A new breed of restaurant investors is putting their money where their mouths are, reports Antoine Lewis.
Agnelorajesh Athaide, the chairman and managing director St Agnelo’s Computers Ltd, runs a network that provides computer education and services across 40 centres in Mumbai and Pune. For the last six years, he’s been smelling a growing field of opportunity right under his nose in Malad, where his company has its headquarters. The neighbourhood has been filling up with young people employed by call centres, the relatively cheap real estate is drawing young professional couples to the Malad-Borivali stretch and the InOrbit mall is proving to be a magnet for customers between Bandra and Bhayander. So he got together with two friends, one of who runs a finance company and the other who is a property developer, to open a restaurant.
Rouge, their multi-cuisine restaurant with a lounge bar, opened in February. Of course, there was no question of Athaide and his friends getting involved in the restaurant’s day-to-day operations because their other businesses demand their complete attention. Besides, with no background in the hospitality industry, they felt it was better to have a professional to run the place. So they gave South Mumbai restaurateur Henry Tham the contract to manage Rouge. “The property and licences are ours, but the concept and design is Tham’s,” explained Athaide, who confesses that it feels good to eat at your own restaurant.
Athaide and other affluent people with a stash of spare cash are among a new breed of investors driving the city’s restaurant boom. Attracted by profits that average between 25 per cent and 30 per cent, they are attempting to cash in on the seemingly insatiable appetite for eating out that the city has developed over the last few years.
The takings have become so tempting that even corporate houses, private equity players and venture capitalists are waking up to get a sip of the coffee. The whiff of caffeine wafting out of Mocha seemed so enticing that Beacon India Advisors, a $200 million venture fund, has invested Rs 75 crore in Impresario Entertainment and Hospitality, Mocha’ mother company.
The limitation of these large players: they aren’t interested in projects under Rs 10 crore. That, said Riyaaz Amlani of Impresario, is because “the due diligence required for a project worth Rs 1 crore and Rs 10 crore is the same. [Private equity firms and venture capitalists] are only interested in brands where the model can be translated into a profitable, sustainable, scalable business”. Earlier this year, SAIF Partners, a growth capital fund, paid Rs 90 crore for a 20 per cent stake in Anjan Chatterjee’s Speciality Restaurants, which owns Only Fish, Machaan, Sigree, Mainland China and Oh! Calcutta.
For the most, though, the people who invest in Mumbai’s restaurants and who have fuelled the restaurant boom over the past decade are smaller players, by no means as flush as the private equity funds. They include people like stock broker Himanshu Dani, who has invested money in Pot Pourri’s Inorbit outlet in Malad which opened two months ago. Dani has known chef owner Nitin Tandon since they were college students in 1982. “Though I’ve known Nitin for a long time, what attracted me finally to investing with him and his partner Kishore is that they have the pulse of the market, of the different brands they run and the different cuisines they do,” said Dani. “I also wanted to be associated with someone who has a passion for food.” Pot Pourri in turn benefited from Dani’s active involvement in the business through the financial discipline, controls and management systems that he put in place.
Recent investors also include Kushal Shetty, Kunal Jhaveri and Haresh Senjalia, who decided to put their money down on a franchise in Malad after enjoying their experience as regular customers at Little Italy in Juhu. While Shetty’s family runs an Udipi in Crawford Market, the other partners are diamond traders. Instead of opening another Udipi, Shetty and his friends approached Little Italy owner Umesh Mehta for permission to open a branch of his fine dining restaurant in Malad and more recently Lower Parel. “Customers have now cultivated tastes for something different, people are experimenting with different kind of food, they have developed a taste for wine,” said Shetty. “They’re not content with eating at an Udipi anymore.” To ensure quality and consistency, Mehta makes signature foods and ingredients exclusively for the Little Italy chain, and supplies trained staff. “Not only are the returns high but we often have celebrities eating at our restaurant.”
Restaurant investors like Shetty and his friends didn’t exist before the 1990s. Until then, most standalone eateries were run by families. But economic liberalisation gave birth to a breed of restaurateur-entrepreneurs with a desire to carve a niche for themselves with high-quality or concept-driven eateries. They had sniffed out the market and discovered that the moment was ripe to woo customers away from the monopoly of jaded five-stars. Wealth had begun to trickle down to middle-class consumers. At the same time, the city began to undergo a demographic transition. As yuppies moved into Bandra from the entertainment and cultural hub of South Mumbai, the shopping and restaurants followed.
However, since the people running these establishments were mostly young professionals, often from middle-class backgrounds, they still relied on their personal finances or on loans from friends to open up their first outlets. Some like Joy Kapur of the Copper Chimney group and Sanjiv Chona of the Cream Centre had inherited small businesses but lacked the wherewithal to expand. Others like Rahul Akerkar, who decided to stay in Colaba and start Indigo, needed outside finance to surmount the high real estate prices and other set-up costs. With banks refusing to lend money merely on the basis of impressive ideas, restaurateurs had to look for strategic investors.
“Do you know how much it costs to set up a restaurant nowadays?” asks HA Mishra, a restaurant consultant who specialises in analysing the efficiency of a restaurant’s operations. “To set up a restaurant along the lines of Mainland China will cost nothing less than Rs 3.5 crore, a more sophisticated place will cost at least Rs 5 crore.”
The enthusiasm of investors could soon have an effect far beyond city limits. With so much money available, city restaurateurs have begun to develop business models that can easily be adapted to national and international scales. Ashit Patel who started the Garcia’s pizza chain and more recently Mr Chow’s, a Chinese delivery service, believes that if a restaurant is professionally run, “then it is possible to not only get private equity to fund the next 40 outlets but in the long run to even launch an IPO”. Patel is contemplating taking Mr Chow’s international since he believes that no one is catering to the Indian diaspora’s appetite for Indian-Chinese food. Buying out a small international chain with 30-40 outlets is also not out of the question. “After all, if we can buy out Jaguar, then why not a restaurant chain?” asked Patel.
Cross-continental cuisine
Expanding nationally is passé for Mumbai’s restaurateurs – the big bazaar lies in the international market where customers are willing to pay top dollar for quality. You can already stuff yourself on a thali prepared by the Rajdhani group in Sydney, Dubai, and Vietnam, and soon in London and New York. Dubai diners clearly enjoy Sanjeev Kapoor’s khana at Khazana, which he’s preparing to open in Qatar, London and New York. Riyaaz Amlani’s hoping that conversations at his first international Mocha will be punctuated with, “Nice coffee lah!” once his Singapore outlet opens. Anjan Chatterjee’s planning to take his restaurants Only Fish, Machaan, Sigree, Mainland China and Oh! Calcutta to London, New York, Chicago and Shanghai. Ashit Patel believes there’s a captive audience for Indian-Chinese in the West and he’s looking at opening a Mr. Chow’s in London and any US city with a large Indian population. After his success at Joss, Farrokh Khambatta is looking at US properties to open his next restaurant.
Published in Time Out Mumbai, September 5 2008
