Restaurant Industry.qxd - 1336

Restaurant Industry in India - Trends and OpportunitiesH VS International (India), Mr. Navjit Ahluwalia , Associate Director and Mr. Dushyant Singh, Consulting & Valuation Analyst

Research, Report Writing

Mr. Shyam Suri, Secretary General, FHRAIEditing, Report Fianlisation

Mr. Pooran Chandra Pandey, Assistant Secretary General (Research), FHRAIHotel Questionnaire & Co-ordination

Mr. Raj Rajeshwar Sharma, Computer Data AssistantDesign, Graphics, Pre-press & DTP

Printed by : Published in April 2004 by:Secretary General, Federation of Hotel & Restaurant Associations of IndiaB-82, 8th Floor, Himalaya House, 23 Kasturba Gandhi Marg, New Delhi - 110 001Phones : (011) 23318781, 23318782, 23322634, 23322647, 23323770 Fax : (011) 23322645E-Mail : [email protected] Website : www.fhrai.com

Federation of Hotel & Restaurant Associations of India (FHRAI), 2004

Price: One copy free to concerned FHRAI members.(Additional copies at Rs. 400.00 for FHRAI members and Rs.600.00 for Non-Members.)US$50.00 for foreign dispatches

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Restaurant I ndustry in I ndia - Trends and Opportunities

3Contents

Table of Contents

1. Executive Sum m ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

2. Background Scenar io and Num bers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

3. Analysis of Questionnaire Responses

3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

3.2. Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

3.3. Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

4. Food Trends-At hom e and abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

5. International Restaurant Chains & Franchise Oppor tunities . . . . . . . . . . . . . . . . . . . . . . . .29

6. What is m y Restaurant Business wor th? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

7. Conducting a Feasibility Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

8. Restaurant Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

4Restaurant I ndustry in I ndia - Trends and Opportunities

5Foreword

ForewordFH RAI has been very active in our research studies, but we have done this fir st research project onthe restaurant industry in India. This present study on Restaurant Industry in India - Trends &Oppor tunities has been conducted on our behalf by H VS International (India), which is a reputedglobal consultancy com pany in the field of hospitality industry.

Som e facts and figures on the operations of restaurants in India have been given in this study from aquestionnaire response from FH RAI hotel and restaurant m em bers. The statistical analysis in therepor t has used 165 such responses, which represents about 15% of the 1100 questionnaires whichwere sent to our restaurant m em bers, both independent and in the hotels. Apar t from this analysis,the researchers have also quoted som e interesting dem ographic & econom ic data about theconsum ers in India and their expenses on the food services. We are all aware about the boom in therestaurant sector in India, par ticular ly in the m etro cities and other large cities. One anecdotalevidence suggests that about two new restaurants are opening in Delhi and Mum bai every weekwhich m akes it as 100 new restaurants in the year in these cities. These are in the organised sector,and a huge growth is sim ultaneously taking place in the unorganized and inform al sector also. TheIndian econom y is on a high growth curve and exper ts believe that the econom y can generate anaverage 8% growth in the GDP on a sustainable basis for the next few years. This is bound to resultin high disposable incom es and higher consum er expenditure in the food service sector.

The repor t a lso gives an insight on how to car ry out valuation of restaurants and feasibility studies.It a lso gives average figures of operations and financial ratios for different types and sizes ofrestaurants. There is a lso inform ation on global trends in the restaurant industry and nam es ofm ultinational brands which are active in India and elsewhere. These facts and estim ates should be ofgreat in terest to new entrepreneurs as well as operators of existing restaurants. The repor t a lso hasfour case studies, which nar rate actual exper ience of 2 failed and 2 successful restaurants. Analysisof these cases should help new entrepreneurs in a better understanding of the factors, which need tobe exam ined carefully in a new restaurant project.

I express m y sincere thanks to Mr. Manav Thadani, Managing Director, Mr. Navjit Ahluwalia ,Associate Director & Team Leader and Mr. Dushyant Singh, Consulting and Valuation Analyst, H VSInternational (India) for their work on this study.

I do hope that our hotel and restaurant m em bers will read this research study with in terest and it willbenefit them and the new investors in the restaurant sector in their operations and projects.

Vivek Nair ,President, FH RAI

6Restaurant I ndustry in I ndia - Trends and Opportunities

7Executive Summary

Purpose of the StudyThe Feder a tion of H otel an d Restau r an tIndustr ies in India (FH RAI) engaged H VSIn ter n a tion a l to r esea r ch the r estau r an tindustry in India and identify both global anddom estic food tr en ds. 165 question n a ir er espon ses fr om in depen den t an d hotelrestaurants in India provided the sta tisticalbasis for analysis of operations and financials ofthe existing restaurant industry in the country.In add ition , a la r ge cr oss section ofprofessionals involved in the industry wereconsulted for their views. The repor t presentsthe results of the analysis and includes thefollowing:

Background Scenar io and num bers whichincludes an analysis of the dem ographicchan ges occur r in g in In d ia an d theirpotential im pact on the restaurant industry.

Analysis of r esponses collected via thequestionnaire representing a snapshot oftrends in the Indian restaurant industry.

A sum m ary of key em erging global foodtrends as well as in ternational restaurantchains that provide franchise oppor tunitiesfor operators in India.

A guide on how restaurants are valued andguidelines for conducting a feasibility studybefore opening a restaurant.

Real life restaurant case studies on bothsuccessfu l an d n ot so successfu lrestaurants.

Conclusions for each of these sections aresum m arised below and discussed in greaterdepth throughout the repor t. The reader is

advised to r ead the en tir e r epor t for acom prehensive view.

Background Scenario and NumbersBased on projections extrapolated from theThird Econom ic Census conducted in 1990, weestim ate that there are approxim ately 500,000restaurants in India in the organized sector. Thisfigure is expected to rapidly increase as a resultof the changes in dem ographic and econom icfactors which are having a significant im pact onthe restaurant industry in India . Increasingurbanization and r ising disposable incom es arecharacter istics that are com m on across severalem er gin g econ om ies, pa r ticu la r ly in Asia .H owever, the pace at which this has taken placein India in the last few years is likely to continueover the next decade and will outpace m ostother econom ies in the region. In par ticular,Merr ill Lynch estim ates a growth in urbanconsum ption at potentially 20% per annum innom inal term s (16% in real term s) for at leastthe next 5-7 year per iod. In addition, higherd isposable in com es am on g con sum er spar ticular ly in the top 25 cities and the trendtowards eating out are com bining with growthin organized retailing to fuel growth in thefoodservice sector.

There are 10 m illion households in India withaverage household incom e of Rs 46,000 perm on th an d 2 m illion households with ahousehold incom e of Rs 115,000 per m onth.Eating out has em erged as a trend, which isprevalent within this elite group. Two of out ofevery five households in this group eat out atleast once a m onth. There are 100 m illion 17-21year olds in India, and six out of ten householdshave a ch ild tha t was bor n in the post-

1. Executive Summary

liberalization era and has grown up with noguilt of consum ption.

Sales by Indian food service com panies totalledRs 350 billion in 2002. The organized sector isresponsible for approxim ately Rs 20 billionwor th of sales. Indian consum ers spend only 2.4percent of their food expenditure in hotels andrestaurants (including on prem ises and take-outsa les). Am er ican consum ers, by com par isonspend 46 percent of their food expenditure onaway-from -hom e m eals. These dem ographicnum bers represent a young nation which has anincreased propensity to spend in restaurant andother food service sectors.

Analysis of responsesAn ana lysis of 165 r esponses ou t of 1100questionnaire sent nationwide revealed som einteresting statistics:

A m ajor ity of r esponden ts (53%) wererestaurants that achieved an average checkof between Rs 200 and Rs 400.

The total num ber of em ployees em ployedby 66% of the restaurants is under 40 withonly 3% respondents em ploying m ore than100 em ployees. The sam ple ther efor erepresen ted m id-size restauran ts, whichare a m ajor ity in the country.

With r ega r ds to question s on tip an dshar ing of tips, 83% of the respondents don ot levy an y ser vice cha r ge on therestaurant bill. In com par ison, 77% of therespondents do not charge a service chargein banquets. A m ajor ity of the respondents(60%) have tip pools.

Emerging Food and Restaurant TrendsSom e of the em er gin g cu lin a r y tr en dsinternationally include the popular ity of healthfoods, use of fresh and authentic ingredients,

accep tan ce of n ew fusion con cep ts an destablishing of the chef entrepreneur. In Indiam ultinational restaurant chains had to m ake adown war d p r ice r evision an d offer m or evegetar ian toppings to increase sales volum e.This led to a dram atic im provem ent in theirper form ance. They are also adding m ore spicyitem s in their m enus to satisfy Indian taste buds.

In ter n a tion a l an d dom estic m ulti-un itrestaurant groups are expected to dr ive theexpansion in the restaurant industry in India.Am ong the leading trends in this regard wouldbe the expan sion of qu ick ser vice Asianrestaurants, fusion concepts, restaurants with afocus on enter tainm ent, and ethnic and regionalcuisine restaurants.

Restaurant Valuations and FeasibilityStudiesTher e have been ver y few r estau r an ttransactions that have taken place in India tilldate, largely because the restaurant businesshas not yet evolved in to a m ature business.H owever, we foresee a fair bit of activity in thisarea in the future: changes in m arket trends andcom petition, spurred by a huge expansion in thefood service industry in all m ajor m etro cities,would cause m any restaurants to change handsfrom one operator to the other. Restaurantvaluation is a specialised ar t and appraisers ofrestaurant real estate norm ally consider threeapproaches to value: the cost approach, thesales com par ison approach, and the incom eapproach. Each approach has its own strengthsand weaknesses, depending on the age andcondition of the im provem ents and whether thebuilding is occupied by an operating restaurantor is vacant. The cost approach is used toestim ate the cost of purchasing a site suitablefor r estauran t developm ent and build ing arestaurant on the site, including the cost of

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9Executive Summary

landscaping the site. The sa les com par isonapproach considers recent sales of restaurantproper ties that are com parable to the subjectrestaurant proper ty in location, size, and brandaffilia tion (if the restaurant was in operation atthe tim e of sa le). The in com e appr oachconsiders the actual or projected rental incom ethat could be generated by a restaurant businessoccupying the building.

A feasibility study is m uch m ore than a site-loca tion study - th is appr oach in volvesga ther in g an d an a lysin g a gr ea t dea l ofin for m ation , fr om dem ogr aph ics to design ,wh ich helps the oper a tor s m ake a betterinform ed decision about the potential success ofa specific concept at a cer tain location. In orderto establish the feasibility of the proposedr estau r an t, on e m ust fir st estim a te thedevelopm ent costs of the project. By analysingboth developm ent cost figures and cur r en tm arket conditions, and by m aking adjustm entsfor the specific character istics attr ibuted to theproposed restaurant (such as location , size,facilities, class and so for th), one will be able toder ive an appr opr ia te con str uction cost

estim ate for the restaurant. This investm ent hasto be com pared with the returns being indicatedby the in com e an d expen se sta tem en t toeva lua te whether or n ot the r estau r an tenvisaged is financially feasible.

Restaurant Case StudiesFour real life case studies are presented with thea ttem pt to h igh ligh t cr itica l factor s tha tdeterm ine the success or failure of a restaurant.For each case study, we in ter viewed theentrepreneur and asked him /her to identify thekey lessons learnt in running a restaurant. Wedescr ibe the exper ience of each entrepreneur,together with their perceptions of where theywere r ight, or where they went wrong. Two casestudies represent entrepreneurs who believedthey had the r ight idea as well as the resourcesto m ake a success in the restaurant business,an d they succeeded The other two caseshighlight som e of the factors that did not allowthe restaurant to succeed and both of them hadto close down. The studies give the factors,which led to the success of these enterpr ises.

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Background Scenario and Numbers

Significant economic & demographic facts India has ar r ived on the global roadm ap. It isthe on ly coun tr y tha t has exper ien cedacceler a tion in growth r a tes of per capitaincom e over the past decade. Alm ost all othereconom ies have shown growth rates lower thanIndia 's through the decade. Also, India 's percapita incom e growth over the past five years(1997-2002) has outper form ed that of otherdeveloped and m ajor Asian econom ies, saveChina.

India 's per capita incom e grew by about 19% in1997-2002, second only to China, whose percapita incom e grew by 39% dur ing this per iod.The only other em erging Asian country thatcom pares with India 's growth rates is Korea,which has grown around the sam e rate as India.Taiwan com es four th with a growth rate of 13%dur ing the per iod.

Dur ing 1992-2002, India 's per capita incom egrew by 46% - a r ise of 980 basis points (9.8%)from the 36.5% growth rate observed dur ing1982-92. On the other hand, China has shown adecline in growth rate over the decade by asm uch as 700 basis points (7%). And countr iessuch as Thailand and H ong Kong have seen afall in growth rates by as high as 6,200 basispoin ts (62%) and 5,100 basis poin ts (51%)respectively.

Increasing urbanization and r ising disposableincom es are character istics that are com m onacross several em erging econom ies, par ticular lyin Asia. H owever, the pace at which this hastaken place in India in the last few years is likelyto continue over the next decade and willoutpace m ost other econom ies in the region. Inpar ticular, Merr ill Lynch estim ates growth in

urban consum ption a t poten tia lly 20% perannum in nom inal term s (16% in real term s) forat least the next 5-7 year per iod. What explainsth is phen om en on ? The an swer lies in thedem ographic shift that is taking place in India.To put it sim ply, India is producing a m uchlarger num ber of young people enter ing the jobm arket com pared to other Asian econom ies. Thenum ber of working-age adults in the country isr ising at a fast pace. While this is true of Chinaas well, the pace of increase is faster in Indiathan in China. Thus, even with China 's vigorouspopu la tion policies, its per cap ita in com egrowth is not r ising as fast as India.

The r estau r an t in dustr y is an im por tan tcom pon en t of ou r n a tion 's econ om y, an dem ploym ent oppor tunities in this sector shouldcontinue to grow in the future as a direct resultof the dem ogr aph ic chan ges takin g p lace.Indian consum ers spend only 2.4 percent oftheir food expenditure in hotels and restaurants.Am er ican an d Br itish con sum er s, bycom par ison, spend 46 percent and 29 percentrespectively, of their food expenditure on away-from -hom e m eals. This indicates that there issignificant scope for the growth of food servicesector in India in the years to com e.

A num ber of factor s a re dr iving increasedfoodservice sales in India:

Growth in per sonal incom e- The increase inbuying power of Indian consum ers is dr iving thegrowth in the foodservice sector. Apar t from thegrowth in per capital incom e, as per figuresgiven above, there are other im por tant factorsalso contr ibuting to this kind of consum ption.Just 2.4 percent of Indian households earn 50%of India 's GDP. The top 3.9 m illion households

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2. Background Scenario and Numbers


have an aver age household in com e ofapproxim ately $35,000 per annum . Accordingto the National Council for Applied Econom icResearch (NCAER), as indicated in Table 2-1,high incom e households in urban India grew atover 21.5% on a com pounded annual growthbasis between 1995-96 and 1998-99.

Table 2-1 g row t h in per c api t a inc om eby inc om e c lasses

Income Class* Average Annual Growth in percapita income (CAGR in %), 1995-96 to 1998-99

Urban Rural TotalLower -10.8 -4.5 -5.5Lower-middle 0.9 7.7 5.6Middle 5.3 7.8 6.6Upper-middle 9.9 8.6 9.3High 21.5 14.3 18.6* inflation adjusted, comparable over timeSource: NCAER

The consum ing classes consist of 40 m illionincom e-earners with a per capita incom e of$4,000 (Rs. 1.8 lakhs) and 10 m illion with a percap ita in com e of $12,000 (Rs. 5.4 lakhs).Consum ers are also m igrating up the incom echain - from the "have nothing" to the "havesom e" to the "have m ore" to the "have lots" and,finally, "have all". These num bers for differentincom e groups are given in Table 2-2.

Table 2-2 No of Households by inc om ec lasses

No of Category Anuual Monthly Households Income USD Income Rs2 Million Have All 30,000 115,00010 Million Have Lots 12,000 46,00040 Million Have More 4,000 16,000100 Million Have Some 1,500 6,00030 Million Have Nothing 200 700Source: IMA ResearchConversion rate of 1 USD = Rs 46 was used for this table.

Shr inking household size- The size of the Indianhousehold has declined over the last few years(from 5.9 people per household in 1990 to 5.5people in 1998). The total num ber of householdsin India has increased by less than 3 percent peryear from 1990 to 1998; however, the num ber of

households in m iddle, upper and high-incom esegm en ts has gr own by 12% an n ua lly.Approxim ately 23.6 m illion households havebeen added to the high, upper and m iddleincom e segm ents of Indian consum ers from1990 to 1998. These households have higherdisposable incom e per m em ber and have agreater propensity to spend on food.

Ur ban isa t ion - Most h igh in com e In d ianconsum ers live in urban India. Approxim ately50 percent of households in the high, upper andm iddle incom e groups reside in urban areas.Over one-th ird of urban Indian consum ersreside in less than one percent of the totalnum ber of cities in India. The percentage ofIndians living in cities has increased from 19.9percent in 1980 to 30.5 percent in 2000.

Growing num ber of wom en in the wor kfor ce-The num ber of dual incom e households whereboth husband and wife work is increasing. Over16 percent of the population of Indian wom enwork full-tim e and spend m ost of their tim eaway from hom e; this has been an im por tantfactor influencing the trend towards m ore m ealsaway from hom e.

E m er gen ce of th e Liber a lisa t ion Ch ild ren -There are a 100 m illion, 17-21 year olds inIndia, and six out of ten households have a"libera lisa tion ch ild" (Post 1991). This is agen er a tion tha t was bor n in the post-liberalisation era and has grown up with noguilt about consum ption.

The r ise of the self em ployed- The propor tion ofself em ployed in urban India has r isen to above40%, replacing the em ployed salary earner asthe n ew "m a in str eam m ar ket". A H an saResearch Group study shows the even in the'cream y layer ', com pr ising the top two socialclasses in towns having a population of 10 lakhplus, in urban India, 40% of chief wage earners

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in households are shopowners, petty traders,businessm an and self em ployed professionals.Unlike the salary earner, the self em ployed useproducts m uch m ore to signal success.

Men u d iver sifica t ion - H igh -in com e In d ianconsum ers are seeking var iety in their choice offood. Urban Indian consum ers are aware ofva r ious in ter n a tion a l cu isin es (Con tin en ta l,Chinese, Mexican, Ita lian , Thai and Japanese)and an increasing num ber are willing to try newfoods.

Super Rich DefinedThe Media Research Users Council (MRUC)under took a study of the incom es and spendingpatterns of households and called it The IRSPlatinum . The data collected was then analysedby the Com m unication Channel Planning (CCP)division of In itia tive Media.

IRS Pla tin um defin es super r ich a s an yhousehold tha t has a colour television ,refr igerator, washing m achine and a car. Thestudy was r estr icted to Mum ba i, Delh i,Ahm edabad, Bangalore, Chennai, and Pune -the cities havin g a h igh p r opor tion ofhouseholds that satisfied the above cr iter ia .These towns account for 39 percent of all thesuper r ich households that reside in urban Indiatoday.

It is in teresting to note that m etros such asCalcutta and H yderabad are m issing from thelist. These cities would have definitely qualifiedby the norm al dem ographic param eters. Theym issed out since the penetration of one or m oreof the listed durables was low in these otherwiselarge m etros.

A sam ple of 5,226 households was surveyed byORG-MARG on behalf of MRUC to understandthe lifestyles of the affluent, with m edia andconsum er habits of such individuals and their

households. Only 3.4 percent of the householdsin those six m etros qualified to be included inthe Platinum category.

The average m onthly household incom e (MH I)of a Platinum household is Rs 23,000. And,in terestingly enough, every m onth, 60 percentof this am ount is spent to m aintain the life andstyle of the household.

Well-heeled Capital of IndiaAs per the study, ever y secon d Pla tin umhousehold is in Delhi. Mum bai com es next, butthe probability drops down to one out of five. Itis true that today, Delhi is, by far, the city of thesuper r ich of In d ia . The city's Pla tin umhouseholds have an average incom e of Rs24,450. Mum bai earns the highest (Rs 31,970)and Bangalore earns the least (Rs 20,180). Thech ief wage ea r n er of the fam ily is h igh lyeduca ted . In ter m s of occupa tion , he isp r edom in an tly a busin essm an in Mum ba i,Chennai and Ahm edabad. In the other cities heis either an officer or an executive at a seniorlevel. Mor eover, eigh ty-eigh t per cen t ofPlatinum households' adult m em bers have acollege-level degree.

In these households the housewife is a lso highlyeducated (68 per cent are at least graduates).H owever, in spite of their high education, only17 percent are working, either full-tim e or par t-tim e. The average household size is 4.5, whichreflects the nuclear structure of the fam ilies. 85percent of this elite group has its own house andis gradually going in to buy its second TV set.Alm ost all the households in this group have acable and satellite connection.

If you have it then spend itThe in teresting par t is the inform ation that IRSPla tin um pr ovides on the m on th ly fam ilyexpenditures. The pa tterns a re indeed very

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revealing. On an average 61 percent of MH I isspent to m aintain the life and style of these elitehouseholds. It r ises to 69 percent in Ahm edabadand dr ops to 56 per cen t in Chenna i. Theexpenditure is tracked across 20 heads rangingfrom the m onthly electr icity bill to the am ountspent on last eating out. On an average, eachhead accounts for about 5 percent of the totalexpen ditu r e. The h ighest am oun t goes form onthly provisions accounting for alm ost 17percent of the total spend.

Chennai is the surprise packageAt city level cer ta in in ter estin g pa tter n sem erged. Chennai had the h ighest averagem onthly telephone bill. Its residents spend them axim um on personal care products as well ason cosm etics. Likewise, they spen d them axim um while eating out, on alcohol andbeverages, on buying gifts and also on char ityand donations. Bangalore pays the h ighestm onthly rents, and spends the highest am ong allcities on m aintenance and on travelling andconveyance.

In term s of occupation, it is the reflection of theIndian econom y with 44 percent focussing onthe m an ufactu r in g sector. With in th is,engineer ing goods alone account for 8 percentof them . This is the largest skew across all thethree sectors put together. Financial servicesincluding banks (5.5 per cent) and the cur rentfavor ite, IT and software (4.2 per cent) stand outam ongst the rest.

In term s of their m edia habits, as expected,alm ost all the Platinum households can be easilyr eached th r ough either the p r in t or thetelevision. Radio has lost out (25 percent), but ofthose tuning in , a lm ost 90 percent are tuningin to FM. H owever, un like the West,predom inantly they tune in at hom e. But the

surpr ise package is In ternet. It has alreadyover taken Radio (30 per cen t). Pla tin umhouseholds are spending m ore tim e on theInternet than on reading.

Number of Restaurants in IndiaIt is difficult to assess the num ber of restaurantsin India. They receive their licenses from thelocal m unicipal author ity, which is m ainly alicence from the point of view of health andhygiene. In cer tain bigger cities, there is a lso arequirem ent of a license from the local policefor sta r tin g oper a tion s. Restau r an testablishm ents in sem i-urban and rural areas,which m ay also include road-side restaurantsand dhabas on in ter-city roads and highways,m ay not be possessing any license, from anyauthor ity. It is, therefore, difficult for anyone tocom pile statistics of all the restaurants in India.

We believe that the best effor t in this regard hasbeen m ade in the governm ent census. We havefigures available from The Third Econom icCensus which was conducted in all cities/unionter r itor ies except Jam m u and Kashm ir dur ing1990, along with the house listing operations ofthe 1991 population census. We have not beenable to access the econom ic census which m ayhave been don e in 2000, a s pa r t of thepopulation census of 2001.

The econom ic census of 1990 divided hotel andrestaurant enterpr ises in two categor ies, OwnAccount Enterpr ises (OAE) and Establishm ents(Estt). The figures of the two categor ies havebeen separately given for rural and urban areas.Table 2-3 reflects the break-up of hotel andrestaurant establishm ents for rural and urbanIndia. Table 2-4 reflects data relating to thestate-wise distr ibution of hotel and restaurantenterpr ises in the country.

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Table 2-3 No of Hot e l and Rest aurantEnt er pr ises in Ind ia

Location OAE % Estt % Total %Rural 459,134 42.6 133,240 12.4 592,374 55.0Urban 243,044 22.5 242,888 22.5 485,932 45.0Total 702,178 65.0 376,128 34.9 1,078,306 100.0Source: The Economic Census of India, 1990

If we assum e that there m ay have been a growthof 6% an n ua lly in hotels an d r estau r an testablishm en ts a fter 1990, the n um ber ofestablishm ents would have doubled in the 12years upto 2002. We therefore estim ate thatthere are approxim ately 2.2 m illion or 22 Lakhhotel and restaurant establishm ents in India inthe year 2002. We fur ther estim ate that of thetotal figure, approxim ately 500,000 restaurantsqualify as establishm ents in the organized sectorwith m ore than 20 seats, an entrance door, am enu card and waiter service. As the num ber oflodging or hotel units in these figures would notbe m ore than 20,000 or 30,000, we can presum ethat the entire figure of 22 lakhs can apply to therestaurant sector. For restaurants, the growthpatterns would be different for different cities,with m etr o cities ach ievin g abou t 15-20%growth and sm aller cites about 5%.

The eating out cultureEating out has evolved in to a popular trendam ong Platinum households. Two out of fivesuch households eat out at least once a m onth.This is highest in Bangalore (43 percent) andlowest in Pune (33 percent). It is estim ated thatIndians spend Rs 350 billion annually on eatingou t. Mor oever, of th is Rs 350 billion , theorganised sector accounts for only Rs 20 billion,suggesting a trem endous potential for growth inthis area.

An analysis of National Accounts Statistics datawith r ega r ds to p r iva te fin a l con sum ptionfigures (PFCE) reveals in teresting insights aswell. The n a tion a l accoun ts p r ovided isaggr ega ted da ta for 37 con sum ption

ca tegor ies. Although the over a ll PFCE isavailable for 2001-02, the disaggregate data isavailable up to 2000-01. There were only ninePFCE segm ents that have recorded continuoushigh growth per form ance and include hotelsand restaurants.

Another survey that captures eating out habits isthe Readership Survey. Table 2-5 and Table 2-6illustrate the eating out habits of the sam ple bycity and for the country as a whole. The surveyhelps in identifying cer tain trends as regards theuse of restaurants and frequency of their use.The results indicated that Bangalore scored theh ighest in ter m s of the per cen tage ofrespondents eating out m ore than once a weekfollowed by Kolkata and Chennai. On a broaderlevel the all India average of respondents rarelyeating out was 70%, once again indicating thepotential that exists for the food service sector inthe country in the years to com e.

Table 2-4 Geographic a l Dis t r ibut ion ofHot e l and Rest aurant Ent er pr ises

Own AccountState/UT Enterprises Establishments AllAndhra Pradesh 69,979 26,504 96,483 Arunachal Pradesh 446 1,029 1,475 Assam 12,005 14,713 26,718 Bihar 39,822 21,599 61,421 Delhi 10,917 10,642 21,559 Goa 1,740 1,189 2,929 Gujarat 14,759 12,945 27,704 Haryana 11,971 5,426 17,397 Himachal Pradesh 7,931 3,214 11,145 Karnataka 60,093 34,429 94,522 Kerala 71,472 27,483 98,955 Madhya Pradesh 39,248 24,412 63,660 Maharashtra 47,828 52,237 100,065 Manipur 2,174 794 2,968 Meghalaya 2,222 3,100 5,322 Mizoram 1,010 619 1,629 Nagaland 589 949 1,538 Orissa 34,811 18,007 52,818 Punjab 10,006 6,694 16,700 Rajasthan 29,426 14,820 44,246 Sikkim 261 398 659 Tamil Nadu 85,563 36,637 122,200 Tripura 4,096 1,254 5,350 Uttar Pradesh 73,911 28,760 102,671 West Bengal 68,179 26,508 94,687 Others 1,719 1,766 3,485 Total 702,178 376,128 1,078,306

15

16

Tabl

e 2-

5 Di

ning

out

Hab

its fo

r se

ven

Indi

an C

ities

Delh

iGr

eate

r Mum

bai

Chen

nai

Kolk

ata

Hyde

raba

dBa

ngal

ore

Ahm

adab

adPu

neEa

ting

Out I

n Re

stau

rant

(000

's)%

(000

's)%

(000

's)%

(000

's)%

(000

's)%

(000

's)%

(000

's)%

(000

's)%

Mor

e Of

ten

Than

Onc

e A

Wee

k11

31.

416

21.

413

52.

726

02.

896

2.2

175

4.7

230.

834

1.5

Once

A W

eek

240

3.1

319

2.7

139

2.8

183

214

83.

428

17.

647

1.6

743.

3On

ce A

For

tnigh

t21

12.

732

02.

715

23.

111

51.

212

72.

927

17.

380

2.7

652.

9On

ce A

Mon

th57

97.

497

68.

367

513

.736

23.

926

86.

249

213

.322

87.

724

310

.9On

ce In

2-3

Mon

ths

470

612

3210

.554

611

448

4.8

229

5.3

318

8.6

277

9.4

277

12.5

Less

Ofte

n/On

ly At

Fes

tivals

495

6.4

941

861

012

.321

4323

134

3.1

293

7.9

253

8.6

235

10.6

Rare

ly/Ne

ver/C

an't R

emem

ber

5477

70.3

6792

57.9

2283

46.2

5442

58.4

3150

73.1

1817

49.1

1611

54.7

1143

51.5

Sour

ce: R

eade

rship

Sur

vey

Tabl

e 2-

6 A

ll In

dia

Urb

an D

inin

g ou

t H

abit

All I

ndia

Urb

anEa

ting

Out I

n Re

stau

rant

s(0

00's)

%M

ore

Ofte

n Th

an O

nce

A W

eek

3068

1.7

Once

A W

eek

4568

2.5

Once

A F

ortn

ight

3800

2.1

Once

A M

onth

1004

65.

5On

ce In

2-3

Mon

ths

9858

5.4

Less

Ofte

n/On

ly At

Fes

tivals

1459

98

Rare

ly/Ne

ver/C

an't R

emem

ber

1278

2269

.6

Sour

ce:R

eade

rship

Sur

vey


A

A nalysis of Questionnaire Responses

3.1 GENERALThis study of Restaurant Industry in India-Trends & Oppor tunities is based on data andcom m en ts p r ovided by m em ber s of theFederation of H otel and Restaurants Associationof India. In order to reflect a com prehensiveview of the r estau r an t in dustr y, we haveincluded com m ents and data from both chainaffilia ted and independent restaurants.

Abou t 1,100 question n a ir es wer e sen t ou tna tionwide to independen t r estaur an ts andhotels. A total of 165 restaurants responded, ofwhich 90 responses were from the m etro citiesof New Delhi (18), Mum bai (43), Kolkata (2),Chennai (6) and Bangalore (10). The rem aining75 responses reflected a hom ogenous m ix from44 cities in India with the m axim um responsesfrom Pune (11), followed by Agra (8) and Jaipur(5). H owever, it is im por tan t to note tha tresponses for the financial data were not ascom plete when com par ed to the gen er a lquestion s. Th is factor com bin ed with ourstr in gen t cr iter ia to accep t on ly va lida tedfinancia l da ta r esu lted in fewer r esponses,providing us a total of 72 usable responses. Asthe data in the following paragraphs shows, therespondents belong to the upper end segm ent ofrestaurants in India. They are the ones who arem ore organized to respond to questionnaires.This m ay not be a negative factor for this study,as they are usually trend setters which othersfollow.

Composition of Participating RestaurantsThe su r vey in d ica ted tha t 40% of therespondents were restaurants located within ahotel. A slightly larger propor tion (41%) were

independent restaurants operating a single unitand 19% were m ulti-unit restaurants operatingtwo or m or e un its. Mor eover, 40% of therestaurants that par ticipated in the survey wereown ed by sole p r opr ietor sh ips, 15% wer ethrough par tnerships and 40% were pr ivatelim ited com panies. Large hotel and restaurantcom panies were conspicuous by their absenceand contr ibuted only 1% of the total responses.This can also be explained by the fact that largehotels do n ot m a in ta in deta iled /accur a tefinancial break-up of costs by restaurant, as theyuse a num ber of central services like a com m onlaundry, housekeeping and secur ity and, in m ostcases, a central kitchen.

Highlights & CharacteristicsTable 3.1-1 on page 18 sum m ar izes theresponses to Section I of the questionnaire andpr ovides a view to som e im por tan tcharacter istics representative of restaurants inIndia.

The m ajor ity of respondents (53%) wererestaurants that achieved an average checkbetween Rs 200 and Rs 400. The second-la r gest gr oup , com pr isin g 36% of ther esponden ts, had an aver age check ofbetween Rs 400 and Rs 650. A m uchsm aller percentage of restaurants, 5% and6%, had an average check of either over Rs650 or below Rs 200, respectively.

60% of the respondents indicated full liquorservice and 5% indicated a license for onlywine and beer. 35% of the respondentsserved no alcoholic beverages.

Multicuisine restaurants, serving a var ietyof cuisine including Indian, Continental

17

3. Analysis of Questionnaire Responses


and Chinese, constitu ted a fa ir ly la rgesegm ent (17%) of the respondents to thesurvey.

Recorded m usic (62%) is the m ost widelyused enter tainm ent in the restaurants. Anum ber of r esponden ts (17%) use livebands.

The response with regards to the site andbuilding on which restaurants are locateddrew an alm ost equal response betweenowned and leased. This is a lso indicative ofthe fact tha t a m ajor ity of r estauran tsresponding to the survey (63%) have beenin the business for over ten years and only6% of the r espon den ts have been inbusiness for under two years. As leasingrestaurant buildings is a fair ly recent trend,we assum e that, had the respondents beenskewed towards m ore recent entrants, thepercentage of sites leased as opposed toowned would have been higher.

Alm ost all respondents are open for lunchand dinner. 44% of the respondents areopen for breakfast and 13% responded asbeing open for near ly 24 hours. Most of thela st two ca tegor ies m ust be hotelrestaurant.

The survey indicated that the m ajor ity ofrestaurants (38%) are between 50 and 100seats.

The total num ber of em ployees em ployedby 66% of the restaurants is under 40 withon ly 3% r espon den ts r espon sible forem ploying m ore than 100 em ployees.

Over on e-th ir d of the r estau r an tsr espon ded to havin g r en ova ted theirrestaurant in the last one year but an equalnum ber also had not renovated for overthree years. The average am ount spent per

restaurant on renovations was Rs 9 lakh.

A m ajor ity of restaurants (73%) respondedthat they did not have a loyalty program . Infact, we believe a m uch larger percentageof restaurants do not have any loyaltyprogram s, but som e hotel respondents m ayhave confused restaurant loyalty programwith the hotel loyalty program .

Table 3.1-1 Com posi t ion of Par t ic ipat ingRest aurant s

Type of OwnershipSole Proprietorship 19 %Partnership 40Government Owned -Private Company 40Public Limited Company. 1

Type of OrganisationIndependent (operates one unit) 41 %Multi-Unit (operates two or more units) 19Hotel restaurants 39Others 1

Primary Type of BusinessFine dining (average check over Rs. 650) 5 %Fine dining (average check over Rs. 400) 36Fine dining (average check over Rs. 200) 53Any Other (Average check below Rs. 200) 6Limited service (only quick service / fast food) 0

Liquor ServiceFull liqour Service 60 %Only Wine and Beer 5No alcholic beverages 35

Primary Menu ThemeIndian Mughlai 22 %Indian Fast Food 10French / Continental 9Western Fast Food 4Regional (eg. South Indian etc) 12Coffee Bar 4Asian (chinese, Indonesian, Japanese, Korean) 15Mexican 2Italian 4Multicuisine 17Any other

Entertainment in RestaurantLive band / Show 17 %Television Monitor 18Recorded Music 62All the above mentioned entertainment 2Any other 1

Site on which restaurant is locatedLand owned 30 %land leased 11

18


Building owned 31Building leased 27

Number of Years in Businessunder 2 years 6 %2 to 5 years 145 to 10 years 17over 10 years 63

Restaurant's best estimate of sales if offered in %Take out 5 %Outside CateringBanquet Services

Restaurant Opened forBreakfast 44 %Lunch 96Dinner 10024 hours (nearly) 13

Number of SeatsUnder 50 4 %5o to 100 38100 to 150 31150 to 200 14200 to 250 7250 to 300 3Above 300 3

Total Square FootageUnder 1,000 6 %1,000 to 2,000 212,000 to 3,000 143,000 to 4,000 184,000 to 5,000 17Above 5,000 24

Total no of employeesUnder 20 25 %20 to 40 4140 to 60 1360 to 80 1280 to 100 6Above 100 3

Last renovation carried outUnder 1years 34 %1 to 3 years 30Over 3 years 36Total cost of renovating (Lakhs) 9

What services do you outsource/contract ?Cleaning 20 %Payroll and Accounting 9Laundry 52Marketing 9Repair and Maintenance 38Food production 7Any other 7

Do you have Loyalty program ?Yes 27 %No 73

3.2 TRENDSSection II of the questionnaire was designed tohighlight em erging trends within the restaurantindustry in India. The questions covered a widea r ea r an gin g fr om em ployee h ir in g an dm otivation to locations and m enu them es fornew restaurants.

Highlights & CharacteristicsBelow, we highlight som e of the im por tanttrends that em erged from the analysis of theresponses received.

Refer rals were ranked as the fir st choice asan avenue to recruit staff, followed byadver tisin g, p lacem en t agen cies an dinternet sites. Som e respondents indicatedcam pus recruitm ents, walk ins and directapplications as other avenues used by themin this regard.

H igher Salary, followed closely by GrowthProspects, were the leading m otiva tionfactors indicated by respondents.

Respondents chose business people as theirm ost im por tant custom er group. This isperhaps in line with the character istics ofthe m ajor ity of restaurants par ticipating inthe survey

More than 80% of the respondents felt thatthe culture of eating out has increased overthe last three years.

With r ega r ds to wha t wou ld be theirsuccess form ula for a new restaurant inter m s of m en u them e, 28% of therespondents chose Multicuisine, 17% choseIndian Mughlai, 16% chose Asian and 10%pointed to regional Indian.

Alm ost half the respondents prefer red theirrestaurants to be located in a com m ercial

19


m arket, while 26% prefer red to be locatedin a hotel.

The survey indicated that the m ajor ity ofr estau r an ts (38%) would p r ice a n ewrestaurant they opened between an averageper cover of Rs 200 and Rs 400.

Over on e-th ir d of the r estau r an ts useim por ted raw food m ater ials and 44% stockim por ted alcoholic beverages.

A m ajor ity of restaurants (59%) respondedthat they did not im por t or use im por tedkitchen or restaurant equipm ent. H owevera significant 41% did.

With r ega r ds to question s on tip an dshar ing of tips, 83% of the respondents don ot levy an y ser vice cha r ge on therestaurant bill. Am ong the 17% who do levya service charge, the m edian with regardsto the percentage charged is 8%.

In com par ison, 77% of the respondents donot levy a service charge in banquets.Banquets is m ostly a hotel activity and it ispossible that those who said yes, were hotelrestaurants. H owever, the 23% that do,have a m edian charge of 10%. A m ajor ityof the respondents (60%) have tip pools.

In ter estin gly, wher e r estau r an ts levyservice charge as par t of the bill, them edian per cen tage r eta in ed bym anagem ent is 25% as com pared to 10% incase of tip pools. Also, the m edianpercentage retained by service staff is m uchhigher in the case of tip pools (97%), ascom pared to a situation where service ischarged and the m oney distr ibuted m oreequitably am ong all staff with the servicestaff retaining a lower figure (53%).

Table 3.2-1, sum m ar izes the r espon ses toSection II of the questionnaire on the trends.

Table 3.2-1 Trends as ind ic at ed byrespondent s

What avenues do you use to recruit staff Rank *Advertisements 2Internet Sites 4Placement Agencies 3Refferals 1Any Other 5

What do you consider the most important ways to motivate staff RankHigher salary 1Flexible working hours 4Increased training 3Modern restaurant/ kitchen equipment 5Growth prospects 2Any other

Who is your most important customer group? RankBusiness People 1Tourists (out of town) 3Families/housewives 2Parties for children 4Young people (15 to 30 age group) 5Any other

Which success factors are most importantto you? RankQuality of food 1Entertainment 5Quality of service 2Promotion/ Marketing 4Restaurant seting/dcor 3

Do you feel in the last three years the culture of eating out hasIncreased a lot 58 %Remained the same 6Increased marginally 29Decreased 6

If you were to build another restaurant today(what in your view will be a successformula) ?What would be your Menu themeIndian Mughlai 17.4 %Indian fast food 15French/ Continental 1Western Fast Food 5Regional (eg. South Indian etc) 10Coffee Bar 5.16Asian (Chinese/Indonesian/Japanese/Korean) 16.1Mexican 0Italian 1Multi Cuisine 28

Would you prefer to be located in/attached toA hotel 26 %In a commercial Market 48Residential Area 14A transportation center(airport, railway station) 13

What kind of Restaurant would it be?Fine dining (average check over Rs. 650) 11 %

20


Fine dining(average check over Rs. 400) 33Fine dining(average check over Rs. 200) 38Limited Service (all quick service/ fast food) 19

Do you use imported materials?Food and non alcoholic beveragesYes 37 %No 63

Alcoholic spiritsYes 44 %No 56

Kitchen or restaurant equipmentYes 41 %No 59

What is your policy on tips?Do you levy service charge in Rest. BillsYes 17 %No 83% of bill amount 8

Do you levy service charge on banquets?Yes 23 %No 77% of bill amount 10

Do you have a tip pool? 60 %Yes 40No

How do you dispose off the service charge? Median **Retained by Management 25 %Managers 15Service Staff 53Kitchen Staff 25Others (e.g. office cashier, security, etc) 10

How do you dispose off tips pools? MedianRetained by Management 10 %Managers 10Service staff 97Kitchen staff 29Others (e.g. office, cashier, security) 10

* 1 is the hightest and 5 lowest** Please see definition of median on page

3.3 FINANCIALSSection III of the questionnaire was designed tocap tu r e the fin an cia l str uctu r e of therestaurants in India. The questions covered theprofit and loss account. The section belowhighlights som e of the im por tant trends thatem erged from the analysis of the responses.

Understanding Medians & MeansThis section u tilizes m edians for r epor tingresults. A m edian is defined as the m iddle valueof all am ounts repor ted for a specific line item .For exam ple if we received nine responses fornum ber of em ployees-8,4,2,6,9,7,5,1,3- thesenum bers would be ar ranged sequentially (inorder of size) -1,2,3,4,5,6,7,8,9- and the m iddlevalue, 5, would be the m edian. 50% of theresponses received are below the value and 50%are above.

In conjunction with m edians, lower quar tilesand upper quar tiles are used to give a fur therdescr iption of the sam ple results. Medians areused m ost often as we believe that the m ediangives less biased results com pared to averageswhich are sum of all figures divided by thenum ber of figures. Medians keep the resultsfr om bein g skewed by a few abn or m a lrespondents with higher or lower figures. Forexam ple if a few r espon din g r estau r an tsincur r ed very la rge opera ting losses, thoselosses would be divided equally am ong a llrestaurants (when using m ean calculations) andwould reduce the average net profit of the entiregroup which, for the m ost par t, m ay haverepor ted respectable profits.

Quar tiles divide the responses in to four equalpar ts, with m edians still being the m iddle value.The "lower quar tile" is the value that separatesthe lowest 25% of the respondents from thesam ple when ar ranged sequentially, while the

21


upper quar tile defines the boundary of theupper 25% from the lower 75%. Stated anotherway, 50% of all responses fall between the lowerquar tile and the upper quar tile. For exam ple ifwe receive 99 responses for a specific item s andthe responses were num bered 1 through 99, them edian (or m iddle value) would be 50. Thelower qua r tile wou ld be 25 (25% of ther espon ses wou ld be below 25) an d upperquar tile would be 75 (25% of the responseswould be above 75). Fifty per cen t of theresponses would fall between the lower andupper quar tiles.

It will becom e evident in reading this repor t thatcolum ns do not always total when m edians areinvolved. The reason behind this is that eachline item is analysed separately. In Table 3.3-1,when all am ounts are ar ranged sequentially, them edian total sale per seat is Rs 81,638. Thisfigure is based on the 69 restaurants that gaveus inform ation for this specific line item . Them edian per seat for total food and beveragesales are Rs57,659 and Rs 18,564, respectively.These two am ounts were analysed on a sam pleof 61 and 40 restaurants respectively, whichgave us separa te food and beverage sa les.Different sam ple sizes are one reason whyfigures do not add up to the total shown.

There is another reason that colum ns in thetable do not total. When using m edians, it isim por tant to rem em ber that the m edian foodsales, the m edian beverage sales and the m ediantotal sales figures repor ted probably representthe results of three different restaurants, eventhought the sam ple size of each m ay be equal.Th is a lso holds tr ue for lower and upperquar tiles.

Highlights & CharacteristicsTable 3.3-1 sum m arizes the responses to SectionIII of the questionnaire and highlights som e

im por tant findings. A total of 69 respondentscom pleted the fin an cia l section of thequestionnaire.

Table 3.3-1 Trends as ind ic at ing byrespondent s

In Rs.Median Average Check 241Median Total Sales per full time equivalent employee 311,974Median Total Sales per Square foot 3,494Median Income before income taxes as % of total Sales 4.51%Median Total Cost of Sales 40%

The m edian aver age check for therespondents is Rs 241.

The respondents repor ted incom e beforetaxes of approxim ately 5% of sales.

Median total sales per full tim e equivalentem ployee is Rs 311.974.

The survey indicated that the m edian forthe percentage of food sale to total sale was76%. Bever age sa le accoun ted for therem ainder 24%.

The m edian cost of sales as percentage oftotal sale was 40%.

Table 3.3-2 presents the incom e and expensestatem ent of the 69 respondents who providedfinancial data . The data is presented both as apercentage of total sales and as am ount per seat.

The survey indicated that the m edian forthe percentage of food sale to total sale is76%. Bever age sa le accoun ts for therem ainder 24%.

The m edian cost of sales as percentage oftotal sale is 40%

The upper qua r tile of in com e befor eincom e taxes is 11% and the m edian is 5%.

22


23

Table 3.3-2 Perc ent age of Tot a l Sale and Am ount per Seat

Percentage of Total Sales Amount Per Seat (Rs)Lower Median Upper Lower Median Upper

Quartile Quartile Quartile QuartileWhere it Came FromSales

Food Sales 78% 76% 75% 42,988 57,659 61,225Beverage Sales 22% 24% 25% 12,476 18,564 20,268Total Sales 100% 100% 100% 55,294 81,638 78,040

Cost of SalesFood1 44% 43% 40% 18,824 24,646 24,322Beverage2 37% 32% 38% 4,667 5,903 7,624Total Cost of Sales 3 47% 40% 40% 25,882 32,515 30,917

Operating ExpensesSalaries & Wages 12% 12% 15% 6,739 9,619 11,606Employee Benefits 2% 2% 3% 925 1,354 1,958Direct operating expense 4% 7% 9% 2,392 5,434 7,099Music and Entertainment 0% 1% 1% 129 467 1,042Marketing 1% 1% 1% 425 640 970Utility Services 2% 2% 3% 1,257 1,607 2,168Restaurant Occupancy Costs 2% 2% 4% 865 1,731 2,964Repair and Maintenance 1% 2% 3% 582 1,359 2,217Depreciation 3% 4% 5% 1,912 3,284 3,625Other Operating Expenses/ (Income) 1% 2% 4% 291 1,869 3,028

Total Restaurant Operating Expenses 37% 30% 35% 20,415 24,506 27,570General and Administrative Expenses 3% 4% 8% 1,809 3,599 6,408Corporate overheads 1% 3% 8% 706 2,116 6,235

Total Operating expenses 45% 49% 48% 24,994 39,824 37,775Interest Expenses 1% 2% 3% 709 1,453 2,101Other Miscellaneous Expenses 1% 1% 2% 481 780 1,527

Income before income tax 2% 5% 11% 1,172 3,679 8,667

1 Food Cost as percentage of Food Sale2 Beverage Cost as percentage of Beverage Sale3 Total F&B Cost as Percentage of Total Sale

Note: While reviewing Table 3.3-2, it should be borne in m ind that for each line item the num ber ofresponses received var ied thereby m aking it necessary to view data in term s of m edians and not asaverages. Also Incom e before incom e tax as a percentage can not be der ived from sim ply subtractingtotal expenses from the revenues shown above for exactly the sam e reason. Each revenue or expenseline item m ust be viewed in isolation, however the total expenses and incom e before incom e tax linesindicate the m acro picture as indicated by respondents in the survey.

A


24

Food Trends-A t home & abroad

IntroductionWhen restaura teur s want to spot em ergingculinary trends they go to what they considerthe u ltim ate source - custom ers. Anecdota levidence from restaurant custom ers is only oneway to spot tr en ds. The p r in t m edia an dtelevision play a big role in establishing culinaryconcepts and preferences, with food colum nistsand TV chefs endorsing one trend over the other.H owever, the single-biggest factor influencingculinary trends is population dem ographics.Som e im por tant dem ographic changes haveem erged in recent tim es: increased num ber ofworking wom en with little tim e to cook at hom e;a population that travels m ore and is exposed tointernational cuisine; a population which ism ore concerned about its health; an increase inexpa tr ia te popu la tion ; an d an in cr ease ind isposable incom es. And, beyond a ll thesefactors, is an indefinable spark that m akes oneculinary item succeed and another fail. Chefsare a lways looking for the next big th ing,som ething that will set them apar t and put themon the m ap. Som etim es it succeeds; som etim esit doesn 't.

The following section presents an overview ofwha t cu lin a r y p r ofession a ls an d in dustr yan a lysts say a r e som e of today's excitin ginternational culinary trends.

East meets WestWhether it is ca lled fusion or eclecticism ,blending cu isines is one of today's hottestculinary concepts. Fusion is carefully selectingfoods from par ts of the wor ld that are notgeographically close and com bining ones thatgo well together. The com bin a tion s a r en um er ous-Tha i an d Fr en ch , Am er ican an d

Indian, Southwest and Asian. H ere are som etrends:

CH INO - LATINO"Cuisine du Soleil" with Chinese cooking stylesand som e exotic flavours.

Exam ple: Mezza 9 in Singapore

INDO-LATINO"Cuisine du Soleil" with strong Indian Tandoorpreparations and typical herbs and m ar ination.

Exam ple: Frangipani at The Oberoi in Mum bai

NIPPON - SOUTH AMERICANLukewarm Sushi, Sashim i with noodles andvegetables m ar inated in Wasabi-Soy dressing.Japanese type salads and Ceviche.

Exam ple: la Nobu in London or Felix in H ongKong

PACIFIC RIM "From down under" Australian flavours and foodproduct m ixing; H awaiian and Japanese food;cooking fusion with lots of seafood and aCalifornian spir it.

FRENCH TH AI European ingredients cooked in Thai style

Exam ple: la Vong (Jean Georg Vonger ichten)also com ing to India soon.

Healthful and FlavorfulObesity has becom e a "four-letter-word" for allaspects of the food industry, whether grocery orrestaurant-related. Consum ers are looking forhealth ier choices and flocking to flavour fulethn ic cu isin es such a s Asian an dMediter ranean foods. With an em phasis oningredients such as vegetables, grains and fish,

25

4. Food Trends-At home & abroad


these cuisines appeal to the health- m indedconsum er. Accordingly, food businesses a r eresponding and reacting in a var iety of ways.Below a r e som e of the cur r en t r estaur an tconcepts in USA that are addressing healthissues.

The m ost prom ising concept, m ostly because ithas the m uscle of Darden Restaurants (RedLobster, Olive Garden, Baham a Breeze, a ll inthe United S ta tes) beh ind it, is Seasons52(www.seasons52.com ). The test restaurant forth is ca sua l d in in g con cep t is in Or lan do,Flor ida. Its nam e refers to the fact that everyweek of the year different foods reach their peakof freshness and taste and the restaurant's m enuchanges and adap ts accor d ingly. Ca lor iestypically range from 300 to 375 for entrees,entre salads and sandwiches and from 100 to200 for appetizers, soups, and desser ts. Thetr ick to a 200-calor ie desser t? Each is refer redto as a "m ini indulgence" and each of the eightsm all selections fits in a ta ll shot glass.

Founded by an executive from yogur t m akerS ton yfield Fa r m s, O'Na tu r a ls(www.onaturals.com ) is true to its nam e. Thefour Maine and New H am pshire units pr idethem selves on offer ing all-natural and organicitem s ranging from steak and chicken to veganoptions plus childrens' choices.

With three units in the Chicago area, Wheaton,I llin ois-based The Fitn ess Ca f(www.fitn essca fe.n et) position s itself a s ahealthy alternative to fast food. The ownersbelieve in lifestyle change, not dieting. All m enuitem s list gr am s of ca lor ies, p r otein ,carbohydrates, fats, and fiber and spor t nam eslike The Firm , The Flex, The Crunch, and TheIronm an. In India too, we have a sim ilar trendwith the opening of the health juice caf chainm arketed under the brand Am oretto's.

Back to BasicsAlthough fusion food rem ains hot in m anykitchen s, other chefs an d in dustr y exper tshera ld the r esurgence of sim ple foods andflavours. The trend in foods is going back tobasics. People are tired of fusion food because itbecam e confusion food. It becam e anythinggoes with blending of everything. People arestar ting to say, "We've had enough, just give m ea good steak."

An increase in dining out has also spawned theneed for restaurants with casual, sim ple faresuch as brasser ies, bistros and trattor ias. That isnot to say fine dining is out.

"Com for t food" m ay have becom e a clich - as in"com for t food TV" - but the desire to sim plifyand slow down is very real. In difficult tim es,which were witnessed for restaurants in USApost 9/11, we str ive for som ething we can relyon and hold on to, even if it's just a really goodsandwich from the local deli, a dish of fresh-from -the-oven roast chicken, or a wonderfuldark chocolate truffle. Food and dining arebeing called upon to be less and do m ore. Theeating exper ience m ust still be fast, convenient,and if a t a ll possible, healthy. Yet it is just asim por tant for it to not only be good value butalso provide us with relief and reassurance.Fussy frou-frous and opulence for its own sakeare unnecessary. Many of the old French classics- like coq au vin - are really very sim ple food.

Chefs go casual; Chains go chicUpsca le chefs a r e open in g m or e casua lrestaurants in New York, like Danny Meyer 'sBlue Sm oke, Michael Lom aneco at Noche, TomColicchio with Craftbar and Wichcraft, BradleyOgden 's Parcel 104 in California . "Roadsidecooking being reworked for the Wine Countrycrowd" is the way San Francisco Magazine (July

26

Food Trends-A t home & abroad

2003) cha r acter izes Mar ket, a S t. H elen a ,California-based restaurant recently opened bya form er chef from Jardinre and the ex-winedirector from The French Laundry. They arecooking up m ac 'n ' cheese and pair ing m er lotwith m eatloaf and were recently nam ed one ofthe "Best New Restauran ts in Am er ica" byEsquire's (Novem ber 2003).

More chains are br inging classically trainedchefs on boa r d an d a r e add in g cu lin a r y-buzzword ingredients to their m enu item s likesun-dr ied tom atoes, pesto sauce, bruschetta ,focaccia , an d baguette. McDon a ld 's, thegranddaddy of them all, has alm ost single-han dedly br ough t ch ipotle, ba r bacoa an dca r n ita s in to m a in str eam lin go with theirChipotle Mexican Gr ill chain . Even in India, McDonald's Wraps, which are Mexican in or igin ,are selling in huge num bers.

Even the quick takeout-lunch-at-your-desk hasbecom e gourm et and som ewhat highly-pr iced.Takeout lunch five years ago was a Big Mac andfr ies; now it's roast chicken with m ozzarella andbasil on warm focaccia , and the cost has r isenaccordingly, with a pr ice tag for sandwich, soup,and a soda between USD10 and USD15.

Living RawToday's food n ews is filled with the n ewrestaurants and folks devoted to raw food. Agrowing num ber of people believe that eating"living foods" extends youth and staves offdisease. H eat, they m aintain , depletes food'sprotein and vitam in content and concentratesany pesticides. More im por tant, it destroysfood 's n a tu r a l en zym es wh ich , en thusia stsclaim , facilita te digestion. The prem ise is thatonly hum ans cook their foods and only hum anssuffer widespread sicknesses and ailm ents. Oneof the r estau r an ts gettin g the m ost p r esscoverage over "raw" is Roxanne's. Located in

Larkspur, California it is the fir st raw restaurantto cast raw as haute cuisine dining. Anotherpopular raw dining spot is Quintessence inManhattan which has 3 locations.

Clear ly, this is a style of eating that will notspread to the m asses. It will have its day in thepress and create in terest and conversation. Willit have a lasting im pact on cooking and dining?Perhaps. Yes it is extrem e, but such m ovem entscan have r esidua l-to-lasting im pact. Don 'tdism iss it in total.

The Ubiquitous SandwichSan dwiches a r e CH IC! Fr om sim ple todecadent, hand-held to kn ife-and-fork, fromcalor ie-laden to light and healthy, whether asnack or a full m eal, as a com for t food or as anadven tu r ous n ew cu isin e exper ien ce,sandwiches fit in to every aspect of today'slifestyles and are constantly being reinvented.Upscale restaurants are adding lots of newtwists to this classic sandwich.

.. BLT, GOAT CH EESE, AVOCADO & BASIL,TOASTED ONION ROLL - Gustavino's, NewYork.. LOBSTER BLT - SWEET PEA REMOULADEON COUNTRY WH ITE BREAD - ChadwickRestaurant, Bever ly H ills, CA.. TEMPURA BATTERED FISH BLT WITHBACON, LETTUCE, TOMATO & MAYO ON ASOFT BUN SERVED WITH JERK FRITIES &BACON AVOCADO RANCH OR ADD BACONOR AVOCADO - Cuba Libre, PhiladelphiaRAWAS WITH RICADO ROJO, A YUCATANRE D SPICE MIX WITH TOMATO, BE LLPE PPE R, CUMIN AND GARLIC IN PITA-Basilico, Mum baiGRILLED ZUCH INI, AUBERGINE, BELLPEPPERS AND SMOKED SCAMORZA -Olive,New Delhi

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India is a lso seeing the spread of sandwicheswith the opening of Subway and the Ir ish chainO'Br ien.

Chef-driven CuisineWith such diversity in culinary trends, there issom ething for every chef to add to his or herm enu. But the real trend m ay be for chefs toexpand beyond what analysts have defined as"what's hot and what's not" and to explore theirown culinary creativity. A few who have becom einternational legends are Daniel Boulud, AlanDucasse, Jean Geor ges Von ger ich ten , RickBayless, Thom as Keller, Nobu Matsuh isa ,Char lie Trotter, Alan Wong, Douglas Rodr iguez,Jer r y Tr aun feld , F loyd Car doz an d Ar unSam panthavivat.

Better IngredientsSavvy chefs have com e to the conclusion thatthey're not going to com e up with som e br illiantcookin g m ethods. In stead they a r econcentrating on using better ingredients.

Food Trends specific to IndiaAlthough all the above trends being witnessed inUSA are applicable to India, som e specificsattr ibutable to restaurants here are:

An increasing trend toward vegetar ian foodand an increasing trend of reduction in redm eats

Fast food is finally here to stay. There havebeen som e failures but the success of McDonalds, Pizza H ut and Dom ino's Pizzahave caused som e people to ea t theirwords. It is, however, im por tant to notetha t the In d ian con sum er wan ts"international desi" and that the Indianpalate is indeed addicted to a cer tain levelof spice. Any new international entrantswould ignore this fact a t their per il.

There is a trem endous future for regionalIndian cuisine restaurants. There are veryfew authentic restaurants offer ing regionalIndian cuisine and that is an area thatcould witness significant growth over thenext few years.

An in cr easin g tr en d of fr eestan d in ginternational cuisine restaurants servingI ta lian , Mediter r an ean , Tha i, Span ish ,Korean, and other exotic cuisines.

The spr ead of In d ian fa st food a spopular ised by H aldiram 's, Nathu Sweetsand others continues and rem ains a verylarge m arket.

Pizzas, Burgers, Indian Tandoor i, Chinese,South Indian & Thai continue to dom inatethe take away business and is growing atdouble digit annual rates.

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A

I nternational Chain Restaurants & Franchise Opportunities

IntroductionThe last few years have seen significant increasein the num ber of new restaurants opening inm ost m ajor Indian cities. This has, in m anyways, coincided with the revolution that hastaken place in the reta il space, which hasspawned new locations for restaurants in them alls which have developed.

Two types of developm en ts have clea r lyem erged: one, the growth of m ultina tiona lrestaurant chains and two, the bir th of hom egrown brands like Bar ista , Caf Coffee Day,Main lan d Ch in a an d m an y other s.In ter n a tion a lly, la r ge cha in s dom in a te therestaurant business and stand-alone outlets area sm all percentage. As the restaurant industry inIndia grows, m ore and m ore in terna tiona lcha in s will a ttem pt to establish fr an ch isenetworks, while dom estic entrepreneurs will tryan d establish n ew r estau r an ts un der anestablished brand nam e. This will not only be atrend prevalent in independent restaurants butwill a lso apply to hotel restaurants. Many hotelsthat need a "prestige" label are turning to thirdpar ties with the r ight credentials and we will seeincreased activity in this area in India as well.

Franchising, which is very popular in the UnitedStates, is spreading fast to developing nations.This is par tly aided by the strategy that som efr an ch isor s a r e adop tin g. While som efranchisors grow in their own country andregions, others take their concepts overseas insearch of new custom ers. Subway looked toBahrain , a sm all, oil-producing country in the

Middle East in their fir st exploration outsideU.S . border s. Today, not coun ting Canada ,Subway has close to 800 in ter n a tion a lfranchises. If we were to include Canada, thenum ber skyrockets to 2,000. The com pany's sizehas helped them expor t their con cep tsuccessfully.

KFC began ventur ing overseas in the 1960s, andwas the pioneer in doing business throughin ter n a tion a l fr an ch ises. McDon a lds thenstar ted developing aggressively, followed bySubway. Now Subway uses a pioneer programwhere they encourage Am er ican franchisees tofind a par tner in another country and work totake the Subway exper ience there.

Whether sandwiches in the Middle East orupscale dining uptown, the outlook for foodfranchising in the next decade continues to lookstrong for savvy restaurant chains, according toThe Entrepreneur 's Source. We have, in thissection , listed som e pr om inen t tr ends andpopular brands within those trends. This sectionis n ot an exhaustive list of fr an ch iseoppor tunities but has been provided as a readyreckoner for potential investors looking to investin a restaurant franchise. The list a lso does notin clude the m or e tr ad ition a l fr an ch iseoppor tunities but is an attem pt to highlight thela test em er gin g com pan ies an d tr en ds.Moreover, this is the list of franchising brandswor kin g in the in ter n a tion a l m ar ket an dpar ticular ly the USA. Many of them m ay nothave a presence in India as yet.

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5. In ternational Chain Restaurants &Franchise Opportunities


11 Trends & 101 brandsIt is im por tant to rem em ber that a lm ost allchains star ted as stand alone outlets beforebecom ing m ulti unit ventures. Below, we outlinesom e of the significant in ternational trends andbrands.

Noodles, wok, sushi & Co Tasty and healthy, pan-Asian food has neverbeen m ore popular. Wok and noodle bars arepopping up all over the wor ld be it, often , with avery m odest roll-out strategy. Som e of the Asianchains that have gained m uch popular ity are:

Big Bowl, Stir Crazy Caf, Wok Wok, Wok Away,Flat Top Gr ill, Noodles & Co, Mark Pi, SushiSam ba, Sushi Doraku, H aru Sushi, Chowking,Caf' de Coral, Azie, Asia Nor ia , Wagam am a,Nobu, Quiet Revolution, Yo Sushi, Lo Sushi,New Culture Revolution, Blue Elephant, BusabaEatha, Roy's, Itsu, Sushi Map, Matsur i, Sum o,Am o, Nudelland, Sushi & Soul, Thara Tha,Zao Noodle Bar, Dragon Inn, Pei Wei AsianDiner, Pick Up Stix, Mongolian Barbecue,DimSum Cour t, Cool Basil, E lephant Jum p, GoldenLeaf, P.F. Chang's, Chilli Club, etc. Our ownChina White, Mainland China, Or iental Bloom ,Yo China, Stir fry, Noodle bar..

Quick / Fast CasualThe fastest growing segm ent of the restaurantindustry is the fast casua l d in ing concept.Restaurants in this segm ent borrow som e oftheir concepts from counter service fast foodrestaurants like Burger King and Taco Bell andstill provide an atm osphere and m enu m ore thelikes of casual dining at Chili's or Baham aBreeze.Am on g the fa stest gr owin g cha in s in th iscategory are Panera Bread, Corner Bakery,Chipotle, Culver 's, Cosi, and Potbelly SandwichWorks. These restaurants are quickly becom ing

the new neighborhood coffee shops. They arethe place to m eet after jogging, to get togetherwhile the kids a r e a t p r e-school, to r elaxbetween sales calls, to treat an aunt or grandm ato a m eal out, or to br ing a son or daughter fora special lunch.

Wha t sets these p r oper ties apa r t fr omcom petition is an eating area that is sim ilar to a"sit-down" r estaur an t com bined with good-value, high quality m enu item s. Freshness andquality are the m antras of these m enus. Boldflavor s a r e an other d istin gu ish in gcharacter istic. Robust profiles continue to be am ain feature in new m enu offer ings, taking cuesfr om ethn ic pan tr ies. I ta lian , Asian ,Southwestern , Car ibbean cuisine and heat fromchilies and peppers dom inate. Som e of thechains that have acquired prom inence are:

Corner Bakery, La Madeleine, Panera Bread, AuBon Pain ,Cosi/Xando, La Ferm e, Cojean, LePain Quotidien , Par tie De Cam pagne, Gust,Ber t's, Atlanta Bread Com pany, Piadina, GreatH arvest Bread, Bread Shop, Br iazz, H ouse ofBread, Noodles & Co., Gar land, Rubio's BajaGr ill, Ba ja Fr esh Mexican Gr ill, Qdoba ,Chipotle, New West Ranch H ouse, Fazoli's, ViaGio, Bio.it, Wingstop, Exki, Enorm , Itsu,LaTable d 'Oliviers & Co, Oh ! Poivr ier !, etc.

Bio / Organic/FreshA growing num ber of consum ers want foodsthat are good for them - high in nutr ition, yetlow in fat and cholesterol. Many are shopping atstores that stock organic and natural foods.There are therefore a num ber of restaurants thatserve healthy, nutr itious m eals in a fast-casualform at. Som e of the chains that have m ade theirm ark in this segm ent are:

H ealthy Bites, H ear twise Express, Evo's, Topz,Bio.it,La Ferm e, Cojean, Ber t's, H ear tbeat, Oh!Bio Mio, Crank's, Fresh & Wild, Jam ba Juice,

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Fr esh Choice E xpr ess, Sweet Tom ato,Souplan ta tion , Soup C, Soup Oper a ,Soupwor ks, Soup + Sa lad , The QuietRevolution , I tsu , Pixx, Coco's (I ta lie), Exki,etc.

Black GoldThe Starbucks story epitom izes "im agine that" inevery sense. When the com pany went public 11years ago, it had just 165 stores clusteredaround Seattle and in neighbor ing states. At thetim e coffee was a 50-cent m orning habit, andyour local diner was the pusher of choice.Skeptics r idiculed the idea of $3 coffee as a WestCoast yuppie fad.

Today the com pany, which does not franchise,has over 6,000 stores in m ore than 30 countr ies,with three new stores opening every day. Thestrategy is sim ple: Blanket an area com pletely,even if the stores cannibalize one another 'sbusiness. A new store will often capture about30% of the sales of a nearby Starbucks, but thecom pany consider s tha t a good th ing: theStarbucks-everywhere approach cuts down ondeliver y an d m an agem en t costs, shor ten scustom er lin es a t in d ividua l stor es, an dincreases foot traffic for all the stores in an area.Every week 20 m illion people buy a cup ofcoffee at a Starbucks. A typical custom er stopsby 18 tim es a m onth; no Am er ican retailer has ahigher frequency of custom er visits. Sales haveclim bed an average of 20% a year since thecom pany went public. Even in a down econom y,when other reta iler s have taken a beating,Starbucks store traffic has r isen between 6%and 8% a year. Perhaps even m ore notable is thefact that Starbucks has m anaged to generatethose kin ds of n um ber s with vir tua lly n om arketing, spending just 1% of its annua lr even ues on adver tisin g. (Reta iler s usua llyspend 10% or so of revenues on ads.)

Bar ista pioneered the caf culture in India andrapidly spread nationwide with its 'EspressoBars', with 65 outlets a lready in operation. CafCoffee Day is another nam e that has m ade itspresence felt, with existing 30 outlets in 6 cities.It plans for 200 cafs, 400 coffee stores and3,000 coffee ven din g m ach in es to post aturnover of Rs. 6.5 billion by 2004. Craze, thatjust opened its fir st outlet in Delhi, plans 5 m oresoon, car rying a by-line 'not just coffee'. Qwiky's,a concept or iginally conceptualised for the USur ban loca tion s by two youn g In d ianen tr epr en eur s, Sash i an d Syam of S iliconValley, is yet another nam e that tasted instantsuccess when its cafes opened in India. With aninvestm ent of Rs 70 m illion, the chain hasalready m ade its presence in 6 cities with 20self-owned outlets. Its product/service basketnot only offers coffee and light snacks but alsoincludes lifestyle m er chandise like T-sh ir ts,books, m agazines, greeting cards, coffee m ugsand hom e espresso m achines. Som e of thecha in s tha t have established them selvesinternationally as well are:

Starbucks, Car ibou Coffee, Diedr ich Coffee,Seattle Best Coffee, Mc Caf, Colum bus Caf,Scapucci, Caf Nescaf, Malongo, Costa Coffee,Coffee Republic, Caffe Nero, Puccino's, BB'sCoffee & Muffins, Madisons, Caffe Ritazza, Viva,Arom a,Jam aica, Il Caffe Di Rom a, Cafe & Te,E xpr esso I llyca fe, Plan tacion es de Or igen ,Segafredo Boutique, Il Caffe Di Fior i, Lavazza,World Coffee, Caf Einstein , Wiener 's Kaffeebar,Cafeter io, Balzac Coffee, San Francisco CoffeeCom pany,Testa Rossa Caffbar, Woyton Coffee,Java Java, etc.

Italian Italian food has been the flavor of the m om entfor a good few years now, but it wasn 't so longago that the only types of pasta available in

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superm arkets were spaghetti and m acaroni.Pasta consum ption has doubled since the 1980s,and it is now considered to be Am er ican food,ea ten 1 to 3 tim es per week. In d iansuper m ar kets like Cr ossr oads, Food Wor ld ,Nilgir i and all m ajor neighborhood grocers nowstock Italian pasta brands. At least three newItalian restaurants have opened in the capital inthe last one year and we are aware of at leasttwo new freestanding restaurants which areplanned for opening by ear ly next year. Som e ofthe in ternational chains that have gained m uchpopular ity are:

Maggiano's, Buca Di Beppo, Vinny Testa 's,Rom ano's Macaroni Gr ill, Cosi, Car luccio's,Fuzio Un iver sa l Pasta , John n y Car in o's,I ta lian i's, Tim pan o I ta lian Chophouse,Pepperoni Gr ill, Pasta Pom odoro, Pasta Basta ,Caf Di Fiore, Il Fornaio, Bice Ristorante, Zio'sItalian Kitchen, Bravo ! Cucina Italiano, Piatti,Cucina ! Cucina ! Ita lian Caf, Pizza Magia,Palom ino Euro Bistro, Strada, Est Est Est, DelAr te, BistroRom ain, etc.

French....Br asser ies an d bistr os offer in g tr ad ition a l,sim ple, French food are in vogue. This is a trendthat has not caught on in India so far, but webelieve that in the next few years there will be atleast half a dozen restaurants serving bistro foodin the country. Som e of the chains that oneshould watch out for are:

Mon Am i Gaby, Ba lthaza r, L'Adr esse, CafRouge, Au Pied De Cochon, Fouquet's, Mim i'sCaf, La Madeleine, Mignon, Chez Grard, LeColonial, Oh!..Poivr ier !, Spoon Food & Wine,etc.

Fusion or Mix & Match Restaurant concepts based on fusion of twocultures or cuisines are very popular in Europe

and the United States. Som e of the chains thathave acquired prom inence are:

Baham a Breeze, Sushi Sam ba, Sam ba Room ,Pipa Tapas y Mas, Suva, Bongos Cuban Caf,Kuhun aville, Fogo De Chao, Zoza 's, BlueE lephan t, Little Buddha Caf, BodegonColon ia l, P lan et Tha , Com pagn ie DesCom ptoirs, Qubec, Mundaka, etc.

Eat-tertainmentCustom ers have m ore choices than ever, higherexpectations than ever, and m ore m arketerscom peting for their a ttention than ever. So howdo you break through all of the clutter andcapture the attention of custom ers suffer ingfrom sensory over load? By creating exper incesthat are so distinctive, so com pelling, that theystand out in a crowded landscape. Som e of thechains that one should watch out for are:

H ooter 's, Bubba Gum p, Mars 2112, Margar itaVille,Dave & Buster 's, H ouse Of Blues, ESPNZone, Gam eworks,Buddha Bar, Barr io Latino,Club Med World, Nirvana Lounge, La BodgaFait Son Cirque, etc...

Take AwayThe term H om e Meal Replacem ent m ay nota lways accur a tely descr ibe today's takeou tscen a r io. Although it 's tr ue tha t m an yconsum ers want hom e cooked food, there arem any, especially the high-spending custom erswho are looking for restaurant food. They justwant it a t hom e. People don 't want, and cannotafford, to eat out on every dining occasion, butthey want--and have becom e accustom ed to--restaurant-caliber m eals. The real action inrestaurant convenience m eals m ay com e fromthe specialty m arket arena. The Brennan fam ilyspent three years developing Foodies Kitchen,which debuted in Metair ie, Los Angeles in July2003. Custom ers can select som e signature

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dishes from Com m ander 's Palace, like Tur tleSoup, as well as gourm et grocery item s andwines. Som e of the chains that are very active inthe take out arena are:

Bennigans, Buca di Beppo's, Chili's, FoodiesMea l Mar ket, Fam ous Daves, Mven pickMarch, Mon Am i Gabi,Outback

MediterraneanResturants focusing on Mediter ranean cuisineare in fashion for their flavorful and healthycookin g. Cha in s tha t have establishedthem selves well are :

Medi (NY : Verg), Olives, Le Sud,La Maison deChar ly, Casa Sud, Villazur, La Table d 'Oliviers&Co, La Cigale Or ientale, La Com pagnie

The Big brands are coming !Des Com ptoirs,etc...

The big brands like H aagen -Dazs, Ben & Jer ryetc are all expanding both at hom e and ininternational m arkets. Most large brands arelooking at India with keen in terest and it is onlya m atter of tim e before som e m ore big brandsenter the dom estic m arket. Som e of the chainsto watch out for are:

H agen-Dazs Caf, Ben & Jer ry, Chester fieldCaf,MCM Caf, Latina Caf, Eurospor t Caf,Foster 's Austr a lian r estau r an t, Sega fr edoBoutique, Expresso Illycaf, Tchibo, Rom boust,Malongo caf, Caf Nescaf etc

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A


34

What is my Restaurant Worth?

This section exam ines how to value a restaurantbusiness including its real estate and personalproper ty. It m ay be noted that few restauranttransactions have taken place in India till date,largely because the restaurant business has notyet evolved in to a m ature business. H owever, weforesee a fair bit of activity in this area in thefu tu r e: chan ges in m ar ket tr en ds an dcom petition, spurred by a huge expansion in thefood service industry in all m ajor m etro cities,would cause m any restaurants to change handsfrom one operator to the other.

Another im por tant factor affecting real estateand restaurant valuation in m ost developedcoun tr ies is the p r esen ce of la r ge, well-established chains whose financial statem entsan d r estau r an t sa les a r e accessible an dtherefore aid the valuation process im m ensely.We believe that the need for valuations will a lsobe dr iven to a la rge exten t by r ea l esta teinvestm en t tr usts a s and when they beginoperating in the country, and a sm all percentageof their holding could be restaurant real estate.

Restaurant ValuationRestaurant operators often need to know theapproxim ate value of their restaurant businessand/or real estate and personal proper ty, even ifthey are not cur rently contem plating sale of thebusin ess. Kn owledge of va lue becom esim por tant for a var iety of reasons. Som e of thereasons include refinancing of the real estate;dissolution of a par tnership or sale of stockrepresenting a m ajor ity or m inor ity in terest inthe business; insurance settlem ent after a fire ornatural disaster ; and settlem ent of an estateupon the death of an owner.

Restaurant value can be separated in to at leastthree com ponents, which include the value ofthe business (business enterpr ise value), theva lue of the per son a l p r oper ty (fu r n itu r e,fixtures, and equipm ent), and the value of thereal estate. Real estate value can be brokendown fur ther to leased fee value (value to thelandlord of the lease encum ber ing the proper ty),leasehold value (the value of the tenant's in terestin the lease), and the value of the sim pleownership in terest in the real estate. In theUnited States, approxim ately one-half of therestaurants occupy a leased building and land,and slightly less than one-half own the buildingand land. In India, the histor ical trend was thatthe m ajor ity of restaurants owned the buildingand land, but with the advent of large num ber ofshopping m alls in m etro cities, th is is fastchanging.

Business Value of a RestaurantThe table below shows a statem ent of incom eand expenses for a hypothetical restaurant. Inthis exam ple, the value of the leasehold in terestin the r ea l esta te has been r em oved bysubtracting ren t pa id to the landlord fromin com e. The r em a in in g ea r n in gs - befor eincom e taxes, depreciation and am or tization(EBITDA) - equal Rs 1,930,000. This is the cashflow available to cover a return of and on theinvestm ent in personal proper ty, and a return tothe business com ponent of the going concernvalue of the restaurant. The return requirem entsfor the n on -r ea l p r oper ty com pon en ts a r etypically significantly higher than the return tothe land and build ing. As the net incom eallocated to the personal proper ty and businessis received by the business owner after a ll

35

6. What is my Restaurant Worth?


occupancy costs have been pa id , includingren ta l incom e a ttr ibutable to the land andim pr ovem en ts, the r isk of the oper a tor issignificantly higher than that of the landlord.

Table 6-1 St at em ent o f Inc om e &Ex pense

My Restaurant

SALES: Ammount % of Gross

Food 10,000,000 74%Beverage (alcoholic) 3,500,000 26%Total Sales 13,500,000

Sales per day 36,986Covers Per Day 125APC 296

COST OF SALES:Food 3,500,000 35%Beverage (alcoholic) 1,050,000 30%Total Cost of Sales 4,550,000 34%

GROSS PROFIT 8,950,000(Total Sale minus Cost of Sale)

OPERATING EXPENSES:Salaries and Wages 2,025,000 15%Direct Operating Expenses 1,080,000 8%Music and EntertainmentAdvertising & Promotion 270,000 2%Utility Services 540,000 4%Repairs and Maintenance 270,000 2%Administrative & General 540,000 4%

Total Restaurant Operating Expenses 4,725,000 35%

Franchise/Management Fee 0 0%Licenses 270,000 2%Insurance 0 0.0%

Income before Occupancy Costs 3,955,000 29%

Occupancy Costs 2,025,000 15%

Earnings before Taxes, Depreciation & Interest 1,930,000 14%

The Capitalization Rate or Cap Rate is a ratioused to estim ate the value of incom e producingproper ties. Put sim ply, it is the net operatingincom e divided by the sales pr ice or value of aproper ty expressed as a percentage. Investors,lenders and appraisers use capitalization ratesto estim ate the purchase pr ice for different typeof incom e producing proper ties. A m arket cap

rate is determ ined by evaluating the financialdata of sim ilar proper ties which have recentlysold in a specific m arket. Capitalization rates fora restaurant operator 's invested capital typicallyfall in to one of three ranges: for an efficient,profitable operation with new equipm ent, goodlocation , and expectations of strong annualgrowth in revenue, a capitalization rate of 13%to 19% is appr opr ia te. S table, m a tu r erestaurants with a track record of steady cashf

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