There is a lot of hype surrounding the restaurant universe, not just in India but all over the world. For the purpose of this book, however, we will limit our discussion to restaurants in India. The table at the beginning of this chapter shows the turnover and profit of some of the biggest restaurant companies in the country for the financial years ending 2018 and prior. These are companies that have shaped our restaurant culture, their brands are popular and their chefs celebrated on Instagram, Facebook and in the mainstream media every day.

Yet, as we can see from the numbers, many of the companies are struggling with profitability.

These are figures from the financial year ending 31 March 2018, but people in the industry, who spoke to me on condition of anonymity, give informal estimates that put the profitability of some of these companies even lower currently. In fact, they say that of the top Indian restaurant companies in the casual, premium casual or mixed-format segments, few are deemed to be profitable today.

The most popular brands and restaurateurs associated with each company:

• Speciality Restaurants: Mainland China, Oh! Calcutta, Sigree, Gong, Hoppipola; restaurateur: Anjan Chatterjee
• BTB Marketing: The Beer Café; restaurateur: Rahul Singh
• Impresario Entertainment and Hospitality: Social, Smoke House Deli; restaurateur: Riyaaz Amlani
• Lite Bite Foods: Punjab Grill, Tappa, Zambar; restaurateurs: Amit Burman, Rohit Aggarwal
• Massive Restaurants: Farzi Café, Papaya, Masala Library; restaurateur: Zorawar Kalra
• Old World Hospitality: Chor Bizarre, Comorin, Indian Accent, Tikka Town; restaurateur: Rohit Khattar
• Olive Bar and Kitchen: Olive, SodaBottleOpenerWala, Fatty Bao, Monkey Bar, Toast and Tonic; restaurateur: AD Singh
• Riga Foods: Diva, Cafe Diva; restaurateur: Ritu Dalmia

There may be a few exceptions to this rule: Social’s Hauz Khas outlet in Delhi, after a decade of existence, is reportedly making Rs1.9 crore ($266,041) in sales per month, on a rent of Rs11 lakh a month, leading to an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of more than 40%, according to sources in the industry who did not want to be named. It pulls up the profitability of the entire company, obviously. But this is an exception.

In general, industry veterans like Sharad Sachdeva, formerly the CEO of the Amit Burman-promoted Lite Bite Foods who moved to heading operations of L Catterton, the private equity arm of French conglomerate LVMH, have this to say: If the store-level EBITDA margin of a restaurant is over 20%, it is doing exceptionally well; if it is between 15% and 20%, it is good; between 10% and 15% is average; and less than 10% is poor. Restaurant companies by and large calculate EBITDA or profits at a store level as well as at the corporate level, where profits from individual outlets are added and then the company’s overheads deducted to give a measure of profitability (for a restaurant company which has multiple outlets, this is lower than store-level profitability).

So, hypothetically, a company recording less than 5% EBITDA margin at a store level would actually be making a loss at the overall corporate level. Also, it is important to consider here that any company that is in an expansion cycle may have higher depreciation costs factored in, and therefore, when anyone has to analyse the profitability of any restaurant company, it is important to look at store-level EBITDA.

Though industry insiders don’t want to go on record, very few Indian restaurants today are making a store-level EBITDA margin of over 20%, or even 15-20%, across most of their stores. In fact, many companies are in the red because store-level profitability is very low—or non-existent.

To contrast this, I studied the financials and operations of MW Eat in London, owned by Ranjit Mathrani and Namita Panjabi, with Camellia Panjabi as a director. With highly acclaimed restaurants such as Chutney Mary, Amaya, and Veeraswamy and seven outlets of a casual regional Indian concept Masala Zone, MW Eat was the most profitable Indian restaurant company in London in 2018. It registered an annual turnover of £27 million net of VAT and EBITDA at a corporate level of £5.6 million, a 20.8% margin, for the year ending 31 March 2018. Its profit before tax margin was 15%, according to a Plimsoll report.

In general, the point to make here is that despite whatever the top line of any company, ultimately, it is the bottom line that indicates financial health.

In the years a restaurant group spends expanding and adding more outlets, it is natural for its profitability to be lower. Let me give you another point of comparison. Dishoom, the widely heralded company with a chain of Bombay-inspired restaurants across London (and now elsewhere in the UK), reported a jump in profit before tax from £900,000 (Rs8.42 crore) in 2017 to £2.3 million in 2018. According to accounts filed with the UK’s Companies House, turnover for 2018 stood at £44.9 million, up from £35.6 million the previous year, an increase of 26.3% across its existing and new sites. Adjusted EBITDA was £4.3 million, against £2.2 million in 2017. Its adjusted EBITDA margin increased from 6.3% to 9.6%, while its gross profit margin increased from 31.4% to 38.5%.

Since it opened in 2010, the company has added seven outlets—five in London, one in Edinburgh, and a new one in Manchester that came up in 2019. It also announced in July 2019 that it would be taking over the space adjacent to its Covent Garden restaurant—a former Jamie’s Italian, with the restaurant to undergo a major redesign to mark its 10th anniversary.

The latest results, however, are also interesting because they show how a company even while expanding can continue to make reasonable profit.