Young Turks: Indian F&B industry feeds off funding frenzy

This week, Young Turks continues its focus on the food and beverage (F&B) business in India, which is attracting a funding frenzy from investors like never before. Cashing in on the young affluent Indian consumers are entrepreneurs who are trying to create scalable business models.

On the show this week is a mix of entrepreneurs and investors who are ready to take a bite of this pie. Joining Shereen Bhan on this episode is Gaurav Goenka, managing director of Mirah Hospitability, a brand that owns companies like Rajdhani and Mad Over Donuts. Gaurav is also the franchise of the international brand Manchester United Caf� Bar in India.

Founder and managing director of Beacon India Private Equity Fund and Baer Capital Partners, Deepak Shahdadpuri also joins the discussion. He has invested in brands like Sula Wines.

The Young Turk on the show is Ashish Kapur, managing director of the popular quick service restaurant (QSR) brand, Yo! China. Last, but certainly not the least, managing director of Helion Venture Partners, Kanwal Singh. Helion has invested in F&B brands like Mast Kalandar and Brand Calculus.

Below is an edited transcript of the interview.

Bhan: We met you in 2006 and the world has changed dramatically since then, hasn't it. What's been the biggest change for you at Yo! China?

Kapur: I think the consumer has moving so fast and that's been the exciting journey. The consumer has today seen great concepts, has travelled a lot and is willing to experiment and I don't think eating out is just about filling the stomach.

Bhan: So how many times have you reset your projections, because I am sure you didn't anticipate the kind of explosion that you have seen?

Kapur: All the business plans have gone in the garbage can and it's been a revelation just seeing the changes in the consumer.

Bhan: There are all kinds of numbers doing the round about the size of the market and the market opportunity. What is driving investor interest in the F&B market in India?

Shahdadpuri: I think the big driving force is consumerism, higher rate of savings and the fact that people are now starting to consume. Eating out is experimenting and not about filling the stomach. I remember coming to you 10-15 years ago when there were only 10 channels; now there are 500 channels. These young Indians are all open to try new things.

One fact that gets us excited is you have 50% of India below 25, who after spending on staples, want to spend on food and beverages. F&B is the largest portion of their discretionary spending.

Bhan: What's been your experience as far as this market is concerned? What is the biggest challenge that you face today?

Goenka: Rentals is correct, because finding the right real estate is a challenge for all of us. Beside rentals, the other challenge is finding the right talent. In India, for the kind of specialized cuisines we want to offer, getting the right talent and training them is a huge investment.

Also, there is lot of attrition in this industry. Thankfully, the attrition rates in our business are pretty low, particularly in Rajdhani because it's a very specialized skill set. But overall, it's a good business to be in.

Bhan: What is the return on investment for a restaurant that you may launch today and what was it when you launched in 2006?

Kapur: Gestation periods have definitely gone up; we used to hit payback within a year and now it's gone up to about three odd years. But there is great opportunity. People ask me how big the size of the market is. I say I don't know the dollar size, but 350 million middleclass, three meals a day so that's where the excitement is.

Bhan: How do you rate this market at this point in time, are you now seeing scalable models in the market. What is your assessment at this point in time?

Singh: From our analysis of having worked with few brands, one of the learning points for us is that the more optimum format is the fast food type of format. The second big thing on scalability is an ability to execute; partly the talent and partly the ability to manage large scale operation.

So focus on process, focus on systems and focus on getting your fundamental unit economic model right. I think these are the kind of things that one needs to focus on rather than just the basic talent alone.

Bhan: What we are seeing happen now is a lot of entrepreneurs going for the nationwide rollout plan. Is that a good or bad idea, because we have also seen a lot of people having to shut shop fairly quickly?

Singh: I completely believe that you should not be in a rush to rollout too fast. If you try to do more before you have learned the fundamentals, you are literally going to lose more money rather than show any great expansion.

Second issue is that food habits are very different across the country. So you cannot just take something which has worked in Bangalore and launch it in Delhi. So there has to be a bit more caution, a bit more learning.

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