While many international restaurant brands are already in India, a host of others are lining up to commence operations. But almost every CEO B&E met for this story lamented the over-policing by the government... We take a quantitative stock analysis! by Vareen Gadhoke Ray & Swati Sharma
This growth has had several socio-economic implications, in terms of employment opportunities to a large populace, consumption of goods & services of other players in the food chain and revenues contributed to the government kitty. Take this, on an average, a mid-size restaurant of a seating capacity of 80 people in India employs about 70-80 individuals (directly or indirectly). However, a large sized restaurant can employ about 100-120 people per outlet. Overall, the industry employs around five million people directly (as per National Sample Survey Organisation), in addition to many more who are employed with the ancillary industries and various support functions like logistics suppliers. This figure is further expected to increase to approximately 20 million by 2015, taking into account the growth the restaurant industry would be witnessing.
The Plush Palate
The restaurant industry contributes to the economy in myriad ways, from employment to tax revenues, to being a buyer of goods & services from several other industries. Moreover, its contribution to the overall delight of consumers is undeniable, with eating out being one of the top three leisure activities enjoyed by Indians across the country (as per India Leisure and Entertainment Report 2008-09, The Knowledge Company). Industry players tell us how one factor that has contributed to the same are the extended hours that restaurants are willing to be open for. Even a QSR like McDonald's is changing to that newish triviality. “We plan to keep our stores open from 7am till midnight enhancing convenience for consumers,” says Vikram Bakshi, MD, McDonald’s India.
With increase in disposable incomes of the average Indian consumer, the market size and potential of restaurants is only expected to rapidly grow in the future. The propensity to eat out increases with affluence levels; however, eating out is also a very prominent leisure activity among the lower SECs as well. States Gaurav Jain, Director, RTC Restaurants (that owns Sbarro & Ruby Tuesday), “Eating out is directly related with affluence. People at all levels of society are looking at an experience; a good time; a change when they go out.”
Consumers are travelling more often and demand innovation. Mexican, Thai, Korean & Japanese are the most popular newer international cuisines; even more niche ones like Malay & Lebanese. Both Indian and international cuisines and cooking styles are learning and benefiting from each other. International chains like McDonald’s & KFC are introducing local tastes and flavours. At the same time, restaurants such as Bikanerwala & Haldiram’s have learned from western counterparts in terms of selling traditional road-side cuisines and dishes in a clean and hygienic manner through commercial modern format set-ups.
The Equity Gameplan
Anticipating a further boom in the domestic consumption story, a number of private equity deals have been finalised in the restaurant space. The most recent equity deal concluded was Coffee Day Holdings, where three PE major – New Silk Route, Kohlberg Kravis Roberts & Standard Chartered PE have invested about Rs.8 billion for around 25% stake in the company. Other PE players active in the Indian restaurant business are Kotecha Capital (Rs.5 billion) Indivision (Rs.1.5 billion) and SAIF Partners (Rs.900 million).
Apart from PE, companies are trying other possible routes to raise capital. Fast food chain, Domino’s Pizza has recently had a successful IPO and raised close to Rs.12 billion, becoming the first restaurant company to go public in India.
This growth has had several socio-economic implications, in terms of employment opportunities to a large populace, consumption of goods & services of other players in the food chain and revenues contributed to the government kitty. Take this, on an average, a mid-size restaurant of a seating capacity of 80 people in India employs about 70-80 individuals (directly or indirectly). However, a large sized restaurant can employ about 100-120 people per outlet. Overall, the industry employs around five million people directly (as per National Sample Survey Organisation), in addition to many more who are employed with the ancillary industries and various support functions like logistics suppliers. This figure is further expected to increase to approximately 20 million by 2015, taking into account the growth the restaurant industry would be witnessing.
The Plush Palate
The restaurant industry contributes to the economy in myriad ways, from employment to tax revenues, to being a buyer of goods & services from several other industries. Moreover, its contribution to the overall delight of consumers is undeniable, with eating out being one of the top three leisure activities enjoyed by Indians across the country (as per India Leisure and Entertainment Report 2008-09, The Knowledge Company). Industry players tell us how one factor that has contributed to the same are the extended hours that restaurants are willing to be open for. Even a QSR like McDonald's is changing to that newish triviality. “We plan to keep our stores open from 7am till midnight enhancing convenience for consumers,” says Vikram Bakshi, MD, McDonald’s India.
With increase in disposable incomes of the average Indian consumer, the market size and potential of restaurants is only expected to rapidly grow in the future. The propensity to eat out increases with affluence levels; however, eating out is also a very prominent leisure activity among the lower SECs as well. States Gaurav Jain, Director, RTC Restaurants (that owns Sbarro & Ruby Tuesday), “Eating out is directly related with affluence. People at all levels of society are looking at an experience; a good time; a change when they go out.”
Consumers are travelling more often and demand innovation. Mexican, Thai, Korean & Japanese are the most popular newer international cuisines; even more niche ones like Malay & Lebanese. Both Indian and international cuisines and cooking styles are learning and benefiting from each other. International chains like McDonald’s & KFC are introducing local tastes and flavours. At the same time, restaurants such as Bikanerwala & Haldiram’s have learned from western counterparts in terms of selling traditional road-side cuisines and dishes in a clean and hygienic manner through commercial modern format set-ups.
The Equity Gameplan
Anticipating a further boom in the domestic consumption story, a number of private equity deals have been finalised in the restaurant space. The most recent equity deal concluded was Coffee Day Holdings, where three PE major – New Silk Route, Kohlberg Kravis Roberts & Standard Chartered PE have invested about Rs.8 billion for around 25% stake in the company. Other PE players active in the Indian restaurant business are Kotecha Capital (Rs.5 billion) Indivision (Rs.1.5 billion) and SAIF Partners (Rs.900 million).
Apart from PE, companies are trying other possible routes to raise capital. Fast food chain, Domino’s Pizza has recently had a successful IPO and raised close to Rs.12 billion, becoming the first restaurant company to go public in India.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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