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India’s Restaurant Business: Tasting success or bleeding money?

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Investing time and money in any industry without proper knowledge can turn out to be a major error in judgment. This, unfortunately, is something that has become a common phenomenon in the foodservice industry. With food lovers opening restaurants instead of the professionals, the success rate of the industry has been drastically hit. Since the foodservice industry is fast changing and competitive, it requires a massive amount of knowledge and skill to run the business – just passion for food is not cutting it anymore.

“Any service industry can be called a ‘sin’ industry. With increasing competition and more and more people wanting to invest in the business, not all tend to taste success. A restaurant venture isn’t for the faint-hearted, as more than half of new restaurants fail within the first year, and a little more than that close down before they’ve reached five years of business. Understanding any business, before dipping one’s financial toe into the water, is necessary for any industry,” states , Owner, CEO and MD, . Success of a restaurant in today’s time lies in its concept along with the consistency.

“We have one of the highest mortality rates is in the restaurant industry – that is, out of 10 restaurants that open, 8 shut down and only 2 survive. The only way to survive is to do your homework well, be very consumer-centric and work very hard,” says Rahul Singh, President, NRAI and Founder and CEO, The Beer Café.

“For the success of restaurant business in India, the RSS effect is needed – a Replicable, Scalable and most importantly Sustainable model. If you build your business model on these lines, then it is bound to survive,” he adds.

Resonating Singh’s same thoughts, , CEO & Managing Director, , says, “The restaurant business is not something that one can do as a side business. It is necessary that restaurant owners should constantly focus on good food, good service and good storytelling – which are the basics for the success of any restaurant. I think that you have to have that kind of hospitality mindset where you need to have a big heart and not be afraid to take a risk and if you focus on food and service you will definitely taste success.”

In bigger cities, where failure rates are even higher, the proportion of fixed operating expenses are also so high that restaurant owners often bleed money even if their revenue dips marginally.

“We have come up with concepts that were already in demand, but the demand was unfulfilled, so, it is about finding the gap in the market and then bridging that gap. Apart from this, opening restaurants at the right locations has helped us in attracting the right consumers,” explains Zorawar Kalra, Founder & Managing Director, Massive Restaurants.

Similarly, , Co-Founder, , has tasted the success on the basis of staying true to the concept, complementing this concept with excellent food in terms of both taste and quality, hearty portions, friendly staff , customer engagement activities and consistency.

According to Varun Puri, Owner, , “It is of utmost importance to know your clientele and their preferences, and accordingly the restaurant owners can plan different operational strategies and offers. Excellent guest relationship and customer service is also equally important for any restaurant to ensure repetitive footfall.”

How Has Foodservice Industry Changed?

The foodservice industry is undergoing a rapid change as the way the consumers used to dine out has changed drastically despite the fact that many restaurant have closed in the recent past.

“The Indian food industry is flourishing day-by-day due to the boom in consumer spending power, innovations and new cuisines being introduced to the segment. With changing lifestyle, awareness, experimentation is moving at par. Rise of social media and Internet awareness along with aggregators and other channels are helping shape the industry well,” says , Founder, .

Earlier, people used to go out for dining only, but now dining out has become an experience in terms of not only food but ambience, service, programming, activities, offers etc all in one place. A lot of casual dining places are doing remarkably well too, which was not the scenario before.

Apart from this, a lot of fresh food or farm to table food culture has become trendy, which is a sign of healthy improvement for the industry. Various technical tools such as online booking apps, delivery apps, deals and offers etc have also helped the industry to go in upright direction.

“The Indian F&B industry is one of the most vibrant industries that has seen unprecedented growth in the recent past and continues to grow rapidly. With people celebrating every occasion at restaurants, eating out is a part of work, casual meetings and more over an all-day, every time affair. With the rise in food awareness through online and offline media, food shows, blogs, videos, new trends have come up,” adds Sukhija.

Another big change that has been observed is that now drinking is out of the closet. Consumers don’t shy away from drinking in public which in return has given a boost to the drinking out culture.

Concluding the changes that have taken place in the industry in the past decade, , Director, Pvt Ltd says, “In the past decade or so, everything has changed in the restaurant industry like consumers, eating out patterns, the taste and one of the biggest change that I see is organised aggregators who are changing the way market is consuming.”

Food Aggregators –Bane or Boon?

Technological disruptions in the foodservice market are taking place with web-based ordering, and it is taking the home delivery option with storm. Home delivery and online ordering are together moving the needle on consumer convenience, but how is it affecting the dining out scenario?

“Well, I believe there is always an ecosystem to follow for everyone whether its foodservice aggregators or any other concepts. We cannot survive for long if we try to break the system or does not try to coexist,” says Puri.

However, Batra believes that for restaurant owners, food aggregators could be a blessing in disguise, although he’s quick to add that there are many complications as well. “With the motive of reaching out to more people and providing an additional services to our customers, online delivery was added as a service at our brand. Food aggregator services have certainly created a win-win situation for both customers and restaurants, making the process of ordering out easy and fast. However, with low-accountability and ownership issues,the food aggregators industry might be bane more than a boon in future.”

Resonating the same thoughts, Dinesh Arora, Managing Director of MT Hospitality says, “With the rise in food delivery apps, the consumer market has turned lazy and discount centric. A win-win situation for consumers, food aggregator services have proved to be a boon for them, however, it has mixed opinions for restaurant owners. Adding another source of income and a method of reaching to more customers, these aggregators have surely brought in more sales for restaurants, however customer confidentiality and non-accountability of riders towards restaurants, puts the brand in a tricky situation at times.”
Ordering restaurant meals for delivery is becoming an everyday part of life for many. Providing an ever-broadening range of eating choices delivered right at the door, Foodservice aggregators are on a rise like never before.

“Foodservice aggregators have definitely destructed the market. They have changed the dining dynamic – they have not only affected the kitchen business but also the dine out business. As now they are into the system, it is better for the restaurants to start delivering with them or to come up with delivery only brands,” states Kalra. However, Katriar feels that food aggregators will only grow as the years pass by.

Casual Dining vs Fine Dining

Online delivery options aside, restaurateurs are betting big on the casual dining business in a big way today. For example, deGustibus Hospitality has recently made a foray into value dining and the QSR segment with Indigo Burger Project. Similarly, Mocha, which is present in 13 cities currently, will have presence in 18 different cities in the next two years.

Explaining the reason behind this, Katriar says, “As the Indian dining out culture is changing, casual dining is taking over fine dining. Earlier, fine dining ruled the roost because eating out for a family was an occasion, people used to dress up to go out for dinner, but now people eat out everyday because it’s more a matter of convenience and need. This is one reason why the affordable casual dining segment is growing and will continue to grow in a big way.”

“Another benefit is that the casual dining segment is low on capital, involves low risk, is an asset light model and that is where we need to go,” he states.

Casual dining has been able to play with different cuisines, including regional, to create low cost, hassle-free dining experiences. With an easy and all day ambience, casual dining offers quality food that can be served at a comfortable price, while, fine dining creates more of a formal setting usually focussing on different kinds of experiences.

Talking on the same lines, Puri says, “People are looking for easier, approachable places where they can have good food and service along with some fun activities. As fine dining has certain attributes to follow and a certain decorum to maintain, people feel the overall experience that they can get at a casual dining place is much better.”

Where are Investors Investing?

Restaurateurs overall feel that fine dining is set to become a niche segment, while casual dining will be the flavour of the industry in the times to come. As a result, investments in fine dining have also gone down and the organic growth into the fine dining segment has dwindled in comparison to what is happening in the casual and value dining segment. Casual dining with scalability in business and rising profits is making the segment more alluring for investors. With increasing innovation, diverse menus and more success stories, casual dining is in great demand.

“Looking at the current scenario, casual dining is preferable for investments as investing in fine dining requires huge amount of capital and getting good returns in this challenging economy stature is not an easy task. Apart from this, casual dining gives an opportunity to expand the company at a faster pace than fine dining does,” explains Puri. However, Arora has a different opinion, as he says, “Casual dining can bring a faster return for investors, but fine dining is a safer and long-term investment bet.”

Going Forward

A lot of promising new concepts and trends are taking shape in the vibrant foodservice market and people who will play fair, be innovative, ready to adopt and who get their basics right will always be in a commanding position in the times to come.

A few restaurateurs expect that easier rules and regulations from the Government will also boost the industry.

“In the next five years, I feel that the consumption is going to grow. Indians are consuming still far less than what other top economies are consuming,” asserts Katriar.

“In the next five years, there will be a lot of correction in the industry, the people who are considered strong will have to consolidate their businesses – they will run only profitable restaurants and loss making properties will be shut down. There will be rationalisation of the market, the rents will have to corrected. The dine-out market will increase. Millennials and GenZ will rule the roost. Locally-sourced and micro-regional Indian food will become very big, and Indian QSRs will come into the play,” states Kalra.

The restaurant business by nature is very capital intensive, so as the industry grows there will be a need to continue infusing capital.”To grow exponentially, the restaurant owners will have to go for private equity,” concludes Amlani.