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Are Indian QSRs Ready?

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Indian QSR chains, which were once characterised by lack of scalability, inconsistency in food preparation and delivery, lack of hygiene, and constrained by regional boundaries, are now challenging the might of global giants such as McDonald’s, , and . Their fundamental success lies in offering a menu which appeals to a cross-section of the Indian audience, accounting for varying cultural and taste preferences.

Indian QSR chains, which were once characterised by lack of scalability, inconsistency in food preparation and delivery, lack of hygiene, and constrained by regional boundaries, are now challenging the might of global giants such as McDonald’s, KFC, and Pizza Hut. Their fundamental success lies in offering a menu which appeals to a cross-section of the Indian audience, accounting for varying cultural and taste preferences, while international chains are mostly dishing out western/continental dishes. Competition is becoming palpable as home-grown QSRs begin to streamline and standardise their food processing processes, and replicate the efficient supply chain models of their  Western counterparts. But India is a less competitive market for pizzas and burgers as close to 84 percent of the market is dominated by unorganised players who are only now entering the organised segment.

According to Technopak, established international brands offer specialties such as burgers, pizzas, wraps, and sandwiches. Taco Bell, for instacne, has introduced nachos and falafel to the Indian platter. Another cluster of entrants that are mostly confined to specific regions (Jumbo King, Fast Trax, etc) focus on providing customised Indian or international cuisines to suit the Indian consumer.

Pricing has a major role to play in determining the success or failure of a QSR. It needs to have its uniqueness and attractiveness in the pocket of the customer. It should be able to serve  a complete meal for Rs 100 or less. Here, there are many takers for an aloo tikki burger that costs Rs 25, a fried momo plate for Rs 35, and a plate of biryani that costs Rs 150.

Players in the QSR segment are also aiming to draw in new consumer segments. MNCs are moving to tier 2 and 3 locations because, primarily, the metros are becoming saturated and their year–on–year growth plans require new areas to proliferate, and secondly, the huge untapped Indian population in tier 2 and 3 cities has experienced international brands in the metros and now wants them in their backyard. Pricing and local flavour offerings have democratised branded fast food consumption in India.

A report by NRAI says that dine-in contributes the highest (67%) to the total QSR sales,  followed by takeaway orders (19% of sales). On-the-go packed meals targeted at office goers also sell like hotcakes. Home delivery is picking up with most chains offering the service to consumers within a defined catchment. Among the SEC A, B and C households in large cities, more than 25 percent of the population orders in for more than five times in a month, 20 percent once a week, and 22 percent once a month, reflecting the need for this convenience, especially in larger cities where distance is an issue.

The gestation period in setting up a restaurant chain in India is fairly long and tedious. What will really work for the Indian QSR market is formats with smaller gestation period and quick set-ups offering meals in a safe and hygienic environment. Since the set-up cost of an Indian QSR tends to be lesser, their ROI in smaller towns gets justified better. That’s the format Jumbo King is working on for on-the-go snacking consumer looking to satisfy hunger pangs quickly.

The QSR business relies on daily execution and operation and when it expands to various locations, it becomes more and more dynamic. There is no guaranteed rule that a dine-in,  kiosk or stand and eat format will work the best for the QSR model, rather, success largely depends on right prices product quality, store location, and the experience delivered to the customer.

The F&B segment is growing at a CAGR of 10-11 percent according to a report by Candle Partners, with the QSR segment registering 20 to 30 percent growth annually. Growing urbanisation, higher disposable incomes, increasing working women class, changing social landscape, and exposure to Western lifestyle are leading to experimentation and adoption of new dietary habits, and finding more reasons/occasions to eat out. The appetite of the young Indian population (18-40) has been a key driver of the QSR segment, which, along with Indian savouries, has given a boost to fast food chains serving international foods such as Mexican, Chinese, Italian, Indo-Chinese, Japanese, Spanish, Greek, Thai, etc.

However, the QSR concept is largely an urban phenomenon with international chains like McDonald’s, Pizza Hut leading the pack. In value terms, pizzas, burgers and sandwiches account for 83 percent of the domestic QSR market with Domino’s hogging about 20 percent share of the pie. Global brands currently have an aggregate market share of 63 percent of the domestic QSR market, pegged at Rs 3,400 crore, and expected to grow by 30 percent on the back of expansion into smaller towns and cities.

The Indian food segment is 13 times bigger than the UK market and it would not be justified to follow examples of successful giants like McDonald’s and Domino’s here. Though they remain  iconic role models for many Indian and international chains, there is a still a long way to go before the Indian QSRs match and catch up. However, they should not underestimate India’s modern, value seeking consumer, who looks for value in all things, as he/she is tech savvy, informed and empowered. They are surrounded by an ever-expanding array of choices and (seemingly) have the ability to consume what they want, anytime and anywhere. Buying decisions are made not just on the basis of perceived value, but factors like quality, service and convenience too play a major role in influencing customer purchase.