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investment 03 Oct 2017

Investing in a Restaurant Concept? Here’s what to look in

By Nusra Sub Editor

With trends it is setting and the revenue it is generating, restaurant industry no doubt has become one of the happening places to be. Every second person you talk to these days wants to own a restaurant of his own. But before you invest into the restaurant business there are few things and areas that you need to look upon.

Executing Right

In India about 70 thousand crores worth of revenue is coming from restaurants which are having less than three outlets. More than three outlets are 20 thousand crores, “It’s about the lifestyle choice; maybe you are doing something local and unique and hence it is not possible to scale up. So, this type of businesses will not attract institutional capitals. If you want to grow your business in India or take it to the international market in that case your business needs to have portability and sustainability and demonstration of that will what capital provider will look more,” says Rahul Rai, Partner, Rabo Equity Advisor.

The most important thing in the business of restaurant is the execution capability. It’s very easy to talk about great Indian consumer, huge middle class and virgin territory.  But there is a very bad result in this sector with closing down of almost 90% of the outlets in one year and this is all because of the very poor execution. 

Unity in Diversity 

Also, having a great team is very important. This doesn’t require for one restaurant as you could be the chef and owner at the same time. But the moment you expand beyond geographies you need a team which looks into supply chain, quality and food safety issues. And, if you are looking at institutional capital; I would say it would be the number one requirement. People are looking at experts who can execute in a much targeted fashion. “Man power is the critical element in the valuation of a company. And, chefs around the world are recognised for not only their food that they make but also their ability to scale up and how much they will be able to bind and attract talent and have good relation with franchisees. Therefore, the integrity of the management is an integral part of the entire process and it gives greater sustainability to what a private equity or stock market investor look at,” shares Safir R Anand. 

Commenting on the same, Ajit Mathur adds “When we were investing in international brands we saw their approach was very different. Financials were important. Business plan was very important; how will you do, what will be your sales, 5 years from now. There were two three things which attracted me including what was your mission, what is your core value, how will you execute it. If you don’t have talent you are going to go nowhere. The business which is going to scale up they have a clear view and core value.”

As far as scene for the Indian food service goes, Indian restaurant sector is at the tip of an iceberg. There is so much room to grow in every sub-segment.  There is no segment where margin is eroding or the segment is not growing. The entire market cap is three billion dollar. So, there is tremendous headroom for growth. 

 

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