Bhat's Notes

Coverage by Bhat Dittakavi of Variance.AI on “Milkshake Moments” by Yeshwanth Mocherla of The ThickShake Factory on 5th April 2018 

Isn’t it better to hit the Indian ground running faster with a borrowed idea from the west than trying to figure out everything from the scratch? As such, India got enough go-to-market challenges. This is exactly what Yeshwant of The Thickshake factory did.

Yeshwanth and his brother Ashwin took a simple but proven-worldwide idea of milk shakes and brought it to India. Ideas don’t have to be cutting-edge or even innovative. Taking the plunge and getting into action is more important. Yeshwanthhas quit a white color job at TCS to start his first milkshake store in December 2013. Since then they never looked back. Yeshwanth is very straight-forward and street-smart. He knows how to get things done. Today his company is highly profitable and will have 75 stores very soon. 

We didn’t invent milkshake. It was invented in USA many many years ago. When we asked what is milkshake few years ago in India, they said it would be just a flavored milk.

We started right here in Hyderabad four years ago and we have 65 stores pan India. We started in December 2013.

Yashwant and my brother Ashwin started this together.

Did anyone of you travel on an exchange program? Me and my brother did. I found an opportunity in Belgium. We went to a small milkshake parlor there. I really liked the flavour and taste of the milkshake I ordered though I don’t have sweet tooth. Indians are used to desert after food and we thought idea of selling milkshakes might just work.

After my graduation, I worked as graduate trainee in TCS. I haven’t seen anyone starting this idea for the seven months I was with TCS. To my luck no one started and I jumped in. I am an engineer and MBA, just like my brother, and I had no retail experience.

Taste is a function of ingredients. Luckily my brother was working In Amul and he has inside our knowledge of ice creams and  flavours. We tried many flavours. We looked up for a place in Jubilee Hills. I applied for a personal loan by the virtue of my TCS job. I quit that job right after I got the loan of ₹7 lakhs. Add my personal savings of 5 lakhs and some loan from my dad, we got enough funds to start our venture.

It was difficult for us to get retail space in malls. They didn’t believe in the idea. Luckily we got in Manjeera Mall through a friend of mine. After four months of research, we were about to launch. I was really scared the night before. On first day, we made Rs.30,000. I thought it was our friends and families and the interest a new store could generate. But sales continued for four days. Still we had our own fears. The sale continued even after couple of months. The business model started to work. We were operationally breakeven in the first month itself. Within 13 months, we got all of our investment back.

We made drinking THICK SHAKES cool. Our menu is constantly evolving. We have 55+ flavours now. Here is how we progressed.

Year 1) 1 store. 1 city.

Year 2) 11 stores.

Year 3) 25 stores.

Year 4) 65 stores. 12 cities.

We intentionally named it Thickshake factory and eliminated the name milk. Reason: We wanted people to not to associate milk shakes to thin shakes. When surveys showed Rs.100 is maximum they were willing to pay, we started with a base price of Rs.120 as our costs are high. Second store was lot successful as we paid lesser rental deposits and we got it paid back within 4 months. In year 3, we had 25 stores. Owing to the growing Indian economy, we took the franchise route. First franchise worked and we waited for an year before franchising to a second one.

Ramesh Raju from Kalaari Capital told me at TiE ISB Connect that we were only one-city wonder and he asked me to prove him  otherwise. I thank him for the challenge. We started franchising our business to franchisees from other cities. We downloaded initial franchise agreement templates from google initially which was a mistake and later hired a very good legal team. We could make this system work. Our franchises started working well. Just by word of mouth, our franchise business started to grow. Year 4: 75 stores.

Owing to the colonial mindset, Indians perceive global presence is an indicator of a better brand. Hence we started a store in California. We feel good that that California store has been well accepted. In a franchise model, everthing is a cut and paste model. Today we sell ten shakes a minute.

We got 350 employees in our brand. A lot of blue color workers are very happy with a pay of Rs.15000 per month. We are happy that we could employ them.

We have bootstrapped till today. No external investments have been sought. It might change in near future. 60% of the stores are owned by franchisees and 40% are company owned. We have some FOCO, Franchisee Owned and Company Operated, stores too.

We have a single central logistics point of raw material manufacturing. It is right here in Hyderabad. We emulated McDonald’s model. Getting into retail side easy but logistics is the toughest part. We have to transport raw material through cold storage. We need a cold chain network. Say ten blocks of ice cream can’t be sent to Bangalore at good economics.

Target: 200 stores by 2018

Vision: 500 stores by 2020

Goals: Build a global QSR shakes chain based out of India. Inspire entrepreneurs via franchises. Creating jobs and entrepreneurs.

If celebrities taste our product and tweet, we get brand marketing. Before we go to a city, we set up a standie in high profile conferences. We got celebrities like Rajamouli of Bahubali and Vijay Shekar Sharma of Paytm informally endorse us by being our customers.

Our pricing remains the same whether store is in a metro or in a tier 2 city. It is a validation of demand for products like ours in tier-2 cities

We didn’t understand in the beginning why our attrition was big. I used to work at TCS. I used to get salary on 29th and I started doing the same in my store. Workers used to take salary for the month and leave us without any notice. I didn’t know 80% is the average attrition rate in QSR industry. Norm in our industry is that salary is paid typically after fifteen days. We started following this norm and we could control attrition.

Within 18 months of starting the business, a well manored guy came to me. He said he helped big brands get spaces for lease. He is that brilliant seller. I felt good. I hired him at a much higher salary. After a month I learnt more about him. He was asking me to give him lot of powers. He was too fast. I never suspected his evil intentions. One day one of the prospective franchises alerted me. I learnt he was making false representations about our company and I fired him at the same moment. Later on I came to know he defrauded many. We even learnt he faked his degree certificates. That is when it really hit me that the intangible value of values and ethics can’t be replaced.

We have standard set of letter of intent, franchise document and more. This process is fully vetted. We are the final signing authority.

We started providing benefits such as insurance. We showed them the career growth path. We made minimum salary of Rs.10,000.

We never compromise on quality. We have established our own ice cream factory by investing in high capital expenditure. It is worth.

We looked at videos of Starbucks and identified the blenders they used. We started using Vitamix. We are the second highest buyer of Vitamix in the country after Starbucks. I read this book by Sam Walton of Walmart. He used to spend more time in other retail stores and observe more. This is how I brought the best practices.

We didn’t know the quality of ice cream that gives us the flavor that clicks. We went to Amul in Gujarat. After we returned, we found an ice cream maker and asked him to do ice creams based on our own recipe. We don’t do any tetra packaging and we sell in glasses. We followed Starbucks design of a glass and made our own glass with our logo.

Not really.

Don’t do everthing yourself. We hired a creative agency. It worked for us. Please mark my word. UI and brand have to look awesome.

Location is the most important one. Both of us have to OK every location.

We have a specific set of target audience with age ranging from 15 to 28. They want to have indulgence and feel good as they consume. We are clear in our positioning. We don’t claim that we are a diet product.

We did standardization. Raw materials are made with standardized and centralized processes. Exact raw materials are used everywhere and hence Tate is consistent across the stores. We have seen how Subway standardizes it. Millions of vegetable farms are exclusively hired by subway.

First we got inspired from the concept. We experimented with different blenders and ingredients. Eventually we got professional chefs.

Luckily we didn’t have the need for funding. It is self sustaining and profitable business, unlike other cash burn businesses. Also, market wasn’t there few years ago to have fast growth through funding. Off late, we started to receive inbound inquiries about funding now.

Big food brands in India talk about being healthy but real thing is different. When we came up with sugar-free ice creams at a minimal Rs.10 delta, we didn’t get the customer buy-in. The product doesn’t not become healthy just because you have a new brand as sugar-free. Growth is huge in natural segment.

We want to stay with thickshakes.

Delhi, Chennai and Mumbai are our target markets now. Even Gujarat, with their sweet tooth 🙂

We give 24 months of payback period to our franchises. They do it much earlier say within 12-18 months.

We did a random audit in a store and we found that the they were using different ingredients. Stringent clauses in our franchise contract came to our rescue.

Our costs are high owing to cold chain and centralised logistics and delivery.

Sure. Good idea. Manufacturing is closely guarded secret. We have to see.