Running a successful restaurant chain requires few important attributes:
- Capable management
- Strong Balance Sheet and operating cash flows (adequate financing)
- Methodical approach to expansion
There are several ways to increase earnings , which include:
- Adding more restaurants
- Same store sales growth (SSGR)
- High turnover with low priced meals ( e.g. Road side vadapav)
- Low turnover with high priced meals (e.g. Barbeque nation)
- Low operating costs (e.g. Chain at the outskirts of the city with low real estate costs)
As long as Indians continue to eat outside , which I think is a long term irreversible trend, industry will grow multi fold. However, it does not mean every player will also have their pie and grow along with industry. In fact, I think it will be the opposite, very few will survive and grow, most will churn and vanish. As a investor, its our job to identify the winner and buy it at reasonable price.
If you try to expand too rapidly, you may
- End up picking wrong sites or wrong managers,
- Pay too much for real estate
- Fail to properly train the employees
- Run in too much debt that you cant service
Burger king is able to sell itself to investors by promising 700 outlets by FY27 I think. Will it be able to do it judiciously remains to be seen. To my limited understanding, promoters don’t have confidence in it, that’s why they are trying hard to sell their stake. It may also be the case that stake sale has nothing to do with Burger king, they probably need money for some other reason.
Note - No original thoughts. Most of the points above are from “Beating the Street” from Peter Lynch