The Food and Beverage service industries in India is one of the most vibrant service industries with over 25 per cent yearly growth. Although predominantly concentrated in the unroganised space, with the advent of foreign and Indian restaurant chains, the organised market is likely to expand quite rapidly.
Is buying food enough to be a complete consumer of food items? The logical progression says you need to further invest time, energy and efforts to make it consumable. This requirement is fully served by the existence of foodservice category. F&B – to be consumed in a suitable environment to facilitate this consumption and with relevant service to help in executing the same – is the epitome of this retail category.
The category can be further broken down in terms of types of F&B served – regional, specialty, international or multi-cuisine, service provided – quick service, casual dine, dine-in or fine dine and consuming options – counter delivery, takeaway, home delivery, seating or standing.
Be it the growing culture of eating out due to busy professional schedules, get-togethers or official meetings, parties or outdoor catering for community functions, all have been ably served by the foodservice retail category. With fast paced urban life the category is growing and is adding to the overall social and lifestyle quotient of India’s food consumer.
Talking about the Foodservice sector of India, Co-founder & CEO, Wow Momos, Sagar Daryani says,“India is a land of diversity and that does not mean diversity just in terms of culture. The food habits of Indians also vary from one place to another, but the best part of the food industry in India is, people are willing to experiment. Indians are willing to experiment with the taste and this has attracted many International brands to India.”
Partner/Owner, Pabrai’s Fresh & Naturelle Ice cream, Kunal Pabrai shares the growth prospects of the foodservice sector, saying, “The increase in disposable income with those in the 21-35 year old bracket is fuelling greater consumption in all cities. We have been seeing an increasing shift in this particular consumer bracket over the years.”
Owner, Cafe Delhi Heights, Vikrant Batra adds, “Foodservice is emerging as a key segment in the Indian economy. The F&B industry is one of the highest employers in India. Approximately 5.8 million people are employed by this segment. The number itself states the growth story. One of the major factors propelling the growth of the industry is the consumers themselves. Over the years the consumers’ profile, behaviour and spending patterns have evolved. They are becoming well-travelled and are being exposed to new culture and cuisines which has created an eating-out culture.There have been some key trends that are gaining traction in the foodservices space. One of the trends that are really taking over the Indian F&B industry is the food hubs. This new breed of food-centric destinations are a huge hit among the masses and include office complexes, commercial complexes, hospitals, travel destinations, etc.”
“The rise of emerging economies and the growing global middle-class has changed the spending beyond recognition. Indians spend about half of their total consumption expenditure on food or to dine-out,” opines, Managing Director of Triple Nine Restauranteurs Pvt Ltd and Owner of Office Canteen and Bar, Unplugged Courtyard, Tourist Janpath and Lights Camera Action, Dinesh Arora.
Market Size & Growth
Total retail market is worth Rs 204,438 cr growing at 23-24 per cent and is expected to touch Rs 380,000 cr by end of 2017.
Modern retail is estimated at 13 per cent of this total market and is expected to grow by 30-31 per cent, a much higher growth rate. Retail expansion grew at an average 31- 35 per cent in terms of number of outlets and retail space with average same store revenue growth being at around 16 per cent.
The market segmentation of dynamic foodservice segment is very challenging with its diversification and multi-offering.
• There are four key components of the market
• Chain of foodservice outlets
• Standalone foodservice outlets
• Standalone foodservice outlets within hotels
• Other foodservice formats which are not organised
As per estimates by Technopak, the last component has maximum market share due to its spread and size. The next highest market share is of standalone outlets which are spread across various cities and towns of India and operates as singular units. The chain outlets are estimated to hold 5 per cent of total market and outlets within hotels hold least market share of just 3 per cent.
Eating out has evolved from an occasion driven activity to an occasion in itself for the youth for whom eating out is the most favoured activity besides hanging out with friends.
Among the various segments within the restaurant sector, Quick Service Restaurants and Casual Dining Restaurants constitute the largest categories – combined they constitute more than 77 per cent of the overall market.
“QSRs usually constitute the major chunk of any food market. Last year, we have witnessed more and more young entrepreneurs leaving the comfort of a stable job to dabble in the realm of F&B. New concept small restaurants and cafes are the rave right now.
The energy brought out by these solopreneurs or coupreneurs (couples who are together opening a new venture) – are also enriching the creative visual space while also exploring creative new food concepts. While this is always a welcome trend and is indicative of the booming F&B industry, caution is also required. 90 per cent of new businesses still continue to fail in the first year. Franchising though continues to help in reducing the odds of failure.” opines Pabrai.
India is the country with large young population and this population is working, earning and spending. Nowadays this population segment starts earning at an earlier age and is very much used to eating out lifestyle. It is open to experimenting with taste and different cuisines. This aspiration has resulted in freedom of trying out various affordable food options present in the market. Kids are also a part to this segment with early exposure to eating out cultures with their families.
Traditionally consumer segments were being defined by characteristics of age and income profile. However, they are now being further defined by consumers’needs, aspirations, lifestyle and attitudes. These insights also 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 also being defined through life experiences, attitude towards lifestyle products, aspirations in terms of brand ownership, etc.
Thus, within this one age segment, there are possibilities of multiple consumer segments.
SEC A & B together account for approximately one-third of the total current population in the top 70 cities and are expected to comprise 37 per cent of the population by 2017.
The growth of these segments has positive implications as it presents an opportunity for foodservice players 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 formats 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 only.
The Youth Shall Drive the Foodservice Industry
People in the young category are the most likely to eat out – around 58 per cent of the people eating out are in the age group of 18-30 years. This is the segment with the maximum disposable income and in the demographic pyramid, the largest segment within India.
Talking about the same, Director, Mukund (which operates Subway, Chilis, Cinnabon, AuntieAnnes), Rishi Bajoria says, “Eating out has evolved from an occasion driven activity to an occasion in itself. It has become a form of entertainment for consumers today. Indian consumers are increasingly dining out, particularly in urban areas. Urbanising double-income households, changing lifestyles and food preferences are spurring the organised market within the dining out sector.”
Popular Categories on the Block
QSR has remained a key segment of the Indian foodservice market and has grown over the years. A number of QSR chains have flocked into India over the past few years with specific cuisines and product offerings fuelling the market growth.
From metros and mini-metros, QSR brands are now expanding into smaller cities with smaller formats. The overall market for QSR is estimated to be around Rs 92,000 crore and is estimated to grow at an annual rate of 16 per cent.
“There has been a considerable growth in the entire F&B section but if you ask me, the major chunk of this overall market is comprised of Casual Dinings and QSR since they seem to fit in every budget,” reveals, Darayani.
Casual dining – The Second Most Popular Category
The dining out culture has evolved in India over time with casual dine restaurants now forming the second largest segment (32 per cent). In 2013, the size of the casual dining market was estimated at around Rs 66,000 crore, and projected to grow at a CAGR of 10 per cent to reach a size of Rs 106,818 crore by 2018.
The fine dine market thrives largely on the affluent consumer and is around 3 per cent of the market. The segment is growing at around 15 per cent per year.
There is a renewed interest in this segment and a large number of multinational chains are entering the market. The fine dine market size is estimated to be around Rs 7,000 crore currently, and estimated to reach almost Rs 13,000 crore by 2018.
Cafés – A growing Culture Among Urban Indians
Coffee chains in India remained an under-penetrated market till recently. The café market has witnessed an aggressive expansion by established brands, both domestic and international. Over the past five years, the café culture has grown with many new cafés opening across all major Indian cities. The market size for cafe’s is around Rs 25,000 crore and is growing at 10 per cent per year.
Growth in Investments in the F&B Services Sector
A large number of foreign brands have entered India over the last 15 years – with McDonald’s, Pizza Hut, Dominos, Subway, KFC, Starbucks, Dunkin Donuts among the successful ones.
In the initial stages, foreign brands were more concerned about master franchise concept and were not open to investment exposure in the country.
With the success of many restaurant chains and the Indian entrepreneurs wanting to balance risks, newer investment led models have been explored including complete ownership and JVs.
Foreign brand owners are now exploring how they can be a part of the investments in India and reap a better ROI in the bargain.
Indeginious Growth Story
The F&B sector has been dominated by Indian entrepreneurs largely in the unorganised space. As the opportunity grows, it is certain that more Indian entrepreneurs will start getting into organised restaurant chains. In addition, this will also help develop the largely unorganised F&B catering industry.
With investments expected both for expansion and by new entrants, there will also be a rapid development of the entire value chain within India. With emphasis on ‘Make in India’, it is expected that the major international players for kitchen equipment and processed food will set-up units in India to supply to this sector. In addition, there will be several domestic entrepreneurs who will make investments to increase quality levels and standards to meet the requirements of the sector.
What’s Marring the Growth of F&B sector
Acquiring license and a proper paperwork is still a major problem in India. Even though, things are changing for the better, it still remains as one of the major factor that is cutting the growth of the F&B sector in India.
According to Daryani, “ I feel multiple taxes like VAT, service etc are a major factor for which many have cut down their eating out habit. Along with these, there are factors like inflating price of the food grains, labour issues and the rising price of the real estate. Getting a property at the right price to set up your outlet is still a big problem, which are somehow marring the growth of this sector. Inspite of all these factors, I will confess, the food industry in India is witnessing a tremendous change and the change is for the good. I am hopeful; very soon, this industry will also have a positive effect on the GDP of our country as well.”
Director, Mama Mia, Adhiraj Thirani says, “High taxation is a major issue, this industry accounts for a huge chunk of employment, lower taxation would spur growth. Another huge issue is disproportionate rentals, a major correction is due in this area. Rents in some places in India are at par with Manhattan with 1/10 the buying capacity.”
Owner, Number 31, Shivam Bhaskar shares his concern, he says, “F&B in India, specially post demonitization is going through major changes in the supply chain. To predict the next change is extremely important for all businesses at the moment.”
“The biggest challenges are the laws around opening a restaurant. There are so many licences and protocols that one has to go through. It is extremely time consuming which makes it difficult to setup a restaurant, says, Batra.
Talking about the jolt that demonetization has brought on the sector, Arora, says, “Food and Beverage divisions have dealt a massive blow, post demonetization. Cash constitutes a large component of the F&B business. The latest move of the Government to go cashless has effected the sales in a big way. There was a drop of 20 per cent revenue post demonetization.”
Location Strategy and Investment Involved
“Wherever there is a good flow of crowd, we are keen to set up a Wow! Momo store there. We strongly believe that if you are serving quality food and provide quality service, no one can stop you from being a brand. Food is something which has an emotional connect and largely gets known by the word of mouth. At Wow! Momo we believe that our strongest marketing strategy is to open more and more stores in order to be more and more visible and available for existing and newer guest to try our products and services,” says, Daryani.
Talking about the operational aspect, “Our entire backend is dependent on SOP and a central kitchen for each city. It’s all about a proper supply chain and smart logistical control.”
Daryani, shares the investment details, “The capex investment varies from Rs 8 lakh to Rs 30 lakh per store depending upon the format. The ROI is within 12 to 24 months depending upon the size and format.”
Pabrai’s location startegy choice is slightly different from the rest, he says, “As a brand, we are more inclined to high street locations as they allow for greater visibility and higher sales during late evenings. While we are open to tie up with malls, we prefer associating with newer malls as they have a tendency to give more reasonable rentals than established malls who try and milk new counters. The average size of our kiosks are 100 sq.ft. with an investment requirement of approx. Rs 10 lakh; while our standalone parlours are average 500 sq.ft. In size and have an investment requirement of approx. Rs 17 lakh.”
Talking about the location strategy and investment, Batra, says, “Malls are generally preferred over high street because malls already have a good footfall. Before opening any outlet we go through a rigorous research and recee procedure. We want to make sure we are at the right locations where we can easily reach our target customers. The average size of our stores would be 2,000 carpet sq.ft. area and it roughly takes around Rs 3 crore to setup each store.”
ROI: These Three Letters Mean It All
“Approximately it takes around 3 years to cover the ROI. As for store formats, we mostly have the same kind of products across all outlets but we do tweak our menu little bit according to our clientele depending upon the demographics of the outlet location, says, Batra.
Talking about his brand, Pabrai, shares, “The ROI for our stores is in approx. 1 to 2 years depending on individual counter sales levels.”
“Currently 8 per cent of our revenue is through food tech and we look at the same as Omnichannle. Its very important to provide convenience to the customer and be available in various platforms/ channels which have made food tech and food delivery and availability much more easier to the customers.”
“Our e-commerce tie ups mainly through delivery platforms are definitely adding about 10 to 15 per cent to our revenues and we are very bullish on this proportion increasing, says Thirani.
“Factor which is now vital in e-commerce is the current economic scenario where after demonetization the Government is creating all possible ways to encourage cashless transactions. To make things easier for the customers we have also tied up with Paytm which is an e-wallet and allows cashless transactions,” reveals Batra.
Talking about the opportunity and way forward, Batra, says, “Everyday there is a new learning and we believe that these learning come from the mistakes that we make every day. This industry is very subjective and the customers have the choice of choosing their food, cuisine and also the concept. So there is a lot of opportunity to learn if you take it in the right stride. Our customers are our biggest help when it comes to feedback. Learning is a continuous process. We take the feedback positively and plan a course of action according to the customer behaviour and what they want.”
Concluding it all, Daryani, says, “The basis of this business is very simple and it is consumer centric. Another learning was that India is a very diverse country and every city is like a county in itself. So geographical expansion of opening newer stores has to happen in a very planned manner and one should not do too many cities at the same time. Rather do limited cities but be the kings of the cities where you operate. Very important to expand and consolidate from city to city and time to time.”