Despite high rentals and fewer customers, master franchisees of international chains are not giving up on the long-term prospects of the food business. Devyani International and Mirah Hospitality, for istance, are looking forward to raising money to launch new outlets for Manchester United, Ping Pong, Pizza Hut, Costa Coffee and KFC.
A master franchise is a franchising contract in which the master franchisor (the owner of the brand name) hands over control of franchising activities in a territory to a person or an entity, the master franchisee.
“Growth levels are certainly not as high as last year. Among all our formats, it is the coffee retail with Costa Coffee that is the most challenging business. Volumes are still low compared to the rest of our formats as the rental-to-sales ratio is low. Coffee as a business has not grown much. Yet, we will add 40 outlets this year since most of the international formats are looking at the long term,” said Virag Joshi, CEO, Devyani International, a subsidiary of RJ Corp.
Devyani International that represents Pizza Hut, KFC, Costa Coffee and Swenson’s and in which had ICICI Ventures picked up 10 per cent stake is open to more funding from private equity players.
“We will add 110 outlets across our four international formats and invest Rs 150 crore through debt and equity. We are open to more PE players picking up stake and will definitely look at an IPO next year,” added Joshi.
Mirah Hospitality, the master franchisee for sports bar Manchester United and UK-based Dimsum specialist Ping Pong, still hopes to achieve adequate scale before it can go in for PE funding followed by an IPO to raise funds. Getting the right real estate for its formats continues to be a key challenge.
Gaurav Goenka, MD, Mirah Hospitality, said “It has taken us a year to launch the first Ping Pong outlet but in the long run the food business will only get better. We are still not a large player and are in talks with more international food brands. Currently our expansion is being funded through internal accruals but we could look at raising money through private equity.” Increasing the number of outlets is now a priority, and Mirah plans to add 100 new outlets in the next three years across its food formats.
But rentals continue to be the biggest impediment to growth in sales. “We don’t want to earn for the landlord in places such as South Mumbai and have been moving out some outlets to the suburbs,” added Goenka.
Source: The Hindu Business Line