India’s F&B industry is evolving faster than ever. Global brands have entered the burgeoning market. The Indian food palate has also evolved over the years with a wide variety of cuisines becoming popular. The rapid growth being witnessed by the industry can be attributed to the growing disposable incomes and aspirational lifestyles of the country’s young population.
Many restaurant owners are aware of the opportunities to scale their business. However, they adopt a conservative approach given the large amounts of capital required to fund expansion. However, with Venture Capital (VC) firms, angel investors and even private equity funds arriving on the scene, new investment avenues are opening up.
Mihir Mehta, a Mumbai-Based Investment Banker strongly opines that there is a lot of uncertainty in the food services space and while Zomato’s IPO comes as great news, not just for the F&B ecosystem but overall startup ecosystem, the sentiment around the F&B ecosystem is still ambiguous. "Whether the third wave occurs or not, the larger fear that prevails among the investor community is the recurrent & unplanned lockdowns (which now are highly localized) and the damage it causes to business as usual," he commented.
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That being said, not all perception is negative. Mehta further stated that "On certain counts like availability of staff, adoption of the digital ecosystem by restaurant players, reduction in rentals etc. we are seeing restaurant players doing much better than last year. Again, to be extremely candid, the onset of Covid has resulted in a closer examination of matrices like unit economics, revenue per square feet, organic walk-ins etc when it comes to investing in the space and going forward, the winners may reduce in number but shall be the sustainable ones."
Active VC firms are quite bullish on the F&B industry in India, even post covid. Principal of LightBox Venture Capital had stated” With the growth of 10percent every year, about 33 percent of the industry trends are slowly getting organized. Taking this as an advantage, we can build larger brands with multiple outlets.”
Swiggy, Zomato, UberEats (in India), have proven that the well connected and fast-evolving Indian middle class is ready to pay for convenience. The multi-million dollar fund-raise did by various ventures in pre-pandemic years has validated the future of cloud kitchens in India. Owing to the covid situation now, market studies show that the demand for online ordering is only going to grow.
"With the rise of food delivery, hybrid revenue models will be at the forefront of building sustainable unit economics. It will be explored with a focus on dine-in, takeaway and delivery forming the core to retail sales. This will be augmented by catering and B2B orders, which pushes the topline sales and broader reach for brands," believed Manvir Singh Anand, Food Business Expert and Founder of Knight Gourmet and TKG Ventures, who further commented that the cloud kitchen revolution will force brands to adapt to the single kitchen, multi-brand approach, where a single infrastructure will be used to create multiple 'virtual brands'.
Restaurant businesses have traditionally been a cash-generating business and add immense value to a value PE/VC investors portfolio and balance sheet, however, post-pandemic - restaurant businesses will have no choice but to adapt to newer and scalable business models with multiple income streams to find access to Venture Capital money especially in the short run.
“Brands with very high stickiness with their customer through consistent quality and extremely high hygiene standards will have a competitive advantage always. It can be seen from the success of IPO's of brands like Barbeque Nation, Burger King India which have generated alpha for their investors, despite the pandemic," Anand concluded.