What do the following people have in common?

Kiran Nadkarni – chemical engineer from IIT–Kanpur, nearly two decades in the venture capital industry

Jaydeep Barman – an engineering graduate from Jadhavpur University, MBA from IIM–Lucknow and from INSEAD, France, worked in McKinsey

Anshul Gupta and Amit Raj – both alumni of IIT, worked in Deutsche Bank

S. Venkatesh – a commerce graduate from Mumbai, was into corporate financing for almost two decades.

All of them quit well-paying jobs and smelt an opportunity in food. They set up what are known as QSRs, short for quick service restaurants, or more commonly known as fast-food joints.

There are scores of others who have made food their business. It is a sector that attracts investors too, as they see a growing number of people eating out and on the move. The QSR model is more attractive for venture capital firms than the sit-in or fine-dining restaurants, simply because the cost of setting these up are much higher than putting up the fast-food joints. And, it can be scaled up quite easily.

Most of the entrepreneurs have stuck to food that can be eaten on the move, mainly wraps in different forms. In the process, they have transformed what was basically street food into a contemporary meal, introducing different types of fillings, a consistency in taste and quality and served in a more hygienic environment.

Interestingly, South Indian food is not that popular among entrepreneurs for the QSR format mainly because it has to be served hot and requires side dishes. This means that there has to be tables and chairs in the restaurant and that pushes up the cost of the project.

The restaurant business, more particularly the QSR format, has caught the eye of angel investors, venture capital firms and private equity players.

For instance, Accel India and Draper Investment Co are among the investors in the Bangalore-based Kaati Zone; the Indian Angel Network, a large group of angel investors, has invested in Poncho, a Mumbai-headquartered QSR chain that serves Mexican food; Sequoia has put in money in Faaso’s, the Pune-based fast-food company that serves wraps; TVS Capital has invested in Om Pizzas and Eats Pvt Ltd, which owns among other things franchisee rights for Papa John’s Pizza; Ventureast is an investor in the Mumbai-based Goli Vada Pav No. 1, which serves Mumbai’s popular street food vada pav with many different types of fillings; Helion Ventures and Footprint Ventures have invested in Mast Kalandar, a chain that serves north Indian vegetarian food. There are a number of PE players who have pumped in money in fine-dining restaurants.

Changing lifestyles

The reasons for the food business attracting both entrepreneurs and investors are many. For one, says G.V. Ravishankar, Managing Director, Sequoia Capital, more people are eating out and they are prepared to try out different types of food. Besides, with changing lifestyles where both husband and wife are working, it is easier for them to pick up food while on the move, or “to grab a bite.”

“I was in the venture capital industry previously. During my 20 years in the industry, I had funded several businesses. The idea of starting a food business had stuck in my head,” says Kiran Nadkarni, CEO of the Bangalore-based Kaati Zone, which serves rolls.

Interestingly, says Ravishankar, most of the entrepreneurs in the food business, at least in the QSR format, do not have a food industry background. They have worked in the corporate sector and are able to bring the systems and processes from their previous jobs to the food business, a business that is notorious for wastage and pilferage.

For Jaydeep Barman, Founder-CEO, Faaso’s, the idea to get into the fast-food business struck him when on his travels abroad on work, he observed the fast food revolution. “What struck me was that Indian food was one of the most popular cuisines in the world. But there was no chain. Nobody has organised it. You will find, for instance in San Francisco, two or three outlets of some brand or hot katti roll joint in New York, but there is no Taco Bell, no McDonald for Indian food,” he says.

S. Venkatesh, Managing Director and CEO, Goli Vada Pav No. 1, echoes the view. Munching a vada pav on the pavement in Mumbai one fine day, Venkatesh noticed a McDonald banner fluttering in the breeze. With the urge to get into the food business, after he had wound up his corporate financing venture, Venkatesh was in two minds – whether to start a business that served south Indian food or something that can be eaten on the move. The McDonald banner and the vada pav in his hand helped him make up his mind, he says. Thus was born Goli Vada Pav, which has seen as much success outside Mumbai as in the country’s commercial capital itself.

IITians and colleagues in Deutsche Bank, Anshul Gupta and Amit Raj, both 26, wanted to change the stereotyped boring food available in offices. Thus was born Poncho in August 2011, which serves Mexican food.

Travelling on work to the US, Anshul says, he noticed a lot of Indians eating Mexican food. But, there was nobody in India selling Mexican food. With a lot of the younger generation travelling abroad, they are exposed to different types of cuisines and love to have them in India too. “We saw it (the fast food business) as a huge opportunity. It is still in a nascent stage in India,” says Anshul.

Investment

The investment required is not much for a QSR restaurant. The outlets can seat at the most 10-20 diners at a time and hence the space required is not more than 200 sq ft. Besides, the food can be served at kiosks in office premises or in food courts.

This helps in quickly rolling out more outlets. The investment ranges from Rs 10 lakh to Rs 50 lakh an outlet, depending on the size and location.

Says Kanwaljit Singh, Senior Managing Director, Helion Advisors, the changing cultural-social milieu makes the food business attractive for entrepreneurs and investors. “People are eating outside more now, for various reasons. Both husband and wife are working. It is easier to pick up food from a restaurant,” he says.

Another attraction is that there is no large established player in the country. Domino’s, which serves pizzas, is the largest with about 1,000 outlets. China, in comparison, has more than 5,000-10,000 outlets of the largest chain. For the entrepreneurs, it is attractive from the opportunity point of view. What makes it a good investment for the investors, over and above the opportunity, is the unit economics of the business, says Singh.

QSR versus fine dining

The QSR format offers a standard product, is easy to assemble at the front end, offers no great dining experience but you get a product of assured quality. In comparison, in a fine-dining restaurant, the diners pay as much for the ambience, eating experience and quality of service as they do for the food. The menu also has a much larger number of items in a fine-dining restaurant compared to a fast-food joint. The success of a fine-dining restaurant depends more on the location than anything else, say Amitabh Srivastava and Rajiv Mehta, both of whom were invested in the food business till recently.

According to Ravishankar of Sequoia, more people are going for branded products for their daily use and this extends to their eating habits too. A familiar brand, quality and hygiene are important criteria. That is what the QSR players try to capitalise on.

Centralised planning

All the QSR players have a centralised kitchen from where they prepare the basic ingredients and send them out to the outlets. Thus, quality and consistency are maintained. It also eliminates wastage and pilferage. There are not too many items on the menu. However, says Jaydeep of Faaso’s, thanks to a centralised computerised system, they know which move fast and which do not and hence can quickly remove one or two items from the menu and add new dishes quickly. The QSR players depend on chefs they have hired from reputed hotels to constantly innovate with the menu. Rigorous training ensures that the staff stick to what they have been told.

Challenges

Manpower, say almost all of them in unison. It is difficult to get good employees and train them, and even more difficult to retain them, what with more players entering the business. The staff turnover is as quick as the food these players churn out.

Please send feedback, comments or suggestions to emergingentrepreneurs@thehindu.co.in

(This article was published on February 3, 2013)
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