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A very hungry god

An economy in high gear, changing consumer preferences and evolving palates are driving the restaurant business in India. But the plate is hardly full

By Anoothi Vishal

“They say it about show biz, but there is no other business like the restaurant biz,” declares investment banker-turned-restaurateur Gaurav Rekhi. Rekhi should know– hopefully. Having worked with Goldman Sachs in New York and London, he moved back home to Delhi, two years ago, not to work in the world of high finance but haute dining.

Last year, Rekhi set up a small, “more than Chinese” restaurant called Fu in south Delhi, dishing out chic Asian street food. More importantly, the numbers fell in place for him. With one of the highest returns on investment, Rekhi contends, “this business, in the long run, can outstrip any other, despite the risks.” He does some number crunching to prove how you can earn back your investment in about a year, operating at about 20 per cent net profitability, and how “at three per cent return on investment per month (after the first two years), the business makes a lot of sense.”

Worldwide, the rate of failure of restaurants is inordinately high (sometimes, pegged at almost 60 per cent). It’s a business that may look attractive and glamorous but involves long hours of work, personal attention and a fine understanding of fickle consumer behavior. It’s tricky because as a veteran restaurateur puts it, “you will continue to make mistakes”. Despite this, interest in restaurants and restaurateuring in India is at an all-time high with foreign chains, corporates, chefs, investors and professionals—these days you can see many restaurants being set up by IT and advertising execs, bankers, PR people, pilots et al— alike wanting to live out their restaurant dreams.
Take a look at your city and you may notice: It’s raining restaurants. This is a relatively recent phenomenon. Though India has always had a culture of street food, till even a decade ago, when it came to smart dining, the options were few. Restaurants outside the five-stars were a rarity with only Diva in Delhi and Indigo and Olive being what we called “stylish standalones”. When they did go out, Indians till the 1990s were by and large content to gorge on family-style meals — a mishmash of generic restaurant-created Punjabi-Mughlai flavours. Or, they would settle for cornflour-ridden Indian-Chinese (in the north; in the south, in conservative cities like Chennai, local cuisines typically formed popular dining-out choices.)
Today, the reality couldn’t be more different. An increasingly well-travelled, sophisticated consumer is well aware of global trends and tastes and wants these served up. Palates have changed, diners have grown up and “authenticity” or “innovation” have become keys to selling any “experience”. With high disposable incomes, nuclear families and more women working, people are spending more on eating out—never mind food inflation. And visiting restaurants is now one of the top three leisure activities for most Indians, according to the Indian Leisure and Entertainment Report 2008-9 (Knowledge Company). As restaurateur AD Singh puts it, “the restaurant scene has exploded. This is so across different cities, economic points and demographics.” Indeed, the restaurant industry is one of “Indian economy’s best kept secrets,” as a white paper on the industry by consulting firm Technopak notes.
Revenues (2010 figures) for the industry are pegged at Rs 43,000 crore annually, with a growth rate of 5 – 6 per cent per annum. Within this, the organised restaurant segment is estimated at Rs 7,000-8,500 crore, but it is this that’s witnessing a substantial growth of 20-25 per cent per annum, according to the report brought out in association with the National Restaurants Association of India (NRAI). With consumption being primarily driven by large constituencies such as the middle class or the earning youth who form a majority of India’s 1.1 billion population, the potential of any business that caters to them is huge. Like a restaurateur puts it: “In London, a restaurateur would think ‘how do i feed the hundred thousand people in my catchment area?’ In India, it is more like ‘how do I feed 1.5 crore people?’”
The numbers are immense. So is the scope for innovation and trying out different formats to suit different consumers—from those in the top 5 per cent “luxury” bracket who may not mind spending Rs 10,000 on a single meal to the middle-class, “family” market, where the average per person spend on a single outing tends to be just about Rs 75-100, according to the NRAI-Technopak study. But one category of restaurants that has seen a vast growth in the last five years or so are cafes—which have become more than places to consume a cup of coffee (India’s per capita consumption of coffee at 100g annually is much lower than in Europe, where an average person can have up to 2 kg). They are the cool hangouts for the young.
There are more than 1,500 cafes in the organized segment in the country, of which 50 per cent are accounted for by just two companies. But it is not just the Barista Lavazza outlets and the numerous Café Coffee Days that account for the enormous 30-35 per cent per annum growth in this segment. Instead, a number of single-owner driven “gourmet” or gastro-cafes (quite on the lines of the gastro pubs in the UK) have come up in the metros, with well-crafted menus beyond coffee and conversation. In Delhi, most of the Khan Market hangouts not to mention Ritu Dalmia’s excellent Diva Café are in this genre, as also Indigo Deli, Pali Hill Village Cafe and others in Mumbai, and spin offs in Bangalore, Pune and lately Chennai. In fact, last month, Channel V, in order to reach out further to its core consistuency of the youth, launched its first [V] Spot Café in Delhi, where a fun menu contends with a video wall, “kissable” napkins, and a gaming zone for attention. The plan is to now take these nationwide.
A notable feature in India is the distinct preference for casual formats, easily replicable. The cuisines that we seem to prefer as a nation of the young are informal: Italian and Mediterranean over French, grills, teppanyaki, sushi over Kaiseki and an emergence of restaurants in malls where the food quality is high but prices one-third to half of what you’d pay at a star-restaurant. Tellingly, two years ago, a multicuisine-, open-kitchen-ed diner called Setz in a Delhi mall, became the highest grosser in the city, with estimated sales of Rs 10 lakh a day, ahead of the celebrated Bukhara.
Dabur’s Amit Burman who started Litebite Foods that owns a chain of restaurants across the country is a firm believer in casual dining formats, which, he says, will continue to work in the future. LiteBite, for instance, is set to grow to about 200 outlets in the next three years with an additional investment of Rs 50 crore even as a host of “exciting new retail spaces open up in malls, high street, railway stations, metros, and airports.” High rentals in cities such as Delhi and Mumbai are obviously a big challenge but these don’t seem to be stopping ambitious young chain czars-in-the-making. Neither are other difficulties of finding structured investment and easy government clearances deterrents. An AD Singh may confess to “looking wistfully at Singapore where there is so much support”, but he does admit that at least, now, “there are any number of people wanting to invest in the industry.”

If Indian restaurant companies are coming of age, foreign chains and brands have set their sights firmly on India too — both in the casual and upscale/luxury dining experiences. With India’s enviable GDP growth rate, it is inevitable that international brands, like money, should move east. Over the last few years, the likes of Haagen Dazs, Papa John’s, Texas Chicken, Chilli’s Grill, and Dixy Chicken have been popping up in Delhi, Mumbai, Hyderabad, Bangalore and Pune. But as more of these brands arrive in our midst (Starbucks has famously been on the anvil for some time now), older international chains are moving into the interiors, to towns with disposable incomes but scant leisure options. McDonald’s, for instance, is pumping in Rs 375 crore to increase its footprint in India, according to the Technopak report.
Even Indian restaurant companies with established brands in the metros seem to be increasingly setting their sights in B and C towns, where these brands may be aspired to. A recent Morgan Stanley “City Vibrancy Index” pegged as a guide to India’s urbanization (it takes into account a crosssection of parameters) ranked Mysore and Meerut in the top 10 vibrant cities. Further, Jalandhar, Aurangabad, Bhubhaneshwar, Agra and Raipur are among the “cities of opportunities”, since households in these cities earn more than India’s average urban household. These are obviously markets for the future.
On the other hand, Delhi and Mumbai, the two big restaurant cities, are attracting international luxury dining and top chefs from all over. Brands like Hakkasan (in Mumbai) and Le Cirque (their first restaurant outside America has come up in Delhi) have opened to full houses as Indian hotels provide fitting locations. Nobu has famously been in talks to start his India operations. India is clearly hot on the global food map even as international stars like Gordon Ramsay run into financial trouble thanks to falling appetites for over-the-top dining in the West. “I can’t wait to be home,” confesses chef Atul Kochchar of Benares, the pricey London restaurant. Kochchar’s contemporary Vineet Bhatia is already in Mumbai serving up his brand of contemporarised Indian food, another trend that seems to be redefining restaurants and restaurant food in the country.

As more and more Indians begin to pay for unique and niche experiences, chef-driven restaurants, a rarity till now, will hopefully pick up. Young chefs are increasingly turning entreprenueral instead of sticking to safe hotel jobs. In Bangalore, Caperberry’s Abhijit Saha, a former Taj hand who quit to start his own restaurants (he has two in the city now) shows how to mix creativity with sound business. And the Indian consumer’s ever-increasing appetite means all stops are being pulled out: Regional Indian cuisines are being rediscovered and repackaged. Luxury ingredients are in big demand. Interactive restaurants are buzzwords for the future. But the restaurant business is hardly elitist with innovation even on the lowest rung—a chain of vegetarian tandoori food restaurants is doing brisk business across the NCR. Brave new restaurateurs are contemplating unfamiliar, adventurous cuisines such as Brazilian or Ethiopian. Will they catch on? Perhaps.

With just about 3,000 restaurants in the organized sector in the country (as opposed to the 9,50,000 plus outlets in the US, earning about Rs 25.5 lakh crore and employing 13 million people — 9 per cent of the US workforce), the potential to grow is huge.

(The article appeared in Business India magazine, Independence Day issue 2011)

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