Surrounded by lush green pine trees with a book in your hand and the warmth of some hot coffee down your throat sums up the idea of a perfect vacation. The only thing to be added into this perfect scene is a dash of exotic honey in your cuppa. To make sure that your palette receives this authentic taste and experience, Naipaul Singh Tomar, 53, a PhD in food technology, founded Honey Hut back in 2007.
The emerging café chain first started in Shimla, a popular hill station in Himachal Pradesh, selling fresh packaged honey and honey products along with other bakery items. The idea struck in 2000 and currently Honey Hut derives 75% of its revenue through in-house bakery products such as burgers, sandwiches, salads along with desserts such as honey chocolate fudge, honey pie, apple pie and others.
The remaining 25% comes through products such as honey, herbal teas, honey tonics, natural cream, moisturisers and beauty cleansers that are sold in the market. Quiz Tomar about the concept behind the café, he mentions, “I observed that our society was taking honey only as a cure and not as a diet. In fact, India's per capita consumption of honey is quite low.”
Even though the initial revenue from its first store in Shimla wasn't great, Tomar never thought of giving up on the business. And today, the company has expanded to around 11 stores across various locations, all of which make a profit. These include stores in tier-2 cities like Manali, Ahmedabad, Chandigarh, Haldwani, Ramnagar, Amritsar, Rishikesh, Jalandhar, Nainital and Mussoorie.
While till 2013, only six stores were opened, another six were added from 2013-2015 marking a jump in expansion. “Out of 11, six stores are company owned and the other five are franchisees,” says Gagan Anand, business head, Honey Hut. The store in Chandigarh hit break-even recently. “We get royalty from the ones in Manali, Ahmedabad, Haldwani, Ramnagar and Amritsar,” adds Anand. While the store in Shimla generates maximum revenue amounting to ₹72 lakh per annum, the others fall in the bracket of ₹29 lakh to ₹45 lakh per annum. Also, online and bulk sales generate about ₹14 lakh for the company.
Out of the hive
While Honey Hut is based on the concept of providing honey as a healthy alternative to white sugar, Tomar is keen that one should avoid white salt and white flour as well. With a large variety of exotic honey such as Acacia honey from Ladakh, litchi honey from Muzaffarpur, eucalyptus honey from Uttarakhand, multiflora honey from Himachal and organic honey from Sunderbans made available, Honey Hut aims to add more varieties under its name.
The company has associated with around 15,000 bee-keepers and provides technical consultancy to them on natural extraction of honey and the concept of bee cultivation. “People know about honey but the story of the bee remains untold. We try to make sure that only surplus honey available in the comb is extracted and no larvae and bees are killed in the process,” mentions Tomar.
The company itself needs technical assistance in order to process the raw honey and hence has a tie-up with another Meerut-based company Raj Apiaries, which is a seller of raw and natural honey for suppliers, exporters and retailers. “We keep a margin of 40% and then sell the packaged and processed honey,” mentions Anand.
In fact, a Faridabad-based company, Natural Bath and Body, manufactures the body care products for Honey Hut. “But we provide them with the recipe for the same,” adds Tomar. Products such as soaps, face wash, body lotions, moisturisers, under-eye gels, anti-wrinkle creams, milk body wash, face scrub, shea butter, lip balm and deep clean creams approved by Natural Cosmetics Department of India are sold in the café.
The company also sells natural oils and fragrances on its shelves. Honey Hut earned revenue of ₹2.82 crore in the last financial year out of which a major amount came from its store in Shimla. With an investment of ₹25 lakh, the company aims to enter Delhi NCR before the year end and wants to set up at least three stores there. The next target cities include Jaipur, Mumbai and Bengaluru.
“We had to shut our store in Mumbai because of the high-cost location. The major problem of expansion in tier-1 cities is high rental cost,” explains Anand adding that since the past two years, the company has been focusing on brand awareness. “But now we want to focus on opening more stores,” he says. According to him, one store requires at least ₹25-30 lakh to be opened today and around six months to break-even.
“We are looking for franchisees now. People who visit these tourist destinations call us later with the desire to open a franchisee in their own city. But we don’t want to hand over the brand to someone who dilutes the brand,” adds Anand. In fact, with the current trend of selling products online, Honey Hut generates around ₹6 lakh per year through the sale of its products online which it started a year and a half ago and has 95% of its online customers coming back for more.
However, expensive transportation is one of the major issues the company currently faces and they admit to have sold products online at a loss. “We can’t afford to lose our customer base,” explains Anand, having added Zepo and FedEx as Honey Hut’s delivery partners. The company is in talks with established online marketplaces like Snapdeal and Amazon for selling its products online. For offline market, Honey Hut has tied up with a supermarket store in Delhi NCR named Honey Money Top to boost sales of its products.
“Our margin currently is 17- 20% with offline players. We have kept a margin of about 10-15% which is inclusive of packaging and storage for online marketplaces,” says Anand. Honey Hut is also trying to associate with Grofers and Paytm who will collect its products from the company’s e-commerce portal warehouse in Noida. “Even if we are earning ₹4,000 for a sale of ₹40,000 per month, we’re happy because it’s helping in free marketing and distribution of the products. We are spending around ₹2 lakh-3 lakh annually on marketing our online portal,” explains Anand.
The company currently claims that there are no other players in the Indian market based on a similar concept. The stores in Shimla and Rishikesh have been constantly rated as number one by TripAdvisor for its service quality and ambience for the past three years.
“Unlike stores such as Café Coffee Day, we have our own bakery and do not outsource anything. While Acacia honey is the market leader for us, honey masala idli is sold like hot cakes,” says Anand adding that cookies, jams, jellies along with honey-filled chocolates also comprise a major section of its sales. Around 18% of net sales is spent on the salaries and accommodation of about 62 employees who are on the payroll of the company.
Individual stores are estimated to be growing at 13% per annum. “We have three stores in the pipeline and plan to open around eight stores in the next one year,” he adds. The next store which will be opened in Delhi is going to be a company-owned store while the other stores are planned as franchisees. Talking about maintenance of consistent quality of the bakery products, Anand says that the company’s staff undergoes a training of two months as soon as a new store is opened. Also, the company depends on customer feedback and strict surprise quarterly audits to maintain the same.
On plans to kick off in the tier-1 cities, Anand mentions that they would initially be opening kiosks in jogging parks before setting up their stores. According to him, this move will help in generating the demand by letting the customers taste their products in smaller quantities. “We already have a huge demand of Acacia honey and herbal teas. This idea will help in engaging a lot of customers with Honey Hut’s speciality products in tier-1 cities,” says Anand.
Honey Hut has been using its own resources currently for growing the business. “Investments would help us grow. Our next focus would be on innovative and convenient packaging of our products,” adds Tomar. The company requires about ₹2 crore to achieve its target plan for the next two-three years. Anand admits to looking for investors as well as master franchisees who can expand the business further.
“We currently charge a royalty of 6% from franchisee stores,” he adds. “The high head office cost is something that affects the company’s profit. Investors don’t understand that increasing the stores would eventually lessen the cost. Making them understand this is the biggest issue,” explains Anand. “Also, they tend to believe that we are progressing only because of our stores in tourist spots. To show investors that tourist spots are not the only reason for our growth, we need to come up with stores in tier- 1 cities.”
As for increasing competition from cafés that seem to be mushrooming everywhere, Tomar says that the company’s concept of making Honey Hut an exclusive store where every product is made of honey is itself a differentiator. “As for pricing, I’d say that we are nominally priced and aim to keep our quality and concept intact,” says Tomar. “We also want to attract the customers who go to CCD for a cup of coffee,” says Anand.
As per Ankur Bisen, associate director, Technopak Advisors, “It is too premature to talk about competition for small café chains. The market opportunity is big enough for any player to grow. The most prominent challenge relating to the structure of the industry is the standardisation of services. All this requires a lot of capital,” he adds.
According to Technopak Advisors, home-grown joints evoke nostalgia whereas established brands like CCD, Barista have an aspirational value along with usage of quality ingredients and wider menu options. To compete with organised brands, home-grown brands will have to refurbish their product offering in terms of quality and range.
Even though the availability of only vegetarian food makes the café lose some prospective customers, Tomar’s dream of making Honey Hut a much bigger concept café is still a work in progress.