Sitting at a table on a busy Friday evening, all you wanted to do was get away from the rigmarole and start a restaurant of your own that played good music and had a an ambience that allowed people to relax, while you mingle with the guests. This is the most common fantasy that most executives have. The other one is about investing in fitness.

?These are quasi philanthropic aspirations,? says Megha Shah, a psychiastrist in the UK. ?Many senior executives I know want to eventually get into a business that is their passion and most often it?s about restaurants and fitness centres, like yoga or gym,? she adds.

Incidentally, these businesses have the ability to serve both the needs, the passion to do things differently and also garner the moolah.

While we marvel at the pace at which these phenomena have become a part of our lives and think over ?a lot cannot happen over coffee? or ?fitter the better,? the fact is that a lot has already happened. What started as a simple Barista outlet eight years ago has led to the beginning of an industry with enormous potential and opportunity. The same is the case with fitness centers. India, having moved on from the ?akhadas,? is now Asia?s fastest growing market in terms of fitness centers. While the companies in these industries our not publicly listed, for those who wish to invest in these sectors, a big ticket or do-it-yourself approach is the best option available.

Coffees and conversations

Jayant Mahiskar, owner, Aromas, says, ?The entire concept of launching this coffee chain in India was planned out last year. That?s when we began scouting for international partners. A team of experts was sent over to various places and that?s how Aroma?s, an Australian coffee chain was finally set up. Similarly at that time we hired IMRB to do a research report on the coffee shop market in India, so we have a very good idea as to what we were getting into. The report gave us a lot of insights and confirmed the fact that there was unexplored potential in India which could be tapped into. This, combined with a passion for wanting to start a coffee chain, led to this investment taking place and the bringing of Aroma?s to India.

The coffee shop industry in India has caught on in a big way, and with so many international and local players keeping an eye on this market, one can be rest assured that there is still a long way to go before the market has been tapped. Also, traditionally most cafes run on regulars, so if you feel you have a unique idea or plan to attract and keep customers, this industry is the place to give it a shot. While there is no report on the caf??s industry and the market in the public domain, given the fact that almost everyone has been to a caf?, the basic business model and strengths and weaknesses are not that difficult to figure out. Typically pricing, ambience, products, service, seating, lighting, amusement options within the shop (board games, etc.) are some of the areas that distinguish one place from another.

Mahiskar adds, ?When we launched we hoped to achieve a target of 94 outlets in three years. This may or may not happen that easily for us, for, apart from the product itself, our brand?s main USP is a good location. Our first outlet has kick-started very well and so far the response has been very encouraging. We are now hoping to coordinate our next few launches to happen simultaneously.

Investing into the coffee chain world can be done in various ways. ?We own the company in Asia. We just bought it over and did not want to open a franchise. This brand is family run in Australia and our investment with them allows us to open their outlets anywhere in Asia. Coffee beans are still imported from Australia and we have our own exotic teas to add to this. Franchise is as such the only model available and in that case I felt that owning the brand is a better option. At the end of the day, it depends on whether you want to promote your own company or someone else?s. From an investment viewpoint, I would say one needs Rs 50 lakh per outlet, which makes our investment over the next three years in the range of Rs 50-60 crore,? says Mahiskar.

The initial cost is typically on the higher side due to real estate prices and the Rs 50 lakh figure given cannot possibly include purchasing of prime properties as well. If one were to include the investment required to buy the land and then set up the caf?, the figure will be more in the range of Rs Rs. 1.5-2 crore per outlet.

Mahiskar says, ?The return on investment in this industry is in the tune of 18-20% minimum.?

If this is the lower end of the spectrum then the time-frame one needs to be steady in this business before it starts making a profit will be at least 3-5 years. This is lower than the time-frame required in the case of health care sector, another area which boomed during recession and has attracted a lot of private funding.

?Venture capital and private equity investments can and will happen if we like but only once a chain has at least 50-60 outlets. Once you reach that number such opportunities can be explored. Till then it is all on the promoter,? adds Mahiskar.

Arun Natrajan, CEO, Venture Intelligence, tells FE, ?In coffee chains and gyms there has been some private equity investments. One of the largest PE investments in these sectors was in fact in Caf? Coffee Day (CCD), which raised $50 million from Sequia Capital, ISB and Darby Overseas. CCD also diversified and under Caf? Coffee Day Holdings raised an additional $50 million from JP Morgan for investing in a group of hotels the company plans to launch. Mocha too raised money from the Beacon India Fund. However, the extent of money raised is unknown. Classic Gyms also has attracted private equity successfully. The other PE investments are more in the areas of wellness, where players like VLCC and YULIP grades have raised money.?

Working out finer points

While the prospect of starting a franchise and opening a coffee shop or gym may not sound like much of an investment plan, one has the option of creating one?s own brand or buying over an existing one. Or, while currently there are no funds that will help invest in these areas, private sector especially PE players may launch funds for these areas soon, in which case jumping on this bandwagon may not be a bad choice. While public mutual funds will have to wait for these funds to go public and get listed before they invest in them, this growing sector cannot be ignored forever. With an average customer spending one to one-and-a-half hours in a coffee shop per visit and a regular at the gym spending two hours on an average there in each visit, these areas are slowly taking over peoples lives in more ways than one. The health and fitness industry in India is over Rs 2,000 crore and fast growing. The main reasons for this are an obvious increased level of awareness and a need and desire to work out, de-stress etc, and also due to the level of sophistication and expertise many of the good fitness centers around the country now seem to offer.

Raj Rao, senior vice president, True Fitness, explains, ?There are two monitoring agencies globally that we use. One is called Sports Monitor and the other is called IHRSA (International Health and Racquet Sports Association). I am an advisory member of IHRSA and through this sports monitoring agency we learned that India along with Korea and China are among the three largest growing markets for fitness and fitness centers.

India is in fact growing at a faster rate than all other South East Asian countries. The growth rate is around 12% per year. And, this figure is not because the pricing is going up but because the participation level is increasing. There are more members joining and more frequent usage of clubs. Within the gyms and fitness clubs industry the fastest growing segment is PT or personal training. The growth rate of PT is at almost 30% per year, and as of now it accounts for less than 15% of the total membership revenue generated in many clubs. However, some of the better clubs that I?ve worked with see almost half of their revenue earnings coming from PT. In India too we think this is what is going to happen and it might take another four to five years as right now it?s less than 15%, but growing rapidly. This is mainly because there are now better quality people available on the supply side and hence the level and skill of trainers available has drastically improved. This is buffeted by the fact that on the demand side members are becoming more conscious of the benefits of fitness training and more so personalised training. People no longer think of gym as a walk on the treadmill but as means to a solution. It is this increase in supply and demand that?s causing the market to grow fast and this is where we have a certain opinion of the market and where we will try and cash in on the opportunity we see available.

It is interesting to note that both these industries?coffee shops and gyms?seem to be following the idea that by becoming a common ground to meet they can cash in a whole lot more, and it?s working. With gyms too, one?s main investment options are similar: open a franchisee, invest with an existing private player, go solo or wait for the funds to start getting involved and then piggy-back your investments in via them. Either way turning a blind eye to these largely popular sectors is only foolhardy and the best one can do is to understand more about them before deciding if such an investment is worth the risk or not.

Rao adds, ?The specialisation and diversification of the market is going to provide a lot of opportunities. As the market segments become more sophisticated an interesting thing happens to the revenue model. Margins seem to drop and plateau out and eventually it comes to the stage when the only way to increase revenue is by increasing the scale of operations. This is why I feel the franchise model is going to die. Franchise model is a low-cost model, with low margins and a small footprint. If you look at the global markets, one needs to have a minimum size of each facility so as to at least drive 1,500 members to the center. Most branches in India have anywhere between 400-900 members. One cannot make money at this level and with this model due to the high real estate costs in India. A certain size and scale are a must. To get the most out of the space, floor planning expertise is required. In India, in many gyms the idea is that in a certain area of space how much equipment can be put. Each gym must ideally have training zones. Each zone should have different types of equipment as per needs. We have done enough research to know that customers as such expect different types of experiences when they enter a gym. One of these is the expectation of group classes, be it group spinning or body combat classes. Another thing they expect is a weight management program and how to effectively gain or lose weight. In India, with diabetes being such a key issue, weight management plays a key role.?

Investing in coffee and gyms can ultimately be done in very similar ways and if one wants to cash in on the growing success of these sectors, doing your ground work and understanding the business is the best way to go about it.