Does EBIDTA mean much for businesses?

I was in a review meeting with a client recently and we were going through the store level profitability with the CFO. Around 100 stores across India. 

The sales team were quick to point out that many stores were profitable after paying rents and salaries. 

Let alone the store fixtures’ depreciation, they were not considering the proportionate cost of warehousing and logistics as well as back office overheads. If the brand marketing costs (incl. making the Ads and releasing them) as well as Leadership + Management salaries were considered, then the bottomline was a pittance.

Yet, everyone wants to feel good about EBITDA, as if it were the holy grail of a retail business.

EBITDA positive is the first stept towards achieving a profitable and valuable business, no doubt. 

But to feel excited just because there is enough margin after fixed and variable costs is the single most reason why brands drown the drain.

Another example, for renting stores, deposits are paid to landlords which carry no interest. 

However, a notional interest @ 12% should be recorded in the P/L, as this is pure working capital being deployed elsewhere.

In another example, a client wanted to purchase a truck rather than renting out citing higher efficiency. 

What the Client did not consider was the interest cost of the asset if it was borrowed from the bank (let alone from cash acruals) and / or, the efficiency of such cash if it was invested in a Capex (they run a factory too) which would yield finished goods that would fetch revenues.

It’s high time Corporate Leaders stop giving so much importance to EBITDA and leave the joy of celebrating it to the newage StartUps and their Investors rejoice over this word.

Not sorry for being blunt. This is what a true and honest Retail Management Consultant would say, after all. 

Wish to have a no-obligation consultative meeting for your requirements? Mail me - Shri@MilestoGo.in

Bottomless Coffee anyone?

Seated at Third Wave Coffee outlet in Bangalore for the last 2 hrs preparing an important presentation. Done with a cappuccino already and going for the second one. 

The cafe has around 32 covers and there are atleast a dozen guests who have been here since the time I arrived. All of them are busy with their devices - someone is writing codes, another is working on something, another on a video call and one is even watching a movie (I didn’t prowl their screens - just giving a distant glance, so not intruding anyone’s privacy). 

I would reckon the cafe had no more than 10 bills cut in the last 2 hours and each bill size is around Rs. 600, so that’s Rs. 6,000 over 2 hours. Assuming they operate for 12 hours a day, on a weekend, the cafe would have an average turnover of no more than Rs. 30,000 (weekdays will be still lower). 

Like how multiplexes and pubs offer unlimited popcorn or beer for an incremental price, what if cafes offer unlimited cappuccino for a certain price, but to be consumed within, say 3 hours? 

This would be a great way to sweat the same table, than letting customers use the real estate for an unlimited period of time and without contributing much revenues. 

Of course, this should be an option to consumers and not a forced fit. 

Are there any such cafes doing this already in India or elsewhere in the world? 

I recall Pizza Corner offering unlimited pizza and bottomless pepsi / fanta in the late 90s in Chennai and during my college days, my friends and I have ransacked the place many a time! 

An International city sans Cafes

Trichy is among the fastest growing Tier 2 towns in Tamil Nadu. A lot of investment is being planned by the State Government, by setting up SIDCO centres in and around the town. During the 1980s, the former Chief Minister of Tamil Nadu, Late MG Ramachandran wanted the city to be the second capital for the state. What a clairvoyance he must have had.

After all, Trichy Airport has among the second highest foreign passengers landing and departing the city, mostly from Southeast Asian countries and the Middle East.

In March 2024, Prime Minister Modi inaugurated the newly constructed integrated airport terminals, much to the excitement and comfort of departing passengers.

I remember coming to the airport in 2010 to bid for a café space during my stint at Café Coffee Day. We didn’t win the tender though, as the winning bidder had quoted way higher than us.

And back then, Airports Authority of India (AAI) had the rule of H1 bidder winning the tender, i.e., the one who bids the highest takes away the tender opportunity. This and many other such rudimentary conditions have changed over the years in the AAI Tenders, which is following the rule book of the private airport operators.

The fledgling city is famous various centres of worship, such as the Rockfort Temple – the hill is said to be as old as the Himalayas; the Srirangam Temple and a dozen Divya Desam Temples, Our Layd of Lourdes Church, the rock stone dam “Kallanai” built by the Chola Kings and several monuments.

Yet, every time I come here, I find that the city has not graduated to host coffee shops or cafes. This is due to two main reasons – international and domestic brands in F&B are not smelling the coffee here yet; on the other hand, the city lacks quality retail space to offer such businesses.

For a city that is said to have a population of over 12 lakh people, there is just one outlet each for Pizza Hut, Burger Kind, Baskin Robbins and Dominos (perhaps two).

I have personally instigated several people in the town with deep pockets to develop the city’s first shopping mall but of no avail. The Femina Mall that’s in the city centre is a large hypermarket at best and houses a few local eateries and outlets.

A city of international stature such as Tiruchirapalli requires a handful of international and desi cafés which sell high quality coffee, tea and other beverages.

Many high-fliers in the city or those who travel host their one-on one meetings at popular star hotels such as at the Marriott, Ramyas, and a few others. Yet, the charm of a coffee shop for casual conversation, a third and alternative space to sit and work, read, write or just enjoy the cuppa is missing.

There are no more than a dozen good vegetarian restaurants whereas the city is dotted with several small and mid-sized F&B outlets that offer various veg- and non-veg cuisines. The night life is not there at all – forget top end pubs or restobars, the city has just. Graduated from neighbourhood TASMAC attached bars to private permit rooms in a few hotels.

Especially after the Covid-19 led lockdowns, several individuals have settled in their hometowns, especially tier 2 towns, so they can WFH as well as enjoy their lifestyle in Tier 2 towns. Trichy continues to be one of the most promising cities that I have travelled to in India in the last 2.5 decades of my professional career.

Similar towns such as Jaipur in Rajasthan, Surat in Gujarat, Ludhiana in Punjab, Siliguri in West Bengal, Bhopal in MP, Calicut in Kerala, Hubli in Karnataka are great examples where the retail wave is riding high. I am yet to understand what ails this city to grow beyond its seams.

As MK Gandhi said, become the change that you want to see, I am trying my best to bring in as many brands as possible to the city, from apparel to luggage, F&B to QSR and what not.

If your brand wishes to explore opportunities here, then please do reach out to me. I am an email away – shri611work@gmail.com