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With a number of global quick service restaurants (QSR) awaiting India entry, Indian private equity (PE) funds with experience in running successful QSR brands see vast opportunities. The latest QSR brand exploring options to enter India is global fast food giant Burger King, backed by PE major Everstone Capital.
The other global fast food giants that want to tap the fast-growing Indian market include Carl's Jr, a popular US-based burger restaurant chain and South Africa's Debonairs Pizza. Carl's Jr is the fifth largest fast food chain in the US, after Subway, McDonald's, Burger King and Wendy's. Another giant, Los Angeles-based $100-million burger chain Fatburger, had tied up with VAZZ Foods Private Limited, a food and beverage distributor for a 25-unit deal in May as part of its India entry.
According to the latest study by Technopak, the QSR market in India, dominated by brands such as McDonalds, Subway, KFC and, Dominos Pizza, will see a 21 per cent annual growth by 2020 at $4.2 billion (Rs 25,843 crore) from the current market size of $1.1 billion (Rs 6,890 crore). Other sectors such as casual dine restaurants, fine dine restaurants and frozen items will increase at a range of 15-18 per cent compounded annual growth rate (CAGR).
Vishakha Mulye, chief executive officer of ICICI Venture, said, "There are many international brands looking for India entry due to the fantastic growth in QSR space. What they need is a partner with strong operational knowledge and adequate supply chain. Experienced hands in a QSR such as PEs can be a better option as partners for global firms."
The Ravi Jaipuria-backed Devyani International Limited, a food and beverage major that runs global brands such as Pizza Hut, KFC, and the Costa Coffee chain across India, Nepal and Nigeria, had sold 10 per cent stake to ICICI Venture for Rs 250 crore in 2011.
International brands own more stores in the QSR space in India compared to their Indian counterparts. Domino's Pizza runs 636 outlets while Subway has 390 outlets. McDonalds runs 330, KFC runs 241 and Papa Johns runs 30 outlets across India. Among Indian brands, Venture East-backed Goli Vadapav runs 150 outlets.
Ritesh Chandra, executive director at Avendus Capital, said: "Besides investment, private equity firms bring in the local management or team, knowledge of local matters like customisation in products and sourcing, knowledge-insights on real estate or locations and ground-level execution capabilities."
Everstone Capital owns Singapore-based restaurant firm Harry's Holdings Ltd, which owns and operates a chain of premium lifestyle bars under the brand name Harry's. It is also the franchisee operating O'Brien's sandwich bar in Singapore.
Everstone Capital did not respond to queries over its tie-up with Burger King.
"PEs will be benefitted with getting access to established and known brands, global best practices on operations and supply-chain and, most importantly, proven and successful business concepts to be replicated in a large market like India," Chandra added.
A major reason for growth in India is the presence of the youngest population here. About 65 per cent of the population comes under the age of 35 years. Increasing spend on eating-out activities, higher earning and spending power with increasing women workforce are the other reasons, says the Technopak report.
"There is potential for more PE deals in QSR space. The basic thesis is that a global QSR brand can partner somebody with domestic Indian expertise, which could be also be a PE fund, to be successful in India," Chandra noted.
Last year, JSM Corporation, which runs US food and beverages chains such as Hard Rock Cafe, California Pizza Kitchen and Japan's popular restaurant chain Inakaya, had sold 22 per cent stake to PremjiInvest, the private equity arm of Azim Premji, for Rs 150 crore.
In July 2013, Singapore-based Arisaig Partners picked up about 3.5 per cent stake in Westlife Development Ltd, which owns development licence of American burger chain McDonald's Corp through its subsidiary Hardcastle Restaurants.
