1. Food turns into compelling biz, but will investors get their money’s worth?

Food turns into compelling biz, but will investors get their money’s worth?

When I lived in Mumbai in the ‘90s, the food scene was hardly a scene. Restaurants were scarce and non-Indian food was found mostly in hotels. My local joint trumpeted an ‘international menu’ but everything came with a desi twist.

Published: June 14, 2016 6:28 AM

When I lived in Mumbai in the ‘90s, the food scene was hardly a scene. Restaurants were scarce and non-Indian food was found mostly in hotels. My local joint trumpeted an ‘international menu’ but everything came with a desi twist.

And Delhi felt like a culinary ground zero. I remember a Dilliwalla telling me it was considered ‘bad form’ not to entertain at home. If you had told me that 20 years later, the India food scene would explode in a riot of cuisines, formats, technologies and business models, I would have told you to lie down.

But it’s true. Cruise the malls, Bandra or Connaught Place, read the food pages, go online. Yes, it’s part of the cycle but the change is recent, fast and tracking ahead of other growth markets. For example, the China food scene is advancing but customers have been slower to embrace non-Chinese cuisine.

For customers, it’s a ‘golden age’. Most international cuisines are here; restaurants come in fast, fast casual, casual and fine dining formats. If you want to stay home, food gets delivered. If you don’t want to talk, use an ordering app. Customers are having their cake, eating it and pocketing the change.

And investors are rushing to join the party. Even this is new. Five years ago, if you had told your dad you wanted to be in the food business, he would have probably freaked out and packed you off to an engineering college. Now food (like tech) is cool and seen as a compelling investment.

So are investors laughing all the way to the bank? Not really. Certain investors (usually experienced in food) are making returns but the majority won’t get their money back. When the party is over, many will stagger home with almighty hangovers.

What’s the deal? First some basic truths about food investment which is an old game — around ever since Eve speculated on a piece of fruit (the worst-ever food transaction). Mortality rates in restaurants have always been high. Why? Because there are few barriers to entry and many foodies are itching to unleash their inner restaurateur.

After the fun, most find that food is process. Restaurants last because of consistency which is patience and systems. This is where that engineering degree comes in handy.

Restaurants were always tough. What makes them tougher today are certain economic fundamentals: 1) that supply exceeds demand, and 2) that demand is sluggish. On top of this, the search for quality is running ahead of providers’ ability to secure a premium. Customers want more but won’t necessarily pay more.

Is online, or so-called ‘food-tech’ a panacea? Sadly not; this game is also rife with oversupply and vendors scrabbling to work out the model.
This has all come as a shock to investors caught up in articles heralding the Great Indian Consumer Story. Too few read the fine print which tells you growth markets are long term up, with bumps on the way.

The food industry is also dealing with a range of micro factors. For example, restaurants are converging to a central ground where QSR, casual dining and café formats are competing for the same customer. This is a global phenomenon and India is no exception.

Convergence and oversupply impact real estate. For example, food courts — once reserved for QSRs — now see casual players offering grab-and-go concepts. Brands, once sure of destination visits, are seeing toplines decline and are rushing to thesources of footfall. This leads to rent bubbles which can be fatal to P+Ls.

So, it is a tough environment and, in my opinion, likely to continue for some time. But is it all doom and gloom in food land? Far from it! Tough times lead to Schumpeterian creative destruction. Put simply, survival of the fittest. The question is: how do food players get, and stay, fit? Here are some humble observations from the school of hard knocks:

Banish overheads: If you’re a start-up, work in a garage, stay with parents, be hands-on and don’t build costs ahead of income. For established guys, ask whether your head office is flexible and entrepreneurial.

Bear down on capital expenditure: Revenues are uncertain so build for less. To get returns, reduce capex to meet income. When income comes back (as it will), good times beckon.

Think disruptively: Everything changes and even proven models like QSRs have a lifespan. Question the orthodoxy, go back to basics and think hard. Winners will be thinkers (not operators).

Ask your customers: They usually say what you need to know. Spend time with them and know your neighborhood like a kirana lala. Food is usually a
local game. Don’t sit in an office reading expensive research.

The India Food Revolution is well underway and it’s truly inspiring. For those who run lean, think differently and love their customers, the rewards will be there. But as they say on roller-coaster rides: “scream if you want to get off.”

By Jasper Reid

The author is chief executive, Wendy’s, Jamie’s Pizzeria and Jamie’s Italian and founder, IMM Associates

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