The wraparound façade of an elegant art deco bungalow can be seen behind leafy trees, a cluster of tables and chairs arrayed under them here and there. The easily recognisable Hot Breads logo and the aroma of freshly-baked goodies complete the setting in Chennai’s upmarket Adyar. Inside, savoury buns and vegan hot dogs sell as quickly as nougat and the Hungarian gateaux. “It’s so easy to stop by after school, or for an after-dinner treat,” says Sarala Kumar, a young mother. “I used to think, ‘who would buy a chicken tikka croissant?’ I tried it once and now I’m hooked!” Kumar, like many regulars, orders all her birthday cakes here, and then picks up multi-grain bread and sugar-free cookies to compensate for the calorie overload. Selling bread in Chennai, the land of idlis and dosas, was supposed to be tough. Trying to do it nearly two decades ago was trickier still, but as Kumar testifies, the proof of the pastry lies in the eating.
Rising to the occasion
Marketing professor-turned-food entrepreneur M Mahadevan started Hot Breads with an investment of ₹11 lakh in 1989. His knack for understanding local palates had first moved him to open China Hut way back in 1983. His conviction that Indians love Chinese was proved right with his next launch, Cascade, which was formed with a partnership investment of ₹60,000.
Once, while shopping for ingredients in Singapore, Mahadevan encountered bakeries displaying fresh breads behind glass walls. So, of course, he had to try baking. “While running a restaurant is an art, baking is a science,” he says. “Anyone can be trained to bake. You add the ingredients in the exact same proportion and the results are always the same.” Mahadevan made sure Hot Breads got its recipes right when it launched in 1989 with an investment of ₹11 lakh. From the first outlet in Alsa Mall, one of the earliest malls in the Madras of those days, Hot Breads has since grown to 31 outlets in Chennai and Pondicherry.
The icing on the cake
“While most successful fast food, bakery and restaurant chains attribute their success to location, I would attribute a substantial part of Hot Breads’ success to Mahadevan’s product development skills,” says Subbu Subramaniam, founder, MCap Advisors, who was on the board of B&M Hot Breads until recently. He filled buns with curry, potato and gram, and croissants with chicken and paneer tikka. Those are top sellers along with cream pastries, not only in India but Paris, Toronto and New York.
Mahadevan took Hot Breads to Dubai in 1995. There was no looking back after that — Hot Breads has 44 outlets in the US, Canada, West Asia, Far East and Africa. If selling bread in Chennai was a challenge, selling bread made by an Indian overseas was a bigger risk. “I knew I had to innovate to be successful there,” says Mahadevan. His decision to choose locations with a sizeable Indian population worked to his advantage. “He was smart enough to follow the Indian diaspora overseas, which created a connect,” says Y Rama Rao, managing director and CEO, Spark Capital. “That is one of the factors for his success.”
Mahadevan recollects how a couple travelled from New York to the Hot Breads outlet in Edison, New Jersey, because they went on their first date to Hot Breads back home in Chennai. “Creating that kind of recall is important for any brand to be successful,” he says.
Slightly burnt edges
It hasn’t always been sweet going. When Mahadevan tried to franchise the Hot Breads brand across the country in 2000, it didn’t work very well. There was inconsistency in offerings and it proved to be the undoing of the national rollout. As launching overseas outlets took up his attention, Mahadevan decided to sell a 50% stake in the domestic business in 2001 to the Bhartia Group, which owns the Domino’s chain in India.
Hot Breads was rechristened B&M Hot Breads. However, expansion under the new partnership met with little success. When they opened three branches in Delhi, none of them did well and were closed down. “In the food business unlike, say, the mobile phone business where the product is being made by X, distributed by Y and serviced by Z, service quality and consistency in product offering is critical,” says Mahadevan. “Unless you can to maintain that, it’s difficult to succeed.”
He then decided to stick to Chennai and Pondicherry, where he has greater control over quality. Plans are underway to launch six more outlets at an investment of about ₹20 lakh per outlet. If the Bhartias agree, Bangalore comes up next.
More helpings
Recognising the huge demand for desi khana among Indians overseas, Mahadevan, with his Hot Breads experience, took the first Saravana Bhavan outlet abroad in 2000 (as a consultant), following it up with another 19. He has also helped set up over 50 restaurants overseas, including branches of Anjappar, Wang’s Kitchen, Paragon and Nala’s Appakadai.
Side by side, Mahadevan introduced Chennai to international cuisines with Benjarong, Zara, Don Pepe and The French Loaf (an upmarket version of Hot Breads). These restaurants are managed through a company called Oriental Cuisines where Chennai-based private equity firm, Peepul Capital, has taken a 50% stake. “Mahadevan’s strength has been identifying a market and fine-tuning brands to meet demand,” says Rao.
Mahadevan attributes his success to the people working with him. “Employees play a very important role in customer experience,” he says. “It takes just one bad experience for customers to walk away and never return.” According to him, in a city like Chennai, where there isn’t a large floating population, repeat business is very crucial. That’s why he places great emphasis on employee training.
In India, all the Hot Breads outlets put together grossed around ₹25 crore with 20% growth in revenues on a same store basis in the past one year. Together with his restaurants, revenues are around ₹120 crore. Mahadevan hopes to maintain the same growth over the next year as well. Hot Breads’ international outlets earn around ₹150 crore annually.
While revenue growth is important, the focus at Hot Breads is always profitability, “As an entrepreneur, my focus has been on the bottomline because if my business doesn’t generate cash, I cannot expand the business,” says Mahadevan. Hot Breads is generating net margins of 14-15% on outlets — both within India and overseas. And these outlets are running profitably, so internal accruals take care of expansion.
Sarala Kumar’s resolutions are simpler. On her way back from gym, she stopped at Hot Breads, ordered a fresh pineapple cake and was tempted to pick up the new Irish cream pastry. “Let me just try it once, I thought…”
