Invest in Restaurants. It's Big Money - Rediff

8/10/2019 Invest in Restaurants. It's Big Money - Rediff

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Rediff.com Business Invest in restaurants. It's big money

Invest in restaurants. It'sbig money

September 07, 2006 10:04 IST

Equity, debt and art are there, but the high margin restaurant business is getting more

professionalised. Investors don't just want to eat at their restaurants, they want to own them

too.

"I will have 25 per cent of the restaurant and garlic bread on the side" is not likely to raise as

many eyebrows as you would imagine. Increasingly, the trip to a restaurant is not just about

tucking into your favourite dish, but also about owning a p art of the restaurant anddiversifying

your portfolio.

Eating out has become de-rigueur and the restaurant trade is seen as the next big story. Savvy

investors, especially those who are also food enthusiasts, are snapping up stakes in theirfavourite restaurants faster than you can say lasagna bolognese.

The trend of investing in restaurants began less than ten years back. The early converts were

celebrities and P3 inhabitants. Restaurant openings got expansive write-ups and many saw this

as a way to garner some free publicity. But with more urban Indians eating out, returns

touched 30 per cent a year. Now, a restaurant in your port folio is not just an affirmation of your

presence in the swish set but also a wise money move.

High networth individuals who have optimised on their equityand debt portfolio and bought all

theart they wanted, are now looking at unorthodox investment areas. Restaurants, antiques,

vineyards and coffee plantations are becoming part of asset portfolios of the very wealthy.

Restaurants today are professionally run with transparent accounting procedures. Angelinvestors are thronging to grab a piece of the pie. Well-run, standalone restaurants make sound

profits and parking a part of your portfolio in this business is an ideal asset diversification

strategy.

The trade

The restaurant in a five-star hotel might be a fine dining experience and the roadside eatery a

quick place to grab a bite, but when it comes to investing your money, the standalone

restaurant is where you should look.

Broadly, a restaurant with less than 40 covers (or one that seats 40 people at a time) is

classified as a 'small' restaurant, 40-80 covers is medium-sized and over 120 covers is large.

This classification can vary from city to city.In Mumbai and Delhi, where rents are high and space is at a premium, a 40-seater could cost

as much as a medium-sized restaurant in Bangalore or Ahmedabad.

Setting up a small restaurant costs approximately Rs 15-20 lakh (Rs 1.5-2 million), while a

medium size one costs about Rs 50 lakh (Rs 5 million). This covers interiors, furniture, staff

uniforms, crockery, cutlery and kitchen equipment.

How to invest

Passion for food is a good enough reason to be an angel investor in a restaurant. Like Devjani

Pillai, who had no restaurant background and no prior experience in investing in a restaurant,

but missed having authentic Bengali food when she moved to Bangalore to be with her

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few friends, none of whom have any idea about running a restaurant, and hire a manager to do

it for you.

If you are taking an existing restaurant format and opening a branch in a different city, then it

is important to understand the demographics of your new customers and price your menu

accordingly.

As an angel investor make sure that you are convinced about the business plan. Eat at similar

restaurants in the city and give feedback to your business as a customer. Look at pricing and

marketing plans, check out the quality of the food and serv ice. Once you are convinced about all

these, you can be hands off and leave the operations to your partners. Do visit as often aspossible, so that you can pick up any slip-ups in quality.

With more Indians travelling abroad and sampling international restaurants and cuisines, they

are ready to experiment with their food. All this bodes well for the industry and your

investment. If you have a product that scores 7 out of 10, you have a hit on your hands.

"It is like any other business. You have to control your costs and run a tight operation. If you

manage to keep your prices down and your employees' hands off the till, that's half the battle

won," says Kakkar.

Time spent

You can choose to be a partner who is involved in the operations of the business or one who

only wants to see the profit and loss statement every quarter. If you fall in the first category

you reap additional benefits of networking, making friends and ensuring that your money is

well invested. If you are investing in the business only for the 20 per cent return that you

expect it to give then you can be just an occasional diner.

Exit routes

With the current boom in the trade, chances are if you have found the right restaurant to

invest in, you have very few reasons to want to exit. The restaurant industry is looking to hit

the stock market as well, and several large ones are planning IPOs of their own.

With retail continuing to be the flavour of the stock markets, restaurant business would be the

follow through to the spate of multiplex IPOs that the markets witnessed in the last year."There are various line expansions planned like ready-to-eat meals. We are planning an IPO to

fund some of these plans," says Ramani.

Selling your stake in the market once the restaurant goes public is the first exit route for the

angel investor.

If the IPO route is not one that your partners want to take, there are many people waiting to

lay their hands on a thriving business. Once you pass the word around it is easy to find

interested parties to sell your stake to.

If the restaurant is doing well, chances are the other partners will buy out your stake. They can

then decide to increase the valuation of the restaurant and invite interested parties to become

prospective partners.It is a fairly easy to exit from business, provided it is a clean one, according to industry experts.

Traditionally the finances behind the restaurant trade have been a gray area, with a mixture of

white and black money.

With more and more professionals entering the business, this is changing and investing and

accounting are becoming increasingly transparent. So if your restaurant is run on legitimate

money, then your ex it route is a simple and clear one.

If dubious accounting has been a norm, then it might be difficult to untangle your investments.

This is why it is important that you know your partners well and take time out to assess the

financial and business plan of the restaurant before you commit your money to it.


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