On March 31, 2012, Kuki in a tony south Delhi market shut shop. It started as Kuki in 2007, and like its red butterfly logo, spread it wings to evolve into Kuki XO and finally went out, not so quietly, into the night as Pure by Kuki.

The three-level standalone nightclub was co-owned by celebrity DJ Rummy Sharma. In the capital’s partying circuit it was known for its bright red interiors, expensive tipples and ultra glam clientele. But when the rent lease was up for review this year, Sharma realised that to keep the club running would be economically unviable.

But egos (after all, he was the owner) aside, Sharma locked up the business after six months of serious thought and is back to his original profession, spinning music, where he reckons he’ll end up making more minus the hassles.

“It’s not a profitable business anymore,” he says. And he’s not talking about Kuki per se, but the nightclub business in India. Sharma mentions the prohibitive rentals in the cities, which earlier would eat into 20% of the earnings but now takes up 35-40% of the earnings.

Business Isn’t a Party

Yet, the business is booming. Fuelled by the young party crowd, businesswise there’s already a promising demand. So how can a business be a great opportunity and a bad proposition at the same time? Let’s do the math. In a city like Mumbai , the so-called party capital of India, if you rent a 2,500-sq ft space at say Rs 300 per sq ft, that’s Rs 7.5 lakh per month in rent.

To make it viable, you have to generate Rs 50-60 lakh per month as revenue, meaning Rs 2,000-2,500 in sales per sq ft. That’s why the pint of Corona you order should be priced at Rs 600, which is unrealistic.

Like other retail businesses, nightlife too suffers from the high cost of rent. But what adds to the burden, and what is typical of this business, is the high cost of development, the cost of buying imported liquor or even Indian made foreign liquor (IMFL) now, the heavy licence fees and then actually operating the place.

“When you look at clubs with a large footfall, the rent that needs to be paid for a prime location in any city in India is very high,” says Akshay Kulkarni, regional director, hospitality, South & Southeast Asia, Cushman & Wakefield, a real estate services firm. He adds, “Very often the only way to offset it is by passing it on to the consumer which in turn leads clubs having to cater to the super elite who can afford to pay such exorbitant prices.” The downside: ‘this’ crowd often tends to be fickle and eager to move to the next popular place.

But capricious consumers are not the main worry of club owners . They know that for every set which moves to the next big thing, there are two more waiting behind the velvet rope hoping for entry. So while the current flavour of the Delhi party circuit blueFROG, after four years (and counting) of success in Mumbai, is poaching the crowds away from other venues, the fairly new Shroom in Mehrauli is also packed to the gills on weekends.

“There’s enough to go around,” says Mahesh Mathai, co-owner/promoter of blueFROG. Mathai, who has now shifted bag and baggage to Delhi, akins the Indian nightlife scene to Indian television. “Earlier, you had only one channel and you had to watch it. And now, you are spoilt for choice. The nightlife scene is shaping up in the same way,” he says.

Throw Out the Rulebook

What Riyaaz Amlani of Impresario that owns Smoke House Grill, Salt Water Grill & Shroom, etc, all nightlife destinations with Shroom ticking the nightclub checkbox, is looking for is respect for his kind. The various state government’s, nightlife regulations are a state subject, indifference to nightlife and its potential is his bugbear.

“Some of the regulations defy logic,” he says mentioning closing time, which can be extended to 3 am from the current 1.30 am (in Delhi & Mumbai). “It gives us that much more time to do business. The consumers who usually start at 11 pm have more time to party and there’s no real logic in setting the curfew at 1.30 am,” he says. He’s quick to point out that the nightclubs are one of the highest value added tax (VAT) earners for the government. “For such a status we are not given that respect,” he says and adds, “or consideration.”

While the young single professionals are fuelling the growth on the consumer side, it’s the growing number of entrepreneurs who have travelled the world and are keen to become restaurateurs, night club owners (considered a glamourous profession) leading to a growth in the business. AD Singh, of Olive and The Lap fame, is happy at the sector inviting new talent in standalone formats like the Grey Garden in Delhi and Pali Village Café in Mumbai.

“There’s a freshness in vision in the sector with personalised boutique experiences coming in,” he says. However, varying regulatory frameworks in different cities, he says, is a worrying factor.

Sample this: in Bangalore, Chennai and Hyderabad, the closing time is 11-11.30 pm. The nightlife in Bangalore is governed by ‘The licensing and controlling of places of public entertainment (Bangalore City) order, 2005’ and the Karnataka Excise Act of 1965.

The order makes it mandatory for all places offering live entertainment to be licenced by the police after meeting strict standards. In 2008, Bangalore had banned dancing in pubs and discotheques, apparently because it encouraged prostitution. The drinking age again differs in different cities, between 21 and 25 years.

But to get that extra buck especially on packed weekend nights , nightclubs are forced to flout rules from closing times, adhering to drinking age to live entertainment laws. As a club owner mentions, on conditions of anonymity, “There are always three employees who never come to work but get paid: the excise department, police and the municipal corporation.” The rates vary from `50,000 to `2-3 lakh per month.

Mumbai, The Party Capital?

Currently, Mumbai-based club owners like Mathai and Amlani rate the Delhi nightlife scene above Mumbai. “The regulations in Delhi allow you a later time than anywhere else in the country. Some clubs can apply for 24-hour licences and the process is simpler here,” says Amlani who says even Bangalore is simpler to set up a nightclub.

It’s Mumbai that makes clubowner’s sweat. Last year, one of the city’s popular nightspots Zenzi in Bandra finally threw in the towel after its long-drawn run-ins with the local municipal corporation. Again in 2011, Cool Chef Café in Colaba was accused by Mumbai’s resident right wingers on the age-old crime of “ruining our culture”.

If it’s not the Brihan Mumbai Corporation, it’s the right wingers, the police or even resident welfare associations protesting the loss of their neighbourhood that’s hemming the city nightlife.

Then there are the approvals. To name a few: sign offs from the BMC, excise department, pollution control board, health board; a deed from the landlord specifying that he legally gave the premise on rent; then the liquor licences, one to buy it (beer and wine come separate); another to display it and one to serve it; a milk licence (if coffee or tea is on the menu); licences for playing music (live music and recorded music are separate); no objections from nearby RWAs plus a sign off from the police who must ensure that your bar is not less than 100 meters from a hospital, school, temple or place of worship. Phew!

We Like to Party

Kolkata, till recently, had the most liberal nightlife rules but now finds itself hemmed after the recent rape case. Chief minister Mamata Banerjee actually suggested “shut nightclubs by midnight [which is the new closing time in the city now] and there’ll be no rapes in the state”. Just like the Gurgaon DCP who recently asked the women in the NCR not to venture out after 8 pm, after a pub worker was gang-raped.

“Even though, the segment on the whole is expected to grow in the coming years, there is a fear that the drinking age rules, curfews, as well as the recent increase in the prices of IMFL and beer could impede the growth of this industry,” says Pratichee Kapoor, associate vice-president, food services & agriculture, Technopak Advisors.

Kapoor points out that setting up a new bar or nightclub is met with opposition even in the bigger cities. “A recommendation would be for the government to work towards curtailing drunken driving in India instead of increasing the permissible drinking age to 25 years,” she says.

The drinking age is extremely difficult to comprehend, especially for the growing expat crowd, which is used to drinking by the time they turn 21. In Germany, in fact, 14-year-old kids can drink a ‘soft’ alcohol beverage in the presence of their parents.

Kulkarni of Cushman mentions that there hasn’t been any serious effort to try and quantify the nightlife business in India in terms of revenue generated or studies done to understand the prevalence of this business. Namely because of the fragmented nature of the industry, the varying definition of nightlife from place to place, the fact that very often restaurants try to straddle multiple images, etc.

“Yet the nightlife boom has hit a number of Tier II cities as well, such cities which one would not traditionally associate with nightclubs,” he says.

Brand Building

The nightlife consumer mix is interesting. In the sense that footfalls are driven by students and young professionals, however the serious spend comes from the slightly older professionals, businessmen and women. “Therefore venues try to balance the two as one segment brings in the visibility and the other segment the revenues,” says Kulkarni. But the landscape is becoming ‘interesting’, just like some of the rules.

There’s the growth of speciality bars and pubs like microbreweries, sports bars, wine bars; chain restaurants like Hard Rock Café, TGIF, V Spot and standalone high-end outlets like Ellipsis in Mumbai and blueFROG. “There’s a growth of drinking clusters especially in Delhi like Hauz Khas Village and Khan Market,” Vikram Achanta, co-founder and CEO of Tulleeho, a provider of beverage education and training services, says.

Source: prices for night for two from timescity.com. Charges are weekend rates and minus VAT & service tax. The list is not exhaustive but indicative of nightlife trends

Though the nightlife segment lacks iconic clubs, there are pan-India brands coming up from Shiro, Olive, Hard Rock Café, blueFROG, Smoke House, Poison. International brands like F Bar, Hakkasan, Buddha Bar, Pacha and Ministry of Sound all have plans to be present in multiple cities as well. Jay Singh, co-founder, JSM Corp that owns brands Hard Rock Café and Shiro among others, says branded players have an advantage as they have the benefit of a set format, not to mention recognition and recall value.

But Sharma points out that the problem doesn’t lie on the supply side. “If earlier there were 100 bars catering to 15,000 people, today there are 600 options available for 17,000 people,” he says. What Sharma, a former club owner, needs today is a level-playing ground.

Single window clearances for licences, reducing the cost of procurement and transparent licencing regulations to allow the market to organise itself better and develop products that could cater to different price points. And only then it will be one heck of a party.

Source: prices for night for two from timescity.com. Charges are weekend rates and minus VAT & service tax. The list is not exhaustive but indicative of nightlife trends