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Why a Subway India acquisition could pay off for Mukesh Ambani and Reliance

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Mukesh Ambani has a voracious appetite. After spending most of the pandemic months sewing up deals and acquisitions left, right and centre, the Reliance Industries supremo is now hungry for Subway, according to reports. But why is India’s richest business tycoon now aiming for a restaurant chain? 

Estimates say Subway’s setup in India, with around 600 restaurants, could be valued anywhere between Rs 1,488-1,860 crore. Surely, in an empire straddling petrochemicals, telecommunications and an expanding e-commerce portfolio, a quick-service restaurant (QSR) would be loose change, right?

Perhaps not in the Ambani scheme of things for a brave new future post-COVID. Even as he repositions his petrochemical-focused business for an inevitable post-oil era, the new “toys” he’s picked up in his recent “shopping sprees” make more sense. From grocery, ed-tech, fashion and furniture startups, Subway will also fit into Reliance’s futuristic expansion meant for tomorrow’s India where digital and retail are tipped to take centre stage.

“Food and beverages (F&B) is a high-frequency use-case and therefore attracts attention,” explains Beerud Sheth, CEO and co-founder of Gupshup, a messaging startup that became a unicorn earlier this year after achieving a valuation of one billion dollars. “This is part of the trend of the great digital transformation of India. Every industry, every sector is getting digitized. The pandemic just accelerated it. Offline business, and F&B in particular, were previously left behind, but now it is undergoing rapid change.”

Ambani has not failed to notice how the pandemic and its resultant digitisation brought in a new way of lifestyle—one where digital access, standardisation and hygiene are important parameters. This is also why picking up an American sandwich maker, with its supposed claim of being “healthy” not to mention hygienic, fits right in. Ambani’s money muscle means launching a new brand of his own was also possible—like he did in 2016 by entering the telecom sector with Jio—but it was just easier to pick up a Western brand, considering the upwardly mobile aspirations of India’s restaurant-going crowd.

Not to forget the value bargain. Not only is Subway going through a crisis of sorts globally due to dwindling sales and organisational restructuring, but the pandemic whiplash on the restaurant industry in India has also meant that the unorganised sector, primarily the standalone casual diners and neighbourhood eateries have all been worst affected. Some estimates say anywhere upward of 30 per cent of India’s restaurants may have shut down over the past 15-16 months. While Subway as a brand may have deep pockets, it works on the franchisee model in India, and not all of them may have a healthy bottom line after months of closure and restrictions.

Yet at the same time, the pandemic has proven to be a windfall for aggregators like Zomato. The Gurgaon food delivery unicorn’s IPO was a runaway success. Devyani International—perhaps India’s biggest restaurant operator which has brands like KFC, Pizza Hut, Costa Coffee, Vaango under its belt is next in line—is set to launch its IPO on Wednesday. 

Ambani would also be reassured by the rosy projections for QSRs—an Edelweiss Securities report says it will be the fastest-growing segment in the food scene in India in the next four years, with an annual growth rate of 23 per cent. Pre-covid, casual dining restaurants were the biggest category in India’s restaurant scene, with QSRs right below at nearly 20 per cent. Will it change in the coming years?

“While the COVID-19 pandemic hit the restaurant industry hard, QSR chains were the first to recover trends. Organised QSR chains had the infrastructure and delivery services in place long before the COVID-19 crisis and this aided them to swiftly adapt to government restrictions. So despite dine-in services being impacted, QSR players were able to maintain growth and revenues by doubling down on their delivery services,” the Edelweiss study noted.

Courtesy – www.theweek.in

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