Raising equity is better than going for debt in the food biz: Vikram Bakshi of McDonald’s

As the world’s largest fast food retail chain, McDonald’s has more than a thing or two to share with the budding food entrepreneurs in India. The multinational firm has scaled up with two separate master franchise operations in the county – a market where its global rival Burger King is yet to enter. Vikram Bakshi, the managing director and JV partner of the franchisee that oversees the operations of McDonald’s in northern and eastern regions in India, feels that there is enough scope for young entrepreneurs to build businesses in the organised quick service restaurant (QSR) market in India, which is approaching a $1 billion in opportunity. In a video interaction with VCCircle, he gives tips for food entrepreneurs, talks about FDI in retail and the rising cost of operations for McDonald’s in India. Edited excerpts (click here for full video):

Even though there are several established brands like KFC and McDonald’s in the fast food space, we see a new bunch of entrepreneurs looking at the QSR business as an opportunity. What are the business models that can gain traction, according to you?

There are loads of successful entrepreneurs who have got the food concept right. But they are not able to scale up their ideas because, may be, they are shy of getting private equity or don’t understand it enough to go about it. There are enough niche and good ideas in the food and beverages segment in India. But the question is – will the investor community look at these brands seriously? Also, entrepreneurs need to understand the importance of PE investment in their businesses. So the apt business models already exist in the market when you talk of startups in the food and beverage segment.

So do you feel private equity is a better option for food entrepreneurs than debt?

Any food business requires a few years of working before it gets success. There is a lot of cash burn during the initial years. So whenever you raise debt, you end up paying your instalments at a time when you don’t have enough cash to cover even your operating cost. Hence, if there is a possibility of acquiring an angel investor or private equity for any new idea, it is much better. This way, you have a certain number of years to prove your business model and during that period, if you have enough cashflow to keep the idea running rather than paying EMIs, it always works.

Please take us through the expansion plans of McDonald’s for the coming financial year?

You have to understand that McDonald’s is split into two halves in India. I take care of the north & east half and the other half is west & south (regions). But both of us have agreed to double the number of existing outlets (250) in the next three years. Earlier, the cost of each outlet used to be Rs 2-2.5 crore. But it has now increased 50 per cent in the last year and a half. So all the upcoming outlets will be in the range of Rs 3-3.5 crore. Moreover, the new, contemporary look is costing us more. We are segregating the seating space between 2, 4 and 6-seaters. We are also improving the ambience at the outlets. Rs 3.5 crore in costs include the entire backend, food processing plant and logistics costs as well. From what we have learnt in the past in terms of menu innovation, getting the model right and our concept – we are best positioned to expand further and that’s why we have such aggressive targets. Since we started rolling out the new concept, costs also started increasing.

How will FDI in multi-brand retail change the life of a QSR chain?

I believe that FDI will change things not only for big brands but more for smaller retailers. And my belief comes from the fact that investments, which need to be made into backend retail, have to be shared by the retailer community to get returns. Anybody investing in the backend needs to have enough retailers on board to implement those investments. This means a smaller retailer in the backend space can be a party to a large retailer who has already set up a backend. It helps the big retailer cover the costs and enables the smaller retailer to cut down the costs and get a better return.

The premium coffee chain market has seen fresh excitement with the entry of Starbucks. McDonald’s also planned to launch McCafe in India by the end of this year. Is it on track?

I promise it will come. I can’t put a date to it because it has to be launched with all the products that it has globally and all this needs to come in line. We have to match the global scales to the India outlets.

(Edited by Sanghamitra Mandal)

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