How listening to customers helped MOD dominate the niche doughnut market
The Indian desserts industry has always been about mithais, sweets, pastries, cakes etc. If there was one major disruptor that forced India’s bakery industry to innovate, it was doughnuts.
The man who introduced India to doughnuts was Lokesh Bharwani, when he launched the famous doughnuts food brandor MOD (as it is popularly called) in 2008. The first outlet of the Singapore-based company was introduced in the country’s national capital.
MOD’s dominance in the market was threatened briefly in 2012 when international doughnut giant Dunkin' Donuts made an entry into the Indian market.
Today, MOD is a reigning player, with over 60 standalone stores across India. Dunkin', on the other hand, has had to close several outlets and has relatively withdrawn from the Indian market, with the number of Dunkin' stores has come down to 37.
“Dunkin' Donuts started with very ambitious plans and opened stores rapidly but by 2018, they decided to consolidate and shut down the unprofitable stores,” says Ruppal Walia Sharma, Professor of Marketing, and Head - Delhi Centre at Bhavan's SP Jain Institute of Management and Research.
She further adds that initial market size was possibly overestimated by Dunkin' because the volumes for the doughnut chain in western markets primarily came from breakfast consumers, whereas in India, doughnuts are more of a dessert item which is only occasionally consumed.
Decoding the company’s success
Despite doughnuts not being a staple to India, MOD has managed to stay relevant and popular among Indian consumers for over a decade now. What has been its secret? “Listening to the consumers,” says Tarak Bhattacharya, CEO of the company.
Tarak joined the company in 2011 and describes his move as a risk. He has previously worked with Nando’s and Barista, and knew that not a very large market for doughnuts existed in India.
“Seven to 10 doughnuts used to get sold each day from the stores where I used to earlier work. So, in the beginning, I used to wonder how this model was going to work,” he confesses.
However, today, when he looks back, he says that several factors have worked for its success. “Our consumer engagement has been very high from the beginning. Additionally, opening stores in the right places, right time, design elements when it comes to packaging added to our success.”
He further adds that listening to the consumer has been the most important factor.
“We listen to our customers all the time. You cannot be in your own world. For example, if you offer a salt and caramel doughnut without knowing if the customer likes it or not, then it is going to be a disaster,” he explains.
The customer engagement, Tarak says, gave them the confidence to expand across other geographies. From seven stores, the company went up to 30 stores in four-to-five years. It’s present across Mumbai, Delhi, Bengaluru, Pune etc.
Betting on categorisation
“Doughnuts are consumed occasionally as a dessert in India and are not an everyday staple breakfast or snacking option,” says Ruppal. Tarak, already aware of this fact, says MOD resorted to categorisation to overcome this disadvantage.
The MOD team’s evaluation of the Indian market helped them to arrive at the conclusion that Indians love chocolates. Therefore, most of the doughnuts made by MOD are chocolate-based or similar variants — like a Dark Chocolate Donut or a White Chocolate Donut.
In the second category, mainly for the kids, MOD offers children-friendly doughnuts, laden with sprinkles or gems.
The third category of doughnuts is for people who don’t like anything sweet, for example, they prefer cheese, pizza doughnuts etc.
‘Love at first bite’ is MOD’s tagline, says Tarak and all efforts go towards accomplishing the same for the consumer.
SMBStory reached out to some customers of MOD and asked what they like the most about the brand. People had different things to say, with some liking the packaging while others going for the look-and-feel of the doughnuts. Anish Chaudhary, a student at IMT Hyderabad, says that MOD has a “better range” of doughnuts. He personally likes the Kit Kat and the Double Trouble Doughnut.
Urvashi Sharma, areviewer and food blogger, says if given a choice between MOD and other brands, she will pick MOD.
She says, “Their amalgamation of flavours is to the T. They know their game well and play around with new and different combinations, tingling the taste buds. Unlike others, their doughnuts can be enjoyed after reheating and we all know what melted chocolate does to us!”
Moreover, several doughnut brands in the market have diversified into categories such as coffees, milkshakes, pizzas, burgers etc. For instance, Dunkin' burgers became extremely popular. More so, even coffee and bakery chains like Starbucks and Theobroma serve doughnuts.
Explaining this trend, Ruppal says, “There are two ways to grow the business — one is to increase the number of consumption occasions and the other is to expand the basket. While most doughnut brands have come up with gifting options and do special campaigns on occasions like Rakhi and Valentine's Day, they are also diversifying the menu to widen the basket. More variety helps to increase penetration as well as average spends at the store. Beverages are an obvious add-on with Dunkin', adding tea variants to its staple coffee, and Krispy Kreme adding milk shakes.”
Tarak says that other categories like coffees and milkshakes contribute only 20 percent to the brand’s sales and the brand is intently focused on doughnuts. Their pricing is also fixed between Rs 95 and Rs 105 to meet the sensibilities of the Indian audience.
MOD clocked a little over Rs 60 crore in FY 2019-20 and the business is profitable.
COVID-19 impact and future plans
Tarak says MOD, which had been operating largely through the offline or the quick-service restaurant (QSR) model, was saved because of its delivery model which it had introduced in 2016. “From April to June, 100 percent of our sales were taking place through the delivery model,” he says.
The company further introduced a delivery model in Bengaluru in June in the midst of the global lockdowns. Tarak says that 60 percent of the sales come from the delivery model whereas 40 percent come from the offline model. MOD recovered almost 75 percent of the business and expect 90 percent recovery by December this year.
MOD also collaborated with food chains such as Cafe Coffee Day (CCD) and Rebel Foods during the pandemic.
“The idea behind the partnership was to increase the points of sales for the brand as well as visibility. Moreover, coffee and doughnuts go very well together,” Ruppal adds.
Tarak says that he is seeing a lot of ‘revenge eating’ nowadays. “People are tired of sitting at home. They have not eaten food from outside for a very long time now. India, as a country, is also very big on community living. Hence, the demand for outside food will see an increase,” he explains.
He says that the business doesn’t plan to launch in newer geographies, rather it will add more stores to the existing geographies. If and when it goes global, the company will start with the Singaporean and Middleastern markets.