To make it big with a chain of brick-and-mortar dine-in restaurants is one of the most challenging aspects of food entrepreneurship today. Many try, but only a few succeed. “There is science and there is the creative process — both have to gel well for the business to succeed,” says Zorawar Kalra, managing director of Massive Restaurants. Kalra is credited with fine-dining brands such as Farzi Café and Made in Punjab. Son of celebrity chef and restaurateur Jiggs Kalra, Zorawar believes in the charms of time-tested Indian cuisine; and he is making a success out of it not just within the country but abroad as well. Same is true for Amit Burman-promoted Lite Bite Foods (LBF), a name now synonymous with operating over 100 operational outlets of both quick service restaurants (QSR) and the casual dining restaurant (CDR) such as Punjab Grill, Asia 7, Zambar, Fresco and the Street Foods of India or SFI, has similar beliefs. These CDRs and QSRs have been path breaking for the market in several ways. They are multiplying across geographical locations while taking on the well-established eat-out options; they present Indian food in new concepts; they are profitable; and they attract significant interest from investors including the private equity funds.
To better understand the intricacies and nuances of QSR and CDR, BW Businessworld also picked up a well-known South Indian food-chain Sagar Ratna, which has been serving pure vegetarian food for over two decades. It’s now under a new management control of India Equity Partners, a Mumbai-based private equity fund that leads business transformations in Indian companies.
These entrepreneurial ventures are the new disruptors. They stand out mainly because of two reasons. One: they serve quintessential Indian cuisine but with a twist of innovation, modification and newer ways of presentation. This helps them attract new and repeat customers. And two: they are profitable business ventures backed by private equity funds, investors and smart joint venture partnerships that helps in disrupting the incumbents.
Does it sound very easy and doable? “No way! The business of food and restaurants is one of the toughest to build and then multiply and grow,” says Kalra. According to Amit Burman and Rohit Aggarwal, the co-promoters of LBF, “The business is all about managing people, creating the right menu, deciding the correct portion sizes, and strict backend systems and processes.” LBF employs over 1,700 people and the number is pegged to multiply with every new restaurant and outlet planned. “Running a one-off outlet successfully is very different from running a food chain successfully,” quips Burman who is also the vice-chairman of Dabur.
Murali Krishna Parna, chief executive of pure vegetarian South Indian restaurant Sagar Ratna, says serving the simplest of food day in and day out, while maintaining quality and standards is perhaps the most challenging aspect of managing a chain of QSRs. “Every other eating joint is a competition. High real estate rentals and absence of skilled manpower are other major challenges in our line of business,” says Parna who is all set to add 15-22 more restaurants over the next 8-12 months having managed to turnaround the business in the past three years or so. Sagar Ratna employs over 1,800 people and is expected to cross the Rs 100-crore mark in revenue in the next few months.
Business Environment
What is fueling the growth of QSRs and CDRs? Consultancy firm Edelweiss says it expects the QSR market to face rough weather in the medium term triggered by rising competition from online players and PE funded food companies. Overall, the QSR business has been under the weather for several quarters. For the April-June 2016 quarter, Yum India owned Pizza Hut reported 7 per cent year-on-year same-store sales decline while its other brand KFC reported a 1 per cent drop indicating an overall continued decline in the QSR business. Both Pizza Hut and KFC, according to reports, contribute at least 1 per cent each to the global business of Yum Restaurants. Jubilant FoodWorks, the company that runs the successful Domino’s Pizza, also reported a 3.2 per cent year-on-year drop in same-store sales growth (SSG) in the April-June quarter. It was its worst performance in the past seven quarters. But business seems to be looking up for the July-September quarter for these QSR players. KFC India managing director Rahul Shinde recently stated that the company has restructured its business over the past 12 months and that it is optimistic about leveraging the “huge opportunity” that India has to offer. The faith comes from the market numbers that paint an optimistic future for the food and beverage sector.
The latest Indian Food Services Report says the country’s food services market is worth over Rs 3.09 lakh crore and is expected to contribute over Rs 22,000 crore by way of taxes in 2016-17. Also, the overall size will grow to cross Rs 5 lakh crore in the next four years indicating 25 per cent growth annually, a mark of higher percentage of wallet share going towards eating out. The National Restaurant Association of India estimates the current size of the QSR market at Rs 9,125 crore, projected to grow to Rs 24,665 crore by 2021.
Mantra for Success
But why are these pizza and burger chains struggling. Kalra of Massive Restaurants, has a theory. “We all have grown up eating Indian food. I am not saying that the pizza/burger chains won’t survive. They will. But at the core, the Indian consumers want freshly prepared Indian food made from fresh ingredients which is not their model. The success of Made in Punjab or a Farzi Café is proof that innovations to Indian cuisine can be successful,” says Kalra who has set his eyes on expanding food brands Farzi Café and Made in Punjab on the global platform, starting with Gulf countries and later moving on to the UK and the US. Back home, he is looking to add at least one restaurant every month or two till he crosses Rs 300-350 crore in revenue. By end December, Massive Restaurants is expected to generate sales of around Rs 200 crore. The company employs over 1,000 people and the number will only go up and perhaps double in the next 12-18 months.
LBF-promoters Burman and Aggarwal, who boast of operating more than 100 operational outlets, call themselves among India’s fastest growing F&B players. “We keep evaluating our menu and change it every six months. Different locations have different needs. For example, in Mumbai, vegetarian food sells more than non-veg, so we have to create more dishes. In Singapore, sea food sells a lot. There, you will find tandoori scallops or tandoori duck which is not here in Indian restaurants. We have to innovate and constantly tweak to keep our customers interested,” says Burman, citing it as one of the main reasons for the success of LBF.
But can innovations alone attract customers and keep the cash registers ringing? “Yes. Absolutely,” says Aggarwal, the partner in LBF. “Take the example of our well-established brand ‘Punjab Grill’. In order to further innovate, we are taking it to another level. That is why we are launching ‘Punjab Grill Tappa’,” he says. Punjab Grill Tappa will cater to young, health-conscious clientele who need what Burman terms as “less fussy food”. “Tappa will offer smaller plate size and drier and healthier food options with less dry fruits in curry. There will be salad stations at the table itself. At Tappa bar, there will be small eat joints within the format,” says Aggarwal while elaborating on innovations.
Parna of Sagar Ratna seconds this. “We are known for our mouth-watering South-Indian cuisine, made fresh to order. Our food is light and healthy. Serving fresh ingredients in every outlet requires a lot of behind-the-scene hard work. Getting trained talent, particularly chefs who are well-versed with the nuances of Southern cooking techniques is the biggest challenge. And innovating within the confines of the basic sambhar, dosas and chutney are even bigger challenges. But overcoming these challenges is what keeps us going,” adds Parna. “South-Indian food will always remain a favourite as it’s the only food one can enjoy more number of times in a week, even out-of-home because it’s light, healthy and tasty,” he says.
Beginnings, Journey & Growth
Kalra successfully established and later exited LBF to launch Massive Restaurants in December 2012. The latter operates with four critically acclaimed and award-winning brand verticals: the signature Masala Library by Jiggs Kalra; Made in Punjab; the modern Indian bistro concept Farzi Café and modern pan-Asian bistro concept Pa PaYa. Its fifth concept — MasalaBar — offers a cutting-edge, post-modern, scientific laboratory style bar experience. Massive Restaurants will close the current financial year at Rs 200 crore, claims Kalra. “For future expansion, we will list the company on the Bombay Stock Exchange in the next few years,” says a confident Kalra. The confidence stems from the hard work that is put into the business. In the first two years of the business, Kalra managed to establish five restaurants and a healthy cash-flow. This attracted private equity firm Everstone Capital — co-founded by former Goldman Sachs bankers Sameer Sain and Atul Kapur — which invested in the joint venture between Massive Restaurants and Mumbai-based Mirah Group, which invested through F&B Asia Ventures. Kalra says Everstone’s investment of around Rs 55 crore has all been exhausted and he will soon raise fresh capital to fund his expansion plans. “By the end of March 2017, we would have 24 new stores, of which at least five will be through the franchisee route. Three restaurants will be abroad. One in Dubai, which is a 80-seater restaurant, is doing very well (Rs 2 crore-a-month kind of revenue),” says Kalra.
LBF has similar aspirations, but a different growth trajectory. “We see huge potential in travel food business. That is why we are in Delhi, Mumbai, Pune and Jammu airports. We are also with IRCTC and will be part of the railway station modernisation initiative,” says Burman. LBF is expected to generate revenues of Rs 225 crore this fiscal. It is also looking to go public in the coming future. To grow the travel food business, LBF has already formed a joint venture with HMSHost, a US-based airport and highway food service firm, to operate customised outlets in airports, railway stations and on highways. HMSHost has revenues in excess of $2.7 billion and operates several F&B outlets at more than 100 airports across the world, including Europe, Asia-Pacific region and the US. .
Backend Work
So how does one succeed in the food business? How does one decide on pricing and what goes behind closed doors? “A lot actually. Constant competitive analysis, portion sampling, check on what is working, what is not, mystery audits, store audits and a host of work goes into keeping the food business growing,” says Burman. Kalra goes a step further, and gives a glimpse of what goes in the backrooms of Massive Restaurants. “We generate 20 reports per restaurant per day. There are cleanliness reports, food tasting reports, inventory reports, we do photography of kitchen twice a day especially at peak hours. Then there are mystery audits. We are a system-oriented company with strict quality control, a lot of training processes and a whole lot of work to make a success out of each and every store. That is why we are generating more revenue per square foot. My restaurant in Bangalore does a sale of Rs 5,000 per square foot. No one does that. Not even a jewellery store,” claims Kalra. What about food and other costs? For LBF, food costs around 30 per cent of its overall costs. Around 8-10 per cent goes into the backend system management. “A team from Accenture takes care of our backend operations,” says Aggarwal. For Kalra, the food costs are over 35 per cent. “Food cost is 35 per cent at all times because we buy the best-quality ingredients.I can’t spoil the good name of my father who has been doing this for over 30 years. I need to put Indian food on the global map and on global palate. So I cannot do shoddy work,” says Kalra.
For budding food entrepreneurs there are three key takeaways here: innovation with Indian food always work; there
