From 176 restaurants in 2006, Koramangala now boasts 432 restaurants, which showcases this business is a jackpot. But be careful before trying your hand at setting up a restaurant of your own, warns Sajit Chacko, co-founder of AST Foods in an interview with ET. He advises aspiring restaurateurs to understand challenges, like food inflation and starting with low investments. Edited excerpts:
How did you start AST Foods and how many restaurants do you own in Koramangala?
We are three of us who started AST Foods. We all are passouts of the Institute of Hotel Management (IHM) and have an experience of 10-15 years. I used to do projects for The Leela and then I thought why don’t we open something on our own and that triggered the idea of AST Foods in 2006. We have three restaurants in Bangalore out of which Umerkot is in Koramangala, which was our first restaurant too.
What was the initial investment?
The three of us contributed Rs 3 lakh each and started Umerkot with a seed capital of Rs 9 lakh. Since, we had less capital we took a bank loan where we got 40 percent of the cost and had to repay it in five years. In order to get the restaurant running and spread its flavours, we availed services from our old contacts and goodwill in the industry.
What challenges did you face in this competitive business?
Umerkot was a challenge due to lack of capital. We took the place in Koramangala as it was cheap at that time. Our cuisine is niche – Akbari Gharana – mughlai but non-spicy food. People were skeptical about our restaurant. It became more challenging in the first six months, as the Shinivagalu Main Road where we are located was not well-constructed so nobody would come to our restaurant. I would say that the first year was challenging but then we took off with our niche fan following of people aged above 30 years.
What kind of growth have you seen since inception?
Apart from having loyal customers, the broken road got constructed which became a common road for many more localities in south Bangalore. This helped us to breakeven in two years, which is very difficult in this business. We paid our five-year bank loan in three years. In 2008, when slowdown shook the economy, we also got affected. Though our business dropped to 40 percent that year, we did not bleed since we have a conservative business model. Our business was at its peak in 2009-2010. In 2009, we saw maximum footfalls. We marked around 10 percent revenue increase per annum. We don’t target crazy profits. As I mentioned earlier, we follow a conservative business model. After 2010, profit has been growing at around 3-5 percent per annum.
What is driving the growth of restaurants in Koramangala?
Koramangala is the centre of attraction for south Bangalore. Just like villagers visit the city to hang out, south Bangalore flocks to Koramangala. This locality is an IT hub having maximum disposable income. These Kormangala techies enjoy fine dining and a relaxed ambience, which is driving the growth of restaurants in this tony locality. Moreover, in 2007-10, real estate in nearby areas had undergone development that attracted lot of people. They all frequent Kormangala restaurants.
What is your future plan?
Our plan is to open a new restaurant in every two years.
Tell us about the business.
Restaurant business is a combination of retail and manufacturing. A manufacturing unit takes 8-9 years to breakeven whereas a retail unit can achieve that in six month to 2.5 years. Sustaining the combination of retail and manufacturing is a tough game.
This business is very dynamic and every city and locality has different restaurant patterns. For instance, Bangalore has seen a complete shift in restaurant patterns, population has doubled since a large number of migrants have settled here and all of them have different tastes. In Koramangala, there were 176 restaurants in 2006 now there are 432. Though the figures denote that restaurant business in Koramangala is a jackpot, one should also consider that every month five restaurants opens and three shut down.
Manufacturing drove the Indian economy and no novice tried entering the food sector. Only Udupi opted for this segment. In 2012, the restaurant business transformed. Novices are entering this business and experimenting. It is tough to say who will click as the trend amongst consumers keeps changing. You can see parents eating in some old restaurant and children trying new food or vice versa. Biggest challenge in this industry is that of food inflation. Nobody talks about it or understands it before venturing into it. Food inflation keeps on fluctuating. If grains are short supplied, chicken prices rise. But one cannot keep changing the price in the menu.
Thus, restaurant business will go flat if these factors are not considered and handled well. Restaurant business is unlike regular retail that pays later on.
Which are the biggest industry opportunities for aspiring entrepreneurs in Koramangala?
I can’t suggest business ideas but can talk about seed opportunities in the area. Koramangala has distinctively two types of people, – one who wants maximum comfort coupled with good services and second – who wants value for money and are less dependent on services. I would suggest enterprising people to keep this in mind and take forward from the segment they want to cater. Business like organic food retailing can click well in the area.
What message you would like to give to budding restaurateurs?
The real trick is to start small, as capital is a big challenge. Go for the business where your strength lies instead of flowing with the trend. For example, if you have Rs 10, then observe the market carefully and go for a business where you can make Rs 10 to Rs 12 faster.
source: http://www.economictimes.indiatimes.com / The Economic Times / Home> Opinion> Interviews / by Rashi Varshney, ET Bureau / April 29th, 2012