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India’s F&B Market

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The foodservice sector in India is currently valued at Rs74,300 crore, with the organised segment contributing only 14 percent of the overall market size. The sector is dominated by a multitude of unorganised, stand-alone and local restaurants, cafés, dhabas and kiosks. However, the good news is that the organised segment has been steadily increasing its contribution over the past few years and is expected to continue to do so over the next 5–10 years. In 2007, the organised segment contributed only 6 percent to the overall market; by 2017, this is expected to go up to 21 percent – almost twice the current organised market size.

While the organised foodservice market is growing in India, there are changes happening within the different F&B segments. Currently, QSR and casual dine together account for close to 70 percent of the organised market, which is expected to go up to about 75 percent in the next five years. Most of the growth in the organised segment is a result of the fast growth of the QSR sector which is seeing expansion through existing and new players. Over the next five years, the organised sector is expected to grow at 15–16 percent to reach Rs 22,000 crore by 2017.

GROWTH DRIVERS: Demand Side – The Consumer

Increase in Consumer Base: SEC A and B together account for approximately one-third of the total current population in the top 70 cities and are expected to comprise 37 percent of the population by 2017. The growth of these segments has positive implications as it presents an opportunity for brands to be present in the metros and mini-metros as well as the smaller cities of India. The growing SEC A consumer base will act as a key demand growth driver across all five foodservice segments while the growth of SEC B consumer base, at a faster pace than SEC A, indicates the robust growth potential for QSR and café segments.

Young Population: India is a young nation with a large working and earning segment, especially since the Indian youth has started earning at an earlier age, that is, immediately after graduation. This young population is comfortable with eating out as a way of life and gets to taste its freedom by experimenting with and trying out the easily affordable food options in the market. Children are also being brought into the circle of eating out and are getting initiated into it at a young age.

Increasing Disposable Income and Changing Family Structures: Consumers’ disposable incomes are increasing as a result of more women taking up the role of co-earning members, more youngsters starting to work early in their lives and the increase in smaller-sized nuclear families. These factors, apart from positively impacting the income of consumers, also create more reasons for eating out, primarily as they offer the convenience of not having to cook one’s own meals. High disposable incomes have also created a greater propensity for consumers to spend more and consequently demand more in return.

Changing Needs of Consumers: Consumer needs are changing along with various parameters that go beyond the demographic profile. They are seeking convenience in various aspects such as format, which has increased the demand for QSRs and cafés. Packaging is also considered, which has resulted in the rise of the ready-to-eat/cook category of food. Also crucial to the new consumer is time, the perceived shortage of which stresses the need for home-delivery channels.

New formats are also emerging to cater to specific needs of different kinds of consumers. QSRs, cafés and pubs appeal directly to the youngsters who look for different ways to enjoy time while premium formats such as casual dine, fine dine and lounge reach out to older people who look for relaxation and personal time with friends/ families.

New Customer Segments Emerging: Consumer segments are also being defined by characteristics other than just age and income profile; consumers’ needs, aspirations, lifestyle and attitudes provide further cues to brands to modify their communication and positioning. For instance, the youth today is not just about a young consumer in the age group of 18–25 years with limited pocket money or income; he/she is being defined through life experiences, attitude towards lifestyle products, aspirations in terms of brand ownership, etc. Thus, within this one age segment, there are multiple consumer segments possible.

GROWTH DRIVERS: Supply Side – The Industry

Increase in Number of F&B Players: The sector is witnessing a surge in the number of both domestic and international brands entering the market. New players are displaying a keen interest due to the large, untapped consuming class, the low penetration levels, and few national chains. Established players are also expanding their reach and opening up outlets in new cities.

Improvements in Back-end: The quality of the value chain of the sector has of late been the focus of many F&B brands and back-end players. As a result, supply chain in the form of commissaries, logistics, cold chain, etc. has started to expand. While many brands have been investing in their own commissaries, a few have also started to outsource operations, leading to growth of related industries. Raw material suppliers have also been making efforts to spruce up their efficiencies and quality standards to meet the demands of the growing sector across segments, especially since many of the new brands are international players who have predetermined quality norms and standards.

EMERGING TRENDS

Transformation of Cuisine: Cuisines are evolving from being a mix of simple and familiar food items to being diverse in taste, style and origin. Authentic flavours and international foods are gaining acceptance among the consumers. Ingredients like truffles, artichokes, asparagus, Australian lamb, Norwegian salmon, black bean sauce, etc. have found their way to the Indian F&B space. Street food is being offered to consumers in a new style, that is, in hygienic settings within a tasteful ambience such as Street Foods of India, , , , , Faaso’s, etc. Foods of different regions are becoming available in other parts of the country such as Maharashtrian or Coastal cuisine restaurants opening in North India and Punjabi or Rajasthani food restaurants opening in South and West India.

Beverages as Independent Revenue Generator: The simple beverage component of the past has today evolved into a key part of the menus and is an important differentiator across different foodservice segments. Non-alcoholic beverages such as coffee, tea and juices have come up as significantly important retail concepts, giving rise to cafés, kiosks, etc. Food-based formats are also discovering the potential from non-alcoholic beverages as the impact on margins with greater sale of beverages can be significant. Alcoholic beverages are benefiting through varied formats such as lounges, micro-breweries and sports bars. These formats encourage brand owners to provide a range of concoctions within the segment of alcoholic beverages.

Entertainment as Part of the Menu: Till recently considered an expense and an unnecessary part of a restaurant’s offerings, entertainment in the F&B sphere today signifies new possibilities of revenue enhancement. As a result, there are two distinct types of foodservice brands in the market currently – (i) established F&B players that have introduced entertainment-driven elements such as live music, games, gigs, etc; and (ii) brands that are primarily entertainment oriented with F&B elements as add-ons, such as sports bars and bookstore cafés.

Entertainment options increase the possibilities for revenue generation through, for instance, a “cover charge” for entertainment options that can have a potential impact on the top-line of 10–15 percent. These entertainment options also serve as a branding and marketing tool as they create “talk value” for the brand.

New Expansion Opportunities: Brands in this sector are expanding through three routes – new cities, new formats and new locations. New cities are coming up on the radar, especially for established players or for regional players who are growing beyond smaller cities. Brands are also experimenting with new formats to build up revenues. Those, especially in the affordable segment, are expanding through multiple format options like dine-in, express, food courts, and kiosks since this enables them to rationalise costs (especially rentals) and leverage on the dynamics of different spaces. In the same vein, new locations beyond high streets, malls and popular markets are being looked at. Travel retail locations such as highways, airports, and bus and train stations provide a captive audience, assuredly high footfalls, and visibility. Some of the emerging locations are educational institutions, office complexes, fuel stations and hospitals.

KEY CHALLENGES

Real Estate: High real estate costs lead to high rent-to-sales ratio which eats into the brands’ profitability. Correspondingly, the high costs are often not justified in view of the quality of the real estate. It is a clear case of high demand and less supply pushing up the costs.

Inflation: Food inflation mandates that brands increase their menu prices and pass on the increase in raw material costs to consumers. Thus, specifically for brands that operate in the affordable segment, it impacts their positioning in consumers’ mind as a “value-for-money” option.

Local Supply Chain: While a few players have established regional and pan-India logistics networks, a number of players are still local, discouraging competitive pricing. A supply chain going all the way to the local level is needed in view of the increasing penetration of brands in smaller cities.

Manpower: The sector faces a shortage of quality manpower, especially for segments that thrive on high service levels and customer engagement. Even with brands investing in staff training, the costs of training is high due to the indirect impact of high attrition.

Licenses: Licensing requirements also vary state-wise, making the process more complicated for brands operating in multiple regions.