India continues to be the fastest growing economy in the world with some of the factors like young population, increasing disposable income, demographic changes which actually turns right the consumption and also offer restaurants and hospitality business a considerable opportunity to grow. Despite all the right ingredients we still do not see much of VC and private equity investment in the brick and mortar restaurant business.
Also, there is a sudden shift in the venture capital business. In the last two three years a lot of venture capitalist have invested in the food technology or the restaurant space. Majorly there were two things happening- the large ticket venture capitalists, people who were able to invest about $60 MN or VCs who are back investing traditionally into the core technology products and hence, food and food service at large doesn’t feature as an area of interest for them.
“There is no denying that you are putting in money to get a good return and so there will always be market size, scalability, valuation and most importantly the person you are backing,” shared Sumer Juneja, Partner, Norwest Venture Partners.
The issue which has come in the past in the restaurant space is about the scalability of the concept and the model, pricing it in the right way to make the investors earn money. “The scalability is becoming more apparent and I think investors have gone through a cycle in which they understand which formats can scale,” added Juneja.
India is going to be a low average value market with a very high volume and people tend to move towards QSR and other such formats where there is high volume. The GDP per capita economy is not going to change overnight and expenditure will take time. It is the 7-10 years long marriage between the investor and the brand. There has to be a price ride and there is no point getting a very sweet deal either way and then fuming out later. “One of the key factor in investing a restaurant is the sustainability. It all depends on the life span of a brand. For eg: earlier the life span of a casual fine dine was 4-5 years which is now coming down to 2-3 years. So, you should always look at the flexibility and how food is adapted to the change and constant menu innovation because most of the time restaurants that doesn’t adapt themselves to the change fails to sustain in a long run,” said Biju Thomas, CFO, Adiga’s.
Commenting on the same, Digvijay Singh, COO, Indian Angel Network pointed, “The innovation part in restaurant business also has to be taken care of. Restaurant owners need to come up with innovative ideas of their dishes, the way they deliver overall experience to the guest. Restaurant has a shelf life of 3-4 years and that’s where struggle for equity come in.”
No matter how innovative the concept is if you are not passionate about it and your model is not sustainable, you are not going to survive. And, for investor sustainability is the key to invest in a brand.