PremjiInvest, Carlyle in talks for stake in JSM Corp

JSM Corp (www.jsmcorp.in) run by Jay Singh and Sanjay Mahtani, owns and operates Shiro (UB City, Bangalore, Delhi & Mumbai), all Hard Rock Cafes (www.hardrock.com) in India, all California Pizza Kitchen's (www.cpk.com) in India. In the industry, Sanjay and Jay are considered to be the folks who have really figured out the restaurant business in India and are known for their uncompromising execution skills. 

Article Credit: Times of India, Bangalore Edition (Thursday, April 12, 2012)

PremjiInvest, Carlyle in talks for stake in JSM Corp
Private-equity funds including Carlyle Group and Sequoia Capital are in separate talks to invest about $40 million to $50 million in JSM Corp, which operates the Indian franchises of Hard Rock Cafe and California Pizza Kitchen, two sources with knowledge of the matter said. 
JSM Corp, which runs 12 outlets across different brands, is looking to raise capital to expand its networks and operations, said the sources, who declined to be named as the discussions are not yet public. Premji Invest, the venture capital arm of Indian software services exporter Wipro, and New Silk Route, an Asia-focused private-equity firm, are also in talks to buy a "significant minority holding" in the company, said the Sources. 
JSM Corp, PremjiInvest and Carlyle did not respond to emails seeking comment. Sequoia and New Silk Route declined to comment. 
The company plans to set up 60-80 outlets of California Pizza Kitchen in the next three-four years, and is also looking to expand the other brands, the sources said. REUTERS

Sodexo & Ticket Restaurant Meal Vouchers - Pain in the *** for Restaurants

The most common payment forms at restaurants are Cash and Credit Cards. Other than this, there is another mode of payment which gets used to a reasonable extent, atleast in the metros - Sodexo and Ticket Restaurant meal vouchers. While there may be several reasons for these vouchers to exist, As a restaurant business owner,  Sodexo/Ticket Restaurant coupons are extremely painful to handle - why?

1) There is a commission of 7% (the figure could be lower for high volume large establishments) that is deducted by Sodexo/Ticket Restaurant on the value of the vouchers. For context, when you use a credit card, only 1.8-2% gets deducted. There is also a upfront fee of Rs.5,000 that Sodexo and Accor each collect from the establishment to set them up in their system.

2) The denominations of the coupons keep changing and are not always clean numbers like 10,20 etc. You have coupons for 27, 31, 17 etc. So while collecting the payment, it is impossible for the steward/delivery boy to count and verify the amount - These guys are not math wizards and the customers are not patient enough to allow these guys to slowly count the vouchers. They just leave the payment and walk out or hand over the payment and close the door. 
3) The Sodexo & Ticket Restaurant vouchers also have expiry dates on them (printed on the vouchers). When customers use these vouchers, it is impossible to expect the steward/cashier to check for the validity. Imagine if someone gives you 540 rupees (four 100 rupee notes, two 50 rupee notes, four ten rupee notes). If the currency dates had expiry dates on them, do you think you will be able to check these everytime you do a transaction. So if the restaurant ends up with expired vouchers, Sodexo/Ticket Restaurant would reject these and not pay the restaurant. 

4) Once the payment is collected, the cashier has to store the vouchers (which are like Cash) carefully and safely for atleast 15 days (will explain why below)

5) Sodexo and Ticket Restaurant have a collection and payout calendar (approximately every 15 days). The Restaurant needs to stamp each voucher and submit the vouchers for payment to Sodexo & Ticket Restaurant before a certain date. The payment is then received after 2-4 weeks. So in essence, the restaurant gets paid almost after 4-6 weeks after the vouchers has been received from a customer. On top of the 7% commission, the money also gets locked in for a period of 4-6 weeks.

6) Practically, several restaurants use the vouchers to buy provisions from some of the large wholesale suppliers. They take Sodexo/Ticket Restaurant coupons for a 5-6% commission in lieu of cash for provisions/groceries. 

7) Several Sodexo/Ticket Restaurant coupons are restricted by usage - i.e. only within the company campus. There is a small text printed on the coupons. If these coupons are used at a stand-alone restaurant, there is no way for the steward/cashier to find it out at the time the customer presents these coupons. When they submit the coupons for payment to Ticket Restaurant/Sodexo, these coupons are treated as invalid and the payment is not made.

8) Grocery stores have stopped accepting these coupons recently. So the usage of these coupons at restaurants is only increasing.  

9) Customers tend to use these coupons at low cost eateries/food courts. Fine Dining restaurants typically refuse to accept these and the bills are also high prompting customers to use credit cards/other modes of payments. So with these coupons, the guys who bear the brunt are the low cost restaurants whose margins are anyway very thin. 
10) It is difficult to determine whether the coupons are authentic at the retail locations. It appears quite easy to print these coupons and use it. There are a number of security features built into the vouchers - the water mark, bleeding ink, anti copy feature amongst others, that are easily identifiable. The good thing is there  are hardly any instances of forgery that the 2 companies have noticed in the last 15 years of operation in India. 

I believe I have clearly made a case for completely getting rid of these coupons. Till the time this happens, Restaurants will have to put up with the burden of dealing with these coupons. So the next time you use Sodexo/Ticket Restaurant coupons at a restaurant leave a generous excess amount or atleast be mindful that these coupons are a Pain in the A** for the restaurant business. 

The biggest advantage these vouchers offer is "Targeted Usage' - i.e. allowing the user to purchase only food related items. In the US, the government provides food stamps to economically downtrodden people to buy food products. They do not want them to use the money for buying cigarettes, drugs, alcohol etc. So the food stamps help in targeted usage. In India though my understanding is that the primary purpose of food vouchers currently is for tax benefits and the folks getting these vouchers are those working in IT companies/MNCs. 

If the government's idea is to provide tax benefits to employees for meal related costs, wouldn't it easier to simply allow the amount of say Rs.12,000 per year to be tax free (like in the case of conveyance allowance). 

Some articles related to this issue:

http://www.enidhi.net/2012/01/tax-saving-sodexo-meal-coupons.html

http://kirandhanwada.com/2012/01/04/sodexo-coupons-invalid-a-business-model-explained/

http://www.thenewcritic.com/2012/01/notice-for-customers-using-food-coupons.html

PS: A reader sent me an email asking me what the picture of a lion roaring, is doing in this post. This is a pic of a lion getting bitten in the *** by a cub lion. So the lion is not roaring but is howling about the Pain in the ***. Source: http://www.funnychill.com/media/332/Pain_In_The_Ass/

Outsourced Kitchen Start-up ItsMyMeal Gets $10-m Funding

One more positive development for wannabe food entrepreneurs. Investors seem to be betting big on businesses built on a hub and spoke model - centralized processing with a distribution mechanism. All the best to the folks at itsmymeal.in. 

Article published in the Economic Times, Friday, April 5, 2012

Outsourced Kitchen Start-up ItsMyMeal Gets $10-m Funding

PEERZADA ABRAR & BISWARUP GOOPTU, BANGALORE 

A handful of angeI investors have pumped in $10 million in ItsMyMeal, an online outsourced kitchen start-up that seeks to profit by delivering homemade ethnic food to the doorstep of the customers. 
Started by IIT and IIM graduates Nikhil Gupta, Anoop Agarwal and Neeraj Kumar, the firm provides customised basic daily home cooked meals to a growing number of Indians who have no time to cook. 
The premise has been strong enough for investors to make one of the highest first round investments in a new start-up, which typically attracts funding of about $1 million to $4 million even in the high-profile e-commerce segment. “Cooking food is an art, but we do it with technology which is helping us sustain the business,” said Nikhil Gupta, chief executive, ItsMyMeal. He declined to name the investors. Venture capital for very young start-ups has picked up pace this week. Accel Partners has invested $1.2 million in Delhibased Hotelogix which provides a cloud-based platform for hotels. Inventus Capital Partners invested $1 million in Bangalore-based Savaari Car Rentals. Founded by Gaurav Aggarwal, Savaari has grown to a network of over 100 operators across 60 cities. It derives more than half of its revenues from small towns and cities. 
“Car rental services are estimated at . 14,000 crore,” said Aggarwal, who will use the funding to grow its sales network and build technology to run back-end services. Shekhar Kirani, partner at Accel, said the ability to sell online is giving rise to a new generation of Indian companies. 
ItsMy Meal offers a custom built online platform and a mobile application for meal planning, budgeting and ordering. The firm, which has a central kitchen in Bangalore, will use the money raised to build kitchens in technology parks and company campuses. Each kitchen will cater 1,000 packs of lunch, evening snacks and dinner per day. It uses artificial intelligence technology and software to determine the exact amount of ingredients required to make the meals which helps to reduce food wastage. 
The firm also uses an innovative packaging technology that it plans to file a patent for. 
Gupta calls his business a combination of food and online commerce. A former merchant navy sailor, Gupta put in a stint at the BPO arm of Infosys where he once got into a discussion about homemade meals at the cafeteria. 
“We were fed up with the oily canteen food which lacked taste. We made the business plan on the same day,” he said. The company has created a panel of top chefs and nutritionists who have built a database with 250 dishes from all over India. It adds 10 new dishes every week and even offers comfort meals such as curd rice for customers who are unwell. 
On the Platter • ItsMyMeal offers a custombuilt online platform and a mobile application for meal planning 
• The firm, which has a central kitchen in Bangalore, will use the money raised to build kitchens in technology parks and company campuses

New Silk Route Seeks Gastro Delights

Please note that this article is simply a reproduction of the original article published in the Economic Times on April 5, 2012, Bangalore Edition. If you come across any other interesting articles that I miss out, do email the link/article to me and I will review and post them for the benefit of all readers. 

Article Credit: Economic Times, Apr 5, 2012, Bangalore

New Silk Route Seeks Gastro Delights
Fund has set aside . 500 cr to invest in a portfolio of four food and beverage firms by crafting a unique model

ARCHANA RAI BANGALORE

 

New Silk Route has set aside $100 million (. 500 crore) to invest in a portfolio of four food and beverage firms by crafting a model that has never before been implemented in India. 
The investments will be channelled through a holding company that will take a controlling stake of 51 % in mid-size promoter–led firms in an initiative that has been informally termed ‘Project Gastronomy’. 
Promoters will be asked to cede control of accounting, human resource management and project management in return for fresh capital and handholding to expand their firms both in India and overseas. 
“Promoters have to buy into the fact that the whole is more valuable than the sum of the parts for this model to work”, said Jacob Kurien, a partner at the fund which invests out of a corpus of $1.4 billion in emerging markets in Asia. The fund is in advanced talks with ethnic fast food chain Adiga’s, run by the Bangalorebased K N Vasudev Adiga, and another person who runs a network of fresh fruit juice kiosks. The two other companies under this umbrella will include a chain specialising in Indo-Chinese cuisine and a network of fine dining restaurants. Kurien declined to identify the companies it is looking to invest in. 
“Once we sew up the first deal, it will offer a proof of concept to other promoters,” he observed. The innovative model is a response to the challenges faced by risk capital investors in India, who have reduced the amount of money they have committed over the past few quarters in the food & beverages business. While last year they pumped in $256 million across sixteen deals, there has been just one deal in the first quarter of 2012, according to research firm Venture Intelligence. 
“Funds such as New Silk Route will never find one single company in the food sector to back with a $100-million deal. But food & beverages is a great investment opportunity and they are figuring out new innovations to get a slice of the action,” said Mayank Rastogi, a partner at consulting firm Ernst & Young. 
High valuations demanded by promoters and very low scale of operations were the reasons why New Silk Route, which is an investor in Café Coffee Day, devised this model, according to Kurien. “If market leaders are trading at 40 times over earnings before tax then smaller promoters feel they should be paid at least twenty times. That is too high a valuation,” he said. 
Adiga’s which owns twelve vegetarian fast food joints across Bangalore and in the town of Maddur, has ambitions of taking the brand global. It hopes to add 15 outlets in India and overseas in three years, a person aware of the plan said. “The primary motivation for a promoter to consider such a model is the need to expand.”
The New Silk Route model will also offer a central pool for real estate and project management as well as a health & hygiene division to standardise processes that will be necessary to build a global brand. “A platform allows the opportunity of partnering different companies with diverse cultures. Funds that resort to such investments will have the confidence to back themselves in a sector”, said Jaspal Sabharwal, partner, Everstone Private Equity which also invests heavily in the food & beverages sector.

VC/PE Appetite begins to build for ethnic Indian Restaurants

A reader suggested that I compile and post interesting/useful articles written about the Indian restaurant industry that are published in the media. I am starting to do this with a recent article published in the Times of India on Monday, April 2012. Please note that these are simply reproductions of the original articles published. If you come across any interesting articles that I miss out, do email the link/article to me and I will review and post them. 

Article Credit: Times of India, Monday, April 2, 2012. Bangalore Edition

VC/PE appetite begins to build for ethnic Indian restaurants

Pranav Nambiar & Shilpa Phadnis TNN 

Bangalore: Indian quick service restaurant (QSR) chains have caught the attention of both the early stage venture capital (VC) as well as growth and late stage private equity (PE) investors. A host of traditional Indian joints like Adiga's as well as the next-gen chains like Mast Kalandar are in the radar of private investors.
Kanwaljit Singh, co-founder of VC firm Helion Venture Partners, said that macro factors like the growing quality of life and the scalable nature of the business make it an attractive bet. Helion invested in Mast Kalandar in late 2010 and over the last one year the chain has scaled from 10 to 35 stores across 4 cities – Bangalore, Chennai, Hyderabad and Mumbai. 
Prashanth Prakash, partner at VC firm Accel Partners, said that globally QSRs are not a venture play. Typically it receives later stage investments by PE or strategic investors. However, in India some VCs are experimenting with investments in new generation QSRs. VCs enter when the QSRs have at least 10or so units established. These formats rely on differentiators around the menu, formats, locations etc. 
Accel Partners has invested in Bangalore based Kaati Zone, which serves kaati rolls. Another VC firm Sequoia Capital recently invested in Mumbai based Kebab and wraps chain Faaso's. “The trend of people eating out more often and growing urbanization are helping these restaurants. Also, our street food is now served in a cleaner yet affordable format,” Prakash added. 
The more traditional restaurants that are of reasonable scale have received interest from later stage PE and strategic investors. In 2011, PE firm India Equity Partners invested $35 million in Sagar Ratna, a Delhi-based South Indian restaurant chain. Late last year Everstone Capital bought a 45% stake in north Indian food chain Pind Balluchi. There is also global investor action in traditional QSRs. The New Silk Route Partners is holding talks to buy a big stake in Vasudev Adiga’s. 
Investors are betting on ethnic Indian cuisine as it has a much larger target audience as compared to other organized quick service formats that serve Italian or American cuisine. Gaurav Jain, promoter of Mast Kalandar, said that the Jubilant Foodworks IPO has attracted PE players into the QSR space, providing profitableexits. Jubilant operates Domino's Pizza in India and has the rights for Dunkin' Donuts. 
Despite the promise, investors in QSRs face several challenges. Jain feels profitability at the store level is a key challenge. Food inflation has been in double-digits in the last three years, affecting the margins. 
Investors say that the business is operationally complex and finding the right talent is a huge challenge. Scaling into newer cities and standardizing of the backend is a major point of concern. 
So investors have to be prepared for a longer investment timeline. It typically takes about 8-10 years for a VC investor to reap decent returns. 
Kiran Nadkarni, CEO of Kaati Zone, said that competition from international QSRs is forcing home grown companies to keep the pricing competitive. "International players like McDonald's have expanded the snacking market by making the entry-level pricing attractive. We are exploring a kaati at price points starting at Rs 25-30," he said. QSRs also compete against darshinis and street food vendors for wallet-share. 


INVESTMENT ON THE TABLE 
• Accel Partners has invested in Bangalore based Kaati Zone, which serves kaati rolls 
• Sequoia Capital recently invested in Mumbai based Kebab and wraps chain Faaso's 
• India Equity Partners invested $35 million in Sagar Ratna, a Delhi-based South Indian restaurant chain 
• Everstone Capital bought a 45% stake in north Indian food chain Pind Balluchi 
• New Silk Route Partners is holding talks to buy a big stake in Vasudev Adiga’s

Graffitea

I arrived in the upscale Panchsheel Park area in Delhi for a meeting ahead of schedule. To bide my time, I walked around the area looking for a coffee shop. I chanced upon a sign board "Graffitea" (what a FAB name!) - I walked up the narrow stairs into this joint. The place looked interesting and I ordered a Masala Tea. The young lady at the counter asked me how I heard about the place. I told her "I hadn't heard about the place, but simply chanced by it when walking around". I asked her how long they have been open and if she was the owner. She enthusiastically replied that they were just 25 days old and it was her place - rented of course.

I decided to do an impromtu interview with the owner, Pooja, on the phone, 2 days after  my visit and feature Graffitea as a business - would be interesting to feature a spanking new business 25 days after they opened, rather than just featuring the long lasting successful ones.

Graffitea was conceptualized by Pooja and her brother based on the market opportunity they saw in Delhi for coffee shops - a little ironic that they ended up starting a joint named after "Tea" after being inspired by Coffee. Guess the name did the trick. If this first experiment of their works well, they plan to open other units in Delhi soon.

How would I evaluate Graffitea as a business? The Good, the Bad and the Ugly

The Good:
1) The Name is "FAB" in my opinion. Why didn't I register this domain? Could have made a few bucks on that.
2) The place has been done up quite well to suit the name and the theme - a cool hangout.
The Bad:
1) It is in the First Floor - a place like this has potential to gather a cult following - so the first floor downside may be mitigated to some extent. Plus the place is small - so they anyway can't handle too many footfalls.
2) For some reason, the place to me seems like a cool Beer joint. They may want to think of offering draught beer - the licenses in Delhi are cheap.
The Ugly:
1) They need to have a lot of Graffiti on the walls, in the toilet (they can go berserk here) etc. to suit their name. Get rid of the paintings and bring on the real Graffiti.
2) Their menu needs to have a focus on "Tea" given their name - but "Tea" is just one of the options on the menu. Plus the "Masala Tea" was run of the mill - they need to make their "Tea" options truly stand out.
3) They have a Display Pastry cooler which stocks what seems to be "Standard" stuff available everywhere. They may want to get creative with this and do cakes and pastries that are very unique - with icing in the form of graffiti.
4) The Split AC looks weird and spoils the look and feel of the place. Guess they don't have a choice. But they may want to use some creativity to make this damn machine look good and fit into the space.

Clearly, it is easy for me to go critical on this place, but I liked the vibe and feel of this place and hope they figure out a way to make money and make this a cool happening joint. From my discussions with Pooja, the owner, they seem to have got the fundamentals right and have started well - they need to quickly get their act together on their financials, refine their customer proposition & menu offerings, to make this place work as a business. I truly hope they do and wish them all the best. 

Cafe Amul - What they need to get right? IMHO - In My Humble Opinion

The amount of interest and enquiries, I have got about Cafe Amul after my post on them (http://restobizindia.blogspot.in/2012/02/cafe-amul-is-this-truly-diamond-in.html) has been unreal. I think I may have conveyed a message that Cafe Amul is absolutely THE BEST franchise opportunity available in India today. Just to set the context right, my belief is that Cafe Amul has the potential to be THE BEST Franchise opportunity and I can see them doing 1000+ stores in India in the next 5-7 years if they want to. But they need to get a number of things really right before embarking on this aggressive growth plan. Again, these are just my thoughts and opinions - so please make your own assessment.

Their Customer Proposition:

They need to define this. It could be something like this:
1) Value for Money (VFM) all day Light Eats, Snacks & Desserts
2) Clean & Comfortable ambience (Air-conditioned to the extent possible) with tidy restrooms
3) Lower Cost option to Café Coffee Day and other Coffee based hangouts
4) An attractive & affordable place for families with kids, college going youngsters and others to hangout and have a light meal/snack/dessert
5) Leverage of the strong Amul brand (Trust, VFM/Affordable, Quality, Family Oriented)


Things they need to do:

1) Offer a better ambience & experience to customers

• –A highly inviting, attractive & family friendly Café design
• –Air conditioned atmosphere (unless excellent outdoor seating option is available) with Wifi access
• –Better seating (more comfortable) with kid friendly options where possible
• –Better leverage of  the iconic Amul ads in the Cafe design (Collage on the walls, tables, LCD Screen) & the Amul girl (a.k.a . The McDonalds  man)
• –Better presentation of food – Better quality crockery/cutlery and clever leverage of  the Amul girl in disposable/take-away cutlery & presentation items (e.g. Sundae spoons)

2) Prepare a more robust Financial Plan

• –Current Investment, financial projections and Operating expenses information need to be projected more accurately.

3) Improve Real Estate Leverage

• –Reduce Real Estate Space Requirement to about 800-900 sft (down from the current requirement of 1200 sft)
• –Reduce the space required for the kitchen & pantry area by refining the menu offerings, while maximizing the customer area

3) Make Operations simpler to manage

• –Fewer Menu Varieties
• –Lesser Staff
• –Better leverage of 2 shifts (unit can be open from 8 AM/10 AM to 11 PM)

4) Reduce Upfront Investment Commitment

• Set up a unit with a Capex of  around INR 30-35 Lakhs (down from 40 lakhs – 50 lakhs currently) – including working capital provision for the first few months
• –Smaller investment due to smaller real estate space requirement & lesser kitchen equipment

5) Refine Menu Offerings

• –Better leverage of a small kitchen with minimal equipment, while still offering reasonable variety to customers
• –Hot Kitchen Focus on Dosa, Paratha & Sandwich Varieties and offer consistent and great quality food. Consider adding Egg preparations (sensitive issue???)

6) Remove or clearly separate the Amul product sales counter in the Café

• –Do not offer low margin products inside the Café (e.g. Stick ice-creams)

7) Reduce Revenue Target to INR 7-7.5 lakhs per month

• –15% Operating Margins (EBITDA) Target (Cost of Sales / Food Cost < 50%)
• –Offer an attractive Return on Investment (RoI) – Investment Recovered in 4 years
• –Operational Breakeven under INR 5 lakhs monthly revenue

8) Create a strong Franchise support team with a focus on:

• –Recruiting & Setting up Franchise Cafes
• –Providing Ongoing support (Marketing, Operations, Best Practices sharing)
• –Ensuring Quality (Audits, Process Improvements etc.) & Brand Promise
• –Ideal model would be to set-up one company owned & operated unit in each new city/region before inviting franchisees
• –Reasonable Franchise fees can be charged to fund the Franchise Support organization (Not a revenue share)

What should their menu look like?

Hot Kitchen Menu Design Principles:

• –Dishes that appeal to customers throughout the day (Breakfast, Lunch, Snacks, Tiffin, Dinner)
• –Dishes that are prepared fresh using minimal kitchen equipment
• –Dishes that can support overall food cost at less than 50% (ideally <40%)
• –Dishes which allow offering reasonable variety and options to customers

All-Day Light Eats

• Dosa Varieties
• Paratha Varieties
• Sandwich Varieties (Grilled & Non Grilled)
• Omelette Varieties (Egg??)

Minimal Kitchen Space & Equipment needed:  Tava (2), Sandwich Griller, 1 or 2 single burners, Work Tables, Wash Area

Desserts & Beverages

• Ice-Cream Scoops & Sundaes
• Gulab Jamun & Shrikand
• Chai & Coffee
• Milkshakes & Ice-Cream Milk Shakes
• Buttermilk & Lassi Varieties

Mid-Size Pantry Area for Desserts & Beverages: Display Freezer, Blender, Dum Chai Boiler, Filter (Coffee), Small Milk Bain Marie, Work Tables