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There is a new flavour in the air. The scent of money has got a host of venture capital and angel investors lapping up the offerings of the food and beverage sector.
India’s $13-billion fast food industry is largely fed by internationally renowned Western brand names. However, the sharp annual growth rate of 30-35 per cent of QSR (quick service restaurants) also known as fast food restaurants, has not gone unnoticed by institutional firms and private equity (PE) ventures.
In a sign that PE firms remain hungry for restaurant chains, the $1.4-billion Asia-focused PE major, New Silk Route announced an investment in Bangalore-based South Indian food chain, Vasudev Adiga.
Earlier this year, JS Hospitality Service, which owns New-Delhi based restaurant chain, Pind Balluchi, sold 45 per cent stake to Everstone Capital to raise $20 million. The company owns 30 Pind Balluchi restaurants, mostly in the National Capital Region, which serve north Indian cuisine.
Raising capital may not be the most daunting task for the food and beverage (F&B) industry. Especially for home-grown QSR chains, which offer convenience in terms of access, pricing and a diverse menu.
Changing landscape
“The F&B segment is in sync with the overall consumption theme and the changing consumption landscape in the country. Any mall that opens brings with it multiplexes and other avenues. Food is added in some form or the other.
QSR chains are flourishing. We have been tracking the broad consumption theme”, says Jaspal Singh Sabharwal, Partner at private equity firm Everstone Capital Advisors. With assets worth over $1.6 billion under management, Everstone is the second largest PE player in the country after ChrysCapital, which has over $2.25 billion of assets under management.
F&B sector
The F&B sector is too hot and sizzling to be ignored and PE firms seek to leverage the rise of the Indian consumer through investments in restaurant chains.
Research company Venture Intelligence estimates that early stage investments in the F&B sector in 2011 soared to $13 million, up from a measly $1 million in 2008.
With venture capitalists eager to cash in on the opportunity, last year saw several deals in the making.
Increased interest
ICICI Venture acquired a 10 per cent stake in F&B chain operator Devyani International in May for approximately $55.6 million.
New Silk Route Advisors closed its first Indian restaurant investment in July for $100 million. In August last year, India Equity Partners purchased a majority stake in specialty restaurant chain Sagar Ratna Hotels for $40.2 million.
Increased interest in the restaurant business has been marked with some high-profile employee exits.
Immediately following the infusion of funds, Sagar Ratna managed to wean away a senior manager from the Pind Balluchi outfit.
“It is difficult to build a good team,” agrees Sabharwal. “In terms of people, one needs patience and capability”, he adds.
Everstone took a majority stake in Pan India Food Solutions, one of the country’s largest restaurant operators that hosts brands such as Spaghetti Kitchen, Copper Chimney, Bombay Blue and The Coffee Bean & Tea Leaf among others.
Expansion activities
At a time when high-risk companies are less favoured by many PE investors, interest in the low beta food and beverage industry appears strong.
“Every year, we are looking at 2-3 cities and taking them into our fold by expanding,” says Sabharwal.
“We are building capability. Tier 1 cities such as Jaipur will be a huge opportunity area for us. It will be Jaipur and Hyderabad next year. We are entering Chennai this year before Diwali. We plan to have three The Coffee Bean & Tea Leaf outlets every year in three cities and have key enablers in place,” he adds.
Stating that the company entered Chandigarh with Spaghetti Kitchen and within four to five months, were in Ludhiana, Sabharwal insists, “We realised our presence was very thin in Pune. So we launched Spaghetti Kitchen in February this year, Copper Chimney last month in Koregaon Park and The Coffee Bean & Tea Leaf oulet in Phoneix Market City .”
>amritanair.ghaswalla@thehindu.co.in
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