Laxman Hemnani is a COEP ‘85 batcher. After finishing his metallurgy engineering, he started off in manufacturing. After a couple of years on the shop floor, he joined Aptech, where he had a long stint of 10 years. He was the manager of the flagship JM road centre of Aptech. In 2002, Aptech decided to start operations in China. Laxman was deputed to work as part of the China team. As with most Chinese operations, this was also a joint venture, with the prestigious Beijing University. China was a new experience for Laxman, who comes from a family of migrants. His parents left Pakistan in 1947 to settle down in Pimpri. Dad worked in Hindustan Antibiotics, and Laxman’s schooling has been at HA school in Pimpri. What was different about business in China was the culture of pressure. Everyone is supposed to both take up and pass on pressure. You are supposed to lead by example. In the admission season, everyone, from the CEO downwards is on the field, working with business partners. Aptech continues to do well in China, having almost 200 centers there.
However, this is not a story about Aptech. This is not even a story about Laxman. It’s a story about Hetal, Laxman’s boss. It took marriage, to make her literally and figuratively Laxman’s boss. Unlike Laxman, Hetal comes from this side of the border, Gujarat. In Gujarati there is a saying naukri means no kari means ‘not to be done’. But the start was with a traditional naukri for her. Her first job was in Aptech in sales. No guesses about who her first boss was! After a couple of years at Aptech, she moved on to work in an NBFC. Even before the couple shifted to China, she had started thinking of starting a franchise operation for the NBFC. In China, she tried her hand at spices trading. Didn’t work out. She ended up becoming a teacher in an international School in Beijing.
Let’s roll the story back to Aptech. The Chinese JV partner used to hold its meetings separately. Through jugaad, Laxman was able to lay his hand on their internal minutes of meeting. The minutes were handed over to him in the evenings by the JV’s secretary on the condition that they be returned back the next morning. All the notes were in Chinese, and so needed translating. Laxman took the help of Rizwan, then a student at the Beijing University of languages. Rizwan used to spend the entire night at Laxman’s place, helping with translation. Very soon, Rizwan began to be treated as a Hemnani family member.
One day, Rizwan shared his dream of starting a restaurant in China. Laxman, who was expecting a good year end bonus, decided to become investing partner in Rizwan’s venture. (In China the year end bonus can account for up to 30% of the annual salary.) The initial capital requirement was about 600,000 Renminbi. By the time the internal decor was 80% done, Rizwan had changed his mind. He and his Chinese girlfriend had decided to get married. The girl, the lone kid, stayed at her parents’ apartment. Hiring an apartment was unaffordable for poor Rizwan. His girlfriend’s parents had strict light out timings at home. It was expected that any stay-in son-in-law would be home asleep by 2130 hrs. Imagine a restaurant owner doing that! Rizwan decided to choose chokri over naukari.
The question before Laxman was what to do with sunk costs. The Gujju business mentality of Hetal came into play. She quit her job as a teacher to become a full timer at Ganges restaurant. The Aptech background helped, as they zeroed in on good locations. As the saying goes: in the restaurant industry the three factors that matter – location, location and location. The other thing that he could manage was guangxi, or connections. One of Laxman’s friends was a lawyer. She helped complete formalities required by the government to set up a company.
A small diversion into the history of guangxi. Government officials were responsible for getting work done. In the post Mao phase, a lot of the work was being given out to private contractors. An official’s promotion could get stopped if the contractor did not finish the job. So the official had to ensure that whoever the contractor was, there should be no goof-ups. Officials would hire contractors who came with references or connections, very often their own relatives. It was ok to pay a little more, but the job had to be done! Guangxi is still important in China, because of trust. If you go to a supplier through a guangxi, you can rest assured of getting good quality. Because the supplier knows that if he doesn’t deliver the expected quality, the guangxi will ensure that the next order is not happening.
Another thing that helped the Hemnanis was timing. The economic boom was happening in China around that time. The tailwind of a growing economy helped drive business. With high disposable incomes, eating out was in fashion. Their first restaurant was about 20 kilometres from the city centre in the university district. Yet the restaurant managed to catch the eye, or should we say tongue, of the Chinese expat community. The Beijinger, a magazine for expats, ended up awarding a prize to Ganges in the small hotels category. A lot of clients found it inconvenient to drive down 20 kilometre to have Ganges food. So six months later, Laxman rented a property in The Place, a popular mall in the City Business Centre, and started his second restaurant there. Very soon a third restaurant opened up. By then, Hetal was also working evenings bringing up Vignesh, their 4 year old son. She pressurized Laxman to quit his job and become her full time employee.
Hetal manages the kitchen and finance. As a policy, Ganges does not having a central kitchen. They believe having independent kitchens helps serve fresh food. The senior chef mentors new joinees and they work as his understudy for 3 months, before they are transferred to their own restaurant. Cooks are all from India. They are given six weeks of paid leave after every 18 months of work. Hetal’s role as a devil’s advocate helps in Ganges maintaining enough cash reserves. One time where this reserve came in of use was during the Doklam logjam. For 3 weeks, Chinese customers just stopped coming. Thankfully it blew over soon, and the customers were back.
Today Beijing has 5 Ganges restaurants, Xian has 1. Interestingly, Pune also has a Hemnani owned restaurant, though it is not branded Ganges. In Pune, the Hemnanis have a house in Aundh. Close to their house there used to be a restaurant called Banana leaf, later renamed Madras Cafe. The lady who ran the restaurant decided to shut down the restaurant because she was leaving for the US to be with her daughter. The Hemnanis liked the restaurant and its location a lot, and they decided to take it over. It’s on the new DP road, which goes parallel to the river. They have retained the name as Madras cafe, and it still serves great South Indian food.
The moderator for the interview, Ramesh, had visited their restaurant in Beijing only a few months ago. He had some insightful questions to ask. Here is a sampling.
Why is Indian food abroad so expensive?
Mostly due to rentals.
Who is the clientele?
They started with mostly expats. In the last 8 years, the clientele has become mostly Chinese. In China both husband and wife work. The tendency to eat out is higher. The other thing which helps is that the Chinese are punctual when it comes to mealtimes. They have to eat by 7 pm. Most of them go to a restaurant immediately after office, and are done with dinner by 1930 hours.
What has been the experience with aggregators in China?
Meituan and Eleme are two leading players in China. Their scale is much higher than what Indian aggregators have, as mentioned before it’s because most people don’t cook at home. Their delivery boys do 3 times as many deliveries compared to the Indian Swiggy and Zomato. Laxman’s observation was that for any restaurant to be profitable, 75% of revenues have to be dine in. in an only delivery model, you are totally dependent on the aggregator. So the risk is high, unless you are subsidized by or invested in by the food aggregator.
Laxman’s opinion on cloud kitchens.
If at all he starts, it will not be in India, but China. When cloud kitchens started in China, they were quite unregulated. Today this is a strict regulatory structure in place by the Chinese government.
Can you be critical of the government – and still do business in China?
The government is seen as a father figure. Someone who will take care of its people. For many years it was also the only employer. Even in 2019, 35% of the industry continues to be state owned. The answer to the question above – No. Even though Laxman and Hetal were thousands of kilometres away from Beijing, nowhere in their talk did they mention anything critical about the government.
When in the end, I asked both of them a question about corruption, they acknowledged that there was corruption in the past. 80% of the earnings of Government employees used to come from what is called euphemistically as Hongbao or the Red envelope. Xi Jinping, the current President has been much strict on corruption. Laxman says that 2013-14, the year in which Xi took over, was the most difficult year for their business. Money suddenly disappeared from the market. Government officials who used to spend thousands of yuan on a single meal, were given an upper limit of only 250 yuan. Out went the wines and alcohol from dinner orders. Being a capital city, I guess that most of Ganges’ business comes from government employees. Laxman mentioned that he has not paid any business related bribes for the last 5 years. And funnily, some government officials have now started moonlighting as Uber drivers to supplement their measly government incomes.
Laxman’s take on the power of Chinese seals
Seals are used on all important company documents in China, and are supposed to be a replacement for the signature, a kind of power of attorney. If you lose your seal, you’ve lost your bank account. Laxman narrated an incident, where some years ago he had given his seal to his driver in order to you deliver it home. In China, the driver commands a lot more respect than in India. He is a person who is hired only after his trust has been checked. Very often you will find both driver and master eating at the same table, even in the presence of guests. Laxman’s driver took a print of the seal on a blank piece of paper. Three years later, when the driver got fired for some reason, he showed Laxman a letter claiming that the driver’s joining salary had been an exhorbitant 8000 yuans. Laxman consulted a lawyer about this fraud, but was advised to pay what the driver asked for – thanks to the misused seal.
How do the Chinese look at expats?
Deng Xiaoping, was the Chinese Narsimha Rao. Although much before Rao saab came to power. Though he never was the head of state, or even head of the Communist party, yet he fathered Chinese liberalisation. He invited Western industry to share their technology with Chinese joint ventures. As a result the manufacturing sector boomed. This was just in time to avoid massive deaths that could have happened to the famine hit China. Even today, expats and joint venture partners are treated with respect by the Chinese. The philosophy being, let’s not reinvent the wheel. We will work with outsiders, but the person has to be the best in the world. Incidentally, India’s export of Bollywood tunes for Chinese songs is an industry not too many people know of. Laxman feels that the Germans and Japanese do a much better job in protecting their IP. As a policy, these companies did not involve the locals in their R and D. But the Americans did, and so they are in a lurch.