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Scaling Up


(IEO) industry is growing, and in turn, offering opportunities for QSR players to expand their presence and capture a larger consumer base using new cuisines and innovative marketing

With an increasing number of people eating out, (from three times a month a few years back to seven times a month now) the IEO industry is forcing QSR players to innovate with cuisines, open more stores, and enter new regions, etc. Traditional restaurants are also expanding their menu to bring in more variety, and offering experiential service standards. The competitive landscape is creating opportunities for many successful start-ups like Faasos, Goli Vada Pav, Ammi’s Biryani, , Mast Kalandar, to name a few.

“Today, it is fashionable to eat at a QSR rather than at a FDR (Food Delivery restaurant). Many global QSR chains are opening up to capture this huge opportunity,” avers Komal Sahni, Research Director, TNS India.

Currently, pizzas, burgers and sandwiches together account for about 83 percent of menu in the QSR market. According to a CRISIL report, the average Indian household is consuming 12 pizzas per year and spends Rs 3,700 on eating out; this is expected to go up significantly in the coming three years.

Easy adaptability to cold storage and a quick-serve format has made foreign cuisines more amenable. In comparison, it is more difficult to adapt Indian food (which is prepared through complex processes using several ingredients) into an assembly line production model, besides which, Indian food is not easy to hold and eat. This is reflected in the lower market share of Indian cuisine in the QSR market.

Growing fast

The QSR chain space is marked by 90 to 100 brands with ~2,900 to 3,000 outlets spread across various cities. Although fast food had deeper roots in the Indian milieu, it is the international brands that have grown faster as they offer an ‘aspirational’ advantage. They have perfected the ‘cookie cutter’ model with fool-proof standardised systems and processes, and ready to make products with minimum chef intervention.

Says Sahni, “International QRSs definitely have an advantage over the Indian chains given their scale. Their operating margins are high: they can afford standardisation of delivery thereby leading to greater consumer confidence and trust. They have the experience and talent to deal with varying taste preferences given the diversities that exist in our country.”

Indian QSRs make up only 37 percent of this market; the rest is dominated by international brands like Domino’s and ’s. Traditional Indian restaurants have failed to factor in consumer demand for variety on the menu, consistency with respect to taste and quality, trained staff, good service, and the right location for their stores.

Domino’s has around 700 outlets with a potential target of 1,000 stores in the coming years. Subway has 390 outlets in 60 cities and plans to top 400 sites next year, KFC has 240, and Papa John’s, 30. India, the parent company of and KFC (it recently brought Taco Bell to India) plans to open 1,000 outlets (half of which will be KFC stores) and generate USD 1billion in revenue from India by 2015.

Moshe Shek of Moshe’s, has raised funds to expand his operations from the current 11 outlets to 16, of which, some will be the QSR format. Jumboking is looking at 100-120 stores by March 2015 from the present 60 (as of March 2014). “There are two ways to grow,” says managing director , “either have 2-3 stores in a city and thus be present in 40-50 cities, or have 10-12 stores in a city and be present in 10. We are using the latter approach. This format of clustering helps us achieve better economies of scale, and, more importantly, quality of growth is superior.”

With 1,481 outlets across 28 states, Cafe Coffee Day has opened outlets even in temple towns (Ajmer, Haridwar, Rishikesh, Puri, Tirupati and Katra), hospitals, educational institutions, airports and railway stations. McDonald’s and Domino’s plan to follow suit,” informs Smita Jatia, Managing Director, McDonald’s India (West & South). McDonald’s India, in particular, with its aggressive expansion plan, has close to 330 restaurants and access points with formats like kiosks, drive through, web-delivery, and outlets in petrol pumps, besides restaurants. At least 30 percent of Subway’s new stores will be in non-traditional formats such as highways and IT parks.

However, a minor consolidation may take place in the Indian pizza market over the next few years, wherein smaller, fringe players may exit the market, or prune their presence. Papa John’s reduced its outlet count in India by over 40 percent over the last couple of years, from 35 at year-end 2011, to 20 (as of September 2013). Punjabi by Nature, Yeti, Kylin Premier, Mamogoto and Busaba have launched step-down formats or the QSR model with a much lower investment, leaner menus, and attractive price points, in order to cater to the middle-class consumer.


Many players are tailoring their product offerings in terms of flavours, pricing, and services, to meet consumer preferences. Efforts include pure vegetarian restaurants in certain parts of the country, no beef-based products, separate cooking areas for vegetarian and non-vegetarian food, local flavours, home delivery, and smaller formats in high density areas with higher rentals (like malls, office complexes), etc. These players are also expanding their presence at various destinations, viz malls, high streets, office complexes, airports, hospitals, and highways, through drive-throughs, express formats, etc, and expanding their menu to suit Indian tastes and preferences.
Pizza Hut introduced pastas, soups, salads and desserts. launched tacos, Lebanese rolls and calzone pockets. The company, which has exclusive rights for Dunkin’ Donuts restaurants for India, has opened 29 Dunkin’ Donuts in India (as of 9th May 2014). The target audience for Dunkin’ Donuts is the young adult who has outgrown the older QSRs (finding them very basic) and is looking for something more evolved. “Our signature products like the Tough Guy Burger, Wicked Wrap, Stirr’accino Coffee, Death by Chocolate and Alive by Chocolate Donut, Dunkin’ Ice Teas, amongst other items on the menu, offer our customers a new experience – one that is unmatched in the QSR and Café market, “ says Gupta.

International companies have also adapted and reinvented their business model to suit the demand and preferences of Indian consumers. Pizza Hut, for instance, expanded its menu beyond pizzas to include rice and vegetarian dishes for the Indian market. Dunkin’ Donuts added burgers, wraps and sandwiches to cater to a wider consumer base. Krispy Kreme introduced eggless doughnuts to lure vegetarians, as did KFC with its paneer-based wrap.

The emphasis is also shifting toward healthier foods. While McDonald’s offers Happy Meals for children, Domino’s recently launched Juniors Joybox, and positioned it as the ‘complete meal’ for kids. Juniors Joybox includes garlic bread sticks, juice, vegetable toppings on pizza slices, custard dessert, and a toy. Domino’s has excluded fries and soft drinks in view of health related issues.

Ishann Dhawan, co-promoter, Pita Pit India says, “There has been a shift in the Indian consumers’ eating out preferences with their growing interest in health and wellness. Our  products are tailored specifically to these health-conscious consumers who don’t want to sacrifice taste for calories. In fact, Pita Pit’s motto ‘Fresh Thinking – Healthy Eating’ is a natural fit to the healthier alternative for on-the-go food.” In keeping with the brand’s  emphasis on customer service internationally, it seeks to maintain the same quality in India, along with an engaging and friendly atmosphere.

The traditional Haldiram’s and Nirula’s may have a presence in a limited number of cities, but what’s giving them an edge is their focus on good service, variety on their menu, and good taste. In the same space are restaurants like Bikanerwala and .

Penetrating the hinterland

India’s hinterland has witnessed impressive economic growth over the last decade or so, and is getting rapidly urbanised, offering locational benefits, low rentals and low operating expenditures, which can potentially reduce payback periods.

According to Crisil, tier II and III cities account for about 25 percent of total stores. Close to 15 to 18 percent QSR outlets will be added in the next few years annually, out of which 40-45 percent will be in smaller towns and cities. The remaining 8-10 percent growth is expected to come through increase in same store sales.

Where on one side, major players are looking at expanding to tier II and III towns, Gupta of Jumboking says, “There are two challenges in expanding in these towns: one is lack of cold room infrastructure, and second is lack of a robust secondary distribution network (such as a reliable fleet of transport for frozen foods). On the upside, expansion has helped local employment in these areas; each store that we put up creates at least 5 jobs.”

“There are always going to be logistical hurdles in order to grow brands in tier II and III cities, but the brands that invest there will continue to see growth in the advent of growing modern mall culture,” opines retail management expert Nishank Jain. “The ambiance of modernity and youthful exuberance in malls have become preferred venues for families to spend an entire off-day, and this will further generate demand for QSRs.”

Challenges for both international and domestic chains are price points, menu selection, staffing, scale, logistics, cold chain, and supply. “A big challenge is changing the mindset of the people in smaller towns to ‘spend a limited amount of money on eating out’, which in the prevailing situation, makes QSRs unviable in smaller towns,” says Jain.

According to a recent report titled ‘Indian fast food market new destination: Tier-II & III cities’ brought out by , India’s QSR market has remained largely unaffected by the economic slowdown; it touched ~$50 billion from Rs$35 bn last year. The annual spending of each middle class household in India’s tier-II and III cities has increased by Rs 2,500 to Rs 5,200, a growth of 108 percent on fast food restaurants in the last two years. In tier-I cities, it has increased by over 35 percent to Rs 6,800. This indicates that middle-class families in tier-II and III cities are spending higher in fast food restaurants.

According to the report, with increased competition and cost of operations in metros and tier I cities, a number of tier II and III cities may offer better growth prospects, driven by factors such as favourable demographics, infrastructure growth, and higher disposable income due to strong economic growth, and government support by way of various employment schemes.