Faasos: The integrated food company
By building a model that spans aggregation, delivery and sourcing, Faasos may well have succeeded in striking a balance between scale and sustainability
Since the launch of their first restaurant in Pune in 2003, Jaydeep Barman and Kallol Banerjee, co-founders of Faasos, a “food on-demand” company, have frequently been asked about the origins of its name. In previous interviews and other interactions, the duo has come up with a few explanations for it, including the assertion that it is an acronym for ‘Fanatic Activism Against Substandard Occidental Shit’.
This definition, though, was retrofitted. Its name, oddly enough, was taken from that of the African nation, Burkina Faso. “We had read that it meant ‘The Land of the Incorruptible’. That sounded nice,” says Banerjee. They proceeded to dispense with Burkina since Faso sounded like fast food, which was the intended theme. “We also had our designer present at the meeting and he suggested that we add an ‘a’, since he needed five letters in the name to design the original logo.” (It was called Faaso’s but was rebranded in May this year to drop the apostrophe.)
This short sequence of events is in many ways symptomatic of their approach: The ability to quickly determine what is and isn’t important, and to dispense with whatever isn’t. It has, at least in part, aided Faasos’s evolution from a delivery-centric restaurant chain to its present avatar of a food technology company.
The food on-demand tag that it uses to define itself essentially means that Faasos uses a network of delivery centres (DCs) to deliver food to customers, around 97 percent of whom use its app to place orders. This fact by itself is unremarkable in a business cluttered with app-based services. But add the scale of Faasos’s growth and the sustainability of the model its co-founders have created, and the venture stands out.
Today, the company, which had six outlets in Pune in 2011, is present in 15 cities, through its 160 DCs. It services between 15,000 and 18,000 orders every day, and is adding about 15 DCs every month. Barman claims that they will be available in about 25 cities by the end of this year and they hope to be in 50 by the middle of 2016. That would entail more than doubling the number of DCs to 350-400 in less than a year.
These fantastical growth numbers would border on the absurd were it a quick service restaurant (QSR) chain. For one, QSRs require high capital expenditure. They also function on low margins, and it is usually a steep uphill climb towards profitability for most QSRs.
Owing to its delivery-centric model, one would be inclined to assume that Faasos is a QSR. And with 160 outlets, that would make it one of India’s largest homegrown QSR brands, which is no mean feat.
But Barman denies that inference. “We’re not a QSR chain,” he says. This is not to say that it never was one.
Autopilot
Founded by IIM-Lucknow classmates Banerjee and Barman, Faasos began as a restaurant in Pune, specialising in kathi rolls. In the early 2000s, while they were working at an e-learning company called Brainvisa Technologies, the two had often talked about opening a restaurant together. “I basically wanted to start it because I missed the Kolkata kathi rolls in Pune,” says Barman. So, in 2003, he quit his job and they launched their first restaurant.
While setting it up, “we did everything that we thought we should be doing,” says Banerjee. They hired good cooks, set up a quality facility with a glass facade, which was something of a novelty then. But with no experience of working in the food and beverages sector, they were in for an unpleasant surprise. In the first month, their restaurant’s sales were lower than the electricity bill.
The next few years weren’t easy either. Although they managed to add four more restaurants by 2006, Barman was getting impatient. “I was the most broke that I have ever been,” he says, laughing. By expanding in the face of early failures, they had found it hard to come by additional capital. So Barman left for INSEAD in France to pursue his second MBA and Banerjee followed a year later. Faasos was put on autopilot with two people managing it.
It was only in 2010 when Barman quit his job as an associate partner with McKinsey in London and returned to India did the Faasos story resume. Banerjee too returned from his Bosch stint in Singapore. The two managers were allowed to run the earlier restaurants (though the restaurants eventually came back into the fold) while Barman and Banerjee began expanding the franchise. The brand’s purple and yellow signage began popping up in Pune, Mumbai and later in Bengaluru. A typical store consisted of a kitchen and a small standing area that would sometimes have a table or two, but was usually bare. The focus was clearly on delivery. The chain quickly grew from six outlets in 2011 to over 50 in 2013.
Entrepreneurs-in-Arms
The number of outlets was a fair measure of its growth because even till 2013 Faasos was run as a QSR chain. In the early years, the food would be prepared at the front-end kitchens, but as the company grew, the supply chain had to be simplified. The first three cities in which Faasos then operated all got a central kitchen which would supply food to the outlets. But Barman concedes that although it was expanding, the company was still on shaky ground.
Two significant events took place in late 2011 that began the process of consolidation. First, Faasos received an investment worth $5 million (about Rs 33 crore) from Sequoia Capital in October 2011. Following this, they announced the Faasos Entrepreneur in Residence (FER) programme.
“We were basically very lazy,” says Barman. “We wanted to find people who would run it as their own company.” The programme requirements were fairly straightforward. It needed the applicants to be entrepreneurial, not look for instructions and love their customers, he says. “We were looking for younger versions of ourselves,” says Banerjee. Essentially professionals who had graduated from business school not very long ago and had just begun to realise that some of their jobs could be very dull. They received over 400 applications, out of which they chose eight applicants.
Seven of these eight people have continued working with Faasos and have carved out departments of their own. “We all began at the operational level, but we quickly began taking up larger responsibilities,” says Revant Bhate, one of the seven original entrants. Bhate was involved in developing the back-end of the company and now also heads marketing. “Since we were a small company, everyone ended up doing everything,” says Bhate. The roles have become more defined as the company has grown.
“Although in terms of numbers our inflection point came about a year back, I think the real inflection point for the company was when we hired the eight entrepreneurs in residence,” says Barman. The decision of hiring through the FER programme enabled them to add seven new co-founders to the company. The results, he believes, only began to show earlier this year, following a funding round led by Lightbox Ventures and Sequioa Capital, in which Faasos raised $20 million (about Rs 132 crore).
Mobile, Agile, Tactical
The constant streamlining of the supply chain ensured that it was technologically well integrated with the back-end. Several vendors worked in tandem to supply the DC with different products that get put together and dispatched from it. In effect, every DC became an independent fulfilment centre.
With this set-up in place, at a time when food aggregators were looking at ways in which they could integrate their platforms with restaurants, Faasos went ahead and did just that. Only, it owned and controlled every part of the process. “Mobile changed everything,” admits Barman.
The change enabled Faasos to go from one end of the spectrum (QSRs) to the other occupied by food aggregators and delivery services, including the likes of Zomato and Foodpanda. They run highly scalable models that entail tying up with restaurants and offering their food on the platform. But, “we are very happy being food-first,” insists Barman.
While food aggregators simply connect the user with food providers, or handle delivery, Faasos, because of its food-first approach, had the advantage of being both the provider and the facilitator. “It is the only scaled up food tech business that has full control on the customer experience,” claims GV Ravishankar, managing director, Sequoia Capital India Advisors.
Too Little or Too Much?
It is clear then that Faasos has managed to seamlessly integrate the technology with the physical process of bringing the food to a consumer’s doorstep. However, this streamlining has its shortcomings, particularly when it comes to the number of food items on offer. The problem is, and its founders admit that it has always been, variety.
“Ultimately, it is about the food. While an integrated platform can bring reliability, taste, quality, value, etc, it may struggle to bring variety,” says Anand Lunia, founding partner at India Quotient. His venture capital firm has invested in, among a number of other ventures, Hola Chef, a food delivery startup that offers new menus daily from local chefs in Mumbai and Pune. Customer fatigue can be a consequence of a limited menu, he says. However, he insists that such things can be solved by data analytics and personalisation, and says, “If anyone can do it, Faasos will probably be one of the first.”
In order to address the variety crunch, and to improve scalability, earlier this year, Faasos added curated items to its menu. It allows its food curators to commission kitchens to provide food through its platform. “We have a team of curators in every area that goes around looking for good food,” says Barman. Instead of charging a commission, they price the product after factoring in the margins for the kitchens and the incremental cost of actually cooking the food, explains Banerjee.
This simple process now lies at the heart of its expansion spree. Curation enables it to set up the supply chain and bring the best of local food to its customers. The shift to becoming a food on-demand platform means that in the cities that it has opened recently, Faasos doesn’t even serve its signature rolls. This ensures that it can quickly replicate its model in a new city without having to replicate the supply chain for its original products. “Eventually, we want about half of our revenue to come from curation,” says Banerjee.
However, with curation, it would seem that Faasos might cede some control on its otherwise fully integrated supply chain. Whether or not it will be able to strike a balance between quality and scale remains to be seen.
While variety is a concern that applies specifically to Faasos, there are also larger concerns about the startup ecosystem and food-related ventures in particular. The recent news of large lay-offs in companies like Zomato and TinyOwl has given way to speculation about the viability of some of their business models. But Barman insists that Faasos’s strength lies in the fact that it works on a sustainable model, an integrated one which allows it to have margins upwards of 50 percent, he says. In fact, he claims that the company is already on the verge of breaking even, and will do so by 2016.
Replacing the Refrigerator
Finally, and perhaps most importantly, the one aspect of Faasos’s model that has enabled consistently rapid growth is its increasingly inexpensive DC. It now costs the company about Rs 15 lakh to open a DC compared to Rs 40 lakh earlier. Since they don’t serve as QSR outlets any longer, the DCs do not need to be located in very visible areas, which helps save on rental costs. They don’t even have to look like outlets. “In fact the last 50-60 outlets that we have opened cannot even be found because they have no Faasos signage on them,” says Banerjee. The optimisation doesn’t stop there. Faasos uses its data to find the least repeat ordered items on its menu. “It doesn’t matter how much we love the products, we slash the bottom 10 percent off the menu regularly,” says Barman.
The results seem impressive. “A DC breaks even in six months,” says Barman. He also claims that they have managed to increase their revenues by 400 percent over the past year. “Next year will be our $100 million (revenues) year,” he says. Although Faasos did not share its present revenue numbers, a back-of-the-envelope calculation suggests that even with their lower claim of 15,000 daily orders, with an average order value of Rs 250, Faasos’s annual revenues may be in the region of Rs 130 crore already.
There exist several companies within the food space that have come up with different delivery models. From larger players like Foodpanda and the embattled TinyOwl, to smaller ones like startup Swiggy, they all focus on different aspects of food delivery. But, “only very small chains with about five restaurants have the kind of fully-integrated infrastructure that Faasos has,” believes Prashant Mehta, partner at Lightbox Ventures. “None of them has been able to achieve this kind of scale,” he says.
The investment led by Lightbox Ventures and Sequioa in February this year and the subsequent growth have ensured that Barman and Banerjee continue work on their stated aim of replacing the refrigerator of the young Indian professional with Faasos. It still sounds like an odd name, and there’s little doubt that they will have to repeat their Burkina Faso story a few more times. Especially following their recent marketing spree, which included two television commercials that project Faasos as the answer to the universal question: ‘Aaj khaane mein kya hai?’ (What’s there to eat today?). As long as they remain agile and flexible with their model, they should have the answer more often than not.
(This story appears in the 11 December, 2015 issue of Forbes India. To visit our Archives, click here.)
