Fresh Foods is a popular fast food joint in Bangalore. It was formed by the partnership of 3 friends Ajay, Biren and Chand. Ajay and Biren are…

Fresh Foods is a popular fast food joint in Bangalore. It was formed by the partnership of 3 friends Ajay, Biren and Chand. Ajay and Biren are working partners, while Chand is a non-working partner. For the previous year 2023-24, Fresh Foods reported a net profit of 30,00,000 before the following deductions: (1) Salary of 50,000 each per month payable to Ajay and Biren. Salary of 10,000 per month payable to Chand. These payments have been authorized by the partnership deed. (2) Depreciation on plant and machinery under Section 32 (computed) ₹ 5,00,000. (3) Interest on capital at 15% per annum on the capital of Ajay, Biren and Chand. The capital on which interest is to be calculated is Ajay:10,00,000; Biren:10,00,000 and Chand:50,00,000. A general survey published in a food trade magazine highlighted people's perception about the food served by food joints across the city. Current food platter was found to be predominantly unhealthy. People want healthier choices in the menu when they dine out. At the same time, they do not want to compromise on taste or presentation of the food item. The partners have decided to use this as an opportunity to entirely revamp Fresh Foods as a speciality restaurant that offers healthier variety of food choices catering to the health-conscious customers. Ajay, Biren and Chand are having a meeting to discuss this venture in further detail. The partners would restate their mission as: “Spread health and happiness through the craft of cooking, catering to the discerning palette that forge long lasting bonds with our loyal customers.” “A menu focussed on vegan and vegetarian food options emphasizing the natural, organic and high quality of ingredients would give us a niche segment of loyal customers." Chand “How would we be able to assess the market size? The food industry is largely unorganized and within that there is no data available for ventures like ours that catering to health-conscious customers.” Ajay “You are correct! There is no easy way to measure the market size. So let us set to conquer this unchartered territory. At this nascent stage, let us first begin serving this menu at our restaurant only for lunch and dinner. Our restaurant has a capacity to seat 50 customers at a time. Our restaurant should be filled at least 90%, if not more during the peak hours when it is open. If we are overbooked regularly, we can even consider expanding our operations.” Chand “Catering to the health-conscious customer is not a novel idea. Many have tried it out before and failed. Investment in kitchen infrastructure, redoing ambience and décor to match the product offering would costs us at least 5 crores as initial investment. We would need to raise a term loan from the bank for this. We need to generate sufficient profits to repay the loan. Due to overall uncertain business conditions after the pandemic, the bank may in turn expect us to maintain certain levels of debt service ratio or interest coverage ratio. In addition, our benchmark has been to earn at least 18% ROI. Since our menu offerings are going to be unique and healthy, we have some leverage to charge higher price to our customers. At the same time, industry margins are under pressure due to inflationary conditions as our input costs of material, labour and overheads are continuously rising. How do we achieve financial stability?” Biren “Yes, we are in this business to make money! So let us reengineer our menu. Let us segregate items based on their popularity and profitability. Class A items will be highly popular and profitable. Class B items on the list would be highly popular but not that profitable. Class C items on the menu would be profitable but not very popular. Class D items are the ones over time show that they are neither popular nor profitable! This segregation will give us ample information on which items should be our focus areas while knowing how much margins they would generate! I expect to generate turnover of about 60 lakh in the first year of operations, with an increase of at least 3% each year. While this gives us a first mover advantage, we need to constantly re-engineer our menu to beat our competitors who may also start replicating our model and menu. For this, let us take constant feedback from our customers.” Chand “This would be possible only if we have expert chefs and a team that can handle speciality dishes, catering to different customer preferences, in a cost-effective manner. Popularity is also driven by the quality of food that we serve. High quality standards drive growth. Periodic weekly quality checks would be required. External certifications from government food inspectors and other recognized agencies would also be required to be met. We need to keep a formal record of quality issues identified by either the customer or team.” Ajay "Yes, quality has to be matched with service. Ours is a customer centric business. Hence, personnel interacting with the customers should have good people management skills. Complaints should be handled in a professional yet personable manner, for which our customer facing staff have to be trained. Service also means that orders given by the customer should be delivered correctly as per their expectations. Errors in order taking process, stock outs due to unavailability of material should be avoided at all costs. It should be our aim to deliver the food within 15 minutes after placing the order and the food should be both warm and fresh. Rejected raw material, customer rejections of food delivered also need to be tracked. Again, our formal record also needs to capture these errors, inability to deliver orders, delays in delivery of food.” Biren “COVID pandemic taught us an important lesson on maintain a robust supply chain that can deal with disruptions. For critical resources such as raw material, labour etc. our firm should have multiple partners who can provide for the requirements reliably. This will also be helpful when we scale up operations in future.” Chand “Not just that, our internal processes should make efficient use of resources. The order taking system and food delivery system should work in sync and support each other to avoid errors and stock outs. Our core team of chefs should be adept at minimizing waste and preparing unique dishes in an economical way! We need build a kitchen infrastructure that can support this providing them with appropriate space, machines and tools for cooking and storage. As regards our marketing process, we may need to use technological solutions like social media platforms to reach out to potential customers.” Ajay “High staff attrition is a perennial problem in our industry. Expert chefs are our key to success. Should we explore the possibility of taking out Keyman Insurance policy on key employees, including us partners. This would not only boost their morale but also help in retaining them. The Speciality chefs may also enjoy working with us if we give them sufficient scope for innovation to satisfy customers, cost permitting of course!” Biren “Wonderful! I am excited at the range of possibilities this venture can offer. Let us get started by putting in place a system for performance measurement of various parameters.” Chand It was decided that Ajay would be in charge of restaurant operations (supply chain management activities like material / labour procurement, kitchen operations, supply chai and quality control and any other daily business operations), Biren would be in charge of finance, administration and marketing. He vegetarian will be in charge of activities like negotiating settlement dates with vendors, procuring loans at effective rates, promotional campaigns to build the firm's visibility. Chand would continue to be a non-working partner giving strategic insights and if needed additional capital infusion for any business needs. There will be separate departments created to form a proper organization structure with clearly defined authority and responsibility. The periodic management of the menu which will define the food choices based on their profitability and popularity among customers will be decided jointly by all three partners. The partnership deed is being modified accordingly to reflect the new roles and responsibilities.