Shares digital

Costs up, market down: the prospects do not look good for Indian Restaurants and its listing venture. Dan Coatsworth tastes the dish and wonders if it will be hot and spicy enough for difficult times

With the leisure sector hurt by recession fears, it seems odd to see a curry house operator list on Aim. Rising household bills are putting the squeeze on consumer spending. Rice prices have risen sharply on a shortage of the commodity. Competition continues to be intense among Indian restaurants. A clamp-down on immigration from Bangladesh has created a shortage of skilled curry chefs. These aren’t tasty ingredients for expanding a business.

Indian Restaurants Group (IRGP:AIM) joined the junior market last week after Indian Outsourcing Group, a cash shell, secured the reverse takeover of restaurant and catering group Mela. It wants to launch the UK’s first national curry chain (Shares 7 February).

Countless people have tried to emulate the success of food chains such as Pizza Express with curry restaurants. Many have cracked regional markets, but no-one has made a business a national, household brand.

Curry houses are in nearly every UK village, town and city. Customers tend to be loyal to their local establishment. A good proportion of the country may be fussy when it comes to ‘foreign’ food, but curries seem to be the exception to the rule, alongside Italian fare. The average household probably eats chicken tikka masala for dinner as often as pie and mash or spaghetti bolognese. It is part of the country’s staple diet.

South east-based Bombay Bicycle Club, praised by critics and consumers, wants to go national. The business was heading in the right direction with three restaurants and home delivery coverage in London, until its parent company grew nervous over the near-term leisure sector prospects.

Clapham House (CPH:AIM), which also owns Gourmet Burger Kitchen and Tootsies, said in December that it had a cautious view of the UK economic outlook, prompting it to scale back the number of new restaurant openings for 2008. While this may prove to be a prudent decision, it retains aspirations to take Bombay Bicycle Club beyond London and become the largest operator in the ‘quality’ Indian food market.

Indian Restaurants Group owns three restaurants, Chowki, 3 Monkeys and Mela. Each has a good reputation for quality, mid-market food. But so do countless other businesses with equal opportunities to become national brands. Masala Zone and Mirch Masala are two obvious examples.

Celebrities have tried – and failed – to launch national restaurant chains. Bollywood film and television celebrity Shilpa Shetty said a year ago that she would launch her ‘Dining Halls’ concept in the UK. It has still to happen. Ken Hom launched Yellow River Café in 1999 but the Chinese food eatery was gobbled up by Orchid Group in 2006 and has failed to stand out from the crowd.

Asian food chains Wagamama and Yo! Sushi managed to become national brands because mainstream competition for noodles and sushi was non-existent at the time. Seeing their successes, many companies have tried to emulate their business models, quickly saturating the market.

Buying up and rebranding competing restaurants requires substantial funds and hard work to input the company’s culture. Before facing this challenge, Indian Restaurants Group has more immediate matters to address.

Takings at its three restaurants fell by 10% in November and December. The share price has fallen 37% to 13p since the cash shell announced the reverse takeover plans in late January and subsequently started dealings as the new business. Rice prices are up nearly 60% year-on-year, according to the Rice Association. Basmati rice, popular with curries, has doubled in price. Restaurant owners will be forced to put prices up to cover the extra raw material costs. That could cost them custom, with consumers already watching their wallets closely as the economy weakens.