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Desi recipes are going global: Who’s building the McDonald’s of Indian food?


Every one eats. People may not sing, wear socks or watch TV. But they must eat.

This truth underpins investors’ abiding interest in food services. And the sector has a second big advantage: it’s a cash business. Customers pay first and providers settle expenses later. Money in, money out, and not the other way round.

So far so good.

But how is the sector making out in India? Is the explosion in cuisines and concepts bringing investor bounty?

The answer depends on the type of investor. Food services are dominated by small firms. Why? Because food is often local and there are few barriers to entry. All you need is a cooking pot and a customer

How the small players fare depends upon desire. Last week I ate samosas from a Delhi street-seller whose entire family were operators: the son made the dough, mother filled, father fried. Fresh, yummy, superb value and a long line. This family cannot afford to fail and herein lies their secret of their success.

Lesson one for investors: back managers with true commitment. Hungry managers + hungry customers = IRR.

Then there are ‘lifestyle’ gigs set up by folk with big dreams and friendly finance. These are proliferating as people eschew traditional career paths or indeed as the traditional paths disappear.

But the grim fact is that these ventures usually flop. After the fun, food services mean process and consistency: all grind no glamour. At this point, only those with grit and motivation kick on.

Many investors have created wealth from food but seldom overnight. The bar chain Social is now rocking India but its founders are graduates from the culinary school of hard knocks. In London, Hawksmoor, the super-successful steak chain, happened only after investors failed, then failed again.

A big factor in success is timing. Bars struggled in Delhi’s Connaught Place and then found their mojo as middle-class millennials partied on. High-end Indian cuisine was first limited to fancy hotels and then came Indian Accent and an outbreak of glitzy, expensive eateries. It became delicious fare for customers and investors.

In the mass market, India suffers from cyclical over-supply but is comparatively underpenetrated. What this means for scale players, eg Haldiram’s, Burger King, Wendy‘s, Starbucks, is the potential to create investment Alpha. Put simply, Alpha promises bonanza valuations for brands with long-term potential.

But equity valuation through the capital markets is not for the faint-hearted. Burger King, for example, requires a bare minimum of 300 sites to break even and funds an annual overhead of 45 crores. Superior returns can thus only come from equity realising supercharged values. In our humble experience, before investors get aroused by valuation, the priority is beefing up P+Ls and figuring out the right economic model. This takes time, experience, experimentation, luck and comes with inevitable setbacks.

Laying solid foundations is the secret to food services success but management and capital must agree the returns horizon. Lack of agreement can be fatal and the highway to investor happiness is littered with the forgotten corpses of brands who drove too fast.

What about the future? What food should investors fund? Here are some tips for 2017:

– Indian brands and recipes going global. Who’s building the McDonald‘s of Indian food?

– Disruptive models: restaurants without seats and seats without restaurants

– The rise of herbivorous butchers and innovative vegetarianism. Go green. Eat green

But buyers beware. Food services is a tricky game. As a wise man said, restaurants are the retail equivalent of making shoes to order every day with perishable ingredients in a town famous for shoe-making.

Happy 2017 and may the wind be at your back.

Source: Economic times

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