Wanna get our awesome news?

Subscribe to our newsletter!

Subscribe!

Actually we won’t spam you and keep your personal data secure

As the voice of the Indian restaurant industry, we represent the interests of 500000+ restaurants & an industry valued @ USD 4 billion. Whether a chain or independent restaurant, the NRAI is here to help every step of the way. Join us!

News

Zomato, Swiggy gets $700m investment, restaurant sector $843m

By

on

Signalling A clear investment shift in the food business, money pumped in by Private Equity (PE) and Venture Capital (VC) players in just two online platforms — Zomato and Swiggy — was merely $143 million less than what was invested in the country’s organised restaurant segment over the last five years.

PE and VC investors infused $843 million in the restaurant segment, including in categories such as quick service, casual dining and fine dining during the last five years. Over the same period, Zomato and Swiggy received around $700 million.

According to data provided to The Indian Express by Chennai-based Venture Intelligence, substantial investment by PE-VC firms was made in the quick service and casual dining categories. These include companies such as Sapphire Foods, which operates Pizza Hut and KFC franchisees, Burger King India, Devyani International, which is also known for Pizza Hut and KFC restaurants along with Costa Coffee outlets, and Impresario Entertainment & Hospitality, which operates Social and Smoke House Deli restaurants.

The most active investors in the space, as per Venture Intelligence, have been Everstone — its portfolio includes Burger King India, Massive Restaurants (Farzi Cafe, MasalaBar, Pa Pa Ya), Blue Foods (Spaghetti Kitchen, Copper Chimney, The Coffee Bean & Tea Leaf) and My Square. Now Capital invested in Boombox Cafe, Cafe OTB, Carls Jr India and Kwals Group. Goldman Sachs put money in Sapphire Foods, Massive Restaurants and Azure Hospitality (Mamagoto, Dhaba, Rollmaal).

PE-VC funding in restaurants does not cover the entire range of investment in the space — a substantial portion is by promoters. Some of the companies such as Jubilant FoodWorks (Domino’s Pizza, Dunkin’ Donuts), Coffee Day Enterprises (Cafe Coffee Day) and Speciality Restaurants (Mainland China, Oh! Calcutta) have tapped the capital markets, raising funds to the tune of Rs 330 crore, Rs 1,150 crore and over Rs 175 crore, respectively.

The slew of investments by PE-VC funds in the restaurant space notwithstanding, experts believe the segment is not a very attractive opportunity compared with the consumer internet space, including food-tech. This is primarily because of the high capital expenditure that brick-and-mortar restaurants demand and the slower rate of scaling up than food-tech companies such as Swiggy and Zomato.

Gurgaon-based Zomato, which offers listing, feedback and delivery services, has seen investment from firms such as Sequoia Capital, Info Edge, Temasek Holdings and, in the latest round, China’s Ant Financial. Swiggy, which provides food delivery services through its exclusive fleet of riders, has raised funds from investors including Naspers, Accel Partners and Bessemer Venture Partners.

In its draft red herring prospectus filed with the Securities and Exchange Board of India, casual dining restaurant chain Barbeque Nation Pvt Ltd has pointed out that private equity investment in the food services market is driven by an increasing spend on eating-out, increasing disposable incomes and a higher proportion of working women.

“The restaurant sector is a long-term play for private equity investors. Private equity investors are typically looking at making a minimum of at least three times their investment in a four-year time frame. Also, there’s a certainty in cash flows if the model is right. That, along with growth, should allow private equity to make fair returns from this sector,” said the company, which operates restaurants under the brands Barbeque Nation and Johnny Rockets.

Consumer internet companies, despite reporting losses from operations, are still attractive to PE investors given the rapid scaling up of business and valuations, which gives their investors an early opportunity to exit profitably.

According to filings with the Registrar of Companies, during 2016-17, Swiggy’s parent company Bundl Technologies Pvt Ltd reported an over six-fold growth in its total revenue at Rs 145.67 crore over Rs 23.59 crore in 2015-16. However, its net loss for the year ended March 31, 2017, also increased to Rs 205.17 crore, compared with Rs 137.18 crore in the year-ago period. Zomato, on the other hand, cut its losses during 2016-17 to Rs 388.87 crore from Rs 574.49 crore in 2015-16.

However, sector experts believe that bets in food-tech are being placed on the market being expanded. “The Indian food-tech industry has seen tremendous growth from 2016 to 2017, with the daily order volume increasing from 200,000 to 450,000. The unit economics for the industry had just begun to make sense with the operating margins currently around 7 per cent. Now with both Ola and Uber entering the play, we feel the unit economics will be influenced as both these firms would resort to heavy discounting for increasing adoption,” said consultancy firm RedSeer.

Recommended for you