Research Feb, 21 2015

F&B brands climb floors for sustainability

If McDonald’s & KFC are operating their outlets on the second floor at a significant location in any part of the country, the business will work. Scarcity of apt location that too on the ground floor for an F&B brand is the biggest challenge because of

By Yamini S Verma, TFW Bureau
Sr. Sub-editor
F&B brands climb floors for sustainability

Today, real estate in India has taken a toll over entire business and commerce industry as it flamboyantly boasts to be the backbone of the retail and service sectors. Due to space constraint and high rentals, the real estate in urban areas are now reaching pinnacle vertically. After exhaustive penetration of F&B brands horizontally, the players are now vying to expand their presence on first, second and third floor of the building.

Market at a glance

As published on India Brand Equity Foundation (IBEF), ‘Indian Real Estate Industry Analysis,’ the market size of the real estate industry in India is expected to touch US$ 180 billion in 2020. Real estate sector is a fast emerging sector that attracts the foreign investment.

Points of facts on real estate

  1. Real Estate is currently the fourth-largest sector in the country in terms of foreign direct investment (FDI) inflows.
  2. Real estate contributed about 6.3 per cent to India's gross domestic product (GDP) in 2013.
  3. The market size of the sector is expected to increase at a compound annual growth rate (CAGR) of 11.2 per cent during FY 2008-2020 to touch US$ 180 billion by 2020.
  4. The Government of India has allocated US$ 1.3 billion for Rural Housing Fund in the Union Budget 2014-15.
  5. The Government has allowed FDI of up to 100 per cent in development projects for townships and settlements.

Franchising brands, the real growth drivers

The realty sector is witnessing great developments in residential and commercial areas. That is why many national and international F&B brands have taken up the franchise business route for their business expansion to extract high returns out of the budding industry of realty.

As a new investor, the franchise of an established restaurant brand can fetch great returns but high rentals of the outlet location also come up as a strong challenge. Akhil Puri, Master Franchisee, Sbarro, North and East India says: "Location is the key point for any F&B brand to run the new business successfully. As the restaurant grows, its management entirely gains experience and has a better understanding of space utilisation, services, operational cost of new service, and so on. A restaurant can utilise its space by providing right ambience and quality services to the customers to have experience like never before."

A Chandigarh-based hotelier, Manmohan Kohli, who operates 10 F&B brands via franchise and other partnership model in the premises of his property says, "A newly-launched restaurant can breakeven within two three months if operated as per the demand of the customers. Due to space constraint on our ground level we are now extending our multiple franchise rental space on the first and second floors of the property. In fact the brands are also fine with the concept of locating their outlets on vertical space and have no apprehensions in being operational on any floor of the building." Kohli, CEO and Managing Partner of The Aroma Classic & Aquamarine, a Hotel which is as old or as young as Chandigarh has also served as a Member of Federation of Hotel and Restaurant Associations of India (FHRAI) Executive Committee (2001-2003).

Why to choose vertical space

Being a part of the realty based franchise system is always profitable for both the franchisor and the franchisee. Locations like high streets and malls will always receive high footfall as the brands will work efficiently and profitably through these developing areas that offers more lucrative opportunity.  It is also seen that the food courts in every mall are located on the top floor of the mall as it’s easy to place all the F&B outlets on one floor for the convenience of the visitor.

Elante Mall Chandigarh, by L &T Realty is spread across the area of 20 acres approximately has 36% of their total stores operational via the franchise model. “We host over 40 food and beverage brands and the multi-use development model that have created the USP for the mall and a delight for its customers,” says Manoj Agarwal, Head of Operations Elante Mall.

However, Satyaki Mukherjee, Head, Franchising and Lisoning, S K Restaurants believes high rentals of the space required to open up a restaurant by the franchisee as one of the biggest challenges. He adds: "Increased rentals and real estate have also been a serious challenge in the process of restaurant franchising. This rise in rentals have in return increased the project cost of upcoming restaurants and operating cost of existing ones."

Related: Post budget reactions

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