Investors respond to India's changing tastes

India’s food and beverages market saw around US$100 million of investment in 2017, with the amount of space dedicated to the sector rising to a record 18%

June 07, 2018

Restaurant operators in India are on the hunt for investment as they attempt to satisfy a growing consumer base hungry for more choice.

India’s food and beverages (F&B) market saw around US$100 million of investment in 2017, with the amount of space dedicated to the sector rising to a record 18 percent, according to JLL.

“Restaurants in India are witnessing exponential growth,” says Riyaaz Amlani, CEO, Impresario Entertainment & Hospitality. His company signed an investment deal with L Catterton Asia, the global consumer brands investor, last year.

“For operators, this is an opportune time to plan their growth strategy, collaborate and expand,” he says.

Varun Tuli, founder of Yum Yum Cha, is another restaurateur looking for funding from private-equity groups. “We are going to raise funds very soon and are in the preparatory phase,” says Tuli.

The expansion of restaurant chains is being driven by a major shift in consumer behavior.

“The most visible change is that eating out is the new normal, unlike earlier days when people went to restaurants only for celebrations or when they had a meeting,” says Rahul Singh, president of National Restaurants Association of India (NRAI), who owns the Beer Café chain, and runs 37 restaurants in India.

This has made the F&B space the fastest growing segment within retail, says Ramesh Nair, CEO and Country Head, JLL India. “Some leading F&B retailers are planning a new store every month.”

A number of restaurant chains are expanding after raising funds from private equity, such as Massive Restaurants Pvt. Ltd. and Impresario Entertainment & Hospitality, which own brands such as Masala Library, Made in Punjab, Farzi Café, Pa Ya, MasalaBar and Social, Smoke House Deli, Mocha, Slink & Bardot, respectively.

The impact

Mall developers are also courting restaurant operators as a strong F&B offering is critical to contend with expanding online competition.

“Malls are increasingly looking at growing the F&B space. Such deals are increasing,” says Randeep Bajaj, Owner of Amour – The Patio Restaurant in New Delhi.

However, expansion has its own challenges, including high rental costs and delayed approvals.

A new company looking to set up a restaurant needs almost 15 different types of approvals. These include a food license, health trade license, Fire Security Certificate, environmental clearance, Public Liability Insurance and Shop and Establishment Registration. In the current scenario, the approval process takes anywhere between four to six months, delaying the business viability and the profitability in the medium term.

The country’s restaurant business is likely to grow at a rate of over 15 percent till 2020 while the food services industry will be worth Rs 4.98 trillion (US$73.4 billion) by 2021, according to a report by the National Restaurant Association of India (NRAI).

“With real estate fundamentals of the F&B segment remaining strong and continuously improving, there is scope for more investment in coming times,” says Nair at JLL.

Click to read about how Indian retail is looking beyond big cities.