BackSamara Capital, others buy Pizza Hut franchise for Rs200 crore
The transaction, which involves 84 stores, is part of a larger transaction involving around 300 stores
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Mumbai/Bengaluru: A consortium of investors led by Samara Capital has bought the south and west India franchise operation of Pizza Hut from the Dubai-based Dodsal group for close to ₹ 200 crore, according to two people aware of the development who asked not to be identified.
The transaction, which involves 84 stores, is part of a larger transaction involving around 300 stores, including a few owned by Yum Brands Inc., the parent of Pizza Hut.
A spokesperson for the Dodsal group and Sumeet Narang, founder and managing director of Samara Capital, declined to comment.
Yum Brands said it continues to explore opportunities for expansion in the Indian market over the long run.
“We continue to explore opportunities to partner with big franchise players to help us achieve the same and in the process create significant value for all stakeholders, for the long term. Our ambition is to more than double the number of restaurants, to reach 2,000 stores in the next five to seven years," said Ankush Tuli, chief financial officer at Yum India.
The US food company is looking to reorganize its Indian business by reducing the number of franchisee partners and bringing in investors with deep pockets to help expand its presence in an increasingly competitive market.
In April 2014, The Economic Times reported that the Dubai-based Dodsal Group had hired boutique investment bank Euromax Capital to sell the franchise rights of its Pizza Hut outlets in south and west India. Euromax Capital declined comment.
“The Dodsal franchisee was the single-largest piece in the overall transaction that will see Yum sell up to 300 stores in total; Yum and the incoming investors were keen on closing this transaction first," said one of the two people mentioned above. The person added that the transaction will close by the end of August.
The consortium may see more investors join the fray, said the second person.
Samara Capital was in negotiations with CX Partners and a West Asia-based investor to acquire the entire asset, Mint reported on 23 June.
Apart from the Dodsal-owned Pizza Hut stores, the larger transaction will see Yum selling some of its directly owned stores, while several other small franchisees will also sell their stores.
In 2013, Yum Brands announced plans to invest $100 million in India over the following three to four years. The company is trying to develop a strong franchise network by replacing a clutch of smaller companies that run the company’s restaurants now.
The financial muscle of the private equity companies will be critical as Yum Brands expands to smaller cities and takes on established rivals in Asia’s third largest economy.
According to Yum Brands’ website, the firm operates over 800 stores in India. This includes 395 KFC stores, 180 Pizza Hut casual dining stores, 250 Pizza Hut delivery stores and 7 Taco Bell stores. Yum plans to increase the store count to 2,000 by 2020.
The sale of these stores will help spread Yum’s business in India across three larger entities—RJ Corp., Yum and the new franchisee. “Yum has eight franchisee partners across the country right now. The simplified structure post the transaction will help it grow the business more efficiently," said the first person cited earlier.
Delhi-based RJ Corp., owned by Ravi Jaipuria, is Yum’s largest partner in India. It runs Pizza Hut delivery operations across India and owns 85 KFC restaurants. Yum directly runs some of the KFC restaurants in south India.
Four other smaller franchises run Pizza Hut and KFC restaurants in parts of west and south India. All of the company’s Pizza Hut outlets in India are run by partners.
The restructuring comes as competition in India’s ₹ 6,000-crore fast-food restaurant industry has intensified, with some of the world’s largest chains planning to expand their operations in the country.
Last year, American chain Burger King launched in India, reaping the benefits of a market largely cultivated by rivals McDonald’s and KFC, which have spent decades trying to customize Western menus to suit Indian consumers. Other international brands such as Starbucks and Dunkin’ Donuts are also aggressively expanding in India.
Yum’s sales in India have softened in recent quarters because of weak consumer demand and competition from Jubilant FoodWorks Ltd, which runs Domino’s Pizza chain.
Yum India restaurants’ same-store sales for the three months ended 31 March fell 11% from a year earlier, according to a 22 April report by brokerage firm Edelweiss Securities.
“Large fast food chains are under stress as sales are slowing down for several of their stores. Competition is ever increasing in the Indian market, both from new international brands that are setting up shop here as well as from the numerous standalone restaurants that are opening," said Hemu Ramaiah, who runs Shop 4 Solutions Pvt. Ltd, a retail consulting firm.
Also, the rise of food delivery start-ups, backed by venture capital funds, has increased the number of options for home-delivered food, which includes not just fast food but also gourmet food, and at attractive prices, thereby creating more competition for fast-food chains, she added.
swaraj.d@livemint.com
The promoters of HT Media Ltd, which publishes Hindustan Times and Mint, and Jubilant FoodWorks are closely related. There are no promoter crossholdings.
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