Be it for burgers or baturas, the venture capital (VC) community in India is increasingly developing an appetite for home-grown quick service restaurant (QSR) chains. With the number of QSRs growing at around 30% every year, the Rs 3,000-crore space is garnering investors? interest of late, triggered by the IPO of Jubilant FoodWorks, the Indian master franchise for Dominos Pizza.
Last week, Mast Kalandar, a QSR chain promoted by Bangalore-based entrepreneur Gaurav Jain, secured a second round of investment from Helion Venture Partners, a multi-stage, India-focused fund; Footprint Ventures, an early-stage VC fund and angel investors Salarpuria Group. Mast Kalandar, which specialises in North Indian food, is planning to expand its geographic presence and open a further 100 outlets by 2012.
Other investments in the space include Accel Partners? investment in Bangalore-based Kaati Zone, which specialises in kaati rolls; an investment by Matrix Partners in Yo!China, and Beacon India Advisors? Rs 75-crore investment in Impresario Entertainment and Hospitality, which owns brands like Mocha.
Kanwaljit Singh, managing director of Helion Advisors says, ?QSR is a very attractive space to invest and Helion will be looking at investing more here.? Apart from Mast Kalandar, Helion has also invested Rs 16 crore in Booster Juice. ?Investments are being made in the QSR businesses because they are more scalable in nature,? adds Singh.
Industry experts say depending on the format, QSRs have scaled better, compared to fine-dining restaurants.
Additionally, while both fine-dining and QSR formats can show margins of 20%-30%, low-cost QSRs such as Kaati Zone which require an initial investment of Rs 30-Rs 40 lakh, have better chances of breaking even.
Formats like Cafe Coffee Day have also been attracting PE investments as they offers higher return on investments since their centralised kitchen model saves costs. In April, New Silk Route had invested $75 million in Coffee Day Holding. At the same time, the group also got a $75-million funding from Kohlberg Kravis Roberts & Co and $50 million from Standard Chartered Private Equity. According to K Ramakrishnan, president (marketing), Caf? Coffee Day, the company is planning to close the financial year with 1,150 cafes and taking the number to 2,000 cafes in India in the next 3-4 years and 200 cafes overseas However, these chains, which are mostly metro-focussed, suffer due to expensive real estate and shortage of viable locations. Investors also feel that as they grow larger, QSRs often fail to generate revenue uniformly across outlets and end up depending on few successful branches.
?A lot of the large chains in India are not making money at the profit after tax level. After they expand to a certain level, their processes gets somewhat out of hand and their poor operations impact profitability. Several of them, stop scaling after 30 to 40 outlets,? says Jacob Kurian, partner, New Silk Route Advisors.
Despite these obstacles, QSRs are upbeat about their prospects going forward and are counting on the fact that several parts of the country are yet to be explored. ?Most of the home-grown companies in this business are still at a nascent stage and need to grow more in order to really attract PE players. However, interest is there and in the next three to five years, we are likely to see a lot of activity,? says Kaati Zone chief executive officer Kiran Nadkarni.