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The $10 billion Secret Recipe For Indian QSRs: Rolling-Up Franchisees To Create Mini-Jubilants

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By AltG Research On Behalf Of Poornima Vardhan And Taponeel Mukherjee

The growth in the Indian consumer market presents the most compelling investment opportunity globally. Within the rapidly growing Indian consumer markets, QSR (Quick Service Restaurants) represents an exceptional risk-reward opportunity. Indian QSR businesses are on a high. This is evident from the IPOs and subsequent stock prices of RJ Corp, Devyani International and related players and the busy stores of major QSR chains at 11 pm even on weekdays in any major city. Clearly, India’s appetite for QSR businesses is booming. 

The past week, in particular, has been a busy one with the Haldiram’s Group reportedly rejigging its business, Everstone Capital in talks with General Atlantic to sell its stake in Restaurant Brands Asia, i.e. Burger King in India, MMG Group, which owns and operates several McDonald’s restaurants, announced over INR 600 crore in new investments and Restaurant Brands International and Jubilant FoodWorks announced plans to open 50 Popeyes Louisiana Kitchen units in a year – and eventually 250 – in India.

Rising Demand for Discretionary Consumption

Given the growth of the Indian consumer market, there are significant opportunities for private equity investors to generate high double-digit investment returns via the private markets that have a low correlation with the broader macro markets by creating “Roll-Up Platforms that own multiple franchisees” that replicate the success of Restaurant Brands Internationals, Devyani Internationals or Jubilant Foods through other categories in both food and non-food. 

The attractive prospects of the Indian QSR industry run parallel to the country’s booming food service market, which is expected to reach USD 80 Billion by 2028, growing at a CAGR of 11% from USD 41 Billion in 2022. 

This growth, in turn, also reflects in premium non-food segments (think Titan, Bata, Godrej, Raymond, etc.) and is a consequence of the growth of the Indian consumption market in general. As India moves to become a USD 5 trillion economy by FY26 and possibly USD 50 trillion by 2050, the Indian consumer market will be the single biggest driver of GDP growth. 

The Trillion-Dollar Investment Opportunity

As per capita incomes in India move past the 2,000 USD per capita mark, the “discretionary” component of income will play a significant role in generating investment opportunities in various consumption-driven sectors and supply chains, given that 60% of India’s GDP is driven by domestic consumption.  

Essentially, as consumers move past demanding “basic” goods, the demand for higher-end consumer services and products will increase, precisely what the “Roll-Up Platforms” will service. This will have industry-wide repercussions that investors can cash in on, especially in the retail, hospitality and food service sectors. 

This shift is in line with the one that the Chinese consumer market witnessed over the last two decades. In the paper “Consumer Spending in China: The Past and the Future”, Jun Nie and Andrew Palmer showed that as household spending in China increased 3x (in real terms) in the 15 years since 2000, the expenditure on transportation and communication services jumped 7x, which in turn had a knock-on effect on demand for products and services across other industries. 

Similar trends can be expected to reverberate across the Indian economy in the near term as an increasingly wealthy and aspirational middle class becomes a driver for broader macroeconomic growth.

How Can Investors Generate Returns?

For investors, significant opportunities via Roll-Up Platforms that can aggregate and own assets that own the point of sale to the Indian consumer via franchisees across the consumption spectrum. 

The aim must be to create platforms for the next set of branded retail products that the rising 400 Million Indian middle class will consume. Pizzas and Burgers have been the start, but now the opportunity exists in Indian food chains, coffee chains catering to tier-2 and tier-3 cities, and lifestyle stores for footwear, eyewear and branded jewellery. 

For franchisees, the benefits are a multitude from such Roll-Up platforms: better capital structure to lower the cost of capital, lower costs and higher growth. China can be an indicator of scale. A case in point is Yum China, which operates the KFC and Pizza Hut brands and has become the largest QSR player in the country, with over 10,000 stores across 1,200 cities. 

Such franchisee platforms are also immensely beneficial for the franchisor that holds the licence for the product and the IP. The franchisee platforms free up capital and resources for the franchisor to grow their brand and innovate on the product, while the franchisee platform expands the sales networks. These partnerships will enable medium-sized brands in India to become champion companies.

These franchisee Roll-Up platforms will be able to turbocharge the growth of the franchisor and franchisee through specialisation and cost efficiencies. 

They will also become massive employment generation mechanisms and FDI generators. The food service industry already employs over 7.3 million people and is expected to employ over 10 million by 2025.

The retail boom presents a fruitful opportunity for all stakeholders. 

For investors, this is a way to allocate capital to the high-growth Indian consumption market, the fastest-growing in the world, and generate exceptional returns, significantly beating benchmarks by creating franchisee Roll-Up platforms for the next set of retail winners.

For India, these developments present a far-reaching opportunity to attract FDI, create jobs, strengthen the consumer economy and unleash double-digit growth rates to cement its status as the growth driver of the global economy.

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