Find us an Indian McDonald’s – Uday Disley

I still remember, a decade ago, an English friend told me that he fell over laughing when he read an Indian newspaper carrying an article about a McDonald’s outlet opening up in India. He told me, sarcastically, ‘And that’s what makes news in your country’. This alien food concept (the humble burger) reached Indian shores 14 years ago and in a matter of a decade our equally humble Indian middle class is thronging to the nearest McDonald’s outlet. They did get something right? What is it that Indian restaurants are struggling with when they want to go national or even global?

Recently I was with a VC and we spoke about opportunities for investing in ‘Quick service restaurants’; he pointed out to me that the McDonald’s, outside Andheri station in Mumbai drew a large crowd. The same can be said about most outlets, of McDonald’s, in the country today. The company claims that it serves about 3-4 lakh customers a day, it currently has about 160 outlets and employs about 6500 people. That’s a remarkable achievement, given that bulk of the scaling up has happened over the last two years.

Yes we have seen many regional successes, but I fail to even find a pan India name that caters to India as a whole- not like a Saravana Bhavan or Kailash Parbat- which are very ethnic. It intrigues me that Indian start-ups are not able to figure out what formats work, what food has mass appeal, what price point they should sell at or is it the supply chain or the backend which they cannot replicate nationally. The consumer interest has been established, all consumer reports would tell you that we Indians have been spending more and consuming more (fast food included). The problem doesn’t seem to be with the investors, as there is plenty of interest (at my firm Viedea we are asked all the time). I believe the problem lies somewhere in between judging what appeals to the Indian consumer (pan India), the time to scale and the amount of investment required. Our analysis has been that it takes a good 4-5 years to know if a concept is worth scaling to 100 plus outlets (assuming that one has the right team, good backend and some investor has agreed to stick around for that long).

If I take the average investment per outlet to be Rs 2 Crore (ignoring the low cost models for this) and if a concept incubation period of 10 outlets takes over 3-4 years, you are talking of Rs 20 crore. Going beyond the proof of concept, to establish serious scale can take 8-10 years if not more. Afterall, McDonalds with its deep, deep pockets took 14 years to reach the scale they have today. The “waiting period”- which means most VCs need to pay back the people that back them in 5-7 years- falls outside the window that they can afford in one investment cycle.  Therefore any serious VC looking at this sector is more attracted towards proven concepts and late stage opportunities (which are not many in any case). To find investors who are willing to fund the next Indian ‘McDonald’s’ success story needs a champion as mad as “Lawrence of Arabia”, but like Lawrence found out everything in the Asian world is very regional. I certainly want to debate that and hope there is someone who can prove Mr Lawrence wrong.

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

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