof out of business but this was when he began to understand why certain international brands fail in India: Lack of support.

Mahtani subsequently helped Singh get the F-Bar rights for Delhi and later sold his Bangalore outlet in 2002. Singh then sold 180 Proof and ran F-Bar in Delhi until 2005, when the rights to HRC opened up. This was when they joined forces: They set up JSM together in 2005 and acquired the rights to HRC. By then they had learned from the hubris of the manager’s statement on the rooftop of 180 Proof a decade before.

Breeding the Cash Cows
First and foremost, being a master-franchise with a committed global brand was essential. Both Singh and Mahtani had burnt their fingers working with F-Bar, which didn’t offer the kind of manpower, resources or hospitality expertise they needed. Their franchisers today are more supportive. “The Hard Rock guys were amazing. They trust us with the local market and we learnt so much from them,” says Mahtani. Having a partner who spends two weeks a quarter in India, checking up on standards, processes and quality control like HRC does, is well worth the 5 percent royalty. “There is very little value in the franchise unless the franchiser is willing to commit resources and be involved in your business. To me that is the most important aspect of the equation,” says Singh.

The master-franchise route has worked particularly well with HRC and Mai Tai for two reasons, says Rahul Garg of Premji Invest. First, the biggest problem in mid-market F&B is cash leakage; pure (as opposed to master) franchises leave room for vendors to report revenues incorrectly or serve more per portion than mandated. Second, premium brands means more credit card payments as opposed to cash. “The ratio of credit to cash sales is 2:1,” says Garg. “In lower-end chains, it is 90 percent cash. More credit cards mean fewer leakages.”

As a firm, Premji Invest has a strong bias towards the domestic consumption market across both public and private equity portfolios. “We were looking at the F&B space for a long time but faced two big challenges: Very few places of scale for a meaningful deal size and a bias towards governance, ethics and control,” Garg says. It was the latter that really attracted him toward JSM. “Both promoters have a professional background. From day one, they created a culture of tight controls; JSM is one of the few companies in the space to have a CFO from the start,” he points out.

Staying fresh and hot
A hands-on global franchise may offer the systems and standards but staying relevant is the big challenge for restobars. The key to staying hot, owners will tell you, is to stay fresh. As soon as a new place opens up, the crowds will move; innovating in order to remain novel is the name of the game. JSM has managed to do well because its brands are constantly updating their menus and tinkering with special offers.

“Every bar has a limited lifespan unless people feel compelled to go back to it. You have to redo the space, your prices have to be low and you have to be innovative. But for us, a lot of it is down to the food,” says Mahtani. At Shiro, he uses scientific analysis—and his own taste—to launch 40 new dishes four to five times a year; he also hosts food festivals every quarter. Together with his head chefs, he creates a Boston Matrix to separate the dog dishes from the stars. Unlike the rushed opening of F-Bar, with Shiro he spent six months developing the menu before the launch. Most cooks were Indian—six of them had worked at F-bar and were already trained by him.  

“Everyone says Japanese food should be expensive but that is not true. It’s a myth,” says Mahtani. “Only what little is imported is expensive because of government regulations. The costs go up because of the specialised chefs.”

JSM has flown in four Filipino chefs for the sushi line but still manages to keep prices reasonable; the average cheque per head is Rs 800 for unlimited food. “The five-star hotels have these duty-free licences wherein they can bring in imported stuff much cheaper but they still charge 3x what we do,” Mahtani says.

CPK too has recently had a menu revamp. “Indians generally don’t like the cold pizza concept and we had to train our staff to educate customers,” says Garg.

What Singh has learned from his days as an investment banker is not to get caught up in your own spin. He was so used to spinning the story to get the deal done that he caught himself being tempted to inflate JSM’s numbers. He, of course, checked himself and his key takeaway was the importance of conservative forecasting. After all, it was through poor planning that they had to close the HRC at Hyderabad International Airport. “Forget the high rent, the airport never took off! In Hyderabad, most of the people were going to the Middle East and were carrying their own food.”

Space For More
One must also offset against legal hurdles, like those in getting alcohol licences. “Maharashtra is possibly the toughest place for licences,” says Singh. “It is easier to get a licence in Bangalore but it is also much more expensive.” In Bangalore, a liquor licence would cost Rs 50-80 lakh but is available in three weeks. In Mumbai, it costs only around Rs 12 lakh but could take six months to get.

However, Premji Invest sees the growth being driven by the food brands rather than the restobars. It is looking to grow JSM to a Rs 1,000-crore company in another five years. It has just hired heads of sales and marketing for CPK; it is looking for someone to manage the restobar business (Hard Rock, Shiro and Mai Tai). Next year onwards, the focus will be on value brands like CPK and Pinkberry.

“The company will gradually change: Incremental business will be food-based,” says Garg. “Food businesses take time to break even but once it’s done, they are great long-term cash generators. All CPKs have now broken even.”

In fact, he feels it would be hard to have more than one Shiro in a city but they could easily justify 10 CPKs where ticket sizes are smaller. Given the 5-10 percent slowdown in premium revenues in the last few months, JSM will hedge its bets—but with a continuing eye on expansion.

(This story appears in the 04 October, 2013 issue of Forbes India. To visit our Archives, click here.)