At that time, international brands such as McDonalds were expanding across India and the time seemed ripe for an Indian QSR to take root. But, despite being in the business for around eight years and receiving venture funding in 2007, Kaati Zone is beginning to scale up operations only this year. It turned profitable six months ago, for the first time since it launch.
"I did not bargain for the long gestation period," Nadkarni, Kaati
Zone's chief executive officer admits. This is a sentiment echoed by
Gaurav Jain, co-founder of another Bangalore-based QSR Mast Kalandar, a
chain of vegetarian restaurants serving north Indian food. "QSR does not
scale up overnight like technology. It has to be built up brick
by brick and customer by customer," says Jain.
The slow growth is
surprising, considering the large market that these startups are
catering to. The Indian "eating out" market is estimated at around Rs
33,000 crore by retail consultancy Technopak Advisors.
The organised sector is valued at about Rs 8,000 crore and growing by
20-25%. However, these quick service chains that offer Indian food are
finding that it is not easy to adapt Indian cuisine to the fast food
model. Indian food, which is cooked through complex processes and has
several ingredients, is not easily translated into the assembly line
production model.
Other issues include high real estate costs, time taken to perfect
back-end operations, lack of cold storage facilities and lack of
supply-chain infrastructure in the country. "It is impossible to build a
quick service restaurant chain in five years, look at Jubilant Food,
they took 15 years," says Nadkarni, who is of the opinion that such long
haul businesses require patient capital. "
The main challenge was
that I had to bootstrap; raising venture capital was a challenge." But
there is now a gradual change in investor sentiment. Last year, food and beverage
businesses received $256 million of funding, while this year there has
been $43 million invested across two deals according to research firm
Venture Intelligence.
"In most retail models, including quick
service, time and effort is needed to perfect the basic unit model,"
says Kanwaljit Singh, senior managing director at Helion Venture Partners, who invested in Mast Kalandar in 2010. Kaati Zone raised funding in 2007 from Accel Partners, Draper Investment Company and Helion Venture Partners' Managing Director Ashish Gupta, who invested in his personal capacity.
"We had little experience in QSR as a fund. We also did not know the
time required for QSR formats to scale," says Prashanth Prakash, Partner
at Accel. "As a fund, we underestimated the complexity of this
business." This has not stopped other funds from investing in such
startups.To know more go to our site http://allindiayellowpage.com.