More of the same

You can’t miss the Monginis headquarters even in the hustle and bustle of Andheri, a western Mumbai suburb: the sprawling, multistoreyed building is painted in similar shades of pink and blue as the company’s logo. Even if you overlooked that, the delicious smells of baking wafting all the way from the factory to the main road will have you turning towards it.

Those smells of vanilla and sugar are well-known to most Mumbaikars — for generations, their birthday cakes have most probably come from a nearby Monginis outlet. Zoher Khorakiwala, the chairman and managing director of Monginis, has been on a mission to take the cake shop to nearly every neighbourhood in Mumbai and nearby states. He’s succeeded to quite some extent: there are currently 600 Monginis Cake Shops across six states (Maharashtra, Goa, Gujarat, Madhya Pradesh, West Bengal and Odisha), of which 225 are in Mumbai alone. Every year, the chain sells 30 million pastries and 4 million cakes. 

“We are the largest chain of cake shops in any city where we are present,” claims Khorakiwala, adding that the ₹116-crore Monginis has a 26% share of the organised bakery market. According to a study by Assocham in 2011, the Indian bakery market is valued at #3,295 crore, of which about 65% belongs to the unorganised sector. In a country where cakes still constitute just about 20% of the total desserts and sweets market, it’s interesting how Monginis has carved a slice for itself. 

Sweet beginning

Monginis traces its roots to two Italian brothers who set up a restaurant by that name in the 1900s in Mumbai’s Fort area. After World War II, the brothers were forced to leave India, selling the restaurant to a local family, the Khuranas. In 1956, Zoher’s uncle Fakhruddin T Khorakiwala, who also founded Wockhardt hospitals, bought the 10,000 sq ft restaurant and converted it into a department store, the first in the country, Akbarally’s.

The bakery unit, though, was retained and with an initial outlay of ₹30,000 for upgrading the equipment, cakes were baked and sold from a counter at Akbarally’s. “Back then, cakes used to be very expensive. Since we sold them at a reasonable price, we were very popular; people came even from the suburbs to buy the cakes,” recalls Khorakiwala, who joined the business when it started. 

As Monginis’ popularity grew, even local grocery stores expressed an interest in stocking the cakes. Initially, the bakery supplied to some 80 stores across Mumbai, but without proper handling, the cakes often went stale. “That’s when we thought of opening our own cake shop,” says Khorakiwala.

The first Monginis Cake Shop opened in 1970 in Chembur. The rules of the business were laid out at the start itself — Khorakiwala would be responsible for the baking, quality and distribution of the desserts, while the store owner would be in charge of day-to-day operations. It’s a business model that continues even today. 

Recipe for success

From one store, Monginis grew steadily to 75 by 1986, the same year it set up the 42,000 sq ft factory that houses the current headquarters. Four years later, the cake shop moved outside Mumbai for the first time, opening stores in Rajkot, Pune, Goa and Ahmedabad. “Once we moved outside we realised that tastes in every state vary. To be successful, one had to fully understand the local palette. So we decided to franchise even the production of the cakes,” explains Khorakiwala. 

Monginis now has 13 production facilities, of which only four (two in Mumbai and one each in Hyderabad and Surat) are owned by it. The franchisee manufacturers now account for about half of total production and the company monitors quality by deploying its own executives to be part of the franchise team. All products are made at these centralised bakeries and then sent to the various outlets, which also helps Monginis optimise retail space — the cake shops are only about 200 sq ft.

Monginis charges the franchisee bakers a royalty of 4% on their total sales to franchisee outlets. Typically, a production franchisee takes three years to break even although retail franchisees can become profitable in a year or two, depending on the store location. Khorakiwala’s rule of thumb for retail success: a store needs to have sales of at least ₹2 lakh a month. 

There’s been a clear advantage for Monginis in opting for the franchisee route — for starters, it hasn’t risked its own capital. “Perhaps we would have made more money if we had opened our own stores,” concedes Khorakiwala, “but we couldn’t have grown as fast.” The numbers certainly bear out the fast-track expansion. In the past five years alone, some 30 stores have been added every year. 

Khorakiwala says franchising also gave the company the opportunity to focus on another important business unit — packaged cakes. Monginis began selling sliced cakes in 1986 as a way of reaching out to a wider customer base — the packaged cakes, which have a longer shelf life, are sold through all retail stores across the country. The company has 360 distributors for this product, and plans to increase this number to 500 by FY14. Currently, packaged cakes accounts for 20% of turnover; over the next five years, Monginis is targeting 40% revenue contribution from this business.

Not a cake walk

Ask the average Mumbaikar about Monginis and they will say the cake shop’s charm lies in the fact that it hasn’t changed over the years — old favourites like black forest and plain mawa cake are still to be found behind the glass counters, just as they were 50 years ago. Khorakiwala, on the other hand, takes pride in how Monginis has kept up with — and stayed ahead of — the times. About 15 years ago, the company introduced eggless cakes, one of the first bakeries in Mumbai to do so. It also ran an ad campaign to popularise ‘vegetarian’ desserts. Now, more than half of all the cakes Monginis sells are eggless.  

Monginis was also quick to jump on to the e-commerce bandwagon — but it hasn’t been anywhere as successful with this venture. In 2005, the company started its website positioning it as a gifting portal. But interest has picked up only in the past couple of years although conversion rates are still negligible. “We get about 4,000 hits a day now, but only 150 orders materialise. Of this, 20% are orders from abroad to deliver cakes within India,” says Khorakiwala. The online venture can begin contributing to the business only when it starts seeing at least 1,000 orders a day, which it hopes to achieve in another few years.  

Challenges are increasing for the cake shop. For starters, input costs are escalating and since Monginis has been passing on the rise to customers — it has hiked prices every year since 2009 — it risks losing its ‘affordable’ tag. “The only way Monginis can hold its own amidst increasing competition is by sticking to what made it popular — affordability,” says Damodar Mall, director, food strategy, Future Group. Even if the brand wants to introduce premium products, it should be done under another brand, he recommends. “Much like what HUL did with brands like  Lifebuoy and Dove.” 

Meanwhile, competition is only increasing. While it battles stalwarts like Britannia in packaged cakes; in the bakery business, in Mumbai alone, brands like Denish, Merwan’s, Birdy’s and Ribbons & Balloons are all growing in popularity. And they are all rivals for Monginis, since its cake prices range from ₹390 to ₹750 a kg.

Adds Monginis’ general manager Virendra Ghole, “Consumers in evolved markets like Mumbai prefer a brand over a local bakery. In smaller towns, mom-and-pop bakeries are still major competitors.” While Monginis is tackling competition by simply increasing its presence. Khorakiwala admits that there’s little the company can do about rising prices other than better supply-management and reducing wastage. Currently, about 3% of the stock goes unsold every day, which is almost inevitable according to Khorakiwala. 

Measured steps

So, perhaps it’s not surprising that for the next two years at least, Monginis will focus on consolidating its position in its existing markets, rather than venture into South and North India. Plans are cooking for larger franchise stores of upto 1,000 sq ft in tier 2 towns that will also bake on the premises.

“It is unviable to have production facilities to cater to small towns. The catchment they cater to does not justify the costs of setting up a production franchisee,” says Khorakiwala. Over the next year and a half, Monginis will be venturing into 10 small towns in Maharashtra, Madhya Pradesh and Rajasthan, where it will have one main store and a few satellite stores, with the large store supplying products to the smaller ones.  

It’s a sound strategy, believes Future Group’s Mall. “Monginis should enter new markets as the big daddy of the bakery business and fill the market with cake shops even as it launches. This will help it maintain its leadership,” he says. 

Meanwhile, plans of establishing a national presence haven’t been totally abandoned, although they have been placed on the backburner for the next couple of years. Indeed, expansion is very much on Khorakiwala’s mind: he hopes to double his turnover every three years by widening Monginis’ reach across the country. For now, though, western India is where the dough is.