Lure of live food preps

A live kitchen can help hypermarkets add value to the customer experience and help improve margins

Globally, the hypermarket business runs on low margins. Profit margins for brands such as Wal-Mart typically range between three and five per cent. For Indian players as well, the margins are thin — hovering between eight and 10 per cent. Despite their margin constraints, you will find that most hypermarkets today have a dedicated space to run a live kitchen — which by themselves are also low-volume and low-margin. So why would a Big Bazaar or a HyperCity burn oodles of cash and hire dedicated staff for a live kitchen on the shop floor?
 
“Having an added facility of live kitchen in stores complements our business model of providing convenience to customers under one roof,” says Manoj Jain, VP, marketing, loyalty and visual merchandising, HyperCITY Retail India Limited.
 
According to recent research by Kellogg University, offering fresh produce and seafood in addition to ready-to-eat side dishes or meals can help hypermarkets add value to the overall consumer experience and improve margins marginally.
 

N Chandramouli, chief executive officer, Trust Research Advisory, says, in India, a live kitchen is meant to “engage consumers, encourage them to spend more time at the store and in the process get a greater share of consumers’ wallet”. Moreover, today there is a lot of food that gets into a hypermarket. Since stores enjoy high footfall, a live kitchen helps in exhausting and quickly moving fresh food products off the shelf.
 
Take HyperCity’s case. It has a total of 20 stores across India. More than 15 lakh customers visit these stores every month. These kitchens provide an array of services such as cleaning, washing, chopping and packing of fruits and vegetables, marinating of meat and fish, and cooking meat, processed meat and fish fillets etc.
 
Depending upon the format and size of the store, the company’s prep rooms have a minimum of three and maximum of 12 employees at each store. Large format stores handle around five to six tonnes of fresh fruits and vegetables every day. At HyperCITY, on an average, around 7,000 customers walk in every day. Out of which, 30 to 35 per cent shop for value added products.
 
Such large-scale operation brings in its own set of challenges.
 
Health, hygiene and food safety are key to running live kitchen. For instance, HyperCity has tied up with solutions providers for maintaining hygiene at its stores. It also has an internal audit team that keeps a check on hygiene and food safety. “We carry out shelf life study in-house on a periodic basis and additionally random sampling checks are done by laboratories,” says Jain.
 
With an eye on having end-to-end control over supplies, HyperCity manages critical functions like sourcing, storage and logistics in-house. It sources items from different suppliers for each store. Uniform quality is maintained by thorough checks. If the supply doesn’t match the company’s hygiene or quality specification, the store immediately rejects it. Further, under the “Direct Store Delivery” model, HyperCity has created individual storage facility and prep at each store. Fresh and perishable items are supplied in stores on an everyday basis. Some vegetables and fruits are delivered once in two to three weeks.
 
In case of a hypermarket, a person is not coming to the store for food. So, how does one entice a buyer to spend more time at the store and buy more by engaging her through a live kitchen?
 
Chandramouli points out that constant sampling, which is common in the West, is missing in India. For a live kitchen to inspire buying, sampling is unavoidable. It helps people develop new tastes and experiment with different food items. Starbucks does it all the time — offering people new flavours and taking their feedback.
 
Indeed, to create a lasting brand experience, timing is key. For example, live kitchens could go big on themes such as sports or big consumption occasions such as Diwali. “At the end of the day, it’s all about creating a lasting brand experience by innovating and creating fresh and new experience for consumers,” says Chandramouli.