Financial year 2016 was one of the busiest for A.D. Singh, managing director, Olive Bar and Kitchen Pvt. Ltd, as the company opened nine new restaurants across its different chains, taking its total count to 30 restaurants in seven cities.
The company, which for the first half of its existence only had Olive, its casual dining restaurant, as its mainstay, has in the last four years diversified into the more affordable dining segment with brands such as SodaBottleOpenerWala, Olive Bistro and Monkey Bar.
Singh is now looking at developing cheaper dining options for customers as he looks at growth. In an interview, he speaks about the trends, challenges, growth and possible consolidation that can happen in the industry. Edited excerpts:
You now have eleven brands spread across seven cities. Can you tell us where growth will come from?
We feel that there is great opportunity for some of our brands nationally. In the short term we are going to focus on the seven cities which we are in and maybe add another 2-3 cities. The opportunity in the top 10 cities is huge. Also going to new markets, the cost is huge. So within these cities, we see opportunities for multiple brands. For us, to penetrate a market with a set of brands works very well, rather than a single brand. We are focusing on 4-5 brands that we are really pushing out.
What’s the plan for Olive?
We are also in the process of developing an even more affordable version of Olive which will help us to further scale. At Olive, the bill is Rs.1,500-2,000 per head—it will be limited to the major metros. At the Bistro, the average bill is just about Rs.1,000 per head, and for the new product the average bill would be about 30% cheaper than that. The new product will be more casual, more fun, aimed at a younger and maturing demographic in tier II and III cities as well. It will use our core strengths in F&B (food and beverages), but packaged in a new way, starting from design onwards. We feel the scope for the Bistro and the new product is huge. There is no limit to the numbers we can do with these two formats.
In the last 3-4 years, you have diversified much more than you did in your initial years. What changed?
About 4-5 years ago, we noticed that what had happened about 15 years ago, where people moved from fine dining from hotels into a more casual setting, was now becoming even more casual with the emerging of youth. So we started creating a set of new brands, strong in concept and very strong in quality, more fun, more approachable, more affordable across different cuisines.
How do you plan to grow these brands?
The one with the largest scope to grow is SodaBottleOpenerWala, which is my tribute to the dying Irani cafes. SodaBottleOpenerWala caters to all kinds of audiences. We are now in six locations across India, including developing markets like Noida and Hyderabad. There is no limit to what we can do with this brand, the limit is actually our own bandwidth.
You developed brands such as Monkey Bar and Fatty Bao along with chef Manu Chandra. How did that happen?
About four years ago, we were worried about losing some of our best guys. There was chef Saby Gorai, Manu Chandra and Chetan Rampal, to name a few. They were getting blank cheques from everywhere. So, we persuaded the board to start a model where we could form subsidiary companies with the chefs. However, by the time this structure happened, we lost Saby Gorai. The structure has helped us retain... 80% of our top management has been with us for 10 years—that is the backbone of our growth.
What are the prospects for Fatty Bao and Monkey Bar?
Fatty Bao is Chinese and Asian food at reasonable price points. It is a platform, a bit like Olive. We want to develop and extend that brand like Olive so that it can cut across to a larger audience. The pricing right now is same as our bistro and we feel that we can develop a new product that is 30-40% cheaper.
Indians have been going to pubs from our parents’ time. The exposure has been there. In the smaller towns, the 5-star hotels housed a pub. So we see a huge opportunity for gastro pubs like Monkey Bar which can extend across India. For the more sophisticated audience in the top 3-4 metros, we have focused on the food and drink and extended that brand to Toast and Tonic, inspired by the American village style. These are the areas of opportunity.
Where do you see yourself five years from now?
Last year was our biggest year in terms of speed of growth; we opened nine new places last year. Earlier we used to open just one or two places. We now have about 30 restaurants in total, with revenues of Rs.150 crore for financial year 2016. In five years, by financial year 2021, we will have about 100 restaurants and revenues of about Rs.600-700 crore. We are now making our brands compete with each other for locations and opening new places. About 13 of our top 15 managers have stake in the company, they have Esops (employee stock option plans).
How will you fund this expansion?
In 2012, Aditya Birla Private Equity bought about a third of the company. We still have some money left from that round and our debt ratios are fairly low. Aditya Birla had invested for a period of four years and that term is coming to an end by the end of this year. So we have just appointed a banker to lead the mandate.
What about an IPO? Is that on the horizon?
It is possible, but it is not meaningful. What you will see are strategic alignments where some of us come in on common platforms and then get listed. The discussion for that is already happening.
What do you mean by common platform?
It’s like a merger or consolidation where there will be a holding company that will hold 2-3 smaller companies and we will list that company. We are all exploring that. However, there are issues of management, ideologies, competition, complimentary and non-complimentary brands. We are already in dialogue with each other.
By when do you see this happening?
Olive has been approached by some of the biggest private equity houses with proposals like that as far back as three years ago. Now in the last year we—me and my compatriots—have started discussions among ourselves. It is only by merging or by consolidating that our value can increase. But the alignment has to work. You will hear something on this consolidation in two years. We will get new investors on board first.
There are mixed signals that we are getting from the restaurant industry. On the one hand, there is Indian Accent in Delhi that is doing very well, but then there is Zodiac Grill in Mumbai that shut down last October. What do think really works in India?
The market for fine dining restaurants like Indian Accent is very limited. The next level is casual fine dining, where you have Olive and Indigo. There is still a market for them in our bigger metros. The next category is even more casual and cheaper, where we have the bistros and delis.
The biggest market, we feel, will be 30-50% cheaper than casual dining, for which we are developing new concepts. There is another market, a level lower than that, which is at Rs.250-300 per person, we are not getting into it. At the right price points, there is still huge growth opportunity.