Indian chefs aren’t very welcome in the United Kingdom these days. New immigration rules have put several stringent restrictions on the hiring of chefs from outside the European Union. “[This] is likely to hit the £3.2 billion (US$5.24 billion) Indian restaurant industry,” reported business daily The Economic Times.

Indian restaurants, however, are only too welcome in the U.K. According to food industry estimates, there are more than 10,000 Indian restaurants across the region and the number is growing. Chicken tikka masala regularly emerges on top of U.K. polls as the nation’s favorite dish; former foreign secretary Robin Cook anointed it “Britain’s national dish.”

Across the world too, the popularity of Indian food is growing and Indian restaurant chains are following the taste buds. The companies are small compared to the large U.S. chains. But with the diaspora as a captive customer in the beginning, the Indian companies are testing the waters. “Some domestic [restaurant] companies, after having a successful and stable operation in India, are looking for joint ventures,” according to a 2010 National Restaurant Association of India (NRAI) white paper. Among the names mentioned are Moti Mahal, Bikanerwala, Bukhara and Sagar Ratna.

Making a personal foray is Sanjeev Kapoor, India’s celebrity chef whose book, How to Cook Indian, was launched in the U.S. in April. But the book is really a sideshow. The events are a prelude to the imminent U.S. debut of Sanjeev Kapoor’s own chain of restaurants. He already has three chains with locations in West Asia: Sanjeev Kapoor’s Khazana (“fine dining”), Yellow Chilli (“casual dining”) and Options (“rich dining”). In the U.S., these will be launched through franchised operations. “The expansion is a regular progress,” says Sanjeev Kapoor. “When business matures, you have to look beyond your home market.”

If Sanjeev Kapoor is seeing bright prospects for his food business beyond India, so are others. Even as the domestic consumption story is sizzling, overseas expansion has become a recipe for growth for many Indian food companies. After building a Chinese restaurant empire in India, the country’s largest restaurateur, Anjan Chatterjee of Speciality Restaurant, has lined up a public issue and plans to take his hugely successful chain of Mainland China eateries to — where else? — Beijing and Shanghai. After Vienna, Prague and Karachi, Café Coffee Day — India’s largest coffee chain — is serving steaming beverages and snacks in other European nations. And Chennai’s favorite fast food joint — Saravana Bhavan — is churning out authentic South Indian fare in 10 countries, and is hungry for more.

From joint ventures to franchisees, Indian food chains are setting up their kitchens in Singapore, West Asia, the U.S., Canada and the U.K., all regions with large Indian populations. “There’s a huge opportunity to be tapped there,” says Samir Kuckreja, president of NRAI, an industry body. For instance, as Sanjeev Kapoor’s assorted restaurants are going places in West Asia, he has partnered with a Mumbai-based corporate multi-brand entity Better Value Brands (BVB). The deal, signed last year, envisages a global chain of Indian restaurants branded Indii (“trendy Indian food goes chic”). After establishing an Indii in India, there are plans to take the brand to “reach out to the Indian diaspora in different continents,” according to Sanjeev Kapoor.

Experimenting Beyond Curries

The overseas journey for Indian restaurateurs has been triggered by a host of factors. Business owners see a lot of potential because of the Indian diaspora, consultants note, and Indian food is also gaining acceptance worldwide. “People are willing to experiment beyond curries,” says Pratichee Kapoor, associate director at Technopak, a New Delhi-based research and consulting firm that released a white paper on the food industry last year.

Along with China, the Indian economy, too, has been the global flavor of the season; Restaurateurs want a piece of the action. While Chinese food has long been internationally accepted, Indian cuisine was often dismissed as nothing but “oily curries” and “tandoori chicken.” Not anymore, according to Hemant Oberoi, group executive chef at the Tatas’ Taj group of hotels, and the first Indian chef to be nominated to the World Gourmet Club. “There is life beyond tandoori chicken and biryani in Indian food today,” he notes. “Now people travel far more, and are familiar with our cuisine.”

This is a change from the early 1990s, when the food chain traffic was from the opposite direction. After India opened its doors to economic reform, McDonald’s was one of the first to set up shop in the country. Since then, brands like KFC, TGIF, Subway and Pizza Hut have made India their home. The latest is Starbucks, which brewed a deal with Tata Coffee in January, while others like Dixy Chicken [a British-owned chain specializing in halal chicken], Hooters, Grand Canyon Coffee and Burger King are also investing in India.

The entry of foreign players obviously impacted Indian food chains in a big way. The homegrown brands spruced up their menus and upgraded their standards in food, hygiene and service, besides refining the art of marketing eateries. This has given them the heft and confidence to embark on a global expansion. “India is the toast of the season, and restaurateurs want to leverage the popularity of Indian cuisine abroad,” notes Pinakiranjan Mishra, partner & industry head (retail and consumer product practice) at Ernst & Young.

Just sprucing up wasn’t enough, however. As the food industry became cluttered, it had to expand. But with saturation in the major metros, growth and expansion meant smaller towns, or going overseas. For example, after being in the business for 76 years, the family-owned Nirula’s, one of New Delhi’s original fast food chains, went national only a decade ago. It had opened three outlets in neighboring Nepal in the 1980s, but closed shop a few years later due to political instability. In March, the company announced that it was stepping on the gas. The next year will see 50 new outlets (half owned and half franchised) in tier II cities such as Patna, Baroda, Pune and Udaipur. An overseas drive — initially to Sri Lanka, Nepal and West Asia — will follow.

Real Estate Is the Problem

Local expansion may come first because it is familiar territory. But for Indian food companies, growing at home often means writing a larger check. The soaring property prices in India in two of the leading metros — Mumbai and New Delhi — makes business unviable, say restaurateurs. “It’s location, location, location for the hotel business. Being on the high street is critical,” says Anil Madhok, managing director of Sarovar Hotels in India.

According to Anuj Puri, chairman and country head of realty consultant Jones Lang LaSalle India, occupancy costs in major metros like Mumbai and Delhi are one of the highest in the world. Throw in heat, light and power, and the 10% higher bill can be a killer. For instance, occupancy costs for food chains in India account for 15-16% of revenue, while it is 10-11% in the international arena. “So the margins are lower in India,” notes Puri.

No wonder restaurateurs find the grass greener across the border. “We would rather invest in New York and Leicester,” Anjan Chatterjee of Speciality Restaurant, whose brands include Oh! Calcutta, Mainland China, Sigree, Haka, Machaan, Flame “N” Grill, Just Biryani and Sweet Bengal, told Realty News last year. “Not only do we have to invest less in real estate overseas, but the returns are also much higher than what we get in India.”

India is also a price sensitive market: good quality food is available at affordable prices. A typical South Indian meal of dosa and idli — rice crepe and rice cakes accompanied with lentil soup and chutney — costs US$10 in the U.S. It sells for a mere US$1.70 in India. Hike prices in India and sales drop, according to restaurant owners.

At the same time, increasing disposable incomes are the main reason why Indians are spending more on food. The NRAI’s food report says the restaurant industry is one of the Indian economy’s best kept secrets. The report adds that 50% of urban Indians regularly eat out at restaurants, and 25% list dining out as one of their most enjoyed activities. This is reflected in the US$2 billion organized food industry in India, which has been growing at a 20% to 25% rate over the past few years.

Venture Capital Provides Backing

The industry’s growth rate has even attracted venture capitalists. According to Venture Intelligence, which tracks private equity funding in India, over US$113 million has been invested in the fast food space in the past two years. Over the years, the Bangalore-based Coffee Day Holdings, which owns Café Coffee Day, raised private equity and debt funding through its various group companies from AIG, Sequoia, IFC, Deutsche Bank, New Silk Route, JP Morgan, Darby Investments, KKR and Stanchart PE. Café Coffee Day has a current tally of 1,090 outlets, including four in Vienna, 14 in the Czech Republic and one in Pakistan. It is now expanding into eastern Poland, Hungary, Romania and Croatia before going to West Asia and Southeast Asia.

The coffee chain’s offbeat global expansion makes sense. “Eastern Europe has a vibrant coffee drinking culture minus the cutthroat competition of mature Western markets,” according to Shweta Shetty, CCD’s president for international business. “It offers greater potential for growth.” In Vienna, for instance, the per capita consumption of coffee is 8 kg per annum. It is 85 gm in India and 8 gm in Pakistan.

In addition, consider Chatterjee’s Speciality Restaurant, where VC firm Saif Partners bought a 20% stake in 2007. The restaurant group has filed papers for an initial public offering, and the proceeds are likely to enhance the growth story. Chatterjee, who has a chain of 62 restaurants and 11 confectionaries under assorted brands in 17 cities in India and one in neighboring Bangladesh, has been talking about global expansion plans for the past two years. However, he was asked by his investors to scale up the home tally to 100 before venturing overseas. Expansion plans include acquiring South Indian and Italian restaurant chains in India. By next year, Chatterjee wants to look at expanding into China, in addition to Dubai, Doha, Qatar and Sri Lanka. He aims to ultimately go to London and the U.S.

Finding the Right People

When Indian restaurant chains go to China, they will face competition — from Indian restaurant chains that have been started by local Indian entrepreneurs. Antony Munuswamy runs more than 20 Indian Kitchen restaurants across China; he opened the first one in Macao in 1990. Talking of his Shanghai outlet, he says: “We started by targeting the Indians in China. Chinese food is so different — and very different from what passes as Chinese food in India or the U.S. — that Indians came here to eat authentic Indian fare.” But as Indian condiments became available in China, expats could cook their favorites at home. In addition, there are very few Indians in China. “We are now targeting local Chinese, many of who have developed a liking for Indian food, and tourists,” Munuswamy adds. “Every Indian who visits China wants to go back home and say that he has found authentic Goan — or Saraswat or Malvani or whatever — cooking in the heart of Beijing.”

Restaurateurs in other countries with a higher non-resident Indian population bank on the diaspora more for marketing purposes than as a customer base. Indians introduce their American friends to the cuisine. The Indians return perhaps once a month; the Americans who like the food come back once a week. “Never, ever target non-resident Indians, for they are a niche clientele,” cautions Zorawar Kalra, managing director of Wrapster Foods, which has two brands — Punjab Grill, an upscale restaurant with plans to expand overseas, and Street Foods of India, a fast food chain in India.

But for all the potential, establishing an Indian food chain overseas isn’t everyone’s cup of tea. “Each new market is challenging,” says Sanjeev Kapoor. “You have to understand local competition, demographics, price points, pay structures and local ingredients.” Taj’s Hemant Oberoi, who has opened seven overseas restaurants for the group, believes that the success of a couple of outlets at home often convinces other firms to venture out, which can be a big mistake. “For business reasons, they try to compromise on recipes because of local tastes, or create fusion cuisine, which doesn’t click,” he notes.

Then there is the people issue — finding skilled labor, and paying them can be a challenge. Sarovar Hotels’ Madhok, who was once part of India’s leading Oberoi group of hotels, reveals how Oberoi ran a 600-room hotel in Singapore with 500 employees. In India, a 500-room hotel had a staff of 1,800. “You cannot have this luxury abroad,” because of the salaries employees expect to receive, he says. Madhok pegs payroll at 12-14% of revenue in India, while it is 35% in New York, around 40% in London, and 25% in Dubai and Singapore.

The high cost of labor means Indian chains have to rethink the way they hire. Since a restaurant is only as good as its people, some food chains are beginning from ground zero. To combat the paucity of skilled labor and high employee turnover in the industry, Speciality Restaurant has opened a catering institute in Chatterjee’s hometown Kolkata. Apart from retraining employees, the institute puts new recruits through the rigors of catering essentials. Nearly 250 students undergoing training will be absorbed within the group.

Saravana Bhavan, which has 27 restaurants serving South Indian fast food and meals in India and 30 outlets globally, sends people from India to work in their foreign outlets. For one thing, the cost is less. But this works only in budget chains where customers don’t expect service with frills. “Theirs is a high volume, low margin venture which makes their business even more labor intensive,” notes Madhok.

The other issue is the cuisine itself. If Chinese food has become a global favorite, it is thanks to the adaptability of the cuisine. “What you need to give in Indian cuisine is not fiery concoctions, but flavorful food,” according to Vernon Coelho, head of the department of food production at the Institute of Hotel Management at Mumbai.

But success for Indian food chains going overseas will lie in tweaking their offerings to local requirements — not in taste, but in adhering to foreign regulations and standards, notes Ernst & Young’s Mishra. “The timing is right for food companies to travel abroad, but they have a lot of ground to cover.”