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Restaurateurs have a problem: investors aren’t biting

Increased competition, a growing conservatism among investors and the absence of many exit options are behind the slowdown

Impresario Entertainment and Hospitality Pvt. Ltd, which runs the popular Smoke House Deli restaurants and the Social chain of bars and cafes, is no longer looking to raise funds. Around 18 months ago, the firm appointed Avendus Capital to raise 120 crore. It has now opted for a 50 crore bank loan and will try to fund its expansion through debt and its own funds.

Likewise, The Beer Café, a chain of beer bars in the national capital region and Maharashtra run by BTB Marketing Pvt. Ltd, which has been looking to raise 35-40 crore since 2014, opted for debt in March.

Even Olive Bar and Kitchen Pvt. Ltd, a Mumbai-based hospitality firm that has been looking to raise 180-200 crore since 2014, hasn’t managed to do so.

Increased competition, a growing conservatism among investors and the absence of many exit options are factors responsible for this.

“When we were looking for funds a year ago, there was a lot of negativity around food services. A lot of people were not able to name quality returns on investment, with the exception of Jubilant (Jubilant FoodWorks Ltd) and there were issues about scalability and longevity," said Riyaaz Amlani, managing director and chief executive officer at Impresario, who has now put off the company’s fund-raising plans by 18 months.

Jubilant FoodWorks runs the Domino’s Pizza and Dunkin’ Donuts businesses in India.

“The space is a bit stretched and investors are being cautious. They want empirical evidence now, given that things have been slow," added Amit Jatia, vice-chairman, Westlife Development Ltd, which is the master franchise for McDonald’s in south and west India.

Exits have been difficult too. Since 2014, private equity firm Everstone Group has been trying unsuccessfully to find a strategic partner for its fine-dining business platform Pan India Foods Solutions Pvt. Ltd, also known as Blue Foods. Blue Foods runs Spaghetti Kitchen, Copper Chimney, Gelato Italiano, The Coffee Bean & Tea Leaf, Bombay Blue and Noodle Bar. It also operates food courts under the brands Food Talk and Spoon.

Similarly, New Silk Route Partners, which acquired a majority stake in Moshe’s in 2013, has been looking for a strategic buyer for its food and beverages portfolio company, Moshe’s Fine Foods Pvt. Ltd, for over eight months and is finding it tough, Mint reported in May.

In 2015, restaurants lost out to food-tech companies. That year, the number of investments in food-tech increased to 62 from 20 in 2014 and the deal value from $73 million to $278 million, according to data from VCCEdge, the research platform of NewsCorp-owned VCCircle.

Meanwhile, in the restaurant space, deal value dropped from $131.26 million in 2014 to $124.74 million in 2015.

In 2016, food-tech companies have also been hit by the general slowdown in investing. “In the last year, the investor community has been distracted by technology. First it was FOMO (fear of missing out), now it is fear of tech," said Amlani, who is of the opinion that investor interest in restaurants will return.

Siddharth Bafna, partner and head of corporate finance at Lodha and Co., a Mumbai-based boutique investment bank that is running the mandate for raising 200 crore for JSM Corp. Pvt. Ltd, the company that runs Hard Rock Café and California Pizza Kitchen in India, agrees: “There is interest in the space. However, investors are a little bit more measured and cautious as some of the past investments have not worked out."

The past few years have not been kind to India’s restaurant industry. Among large restaurant chains, same-store sales growth has been negative for the last nine quarters. “This was due to a combination of brands reaching maturity in metros and tier-I cities, cannibalisation of sales, increased competition from domestic and international brands and shrinking consumer sentiment," said a February report by Anand Rathi Share and Stock Brokers Ltd. Same-store sales growth is a measure of growth based on sales in stores that have been open for at least a year.

“The Indian consumer is still flirting with brands. Only 15-20% repeat a restaurant that they have visited in a period of 6-7 months. Low loyalty and increased competition is hitting restaurateurs," said Angshuman Bhattacharya, managing director at turnaround specialist Alvarez & Marsal India.

The promoters of HT Media Ltd, which publishes Mint and Hindustan Times, and Jubilant FoodWorks are closely related. There are, however, no promoter cross-holdings.

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