In an interaction with Franchise India, Rahul Chowdhri talks about the problems faced by investors and the challenges before budding restaurateurs in terms of getting investors.
Good quality entrepreneurs have to be found because they never approach us. That way we make proactive efforts to reach out to companies. If someone has built a decent business model, then there is a strong desire from investors to invest. If there are multiple formats in the early stage of the business and multiple cities are not yet proven, it becomes difficult for the investors to judge whether this business can be scaled. Unlike technology which is non-linear business, restaurant business is fortunately a linear business, i.e. you get revenue by store. It is not that the same store next year will give you 50% more revenue. One has to do more number of stores and hence execution becomes very difficult. It is very easy to scale to 10 store chains, relatively easy to scale 50 store chains but hard to scale to 200 store chains. That belief comes only because of quality of the team and exhibitions.
On the challenges faced by investors
Food has been a challenge in terms of people wanting new every year. The restaurants need to keep on innovating to keep up with the excitement. There are not many companies who have proven that they can scale.
Challenges faced by restaurants in raising funds
The challenge is almost same in all businesses: how do I get enough money to prove that I am good. No one gives money till you have proven. So all investors look for unique model be proven in multiple locations, proven in multiple cities. So restaurateurs must look for different class of investors in early stage of the project. They may not get good investors but can get individual angel investors who are willing to give money even for small time businesses. Once you are ready to hit the growth pedal, you can go for more investors.
On why foreign restaurant chains open in India and become successful than their Indian counterpart
I won’t agree that foreign brands that come to India are hugely successful in comparison to Indian brands. Some of the foreign brands, like McDonald’s or Domino’s have been around for seriously long time. I do not have any idea of the investments they have made. But if you look at the amount of capital that has gone into some of the Indian brands from capital to revenue ratio or capital to profit ratio, my guess is Indian brands have been more successful than foreign brands even though they do not have access to capital that foreign brands enjoy. If there are more structured processes in Indian brands, they too can scale much faster.
A food business takes time; you can’t build a large food business in five years. That is why one needs to be more patient since the investors are also not there in the beginning. I don’t think dining out as a habit is going to see any decline. If the economy is not going, people will shift to more value-based food. Otherwise the people will go to higher product. So my advice to most of the food businesses is if they want to scale, keep on figuring out a suitable model.