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No.94O . BUSINESS INDIA. THE MAGAZINE oF THE CoRPoRATE woRLD Csfe*ts

Banking

Books

Business Notes

Businessmen in the News 23

Chatzone

Cities

Column 36,41

Corporate Repoits

Cover Feature

CSR

CyberNews

84 Economy

72

106

28

t4

82

62

42

90

20

Government IPolitics 33. Top positions in PFRDA are

yet to be filled. Will the environment

regulator have the power toissue clearance?

. No breakthrough onliability law in India-USenergy dialogue

.EconomyAmidst continuing debateon poverty, the McKinseyGlobal Institute's (MGI) latestreport offers EmpowermentLine as a holistic measure ofincome-based deDrivationand attempts to definea minimum acceptablestandard of living

::liool1:i,." rreh ;Yjili'ilH::'":i%"J.T:.

i#f,"::#-ry&.;::.il: 85

I Banking

I FinanceOverseas money moves todifferent investment classesin India

.start-upWith its heavy focus on dataauthenticity and science,Housing.com is on track torevolutionise the real estateindustry

.lnfrastructure 80Sindhudurg district inMaharashtra is undergoinga metamorphosis

* CitlesNeither Singapore's skylinenor its lifestyle gives arly hintof the pressures the city-stategrapples with

72 r Tourism

Tata Chemicals InnovationCentre helps to identify newcommercial opportunities

r EducationESC Rennes hopes to gainmindshare in India throughpartnership programmes

r Healthcare A7The pPp model is now theprescription of the future

.Water 88WaterHealth purifies waterand makes it available fordrinking purposes

82 .CSRCrompton Greaves changeslives of women ln Kaniurvillage in Mumbai

Editorials

Education

Executive Track

Finance

Focus

Follow-up

For Your Information

Government & Politics

Guest Column 57,74,89

Healthcare

Industry Report

Infrastructure

Innovation

lnterview

Letters to the Editor

Listening Post

Market News

Newscast

Paniu's Page

People r72

Profile

Selections

Special Feature

Start-up

Tourism

Water

lsrue No. 940 for the fortnight [4arch I 7-30, 2014

Releared on [4arch 17,2014

Pdnted and publhhed by Ashok H. Advei tor Erds r&Printed at Glaxy Asbestos and FitttngJ h,L trd-D-l25 TIC Area, Navi Mumbai-100 706Published at Wadia Building; l7l19 H $bralvlumbai-400 001.

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38. Editorials. Monetary policy re-calibration is

needed to back uptick in IIp

I r Market News ta

. Courts need to balance right of libertywith interests of society

. Good corporate governance pays

. Follow-up Zz. Dish Tv pushes up its base to

16 million

. Business Notes la. The domestic welding industry is poised

lor a maior growthe Consumer rights experts stress the need

for unambiguous regulationso The e-commerce ecosystem in India has

seen robust growtho India lives in a constant state of

'breaking news'

. Ever since the announcement of poll dates,the market seems to be in a buoyant mood

. Loha Ispaat goes public to fund its workingcapital requirements

. Is Warren Buffett losing his charm?

. Despite tough times, some companieswent ahead with capex plans. They arenow well-placed to cater to any expecteddemand growth

r Another route to divestment

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to4

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Raiasthan chief ministerVasundhara Rale saysthat states should havethe financial freedomto evolve their ownschemes, instead of theCentre thrusting themon states

.5.MARCH t7-30, 2011

Special Frature BUSINESS INDIA . THE MAGAZINE OF THE CORPORATE WORLD

Look what's cooking!Private equity players gear up to capture a slice of the action inthe Indian F&B space

J t's exciting times for the IndianI rtn market. Players are busy lin-Iing up to capture a share of thebooming eating-out segment, whatwith new concepts popping up everyother month and a bevy of brandedquick service restaurants (qsns), caf6sand international restaurant chainsmaking their way to tap opportuni-ties in this segment. Right from therecently announced entry of BurgerKing into India to compete withMcDonald's, to Starbucks, Dunkin'Donuts, Taco Bell, Pizza Express andPing Pong, a host ofothers are eyeingthe Indian consumption story. Cou-pled with the emergence of varioushomegrown concepts that have suc-cessfully captured the taste buds ofyounger demographics, the food ser-vices segment is proving to be a bigdraw for private equity players, whoare now busy increasing their appe-tite for investments in this space.

The industry has come a longway since players like McDonald'slaunched in India some 15 years ago.According to a report by the NationalRestaurant Association of India (NRAI)

and Technopak, a management con-sulting firm, the size of the food ser-vices market in India was estimatedat $48 billion (about t29,000 crore;in 2013. This is projected to grow ata cAGR of 11 per cent over the nextfive years to reach $78 billion (aboutt42000 crore) by 2018. Within this,chains account for only as little as 5per cent of the total market.

PE investors are busy setting upholding companies to take thisgrowth forward. Everstone Capi-tal, for instance, has its platforms,Cuisine Asia and pts Asia, wherethey've been investing and build-ing up brands over the last six years.Its first investment was the acquisi-tion of a majority stake in the Mum-bai-based Blue Foods (now Pan-IndiaFood Solutions) of Copper Chim-ney fame. (Other brands include Spa-ghetti Kitchen, Coffee Bean & TeaLeaf, Noodle Bar, Gelato Italiano,etc). "Last year, we created anotherplatform called F&B Asia, whichinvested in the Singapore-basedchain 'Harry's Bar', to bring it to theIndian market," says Jaspal Singh

Sabharwal, partner, Everstone Capi-tal. Initial stores have been launchedin Mumbai and Delhi. F&B Asia hasalso picked up a minority stake inPind Balluchi, a North Indian cui-sine restaurant chain based in North-ern India. Their latest partnership iswith popular American chain, BurgerKing, as a Jv in the Indian market.Initial stores are expected to rolloutlater this year.

Similarly, New Silk Route (NSR)

recently acquired a maiority stake in\fumbai-based Moshe's Fine FoodsP\-t Ltd, which serves up Mediterra-nean cuisine in caf6s, casual diningand Qsn formats. This is the secondinvestment by NSR's GastronomyHolding Co; last year it invested inBangalore-based Vasudev Adigas FastFood, a chain of South Indian foodoutlets. NsR says that they are settingaside around $100 million to investin this space through its gastronomyholding platform. Other than MNCs,there aren't many that have scaledup a food business in India, pointsout Jacob Kurian, partner, NSR. Theeating-out culture has seen a signif-icant shift in the last few years, alsoowing to exposure to new cuisinesand formats. Consumers are willingto pay for better eating out experi-ences, he says.

He adds that over the next sixmonths they plan to rollout Moshe'sin Pune and Bangalore. Sufra,

. 76.MARCH 17.3O,2074

BUSINESS INDIA " THE MAGAZINE OF THE CORPORATE WORLD Sprriial f*;rtlrr*

another QSR format under Moshe's,will be fine-tuned as well. "We wantto build a complementary portfolioof brands," says Kurian. "We aren'tlooking at chasing numbers and justadding 10-12 brands. We'd ratherfocus on having 3-4 good brandsand scale those up," he adds. "Forinstance, with a brand like Adiga's,which took a good number of yearsto reach a store count of 11, we arenow looking'at doubling the storecount to about 25."

Significant tractionIt's not iust the QSRS that are garner-ing interest. The casual dining spacehas also seen a spurt in growth overthe last few years, pushed by thepopularity of various homegrownformats. "Some 1,2 years ago, youwouldn't see this kind of interest inthe F&B market," notes A.D. Singh ofOlive Bar & Kitchen. "There weren'teven those many restaurants or for-mats to invest in." Singh, who alsopioneered the concept of stand-alonerestaurants in the Indian marketwith 'Olive', has lots to offer in thecoming months with new concepts.The company received a line of fund-ing from Aditya Birla Private Equityin 2012. "We're looking at setting upanother 20 restaurants over the next3-4 years, extending the Olive brandand experimenting with smallerformats as well," he explains. Thisincludes Olive Bistro, a trendy casualtake on Olive, Monkey Bar, whichis a gastro-pub, Guppy by ai, a Jap-anese bar and kitchen and SodaBot-tleOpenerWala, a format along thelines of a quaint Irani caf6.

Pankaj Karna, vo, Maple Cap-ital Advisors, admits that there'sbeen significant traction in this seg-ment. "This sector is one of the fast-est growing in the country on theback of rapid transformation fromunorganised to organised," he says.According to a food servlces reportby Maple Capital Advisors, theorganised market today stands at S13

billion (about t80,000 crore) and isexpected to grow to $28 billion (aboutt1,70,000 crore). What's favourablefor lr players are the scalable mod-els, capital efficiency and organisedplay, when it comes to such formats,

DatG Targct

;i{.r i}16 Dec Restaurants

02 Sep Moshe's Fine Foods

15 May BTB Marketing (Beer Caf6)

lnvestor

SAlF Partners

New Silk Route PE Asia

Mayfield India

Deal value($ mn)

4.02

1.43

4.5

96 rorght(%)

4.28

N/A

35

15 Apr Barbeque-Nation Hospitality CX Advisors 20.11 29.75

06 Feb Dana Choga Foods & Hospitality SAIF Advisors N/A N/A

16 lan Vrinda Foods & Hospitality(Dana Choga's Kitchen) SAIF Advisors 1.U N/A

3 Dec Spring Leaf Retail(Mast Kalandar)

?nl.

l2 Oct ISM Corp (Hard Rock Caf6,Shiro, Pitstop)

Footprint Ventures,Helion Venture Fund ll

Pl Opportunities Fund I

25

32.8

N/A11 Oct Coffee Day Resorts Brand Capital 8.5 1.08

28 Sep Olive Bar and Kitchen Aditya Birla Private Equity 7.54 33.34

18 Sep Poncho Indian Anqel Network Services N/A N/A

04 Auq TMA Hospitality (Ammi's Biryani) SA|F Advisors 7.2 NiA10 lul Om Pizzas and Eats TVS Shriram Growth N/A N/A25 Apr Adiqa's Fast Food New Silk Route N/A NiA

01 Mar Vasudev Adigas Fast Food New Silk Route Advisors 5t38

08 Feb Cuisine Asia

201 1

20 Dec f S Hospitality Services(Pind Balluchi)

Verlinvest SA

Everstone Capital

20

45

N/A

20

12 Oct Faaso's Food Services 5equoia Capital 27.12.71

30 Sep Spring Leaf Retail(Mast Kalandar)

Footprint Ventures,Helion Venture Fund ll 29.32

29 Aug Goli Vada Pav Ventureast Proactive 4.7 33.96

27 lul lmpresario (Mocha, Smoke Grill,Prithvi Caf6, Smoke House Deli)

Beacon lndia PrivateEquity Fund, Mirah 10.77 28.71,

02 lun Brand Calculus Franchising (l)Helion Venture

Hospitality & Food Solutions 0.33 6.6

12 May Devyani lnternational lndia Advantage Fund 55.7 t031 Mar Westpoint Leisure Parks

McDonald's (South & West)Bay Capital, Indus HospitalityFund, Tree Line Asia Master Fund N/A 22

15 Feb Indian Cookery $he YellowChili, Khazana & Indi)

TVS Shriram Grouo N/A N/A

23 Feb CocoberryStu.ae \lopleCaa :2 !t, ta1 -aio t@c SeNicet

pruvArE rQlrrY Drrr-s rr{ THE FooD SfRVtcE SEcToR 20lt-20r3

Ajay Relan

"7;.\{ARCH 1;-J0 2011

Special Feature BUSINESS INDIA . THE MAGAZINE OF THE CORPORATE WORLD

he adds. However, there are scalepressures, as well. Back-end manage-ment is also critical, something thatcan take time.

Big challengesRiyaaz Amlani, CEo & MD, Impre-sario Entertainment & Hopsitality,which has in its portfolio popularbrands like Mocha, Smoke House Deliand Smoke House Grill, The TastingRoom and Salt Water Caf6, amongothers, points out that consumersare moving towards convenienceand comfort, when it comes to eat-ing out. "Consumets are demandinggreat food in a casual setting - some-thing that doesn't involve extremelyhigh price points," says Amlani. Thecompany received T48 crore in 201.1

in funding from Beacon India Pri-vate Equity Fund and Mirah Hospi-tality to expand Mocha and SmokeHouse Deli brands in India, as wellas overseas markets. In the pipelineare plans to launch another caf6 con-cept called'Social' first in Bangaloreand then other markets. "There area lot more people who have gotteninto this business and understandthe space a lot better," he says, refer-ring to the PE activity in this space.

Players are also shifting focus tomass markets to dri\-e growth. Ever-stone, for one, is bullisl-t about itsexpansion plans. "We invested over$40 million (about {250 crore) so farfrom our first fund into Pan Indiain expanding brands like CopperChimney, Spaghetti Kitchen, CBTL,

Noodle Bar and Gelato Italiano

across Tier I and Tier II cities in thecountry," says Sabharwal. "F&B Asiais the food & beverage services plat-form of our second fund with a totalinvestment of over $200 million(about T1,250 crore) with a signifi-cant contribution from our secondfund." The company says that ther'are looking at getting into 3-4 citiesevery year.

However, while the sector mav beattractive to many, as more foreigrtbrands join the fray to expand tntothe Indian market, couplcJ rr'ith theinvestor sentiment, the industrl' isn'texactly the easiest to navigate. Regu-

Iatory frameworks, rising real estate

fhe Food Service Sector has seen

I stronq deal activity in the last threeyears, wiih over 30 investments total-ling $250 million (about {1,600 crore)invested in early and growth stage com-panies. During the same period, thesector saw a few exits, given that mostcompanies are in the growth phase. Exit

by TVs Capital in Om Pizza, Navis Cap-ital's exit from Nirulas to A2z Excursion

group and Sequoia's exit from Amal-gamated Bean Coffee Trading Co were

the key exits in the three-year period.Specialty Foods was the only lPo, wherethe initial PE remained invested.

The number of scale players ($100

million - about {650 crore - or more

in sales) are still in low double digits,prominent being Caf6 Coffee Day, Jubi-lant Foods, Hardcastle Restaurant. .Sourtc: MntDk Cntitdl Adrtors

costs, as well as getting back-endmanagement in place continue to besome of the biggest challenges facedby players. Profitability is anotherissue, given the nature of the busi-ness and thin margins. In a countrylike lndia, where even micro mar-kets in a city behave differently, rep-licating models doesn't come easily.Increasing costs, inflationary pres-sures and consumers holding backon discretionary spends has affectedthe industry, and profitability. Mar-gins in the industry generally rangefrom 15 to 22 per cent, althoughIately,, players have been facingpressured margins.

Sabharwal points out that thefood space needs a very different andoperational mindset. "It is impor-tant to test out a model for its scal-ability and unit economics beforegetting into an expansion drive. Theorganised F&B sector is on a seculargrowth path in India owing to a risein the eating out culture and con-sumers getting used to more choices."There is a strong impetus on puttingthe right back end systems and man-agement in place, which requiressignificant investment to build thebusiness over the long-term, he adds.Kurian points out that, for a businessof this sort, it usually takes 3-5 yearsto build and scale up.

That said, it seems the activitY inthis space is set to increase as moreplayers line up to capture a slice ofthe action and more foreign playerschart out their India strategy.

. 78.MARCH 77-30, ZO74