Rassense, a domestically-owned food services company, which caters over 350,000 meals a day to clients such as Maruti Suzuki, Tata Motors, Ashok Leyland and Foxconn, sees the ongoing LPG crisis and high compliance costs pushing hundreds of contract food service firms out of business. CEO & MD Sanjay Kumar tells Narayanan V how crippling compliance costs are straining the industry, even as the company reworks menus, cuts consumption, and explores alternative cooking methods to manage the current gas crisis. Edited excerpts:
How are you managing the ongoing LPG crisis?
First, we are engaging with clients to arrive at mutually acceptable solutions. This is critical because we operate in a contractual food services business where prices are fixed for a full-year contract. We cannot invoke force majeure since the war is not on our shores. With mutual agreement, we are re-engineering menus cutting down on deep-fried items that consume more gas. We have increased steam cooking in our central kitchens and, in some cases, gone back to firewood cooking for certain items.
We have substituted cooked food with salads wherever possible and added curd for nutritional balance. We produce about 350,000 meals and we cannot reduce the volumes. Instead, we have tried to bring down per capita consumption. At most industrial sites, consumption is typically 750–900 grams per person. We have worked with clients to educate employees on reducing food wastage and brought it down to 650–700 grams. We cannot cut production because plants need to run and workers must be fed. So, we are also trying to procure as much LPG as possible. We typically consume 135–140 commercial cylinders a day, but current availability is only around 85–90 cylinders.
Have you switched to electrification?
We have three off-site central kitchens in industrial clusters in Chennai and Sri City, which contribute about 24% of our revenue, while the balance comes from kitchens located at client premises. Some of our clients already have induction kitchens, but setting up an induction kitchen overnight is very difficult.
Induction equipment is currently in short supply, so long-term solutions will have to evolve, particularly in southern India, where we do not have piped natural gas (PNG) to the same extent as in the North and West, including cities like Bengaluru. Replacing LPG is a challenge. But after this crisis, we will strategically move towards a hybrid model and won’t be entirely dependent on LPG.
How has business evolved since the buyout?
Rassense was formed in 2020 through a leveraged buyout of a Chennai-based CRCL, funded by Spark Capital. Today, we are the largest domestic contract food services company serving large clients like Maruti, Tata Motors, Ashok Leyland, Yamaha, L&T and Foxconn. But the journey has been very difficult. The two large foreign food service players Sodexo and Compass have acquired 12 companies in the last nine years.
That’s because the cost of compliance is so high that Indian companies are not able to scale up nationally. They either get acquired or go out of business. I can only serve 5 or 10 clients in Oragadam or Sriperumbudur in Tamil Nadu, If I want to expand to Bengaluru, compliance cost, GST cost, registration cost, land cost, office cost—all of that multiplies. We need about 10–11 licences just to cook food. In China, you need only two. As a consequence of this crisis. more Indian companies will go out of business or be forced to sell. For small companies with such high compliance costs, survival becomes very difficult. Ironically, we are probably the only large economy where we need foreign players to cook food for us.
How has the crisis impacted raw material costs?
At the very least, the industry has over 1,000 caterers (excluding wedding caterers). One of the biggest barriers to formalising growth is the lack of input tax credit (ITC) on raw materials. In the first year of GST, ITC was available, but the business was later equated with restaurants. GST was fixed at 5% and ITC was removed. Restaurants immediately recalibrated prices, but we are stuck because we operate in a contractual business and cannot reprice easily. Effectively, both GST and ITC benefits went away. Nearly 80% of the raw materials we procure are fruits, vegetables and other perishables. The question is: how do we compete with non-compliant vendors?
What are your future plans?
In 2.5 years since the leverage buy-out deal, our revenue has nearly doubled from ₹290 crore. We will close at over ₹550 crore this year. We have set a target to become a ₹1,000 crore company in 1,000 days. If the regulatory environment becomes a little more conducive, we could achieve that. Our long-term plans are very different. We are not building this business to sell it to one of these two global players. We want to create a legacy and a self-belief that an Indian company can cook food for Indians. In line with that, we have divested equity to our leadership team, and even to site managers, to build a business rooted in Indianness. We believe the markets will have enough depth to support an entity like ours, especially since no pure-play food services company has been listed in India so far.