FOOD /INNOVATION SPECIAL ..................Cooking Up a Storm

Cooking Up a Storm  Several entrepreneurs are vying to tickle the palates of Indian foodies with innovative products delivered through new and efficient business models     There is something about food that lures investment bankers and management consultants into leaving highly paid jobs to become foodpreneurs. These professionals are setting up a variety of businesses from packaged foods to speciality food flavours and quick service restaurants all seeking to grab a share of the growing Indian food industry that is estimated to reach 18 lakh crore in 2016. “I travelled the world and saw that Indian food was very popular but there is no Indian food chain. I knew we could create a global food brand,” said Jaydeep Barman, 40, chief executive officer of Faaso’s who quit as associate partner at the London office of global consultancy McKinsey to focus on his company. In recent years, successful public listings by companies like Speciality Restaurants and Jubilant Foodworks have proven that food is good business in India. “Indian consumers are willing to spend and are willing to experiment,” said Reetesh Shukla, associate vice president at retail advisory Technopak. “The huge young population in the country is time starved and are looking for convenience and that is creating opportunity.” The past few years have seen the launch of innovative businesses primarily in two segments—food services and packaged food. While companies like Faaso’s, Ovenfresh, Box8, ID Fresh Food, Martha’s Preserves, Indian Home Gourmet and Arohan Foods offer a variety of products they all have one thing in common - freshness, taste and most importantly convenience. The market for food services, which includes models as varied as quick service restaurant (QSR) and fine dining chains, is expected to growth from 5.6 lakh crore in 2013 to 8.68 lakh crore in 2017, according to data from Euromonitor. For entrepreneurs, getting even a fraction of this market could mean a business worth several hundred crores. To that end they are focusing on local cuisine, affordable price points and convenience of delivery. While Faaso’s, the Pune-based wrap maker, has emerged as one of the largest with 70 outlets others like Ammi’s Biryani, Box8, Hello Curry and DCK are also in the fray. “One major trend is the revitalisation of Indian cuisine, especially in new formats. No matter how many burgers you have, the palete of the Indian consumer is still Indian,” said Technopak’s Shukla. “ Companies like Faaso’s and Box8 have shied away from the franchising route to maintain quality and consistency of the product. They are also opening up central kitchens in each city where the food is cooked and transported to their stores each day. “We started this business as we were tired of the frozen McDonald’s type of food. So we will not do that type of food,” said Faaso’s CEO Jaydeep Barman, 40. Investors are now looking to ride in on this growth story. “While in segments like pizzas and burgers there are large international companies already present, we saw an opportunity for chains which could offer Indian food with consistent quality across cities,” said Vishal Sood, managing director at SAIF Partners which has invested in Mainland China owner Speciality Restaurants , Ammi’s Biryani and DCK. These startups are also focusing on takeaway where majority of the revenues come from. This allows them to keep real estate costs low, with store size typically of 200- 400 square feet. “In food services, real estate costs and tweaking the flavours to local tastes as a chain expands remain the top challenges,” said Kanwaljit Singh, senior managing director at investment firm Helion Venture Advisors which has backed ethnic food chain Mast Kalandar Also focus on per unit economics is becoming important. “Each unit has to be profitable typically 70% of the profitable outlets are financing the balance 30% which are loss making,” said Hemendra Mathur, managing director at SEAF India Advisors. In packaged foods , convenience forms the core, especially for the army of young urban working Indians, who seem to be subsisting on a variety of packaged, pre-cooked or ready-toeat food. More than three out of four young Indians prefer to consume ready-to-eat food rather than eating out according to a survey by industry body Assocham. “Wherever there are busy, smart women we have a market,” said Musthafa PC, cofounder of ID Fresh Food, which sells ready to cook idly and dosa batter. Consumers have also begun to experiment with their food and new flavours are making their way into hitherto conservative Indian kitchens. Technopak’s Shukla said this is especially true of Italian flavours in packaged foods. Bangalore-based US citizen Martha Kohlhagen, 50, is banking on this trend. Kohlhagen lives on a farm on the outskirts of Bangalore with her husband and started making jams, sauces and preserves mainly for her family’s consumption. But the response from her friends made her launch Martha’s Preserves, a primarily hand-made natural range of sauces and preserves like basil pesto sauce and caramelised onion apple relish. These products are retailed through gourmet outlets like Future Group’s Food Hall, Foodworld Marketplace and Westside Gourmet in Bangalore, Mumbai and Delhi. The company, founded in 2012, also retails products online through Zansaar and soon through Big Basket. Such sites account for over 10% of sales for the firm “The youth, specially, are exposed to different foods. They have either lived abroad or travelled abroad,” said Kohlhagen, who has so far focused on getting the product right and putting a distribution network in place. “The demographic is changing in India and there is tremendous opportunity for those who can deliver variety.” She is targeting 1 crore in revenue by 2016. SEAF’s Mathur cautioned that the Indian cultural obsession with freshness of food could be a deterrent to the growth of ready-to-eat. It is this market knowledge that has led companies like Mumbai-based Indian Home Gourmet (IHG) to offer cooked pastes and dips rather than a full dish. Founded in 2011, IHG offers spice pastes for seafood dishes like prawn biryani and mangalore fish curry and chutneys and dips. Cofounded by chartered accountant Irfan Bandukwala and Sharad Tombri, an engineer-MBA who hails from the Koli (fisherman) community, the firm retails its products in Mumbai, Pune, Goa and on online stores like Big Basket and Ekstop. Experts said distribution remains a challenge in packaged foods as competing with established brands like Nestle, HUL and ITC for shelf space in retail stores is still difficult for small brands. “Companies need to build a robust distribution network and handle retailer’s demands and manage inventory,” said Helion’s Singh. “With a robust distribution network, the opportunity is large.”  Food Services Market The eating out and take-away market is going through a growth explosion with new cuisines and new formats becoming popular. TOP TRENDS Quick service restaurants (QSR) and casual dining restaurants (CDR) are the fastest growing sub segments, accounting for about 70% growth in licensed standalone outlets and about 75% expansion in chain restaurants. Among the two, QSR has been outpacing the market’s projected growth by about 25%, making it one of the segments to watch. REASONS FOR GROWTH: Indian QSR brands are banking on constant demand for Indian cuisine and time-poverty of Indian consumers. Home-delivery and takeaway focused businesses are on the rise as these are less capital intensive and more efficient Consumers are also experimenting with tastes and cuisines and are trying out international food tailored for India Existence of demand-side factors like increasing time poverty, long travel times, increase in the number of working women. TOP DEALS CX Partners - Barbeque Nation ($20 million), Everstone- Burger King (Not disclosed), NSR - Moshe (ND) TOP COMPANIES Specialty Foods, Dominos, McDonalds, Pizza Hut, KFC, Blue Foods TOP STARTUPS Mast Kalandar, Faaso’s, Ammi’s Biryani, Hello Curry, Ovenfresh, Dana Chogas Packaged Food Market More localised ready-to-eat and ready-to-cook products and snack brands are cashing in on the demand from time-starved upwardly mobile Indians for hygienically packaged products. TOP TRENDS Snacks and savouries account for 19% of the convenience foods category. REASONS FOR GROWTH Regional preferences provide opportunity for local players. Indians are trying out western-style cooking at home and hence demand for pasta sauces, dried herbs and other such packed goods is growing. Increase in the number of educated nuclear families Growing disposable incomes Change in lifestyles and food habits Greater number of working women TOP DEALS DFM Foods-Westbridge Capital ($10 million), Hassad Foods - Bush Foods ($100 million), DSG Consumer- Tierra Foods (Undisclosed) TOP COMPANIES Britannia, Pepsico, ITC, HUL, Nestle TOP STARTUPS Prtap Snacks, ID Fresh Food, Tierra Foods, Hector Beverages, Fizzy Foodlabs, Arohan Foods

ID Fresh Food: The Idly-maker

Of the lakhs of steaming hot idlys that Bangaloreans tuck into each morning, over 5 lakh are made from the 25,000 kilos of ID idly batter sold every day in the garden city. “We touch the lives of 2.5 lakh people a day,” said Musthafa , 40, cofounder of ID Fresh Food who teamed up with his cousins Abdul Nazer, Shamsudeen TK, Jafar TK and Noushad TA, set up a small scale operation in 2005 and scaled it up in 2007. It was the demand for even low-quality locally made idly and dosa batter at the provisions store run by the cousins that spawned the business. ID employs its own distribution team and every day gets an estimate of the demand from each store and produces the batter accordingly. “The entire backend technology is now run on SAP,” said Musthafa, an IIM-Bangalore student . Apart from parottas, which are already in stores, ID is set to launch precooked chapattis and chutney pastes. Musthafa’s personal favourite is ID’s wheat parottas, which he eats for dinner every day. “We don’t take the credit away from the homemaker. We just do the tedious backend process,” said Musthafa. “Our products go to the kitchen, not to the dinner table directly.” The company, which is completely self funded so far, earned revenue of 45 crore in fiscal 2014 and expects to double it this fiscal.

Tierra Foods: Taking on Giants through Traditional Snacks

For someone who is in the business of making cassava and banana chips, Alex Thomas has a confession to make. “I personally don’t even like snacks,” says the 52-year-old, for whom Tierra Foods is his second venture. Thomas, who earlier founded a readymix concrete business which was sold in 2006, found that whenever someone from Mumbai visited him they asked for banana chips. “The idea behind the company was make Kerala’s traditional snacks attractive to young people.” The company, set up in May 2012, now sells chips in over 25,000 outlets primarily in Kerala. Packaged in colourful packs of 5 and 10, they come in two brands - Kappo for cassava and Banano for banana chips. But the challenge lies in standing up to large MNCs like Pepsico. “We give retailers more margins than our competitors and in Kerala, they also want to promote a local company,” said Thomas who expects his company to double turnover to 20 crore next fiscal. “In general packaged food industry has to be driven
    by innovation on product development and distribution because the demand is there,” said Hemendra Mathur, MD at SEAF India Advisors. According to Euromonitor, the market for sweet and savoury snacks is expected to more than double to 23,014 crore by 2017. 

Radhika P Nair and Madhav Chanchani ET140411