Economic Times: October, 2015
Mumbai: Private equity firm India Value Fund Advisors (IVFA) will invest between $100 and 150 million (about Rs 640 - Rs 970 crore) in the food business over the next two years, said a top company executive.
"Food business will be one of the highest growth sectors for the country over the next 20 years. The demand is driven by need for convenience, rising disposable incomes and aspirational lifestyles," Haresh Chawla, partner, India Value Fund Advisors told ET. IVFA has invested in companies across sectors such as media and entertainment, healthcare, logistics, supply chain and retailing, infrastructure services and clean energy.
The PE firm is looking to back mid-size businesses in food business with focus on supply chain and ingredient business, packaged food business and food services business.
"A majority of our investments are where we follow this buy-and-build model, and the rest are in areas where we back entrepreneurs and help them in their efforts to scale their organisations," said Chawla.
IVFA -- which recently picked up a controlling stake in chef Rahul Akerkar-founded deGustibus Hospitality for $30 million (about Rs 190 crore) -- also holds investments in companies such as VKL Seasoning (ingredient business) and Keya (packaged food business).
deGustibus Hospitality marks IVFA's first investment in the food service business. The PE firm is now looking to strengthen the management and expand the footprint of DeGustibus Hospitality which owns brands like Indigo, Indigo Deli, Neel and Tote on the Turf. "Their metrics, positioning and talent is what attracted us," said Chawla.
The Indian casual dining and quick service restaurant segment is attracting significant interest from private equity (PE) and venture capital (VC) players, with PE players such as Everstone Capital, Goldman Sachs, India Value Fund Advisors and Samara Capital making big investments in this space in recent times.
However, Chawla said one of the biggest challenges in the sector is the lack of good supply chain and infrastructure to support the growing demands of the industry. "Packaged food brands and QSR chains are forced to invest in setting up their own infrastructure, leading to a bloated cost structure."
Another challenge is the transition from founder-led business to large professionally run enterprises. As a result, there have been tussles between restaurant promoters and PE funds that invested in them. Food safety too is an important aspect which brands should focus on, said Chawla.
Industry experts said that the restaurant and quick service restaurants (QSR) sector are expected to register good growth and PE interest going forward, since it is relatively less affected by the downturn, courtesy the domestic consumption and spending cushion which keep this ticking at a good pace. Certain segments in the food business are showing growth rates as high as 30-40%, while most are in high teens.
According to a report by the National Restaurant Association of India (NRAI), the size of total food service market (organized and unorganized) is expected to grow from Rs 247,680 crore ($48 billion) in 2013 to Rs 408,040 crore ($78 billion) by 2018.