Introducing a restaurant business in India is a valuable prospect. However, it is not an easy business as there are all kinds of restaurants one can enter, based on the menu type, preparation procedures, and pricing.
There are multicultural, fast food, simple casual, casual dining, fine dining, fast service, family-style, barbecue, cafe, restaurant, cooking tabletop, etc., to name a few. India's food industry offers massive market and investment prospects, equipped with technologically advanced food activities. It can be hard to effectively scale up the brick and mortar restaurant market. It needs upfront capital investment, operational costs (particularly rent) and other problems. In comparison, it is incredibly difficult to keep a restaurant alive and kicking for four or five years.
Restaurant business is much more than a glamour factor, and needs a serious R&D. “Without a thorough feasibility of the target market and a proper business plan in place do not venture out into the market. Research & Development is key for each concept and that's what will set you apart from others,” Chef Ritesh Tulsian commented who is a Consultant Chef & Partner at HCS Global Corp.
How easy it is to reach the breakeven point?
For any business to run successfully, it is utmost important to reach the break-even in a calculated designated timeframe. Several examples are the testimony to the fact that multiple restaurants shut their shops every year.
“Do not expect an operational break-even in the first six months of your operations irrespective of the type or scale of your restaurant. Expecting ROI in its first year of operation is not feasible. Topline won't reach magical numbers in the first quarter of the business ever. It takes time and effort,” Chef Tulsian mentioned. One can’t run a business with a quirky ambiance and innovative ideas. He/she have to earn sustainable profit to keep up with all the costs involved.
“There are tons of hidden expenditures involved no matter how much you’ve got your financial analysis on point. We expected to break even within four to six months but courtesy to the lockdown your BEP is not always accurate so if you’re one of those who’s investing their capital via loans or borrowed funds you might as well reconsider. You really need to brace yourself financially while running an f&b business,” Palak Shah, Founder, Plush Café in Mumbai.
Is restaurant business a high return business?
Owners need to understand the difference between investment and cost. Saving money on cheap infrastructure results in higher operational costs. For a new brand it roughly takes six to seven months to make profits excluding the capital costs.
“This business will only start making money once your brand value is created in the mind of the buyer. One can start making money from the 6th month of operation provided they have invested enough time and effort in keeping the operations in check and given time for brand build up. Without recognition the business won't sell at all,” Chef Tulsian commented.
Also to generate higher returns one has to keep re-engineering the business model time and again. People buy concepts and not just the product. In today's time increasing the valuation of the company / brand is most important and that is why one needs to look at setting up their brands across multiple locations rather than concentrate on being just a local favourite. Bigger the company valuation, bigger the returns in the long run.
High return on investment also depends on the segment one is entering into. Explaining further with example, Nikita Poojari, Owner, Shiv Sagar Food and Resort Pvt Ltd. said ,”For eg, a QSR might not have high returns but they work on volume. On the other hand ,a restaurant bar will make higher profits. If the restaurant is doing well , within six months one can make money.”
Major factors to consider
Real Estate has always been the biggest factor in affecting the bottom line of the restaurant business. “Sky high rentals have been the major set back for the restaurant industry. Without a back up of at least a year's working capital is another reason why restaurants fail,” Chef Tulsian stated.
Incompetent labour and poor infrastructure also results in business growth as consistency and hospitality are key for business development. “Major factors include the quality and skill set of employees, be it cooks and chefs, delivery partners or even the packaging partners. Every little thing matters these days and is a variable in determining the success of the business,” Kewal Ahuja, Founder, SGF India Restaurant commented.
Food consistency, payment of vendors on time, innovation, check for pilferage are other things that ensure profitability. Niketa Sharma, Founder, Masaledaar Modern India Kitchen and Bar suggests that one should do agreements with landlords keeping in mind the current times as lockdown provides flexibility for rentals. Staff to be trained as per sanitizer process and social distancing, only depending on delivery will not be enough, Sharma further added.
Business factors will evolve over time
Kewal Ahuja has been into the restaurant business for more than a decade now. Seeing the changing scenario, he suggests that this is the right time to enter the hospitality business.
“Nowadays food from the outside is the one connection people have with their pre-covid or normal lives. There is an all-time increase in orders hence the revenue prospects are good,” he stated. In terms of staff and delivery partners, today the industry have more people available and willing to work than before.
“Earlier a restaurateur could not expect immediate profits and sales. It took time to establish presence, name and trust in the market. It took considerable time to expand business in various locations. But today with Multinational restaurant aggregators and food delivery companies, restaurants and eating outlets have a wider platform and market to cater to. The time it takes for a new business to get orders has reduced significantly,” Ahuja added.
Dealing with the trimmed margin
Margins in the restaurant business have gradually trimmed down due to multiple reasons. To penetrate the market by acquiring new customers, popular third-party platforms such as Swiggy, Zomato and UberEats have embedded the concept of discounts and freebies in the mind of all customers.
The days of calling a restaurant directly and ordering from them over call are almost done with. Delivery space has been monopolized by giants such as Swiggy and Zomato. Restaurants tie-up with online food aggregators to increase visibility and quickly grow business. To their credit, they have grown the overall market cap as well but at the same time made it difficult for a traditional or legacy restaurant business to deliver on its own. Commissions absorb anywhere between 10 percent to 30 percent of the revenue (and thus margins) depending upon the delivery partner and deal.
“At the end of the day it’s a business so you need to know your numbers. Being at the right market with the right price and audience is a must” Poojari feels.