PE & QSR: Going greenfield in India

Most private equity investors blanche at the prospect of a greenfield quick service restaurant (QSR) rollout in Asia. Restaurant chain expansions are based not only on general projections of market growth, but on insights into when and where stores should be opened and how menu items should be selected and priced. It is far easier to get comfortable when there are already restaurants on the ground and data on the spreadsheets.

When Everstone Group agreed to launch Burger King in India seven years ago, it was taking a step into the unknown – and in a country where beef eaters are in the minority. There are currently 224 stores and Everstone claims average revenue per outlet is almost on a par with competition, compared to an index of 50-60% in the US. Burger King, which is contracted to reach at least 700 stores by 2025, filed for a domestic IPO this week.

“There are several greenfield challenges,” observes says Sami Siddiqui, president for Asia Pacific at Restaurant Brands International (RBI), Burger King’s parent company. “One, you have to spend a lot of time understanding the consumer and tailoring your menu to local preferences. Two, you need to set up supply chains that are formidable and meet the same quality standards as other places in the world. Three, you are building the team from scratch, not just the management but everyone down to the restaurant level.”

Everstone embarked on the project with its eyes open. The private equity firm decided on a buy-and-build strategy after finding that all existing desirable QSR brands in India were trading at 25-30x EBITDA and therefore out of reach. The team spent 18 months mapping out the US market and identifying brands that were scalable, had international franchise partners but were not yet in India, and had a cuisine and format that were suited to the country. Burger King was at the top of a 25-name shortlist.

There followed extensive commercial due diligence and negotiations with RBI. “We invest for five years, maybe eight for a platform deal, but with a greenfield rollout you spend first three to four years building and then scaling up. The question was how could we build a scaled business and make it a profitable investment” says Amit Manocha, a managing director at Everstone. “It was important they were comfortable with us making all the decisions on marketing, menus, supply chains and pricing.”

Once the joint venture structure was in place – a model seldom used by RBI whereby it takes a stake in the franchisor entity – Everstone put together a management team. Rajeev Varman, an Indian-born executive who had spent the previous 13 years with Burger King in different markets, was recruited as CEO. They also built a cold chain system, persuading a smaller local operator to invest in capacity by pledging volume based on the projected store rollout, and devised menus.

Fries are probably the only item familiar to US diners. Half the burgers are vegetarian, and India is the only market globally able to tamper with the Whopper; it is served with a chicken, lamb or vegetarian patty. Pricing strategy was equally important. Burger King meals are cheaper in India than the US due to value-focused market and currency – a combo meal costs under $2.50 versus $6.99 in US – but the menu price range is laddered across steps, from as low as $0.40 to $2.00. This has helped support a higher average per capita spend than the competition, Manocha says.

A similar approach was taken to marketing, which initially was primarily through digital channels. “We started by announcing the brand and focusing on the flagship product, which is the Whopper. As the brand awareness started increasing and we had presence with scale in multiple cities, marketing messages switched from premium product to value offering to get more people in the door, have them experience the product and climb the ladder.”

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• Topics
• South Asia
• Consumer
• Expansion
• India
• Everstone Capital