If you have to buy a generator for your restaurant, what do you do?

First, see my post on Why you should push your landlord to take care of providing Power Back-up. If after all your attempts to negotiate with the landlord to have him/her provide power back-up, you still are in a situation where you will need to take care of this, what do you do?

Assuming you have the space to install a Diesel Generator (DG):

1) Buy a DG for the full power you will require - the cost differential between DGs of different capacities is not high, and typically a DG supplies only about 80% of the rated power consistently - i.e. a 20 KVA DG will generate only 80% of the rated power (i.e. about 16 KVA). For most standalone restaurants the power requirement will be between 10 and 30 KVA of single phase power - To determine your exact power back-up requirements, call a few DG suppliers and they will recommend the specifications of the exact DG you will need. 

2) To minimize the ongoing hassles, I would strongly recommend going in for a branded DG. The four most popular and branded options available in the market are Cummins, Kirloskar, Ojus (Ashok Leyland) & Powerol (Mahindra). The price points are not too different between the 4. Cummins (these are the green colour generators you see everywhere today), is considered to be the best of the lot. Kirloskar markets a generator under the brand name "Bliss" - these are the light blue colour generators you see. Kirloskar also sells only their engines and local suppliers use the engine, assemble a generator and sell them under the Kirloskar name too - these are the off-white and light green colour generators you see. These are among the most popular ones in the market today as a lot of customers assume that these are Kirloskar generators and buy them for the lower price. But essentially these are locally assembled generators with the Kirloskar engine. The warranties are offered by the local supplier from whom you buy the DG.

Out of the lot, my research and feedback received from users tells me that you will be wise to invest your money either on the Cummins or the Kirloskar Bliss DGs. But do invite quotes from all of them and decide for yourself.

Now, if you do not have enough or appropriate space to install a DG, what do you do?

1) You can go in for a large capacity UPS (Uninterrupted Power Supply) option - these typically tend to be very expensive - about 5-6 lakhs for a 20 KVA UPS that will give you power for 3-4 hours. The big cost in the UPS is not the UPS system, but the battery bank. You will also need to pretty much replace the entire battery bank once every 3-4 years. In addition, the amount of time you get the power back-up for is restricted. For more back-up time, you will need more batteries and the costs will spiral. Typically UPS power back-up is used in IT server rooms and mission critical applications, where un-iterrupted power rather than power-back-up is required. The battery bank also takes up quite a bit of space (you will need to keep this inside your restaurant in a suitable area - maybe in a loft area created or under a staircase). My recommendation for restaurants would be to not consider the UPS option as a primary power back-up. You can always have a small UPS for a few lights and your billing system and forget about full power back-up.

2) The other option is go for compact small capacity generators (such as the Honda Portable Gensets) to ensure power back-up for only the key electrical appliances and lighting - i.e. for the billing system, lights in the restaurant & kitchen, sign-board, TV/Audio system, Fans, fridges, Chillers and deep Freezers and other small electrical appliances. The big appliances you can't use using these portable gensets will be your kitchen exhaust system and the Air-conditioners. Each AC alone will require one portable genset dedicated for it. Clearly the best portable genset available in the market are the Hondas - They have a fabulous compact genset generating 3 KVA (EU 30) and another one generating a little over 5 KVA (EU 65). These run on petrol engines, but are very quiet and do not generate fumes, are ultra compact and portable with built in wheels. You do not approvals from the Electricity department to use these gensets. You could buy 3 of the smaller EU30s and set-up one for the restaurant area - lightining, TV/audio system, billing system and the sign-boards. The other EU30 could support the fridges, chillers, freezers, kitchen lighting, small kithcen equipment and maybe even a small exhaust fan in the kitchen. Each of these small gensets will cost you about 80K. The large Honda will cost about 150K.

Having said all this, I would still push really really hard to get the landlord to install and maintain a DG for the entire building, which you can tap into. 

Why should you push your landlord to take care of arranging for Power Back-up for your Restaurant?

Given the number of power cuts in most parts of India, it has become mandatory for a restaurant to invest in a generator and/or a UPS. Do you need a generator or a UPS? What logistical issues will you face with each one of them? What are the options available in the market?

You will pretty much need full power back-up for a restaurant. i.e. If the total power available and needed for your restaurant is 20 KVA, you will need to plan for a power back-up of 20 KVA. My strong recommendation would be to negotiate with the landlord at the time of signing the lease and have him/her install a generator for you or for the entire building. Installing a generator is not as simple as buying a generator and placing it. It involves the following:

1) Investment to buy the generator: You are looking at 2-4 lakhs depending on the capacity (KVA) - most standalone restaurants will require between 10 and 30 KVA of power) and the brand of generator you are buying. This investment is just the tip of the ice-berg. 
2) You need to find a suitable space in the premises to install the generator. You will require a clear flat surface (where concrete can be laid - so storm water drain areas won't work) within the site/land, where the building is located. Generators in the 10-30 KVA capacity range need a minimum clear area of 3m width x 6m length and 6 m height. You will notice a lot of generators are installed in the terrace area of the buildings currently - electricity departments in most states no longer give approvals for installing generators in terraces (due to safety reasons). The vendor will tell you that they will take care of this by installing the generator in a not so visible space and do the installation in the early morning hours - but you need to be prepared to deal with any issues that may come up because of this. Also, if you are installing the generator in the terrace, you will need to hire a crane and this alone will cost you about 10-15K. 
3) You will need to get approvals from the electricity department and pollution control department. Thankfully most generator suppliers/installers will get these for you for about 10-20K. Any generator above a certain capacity (varies by location) will need this approval. You can pretty much assume that you will need this approval for generators 10 KVA and above. 
4) You will need to take care of some civil work - laying a concrete base where the generator can be installed. You are looking at a spend of 5-10K for this. Also remember that you cannot build this concrete base on the area meant for storm water drains. You will need a clear space within the site where the premises is located. 
5) You will need to get electrical earthing work done at the place where the generator will be installed, as per the specifications of the generator manufacturer. You will also need to get the wiring done from the generator to your distribution box (electrical panel box) and install a change-over switch. All this will probably cost you about 20K. 
6) You will need to create exhaust piping (outlet for fumes generated). Depending on where you are installing the generator and what is in the surroundings, you may need to do the piping all the way upto the terrace (similar to what you would do for your kitchen exhaust piping). If additional piping needs to be done, this can get quite expensive - about 800-1000 bucks per metre. You may also need to install a scaffolding to enable to guy to do the piping work. Renting a scaffolding will cost you about 6-10K (rental is typically for a week). If you are doing this, you may want to consider doing this alongwith the kitchen exhaust piping work. 
7) Once the generator is installed, you need to figure out a way to switch it on when the power goes. An Automatic switch-over system will cost you about 40-50K extra. The Auto-Switchover is also known to be prone to problems. Even if you have the auto-switch-over, there is a 5-10 second gap between the time the power goes and when the generator takes over.  
8) You also have the hassles of filling fuel in the generator, maintaining the generator (Annual Maintenance Contracts or AMCs will cost you about 10-20K per year), taking care of repairs etc. You will also realize that the AMC covers only standard service and labour for repairs - all parts that needs to be replaced need to be paid for.  


Given all of this, I assume you are more than convinced on why I would strongly advocate paying a higher rent and the associated higher deposit, but getting your landlord/building owner to take responsibility for the generator. 

Own a piece of Mainland China - Speciality Restaurants IPO

Speciality Restaurants, the owners of the brand "Mainland China", is currently doing an IPO (Initial Public Offering) on the Indian Stock exchanges. This is the second "Restaurant Business" IPO in India, after Jubilant Foodworks (Dominos Pizza India). Jubilant was a super hit IPO (the initial offer price was Rs.145 per share - Feb 2010 and the current price of the share is Rs.1149 per share).

If Speciality is able to replicate the success of Jubilant, then investors can expect reasonable returns on their investment. Clearly the investment climate is a little different now, plus the company operates in the fine-dining segment.

Where are they currently?
They currently have 69 restaurants - 40 Mainland China units, 8 Oh!Calcutta units, 5 Sigree units, 6 Machaan units, 7 Flame & Grill units and 3 Haka units. They also operate 13 Sweet Bengal units (all in Mumbai) - a Bengali sweet shop as the name suggests.

Their forays into the QSR area have not been successful - Just Biryani, Mostly Kababs.

Their reported revenues as on Mar 31, 2011 were Rs.173 Crores (assuming they had 65 restaurants and 13 Sweet Bengals at that time), their restaurants are generating about 2.5-2.7 Crores annually with a 22% Operating Margin (EBITDA). Mainland China accounts for a little over 60% of their revenues.

What is the company valued at?
The valuation of the company is 4 times their revenues (i.e. around 720 Crores).

My Assessment:
They have clearly cracked the fine-dining business model with Mainland China. I am not too sure if they have really been able to replicate the model with other brands in the same manner - maybe to some extent with Oh!Calcutta, but the rest are simply experiments still.

With the funds raised from the IPO (expected to be about 170-180 Crores) about 145 Crores will used for opening 48 new restaurants (average investment per restaurant will be 3 Crores), a bulk of which (around 35) will be Mainland Chinas. So they will use some of the money for experimenting with their other brands. They will be using 15 Crores to invest in a food plaza in Kolkota (they have already invested about 2 Crores in this project). The remaining 10-20 Crores will be used for repayment of debt and for general corporate purposes.

They are proposing to use around 33% of the funds raised to experiment (with their other brands, the food plaza etc.) and 67% for doing what they are doing really well (Mainland China). As an investor, you need to hope and pray that they are able to create yet another successful brand like Mainland China. I am a little concerned that they are getting distracted with the Food Plaza, Haka (Chinese fast food - Casual Dining segment) and Sweet Bengal, rather than simply focus on what they do really well - fine dining.

Final Thoughts:
I am really hoping the IPO does well and the company delivers stellar returns to the investors. This will pump in some more confidence amongst venture capitalists to seedfund new ventures in the restaurant business in India. Speciality has taken 21 years to do an IPO. Imagine if an investor had pumped in 20 lakhs in 1991 to own probably 30-40% of the company. The value today would be over 200 Crores. The returns are astronomical.  

Dunkin Donuts launched in India - How will they do here? My Analysis

Dunkin Donuts opened their first two stores in India yesterday (Connaught Place & GK, Delhi). I haven't visited the store yet, so my analysis is based on news reports and their menu available on Zomato (these guys are quick). They have been brought to India by the really smart folks at Jubilant Foodworks - the ones who have successfully cracked the business model with Dominos Pizza.

The Positioning:
In the US, Dunkin Donuts is like your neighborhood Halwai shop/Darshini with seating. The food and coffee are probably the cheapest ones available in the US and the place is essentially no-frills. In India, the positioning seems to be a little premium - similar to McDonalds in India (Guess we always value western brands at a premium). This is a smart business move as they can focus on offering good quality products at prices where they will make money, rather than trying to fight it out with the local Halwais. Plus they can charge customers VAT extra (14%), while showing lower prices on the menu card. Imagine the customer response if the local Samosa fellow charges 14% VAT on a 10 rupee Samosa.

The Indianization of the Menu:
The big coup they have pulled off is by offering the entire range of donuts as eggless (except for the Cake donuts). This broadens their customer base significantly and will appeal to a larger section of the customer base - Fantastic move.
I almost expected Dunkin Donuts to offer Indian snacks (Samosas and the types). Again they have been really smart about this and are offering an international menu with the tastes tweaked to suit Indian palates. This way they are positioning themselves as an international food joint, not competing with the local kirana joints and can charge reasonably premium prices at which they can make money as a business. Their menu is essentially sandwiches with various breads. They are taking on the Coffee Days and the Costa Coffees head on with their food menu, but I expect their offerings and taste to be better than the ones offered at the competitors.
Their Coffee is where I am most disappointed - Dunkin in the US is known for their coffee - freshly brewed all the time and served from the glass kettles. In India, they are offering only the mixed coffees - Cappucinos and the likes. Guess their assessment is that the Indian consumer is not yet ready for light dicoction based coffee and will definitely not pay a premium for it. They also offer Cold Coffees, Coolatas & Smoothies. The price points are head on with Coffee Day.

How I think they will do in India?
My assessment is that their Donuts will be a big hit in India - they will make Donut Baker and Mad Over Donuts feel that they missed a trick in the bag. Not being the first mover in the space will actually give them an advantage here. Expect the place to be packed in the evenings and weekends with families, teenagers and college kids.
As a coffee and hangout place, they will compete to some extent with the Coffee Days and the Costa Coffees. I haven't seen their interiors, but my assessment is that they will not be able to move the "Meeting Place" crowd from the Coffee Days.
I also expect their food menu (outside of Donuts) to undergo significant tweaks as they analyze customer behaviour and purchase patterns. My expectation is that Sales figures for their sandwiches will not be great in absolute terms, but will be far better than the other coffee shops.

Their Possible Master Stroke:
Other than opening new stores, the master stroke I expect them to pull off would be to leverage the Dominos Pizza stores and the super-strong delivery model to start selling and delivering Donuts. Essentially announce a partnership between Dominos and Dunkin Donuts in India, have a small Donut Kiosk in the Dominos stores and sell and deliver Donuts from those units. If they can get this partnership model right, they will be hugely popular and successful very quickly. Imagine families having the option to order Pizzas and Donuts from the same place with one call and getting it delivered promptly. This will become the default for Birthday parties and kiddie get-togethers. I am simply speculating and an actual partnership like this may not be possible for them to execute. 

How does the Restaurant Industry in China compare with the industry in India?

This single piece of data below from YUM Brands (the owners of the brands KFC, Pizza Hut and Taco Bell) will illustrate why China is an Elephant and India is, well, a baby elephant. 

The total for China above is from their Q1 earnings release. When you add the individual numbers, it comes to 4647. The missing 2 are probably Pizza Hut Home Delivery units.

According to YUM Brands, as stated publicly on their website, "We Consider China to be the greatest Restaurant opportunity of the 21st century" - http://www.yum.com/brands/china.asp

YUM added 168 new restaurants in China in Q1, 2012. The equivalent number for India is about 25. 

YUM has also created a local Chinese brand - East Dawning (Chinese food QSR). They also acquired a restaurant chain "Little Sheep" in 2011. The 300 Little Sheep restaurants are not included in the numbers above. 

Both China and India are fast growing markets, but it looks like despite the already large size, China is galloping faster than India and is on the way to become a Restaurant Industry Dinosaur. According to YUM's CEO, "We believe our new unit potential in emerging markets is the best in the restaurant industry and we’re still on the ground floor of growth".