Bangalore: Araft of fledgling food and beverage (F&B) companies are preparing to tap venture capital (VC) investors for money to support expansion plans, betting that India’s domestic consumption story will help them find backers.
F&B investments have, until now, been cornered by mature, growth-stage chains that have appealed to private equity (PE) investors; VC firms mainly fund start-ups and early stage firms.
Those looking to raise money this year include firms such as Cocoberry Retail Pvt. Ltd, a chain specializing in frozen yogurt that chief executive officer and executive director G.S. Bhalla says can be a wholesome meal by itself, and a healthy alternative to ice cream.
Positive outlook: Cocoberry’s G.S. Bhalla is hoping to raise $7-8 million.
“We are looking to raise $7 million (Rs32.55 crore) to $8 million from institutional investors by the end of this year. We have 13 stores and plan to have 50 stores by March 2011, and 100 stores by December 2011,” says Bhalla.
Founded in February 2009, Cocoberry offers 30 varieties of frozen yogurt and an all-day dining menu, including sandwiches, wraps, salads and soups in the Rs29-179 price range. There are two types of outlets—dine-in cafés and takeaways.
“We think health food has a huge scope in India and yogurt is globally the fastest growing product in demand,” says Bhalla.
Food chains need an unfettered supply of cash to open new outlets. It is generally considered imperative for F&B firms to raise capital every two years to maintain their growth momentum.
New Delhi-based Trac Services Pvt. Ltd, which runs the Crazy Noodles restaurant chain and has already received two rounds of funding, is also looking at raising capital this year. The firm raised an undisclosed amount from HT Media Ltd (which publishes Mint) by selling a 10% stake in 2007.
Operating in the extremely competitive Chinese dining category, Trac Services has three Crazy Noodles outlets, two in the National Capital Region and one in Ahmedabad.
Looking at a pan-India presence, the firm is now planning outlets in Bangalore, Pune and Vadodara, but hasn’t yet decided how much it will raise.
“We are in an expansion mode and are focused on building a product of wider appeal. We are setting up our internal processes, including a strong back-end,” says Dhruv Agarwal, co-founder, Trac Services.
Bangalore-based Spring Leaf Retail Pvt. Ltd, which runs the Mast Kalandar chain of north Indian, quick service restaurants and had raised a small, undisclosed amount from FootPrint Ventures in July 2008, is now looking for another round of funding to help it increase its network of outlets from 11 to at least 25 by March 2011.
“We are looking at raising our next round. It will be a small amount. It would be sub-$3 million,” says Spring Leaf co-founder Pallavi Gupta.
Investors say interest in F&B chains is high because of their potential, but cite challenges peculiar to the sector given that it deals with a perishable commodity such as food, making it important for promoters to demonstrate the ability to be cost-effective.
“The intent is to back businesses that have (a) proven track record and scalability of model,” says Kanwaljit Singh, managing director, Helion Venture Partners. Last year, Helion invested in Brand Calculus, the master franchisee of Jus Booster Juice in India, and is looking for more investment opportunities in the F&B segment.
An F&B business that is able to scale up across different locations, establish a successful presence in half-a-dozen cities and earn revenue of Rs30-40 crore would find many takers, says Singh.
Apart from institutional investors, F&B companies are increasingly attracting angel investors as well. Vinod Keni, founder of the Aquarian Group, who has backed Chennai-based breakfast food maker Saga Food Products Pvt. Ltd, says food companies face significant challenges, including competition from well-entrenched consumer product makers. Still, niche food product makers have the potential to succeed.
“A straightforward idea from the West is not always going to work. It will need to be adapted to local tastes and preferences,” he says. Keni is looking at investment opportunities in healthy food alternatives or food products for children.