Business Case study of Wow! Momo Startup

This is the story of two boys who built a 1000 crore business neither by selling pizza nor burgers but by selling our favorite snack called the Momo. This case study is very special because the success of this company indicates a very important market strategy in the Indian food industry.

And if you understand this market strategy properly as an Investor or as an entrepreneur you can find a million-dollar opportunity.

At the current time, they have more than 2700 employees and 357 stores in 17 cities. And they generated 24 million dollars in revenue in 2019.

So, the question is:-

1. When there are so many momo sellers in the market, what are these boys doing special, because of which they end up building a million-dollar business?
2. What exactly was their business strategy?
3. As an Investor or as Entrepreneur what is the million-dollar market inside that we need to learn from this great case study?

History

This is a story that days back to 2008 in Kolkata. When Sagar, Binod, and Rahman use to buy Momo from a woman at their school. Her Momo was extremely tasty and looking at her growth Sagar understood that high-quality momo had very good potential in Kolkata.

But they had three specific problems with momo as a dish:-

1. Although many Momo sellers had great taste, a large majority of momo sellers did not make tasty Momos at all.
2. Momo was street food. So, even though Momo was relatively healthy as compared to pizza and burgers Hygiene was a very big problem. So, even though many people wanted to have Momos they adapted the pizza and burger just because of the hygiene issue.
3. And most importantly, the momo sellers who had great taste did not have any branding whatsoever. So, a scale of an organized strategy was completely missing.

This is the reason why they officially incorporated WOW! MOMO with the vision to sell healthy and hygienic Momos all across India. And not just that they also wanted to build a reliable brand such that if anyone wanted to have momos Wow! Momo could stand out from the rest of the Momos sellers.

So from the beginning itself, they started wearing bright yellow T-Shirts that had a delicious design appeal to stand out from the crowd.

Initially, the company started selling steam Momos at malls like Spencer’s Retail, and soon enough they had 12 different varieties of momos like chicken, corn, paneer, schezwan, and prawn. In addition to that for Indian taste buds, they also fried the momos in different sauces to bring out the spiciest, sharp, and sweet flavors.

Now although they started selling their momos for the same 40 rupees at the mall as it was being sold on the streets late over they started increasing their prices. And today while momo still sells for 40-60 rupees on the street a steamed Wow! Momo would cost you 89/- rupees at the least.

I am all about to tell you that if you buy pan-fried momos the cost could even go to 189 rupees. And this increasing cost was major because of the franchising cost and the high cost of rent that they had to pay to place their stall at the mall.

Now, this brings two very important questions:-

1. Why did these boys decide to sell their momos at the mall? Because malls would incur very higher rental costs. Then why they didn’t start selling from the street itself?
2. When momos were being sold on the street for 50 rupees why would anyone pay 89 rupees or even 189 rupees for the exact same dish?

Why Wow! Momo became a favorite of people

Well, the answer to that lies in the brand positioning of Wow! Momos. And if you look at the players in food organized food industry. You will see that they could be classified into four different categories.

And this category is based on the pricing of their products:-

1. Premium level:- Here consumers spent more than 450 rupees for the food. This is where we have Wendy’s, Taco Bell, Starbucks, etc.
2. Sub-Premium level:- Here consumers spent between 150-450 rupees. This level includes KFC, Domino’s Pizza, Pizza Hut, and McDonald’s.
3. Economy level:- Here consumers spent between 50-150 rupees on food. Here is where we have brands like Rolls Mania, Jumbo King, Goli Vada Pav, and Chai Point.
4. Super Affordable level:- Here customers spent only from 10-50 rupees. This is where we have all the Unbranded, Unorganised players which include our Bhelpuriwala, Panipuriwala, and the rest of the street vendors.

Now, here is where the first important catch comes in. While on the outset Wow! Momo looks extremely costliest as compared to street momos. If you see closely you will realize that wow! momo is not being tried to compete with the street momos. Why, because while the street momo is in the super affordable level where wow! momo is in the sub-premium level. And this difference is not just the difference of category but even the scenario of purchase of both this slab is completely different. Both in terms of Allocation of time and Allocation of cost.

For example when you decide to go and eat bhelpuri you generally never plan for it. Why, because here time allocation is nearly 15-30 minutes and cost allocation is 30-60 rupees at the max. Whereas when you go to a sub-premium restaurant which is usually at a mall you always need planning. Why, because this time your time allocation to eat at domino’s or McDonald’s is at least 30- 60 minutes. And at the same time, the mental cost allocation is by default 300-1000 rupees.

And guess that while wow! momo looks extremely costly in the super affordable category you will see that it is never present in locations where super affordable foods are sold. And it is only present at those locations where sub-premium outlets are present like malls or right alongside a movie theatre.

Therefore wow! momo stands at the sub-premium level. And here is where you will see that it is actually the cheapest alternative at the sub-premium level. For example, while the most basic small pizza costs you 100-200 rupees even the most premium wow! momo cost you only 189 rupees.

About every single market research report are saying that millennials and gen z are willing to spend more money to eat healthier food and slowly disease like pizza and coke are seeing a decline in demand. In fact, this is the reason why even brands like coco-cola have identified this megatrend as a major threat and they are walking very hard to design products for the upcoming health-conscious generation.

Understanding the position of Wow! Momo in the market using Graph

If you draw a quadrant diagram to measure the consumer’s perceptions of wow! momo as compared to other brands this is what it looks like.

Mcdonald’s, KFC, and Domino’s are affordable but they are extremely unhealthy.

Subway, Wodeshwar, and UpSouth are healthy but they are extremely expensive. Starbucks is on the borderline of health and nutrition but again it is extremely expensive.

But if you look at the quadrant of healthy and affordable you will see that there is very less competition for Wow! Momo.

Why, because the only options that we have are South Indian foods, Biryani houses, and Momos. Now just to be clear we are not saying that wow! momo is extremely healthy but we are saying that with respect to Mcdonald’s and KFC in this quadrant diagram it is relatively healthy or more affordable.

Now coming back on topic wow! momo has practically very less competition. Because biryani again is not a quick service element. Which lives momos and only South Indian food as competition. Therefore if you study the scenario of wow! momo customer which in the sub-premium level, it is by default one of the healthiest, most affordable, and at the same time the tastiest alternative we could find in the market.

One of the reasons why it is the upper hand over South Indian food. It is because in Indian houses South Indian food is more frequently made as compared to momos. This is the reason why momo. as a dish has extraordinary market potential. This is how by finding the perfect position for their product and their brand Sagar, Vinod and Rahman built a million-dollar business by selling momos.

The success of this company indicates a very important market trend and in this market, the trend is capitalized. As an investor or entrepreneur, it can open up million-dollar opportunities for us.

Business lessons from Wow! Momo case study

1. As of 2018, the total market size of the Indian food service industry was about 3.71 lakh crore. Out of which 2.38 lakh crore 64% of the market constituted the unorganized market and only 36% of the market was organized market and its include everything from stand-alone food outlets all the way up to 5 stars hotels. And the transition of food dishes from an unorganized market to an organized market is happening very-very rapidly.
2. For the first time since independence, we are looking at the rise of the young and rich generation that doesn’t just spend money but wants to spend money on healthy foods specifically. And the best part is that this generation forms a majority of Indian consumers and likely shows on the quadrant diagram even momos are relatively very healthy as compared to the existing food options. which makes it extremely successful. This is a reason why, apart from Wow! Momos there is a lord of sub-premium healthy food companies on the rise right now. And this includes Dumpling Momo, Wadeshwar, Upsouth, and Momo Station. So, keep a very close eye on these startups that are trying to emerge in the sub-premium category.
3. Indian street food has hundreds if not thousands of dishes that have a huge potential to be placed in the category of healthy and affordable. And need less to say they are easily some of the tastiest dishes in the World. Therefore as an entrepreneur, if you built a supply chain to make and distribute these dishes across the country it has an insane potential to scale up.
   
   So, if a company comes up tomorrow use the quadrants, the demographics, and the megatrend of the chaining consumer preferences. In order to evaluate the potential of the company and then decide whether to invest or not. And also keep an eye on Rebel foods and their inventors.

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