Who ever thought that biryani could be made and delivered faster than a pizza or a burger, and raise stakes in the $1-billion organised QSR industry? A meal in a small restaurant in Surat lasts only 13 minutes from the time one walks in and walks out. A wholesome vegetarian thali at 6 Ballygunge Place can be eaten for Rs 175 with most items up for a repeat, and it tastes the same always. Nutritive momos for breakfast, lunch, and dinner, followed by a chocolate momo for dessert at WOW! Momo are available within 10 minutes of placing the order.
Indian QSRs upping the ante
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 Advisors, “Once an introverted, home-driven consumer, the indulgent Indian is today waking up to a nascent yet formidable ‘Eating Out’ culture, making food services one of the most promising business sectors in India.”
“The mother market is for Indian savouries. Every Western QSR concept enters the market and eats into this. In the overall Indian context, the Western QSR is a niche that promises to expand over the decade into a huge market opportunity. QSR chains are, therefore, letting no effort go by to hasten this process,” feels Harish Bijoor- Brand-expert and CEO, Harish Bijoor Consults.
“The Indian consumer has forced international QSR chains to adapt to Indian culture and bring to their menu Indianised items like paneer tikka pizza or an aloo tikki burger. Here, an inherently Indian QSR like the dosa diner or a thali at 6 Ballygunge Place has a greater appeal as it cooks and serves Indian dishes, the indian way,” says Aninda Palit, Founder Director, Savourites Hospitality the mother brand of 6 Ballygunge Place.
“While the Indian cuisine was not considered amenable to the assembly line production as their foreign counterpart, it was a challenge to maintain multiple kitchens to provide a standardised taste of the food across all counters. However, through a dedicated and trained workforce, and by customising the cooking process and the ingredients, it is easier now to replicate the same taste and quality. This gives confidence to the customers towards the brand,” says Ishtiaque Ahmed, Director of Shiraz Restaurants Pvt Ltd. “We have not created any magic or anything special to bring the Indian consumer to the counter, we have just ensured that consumers get the taste of the food they are looking for, for which we maintain a strict quality check at all our counters,” he adds.
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. “A noteworthy aspect is the focus of Indian players on multiple cuisines, which contrasts the international players’ focussing on a single cuisine or product category. In terms of menu, Indian QSRs such as Haldiram’s, and Bikanervala have a skew towards vegetarian food in contrast to which international players like McDonald’s, Domino’s, KFC, and Subway offer a mix of both vegetarian and non-vegetarian offerings,” say Reteesh Shukla, Associate Director, and Vidul Sharma, Senior Consultant at Technopak. “The concept of QSRs has gained prominence in India, with the entry of Indian and international brands into the space encouraging affordable eating and enabling the indulgence of even customers with smaller pockets. The market is quite competitive in nature with players operating via core menu offerings and introducing variations in Indian and international foods.”
Pricing a plus point
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.
“In our view, most of the entry level or pincer price points are done with an intention of attracting new customers. While pricing plays an important role in the leisure eating space, it is important to note that Coffee Cafe Day has always marketed its brand keeping in mind the young consumers. There is a long way to go in terms of penetration of categories across SECs, and bring to them a world-class coffee experience at affordable prices. We are not confusing our strategy with being a social hangout joint or an act of impulsive indulgence. In a space like this, and with the audience that we are targeting, we started out by knowing that we will need to be price sensitive,” reveals K Ramakrishnan, President, Marketing, Café Coffee Day.
Most MNC QSR brands are set up at a huge price premium (compared to local). Hence, they at best, end up becoming places for special occasions or social hangouts. Value pricing makes it a level playing field and puts QSRs in the consideration set for eaters. “Many QSR brands feel that the only way to compete is on price so they keep offering discounts and special offers, often the whole year round. And it’s because of this that customers have now come to expect that QSR brands will always have offers and discounts on offer, 365 days a year. I feel this is an incorrect strategy as the focus shifts from the food being offered to what price it is being offered at,” feels Aditya Parikh Co-director at Pronto Restaurant.
“Value is the cornerstone of our business model and an intrinsic part of everything we do at McDonald’s. The value initiative being pervasive, our strategy is to achieve value by enhancing experience (offering best quality), while keeping prices reasonable. Since the beginning, we have worked towards ensuring ways to create offerings that are acceptable – not just in taste and quality, but also in terms of value – to a cross-section of customers across varying cultural and taste preferences. At McDonald’s, costs are kept low by increasing efficiency and cutting wastage at all levels,” says Smita Jatia, MD, McDonald’s India (west and south).
Sandeep Kataria, Brand General Manger – Pizza Hut & CMO, informs that Pizza Hut follows a customer-centric approach. “We anticipate and respond to consumer expectation by providing the best value and quality. A Magic Pan Pizza costs Rs 44, and the Every Day Special three-course meal comprising a personal pan pizza, an appetiser, and a beverage, starts at Rs 99 only. These value innovations are a result of the high standards we maintain.”
“Costa Coffee has traditionally positioned itself as ‘affordable luxury’. In India, we have built our reputation as a premium brand on the basis of our high-quality coffee and food offerings, as well as our chic interiors. There are many factors that make the customers develop positive evaluations of the brand, and pricing is just one of them. The Happy Hour promotions at non-peak hours across select outlets and timed with the monsoon season give people a reason to head out for a coffee and dessert. It is an irresistible deal at a 50 percent price off on all products including delectable desserts, savouries and beverages for a limited period,” says Santhosh Unni, CEO, Costa Coffee India.
Paradise, the famous biryani casual dining restaurant in Hyderabad, is a recent entrant in converting itself to a QSR format, claiming to deliver biryani faster than a pizza. A plate of vegetarian biryani retails at Rs 150-170 across the country, which is far less than a medium pizza at Rs 350 to 500. The company is focussing not only on comparable pricing, but is also substituting hot spices and aromatic flavours with easily digestible and healthy ingredients. “It’s not a game of pure pricing though we are competing on price with McDonald’s, KFC and Pizza Hut. In the case of Bangs, fried chicken is its main selling point and has a monopoly over the Indian fast food market (only with fried chicken). It prices its burgers, French fries and soft beverages with relation to its competitors,” says Asvin Simon, MD Bangs India. This domestic fried chicken brand has established itself in all tier 2 and 3 cities.
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. “Competition is always good as it will increase the size of the market rather than cannibalising brands and having multiple options at attractive prices is what the consumer is looking for,” feels Neha Sharma at Gr8 Rolls and Wraps.
Pricing and local flavour offerings have democratised branded fast food consumption in India. But does low pricing erode brand equity?
“The strategy of invitation pricing has been in existence in countries like USA for more than 60 years now and it has worked to their advantage.
But I feel the entry level pricing should not be lesser than 20-30 percent of your actual core product price. If you price the entry level product lesser than that, you will attract the wrong segment, which comes in purely due to the pricing and this actually drives away your real customer who may be looking for a different eating out experience,” shares Dheeraj Gupta, Managing Director, Jumbo King Foods.
“I don’t think low cost pricing strategy or value pricing dilutes the equity of the brands as these brands have become destination stops for families across India. From the regular Sunday chaat and panipuri outings, it’s now McDonald’s, KFC, Domino’s, etc. Their DNA isn’t fine dining. Pricing strategy is the key to trials and repeat footfalls,” opines Ketan Desai, MD, Integer Group.
“In India low cost is not directly equated to low quality. Rather it is equated to a ‘great deal’. Hence, it will be a while till this can impact brand equity,” feels Monika Divekar, VP, Quipper Research.
“Indiscriminate slashing of prices without a strategic long-term vision and consideration of its impact on the brand (gain versus losses) can dilute brand value. On the other hand, backed by research and strategic considerations, it can induce trials/fresh footfalls that can help in building the brand among newer audiences,” feels Unni at Costa Coffee.
Right format and scale
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 targetted 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.
Sales of Thalakpatti, Ammi’s biryani and other regional players shot up by 30-50 percent when they introduced home delivery and takeaway packs bundled with small quantities of free appetisers in every packet. This also increased their operating profit margins by 15-25 percent. International QSR chains are finding it difficult to replicate the service by the minute concept in tier 2 and 3 cities. While Jubilant Foodworks with its Domino’s brand holds a fairly larger share in the home delivery segment in urban and semi-urban areas, the same may not hold true for deeper penetration markets.
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.
“Our franchisees make more money, even though the entry level product has lesser margins because the store gets a chance to upsell or cross sell other products where margins are better. The overall cost of operation comes down because it is spread over a higher turnover,” informs Gupta. Kaati Zone has experimented with both the restaurant and the kiosk formats and the growth story of the brand lies in the latter as it has increased margins by keeping overhead costs to a minimum.
“Lazeez is a younger and a dynamic brand spread over close to 16 outlets via hub and spoke model in cities. The brand will have one flagship outlet per city, a centralised kitchen, an 80-100 seat restaurant with sit-in facilities and a take-away counter. The flagship counter will serve a network of franchised or owned outlets and kiosks,” reveals Ishtiaque Ahmed.
“We are a value format, and have created an affordable niche eatery for masses with momo’s ranging from Rs 35 to 90. We operate under both the kiosk and restaurant format and have kept our profit margins very low. What is important for a QSR model in India is quick service, right price, and right location. We have innovated with 15 plus flavours in momos and not all are part of the kiosk format. With 27 outlets in 5 cities, we have actually given brands like Subway and KFC a run for their money in most of our locations,” says Sagar Daryani, Co-Founder, WOW Momo.
“We designed our outlets with the state-of-the-art technology driven MFY (Made for You) kitchen. MFY is a unique concept where the food is prepared after the customer has placed his order, yet it is served very quickly based on Bangs service standards. MFY enhances Bangs already strong commitment to food safety and hygiene. Also, we work on small formats and kiosks covering different regions of the city,” informs Simon at Bangs.
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 best example is that of McDonald’s with the brand’s efficient cold chain network that ensures that food products move from farms to restaurants absolutely fresh, its lowest possible pricing, and the reverse osmosis water treatment plant at every restaurant to provide clean water. In short, McDonald’s in India has invested heavily in quality.
What’s driving growth?
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. According to a report in TOI-Business Times, on an average, a tier 1middle class household spends about Rs 3,700 per annum in eating at QSRs. 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.
“Indian consumption habits have graduated in the last decade, for instance, there is a demand for authentic, regional dishes along with Western, European and Asian dishes, albeit with an Indian touch. Also the younger generation is seeking the same expertise, quality and hygiene standards in their favourite local snacks at the Indian QSRs as their Western counterparts,” says Navneet Sharma, at Gr8 Rolls and Wraps.
A Mckinsey study on urban India estimates that by 2030, the population of Indian cities will reach around 590 million, which is 40 percent of India’s total population, offering a huge opportunity for many more national and international brands to set a footholds in the F&B industry.
Managing growth for these QSR formats is not an easy task and hence most players struggle to comprehend the complexities of scale. Today, the QSR sector in India is being driven by a younger population who continue to spend. “Strategies at Café Coffee Day (CCD) are not defined by the entry of a new player or non-existence of one. But all the efforts are dedicated towards the very dynamic and fast growing youth audiences. We often pose as the mirror image to what our audiences are thinking and at times don the role of a ‘lighthouse’ to bring to them possibilities and options,” claims K. Ramakrishnan.
“Indian players seem less aggressive than the international players, but there is an influx of new, regional players, which is not surprising. These international players have seen, felt and battled issues in several markets in the past and will, therefore, continue to invest, just as long as they continue to see the light at the end of the tunnel. In fact, for the QSRs, it is not just light at the end of the tunnel; it is the pot of gold at the end of the Indian rainbow,” says Bijoor.
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. Affirms Jatia, “At McDonald’s, we continually review and improve our menu and service to make sure that we not only meet our customers’ expectations, but also exceed them, thereby ensuring that we give them a reason to keep coming back.” And this is a measure of success.