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".

Vegetarians eating at a Restaurant serving both Veg & Non-Veg food

I saw a news article in the Times of India - "McDonald's goofs up on veg order". The article is quite dramatic and ends with a BBMP (equivalent to the Corporation of Bangalore) diktat - Restaurants must have separate kitchens for Veg and Non Veg food. 

The BBMP diktat is highly amusing - I can bet that all restaurants (there may be a handful of exceptions I may be unaware of) including those within the 5 star hotels do not have a separate Veg and Non-Veg kitchen. They may have carved out a small section , a small area, but it will essentially be one kitchen area and one washing area. If this is the case, and you are a strict vegetarian, what should you do? My recommendation: Visit only Pure Veg restaurants. 

Why do I say this?

• The staff in the restaurant are generally careful about Veg orders and in 99.9% of the cases you will not see any non-vegetarian food mixed with the Vegetarian food. But like in every process, there will be a rare occurrence that a piece may get mixed. The McDonald's issue above is clearly an exception - infact they are pretty good in separating Veg and Non Veg food and take extensive care that such incidents do not happen. It was simply a case of one of the employees have a momentary lapse in attention.  

The bigger problem is with what you don't see:

• Soups: Most restaurants prepare soup using Stock. Stock is essentially water in a pot that is on sim (i.e. getting heated slowly), with veggies and flavour enhancing pieces (e.g. Bones). In most cases, the restaurant will have one stock pot and it will of course have the bones in them. So when a soup is prepared, the same stock water is used. 
• Entrees: All entrees are prepared upon order. The cooks have a few sauce-pans in which they prepare the dishes. In a busy restaurant, the same sauce-pan gets used for preparing veg and non veg dishes. If you are expecting the cooks to be so careful as to use different utensils during busy hours, suit yourself. Having said this, most good cooks atleast wash the sauce-pan a little before preparing a new dish. Even if they use different sauce-pans, the ladles etc. are the same. Again, expecting them to wash each time is impractical. Check where the closest washing area for the cook is and you will know why washing the ladles, sauce-pans and utensils after each order is virtually impossible. 
• Frying: When you order fried dishes, most restaurants, use a "Kadai" that has hot oil on boil to fry the specific dish. In most restaurants, the same Kadai of Oil is used to fry everything - from French Fries to Paneer Pakodas to Chicken Wings. So you are not served non-veg pieces, but your dish is fried in the same oil.
• Handling of Food: Most cooks use their hands (in some cases with disposable gloves) to handle food. Do you believe they will have the time and luxury to wash their hands or change the gloves everytime they prepare a new order? So even if they wear gloves, the same gloves which picked up a chicken piece for the previous order, picks up the Paneer piece for your order. 
• Cutting boards and knives: All orders which require cutting fresh veggies and meat (salads for instance) are done in the same area. While the cutting board is probably wiped with a cloth and even the knife may be cleaned with a cloth, they are not really washed for every new order. So the same cutting board and knife used to cut boneless chicken pieces for a curry are the same ones used to chop the cauliflower for your order. 
• Washing: Find me a restaurant which has separate washing areas for Veg and Non Veg food - I would say it does not exist. So all the plates (different colours or now), spoons, forks, bowls etc. are cleaned in the same area. The same area is also used for cleaning all the utensils used to prepare the food. 

In summary, if you are extremely finicky about Veg and Non Veg food, simply go only to restaurants which serve pure veg food. If you go to restaurants serving both Veg & Non-Veg food, be assured that the staff will in 99.9% of the cases ensure that you do not have any non-veg food/pieces in your order, but all the back-office kitchen activities that happen as described above - you really don't have a work-around. 

The Article below talking about the McDonalds goof-up was published in the Times of India, Bangalore, Friday, April 27

McDonald’s goofs up on veg orderBBMP Penalizes Eatery After Family Served Chicken BurgersTIMES NEWS NETWORK 

Bangalore:A global restaurant chain’s outlet on New BEL Road, near MS Ramaiah College, has been slapped a fine of Rs 15,000 and shut down for a day and a half after it allegedly served non-vegetarian food to a family that had ordered vegetarian fare. 

Vikram, 45, businessman and resident of New BEL Road, and three of his family had gone to the McDonald’s food joint on Tuesday. The family, strictly vegetarian in food habits, ordered for four veg burgers, paid Rs 246 towards the bill and were served the food. But after eating the burgers, the family 

suspected that something was amiss and that they mighthavebeen suppliedwith non-vegetarian burgers. 

Vikram went to the supplier at the counter, who admitted that he had by mistake served the family chicken burgers.Thebusinessman insistedthat he be allowed to record his complaint in a complaint register. The staff failed to produce a complaint register. He immediately called up the BBMP control room and was asked to give a written compliant to the zonal medical officer. 

Dr Devaki Umesh, medical officer, BBMP west zone, said Vikram complained to her about the incident. “We are a vegetarian family and had performed Lakshmi Pooja on theoccasion of Akshaya Tritiya on Tuesday. But due to no fault of ours we were cheated into eating chicken burgers. This has hurt our religious sentiments,” she quoted Vikram as telling her. 

BBMP personnel swooped on the restaurant on Wednesday. “We found out that there were problems with the serving of veg and non-veg food from the same area. We have asked the restaurant to have separate kitchens for veg and nonveg food and also supply them in trays of different colours. A fine of Rs 15,000 was levied on the restaurant. We have locked the restaurant and the keys are with us. We will inspect the restaurant again on Friday for compliance,” she said. 

The restaurant remained closed on Thursday too. When contacted, a restaurant employee only admitted that the BBMP had inspected their premises. “We closed down because of technical issues,” the employee, who did not want to beidentified, said. 

A McDonald spokesperson said she had no details of the incident but claimed that the outlet was operational on Thursday. 

    
Restaurants to be checked BBMP will now inspect premier restaurants in the city. “We will pay surprise visits to restaurants and see if everything is in order,” said Dr Devaki Umesh. 
BBMP DIKTAT: Restaurants must have separate kitchens for veg and non-veg food

New Silk Route Buys Into Fast Food Chain Adiga's

Adigas (www.adigas.com), a homegrown Quick Service Restaurant brand in Bangalore with 11 units and a catering business (estimated revenues of 80-100 Crores totally) has managed to attract a Private Equity investor to cough up (according to Rumour mills) about 100-150 Crores for a majority stake (51%+). That means the company has been valued at 200-300 Crores. Fantastic stuff for a small home-grown business and potential hope to a number of budding QSR entrepreneurs. This investment and the valuation of the business underlines how difficult it is to build a sustainable restaurant business and the premium investors are willing to pay once you get your act together. 

For those unaware, Adigas started out as a neighborhood joint "Brahmin's Coffee Bar" in Chamrajpet in the 1960s - still operational. The second generation of the family scaled up Adiga's. 

Article Credit: VCCircle.com; April 24, 2012

BY MADHAV A. CHANCHANI


NSR is looking to invest $100 million or Rs 500 crore in a portfolio of food & beverages (F&B) formats

Private equity firm New Silk Route has completed its fourth control transaction by picking up a significant stake in Bangalore-basedVasudev Adiga’s Fast Food Ltd, which runs a chain of South Indian restaurants. The deal came following the private equity firm’s plans to create a platform in the food & beverages (F&B) sector. New Silk Route is looking to invest $100 million or Rs 500 crore in a portfolio of F&B formats.

“Certain factors like liberalisation of the economy, growing income of the middle-class population and macro-economic conditions have had a positive impact on consumer spending and consumption in both rural and urban areas, thus boosting the growth of this sector,” a statement from NSR said.

The deal with Adiga’s marks NSR’s second investment in the F&B space after backing the holding company Cafe Coffee Day, India’s largest coffee chain, along with Kohlberg Kravis Roberts & Co (KKR) and Standard Chartered Private Equity.

Cipher Capital was the sole advisor to the transaction.

Vasudev Adiga’s currently has 11 restaurants in Bangalore and one on the Bangalore-Mysore highway. Adiga’s is an offshoot of the famous Brahmin’s Coffee Bar at Basavangudi (Bangalore), which was started in 1965 by late KV Nageshwar Adiga. The company is now run by second-generation entrepreneur KN Vasudev Adiga who is also an engineering graduate.

Besides restaurants, Adiga’s also has presence in event catering business. Its corporate clients include marquee names like SAP, NDS, Ingersoll Rand and Honeywell.

“We see tremendous potential in Adiga’s as it has combined the strengths of two different and popular formats – restaurants and event catering. Our aim is to help Adiga’s expand, initially in Bangalore and eventually across India, so that it can become India’s first homegrown national chain of restaurants. Since there is an unmet demand for good quality south Indian food even in other parts of the country, achieving our goal should not be a challenge,” said Jacob Kurian, partner at NSR Advisors.

NSR Eyeing Significant Stakes

The deal is the third investment announced this year by New Silk Route, an Asia-focused private equity and growth capital firm with $1.4 billion assets under management. It recently invested Rs 175 crore in VRL Logistics Ltd and also picked up a significant minority stake in Hyderabad-based education support services provider Varsity Education Management Pvt Ltd.

It had earlier picked up controlling stakes in companies like Ascend Telecom Infrastructure (telecom tower), 9X Media Pvt Ltd (which runs the Hindi music channel 9XM) and Destimoney Enterprises (financial services).

NSR also acquired minority stakes in companies like Nectar Lifesciences, Reliance Infratel and Rolex Rings.

Cavinkare's QSR business? Another big company with a big QSR plan rethinking their strategy - Is the Restaurant business even worth getting into?

I saw an article in the Times of India today (article below) stating that Cavinkare is mulling an exit from its QSR business. When they launched CK's Restaurant in Pondicherry and Vegnation in Chennai in 2009, the group was exceptionally bullish about the QSR space (they were talking about a 300 CR business -http://articles.economictimes.indiatimes.com/2009-11-02/news/28417679_1_cavinkare-chairman-md-ck-ranganathan-second-restaurant) . Having a strong entrepreneurial culture and mindset, I was really hoping that Cavinkare would be in this for the long haul and figure out a highly scalable and profitable business model and execute their plans. But it looks like they are considering throwing in the towel early. I am terribly disappointed. 


To me C.K.Ranganathan of Cavinkare represented a common man who managed to bootstrap, fight against the odds and the goliaths, had a never say die attitude and managed to create a large successful company - For those unaware, Cavinkare's big innovation was sachet shampoos (Chik Shampoo) and they are now a large FMCG company battling with the Unilevers and the P&Gs. 


There are 2 possibilities with their QSR business:
1) They would rather invest in businesses which will offer them success faster and is also more easily scalable. Understandable given their expertise is in the FMCG space (they also have Green Trends, their salon business) 
2) In their assessment, making a QSR business work in India will be tough, given the high real estate costs, ever increasing inflation on food costs and increasing difficulty in finding labour at low rates.


If the reason Cavinkare is exiting the QSR business is the latter, then it will be a great cause for concern for everyone in the restaurant business, given C.K.Ranganathan's visionary thinking. 
If the former is the reason, then I am disappointed. Come on Cavinkare - you took on the Unilevers and the P&Gs, now don't give up against the Dominos, Pizza Huts and the McDonald's. 


Article Credit: Times of India, Bangalore edition, Monday, April 23, 2012


CavinKare mulls exit from QSR biz 
After getting into Quick Service Restaurant (QSR) business in 2009, CavinKare is contemplating an exit from the segment. It is learnt that C K Ranganathan is not happy with the progress this business has made. More importantly, the one outlet in Pondicherry and two in Chennai, besides industrial canteens, have not helped CavinKare standardize the business for rapid rollout. An insider said that food was not shampoo which one could ‘sachet it and sell it’, but it needs a different kind of approach.