According to Technopak research for India Food Report 2016, the domestic Food Service Industry – estimated to be Rs 2,72,700 crore in the year 2014 – was projected to grow to Rs 4,23,100 crore by 2020 at a CAGR of 8 per cent. Within this, the unorganised market holds a 68 per cent share with an estimated market size of Rs 1,86,000 crore in 2014. The organised restaurant segment is estimated at Rs 78,900 crore (29 per cent of the overall market) and is projected to grow, at a CAGR of 11 per cent, to reach Rs 1,44,900 crore by 2020.”
The restaurants and cafes segment contributes highest in terms of sales in the entire industry. It accounted total sales of $115.1 billion in 2014, which was 75.9 per cent of total industry value. It was followed by fast food industry, which contributed $30.3 bn sales which is equal to 20 per cent of industry value.
Thanks to the rising income of middle-class population, consumer spending and consumption pattern in both suburban and urban areas have undergone a sea change. Middle-class families in tier-II & III cities are spending much higher in fast food restaurants. The annual spending of middle class households in India’s tier-II and III cities has increased by Rs 2,500 to Rs 5,200, a growth of 108 per cent on fast food restaurants in the last two years. Indians are also eating out more often now, as many as eight times a month, but still less than the US (14 times), Brazil (11 times), Thailand (10 times), and China (9 times).
The growth and expansion of commercial real estate is also driving growth of the food service business as well. The increasing acceptance of malls as a getaways and day out centres in small cities is supporting this expansion of organised food restaurants, which are providing good services at reasonable prices. Food-service providers have definite advantages by setting up outlets in malls, as auxiliary activities such as parking, security etc. are managed centrally, with lesser overheads on their resources.
The Indian Food Service market has seen a significant growth in terms of number of players, both domestic and international. Post-2008, the industry has seen a huge growth in terms of number of outlets. Cafe Coffee Day, Domino’s, McDonalds, Haldiram, Pizza Hut, KFC, Sagar Ratna, Barista Café, Yo! China and Mainland China, and Bikanervala, among others, have all expanded their footprint and opened new outlets. Currently, there are approximately 1.5 million food outlets in India, out which nearly 3,000 are from the organised segment.
The fast food and fine dining are the most organised. Restaurants in fast food / QSR segment consist of more than 60 per cent outlets owned by multi-nationals. The organised market, comprising QSRs, full service restaurants, PBCL (Pubs, Bars, Clubs and Lounges), food courts and kiosks, follows three key parameters: accounting transparency, organised operations with quality control and sourcing norms, and outlet penetration. But a majority of food outlets belong to the unorganised segment, which comprises roadside vendors, dhabas, vans, carts, street stalls and trolleys.
In recent years, there has been a continued shift from the unorganised to organised. As a result, the organised sector is growing @ 16 per cent primarily driven by new investments. The segment is also witnessing increased competition due to the emergence of new International brands (eg. Taco Bell, Burger King, Johnny Rockets, Starbucks) and domestic players (eg. Faaso’s, The Beer Café, Chai Point, Goli Vada Pav, Ammi’s Biryani etc.).
International brands from USA and Europe including Fatburger, Carl’s Jr, Cheesecake Factory, Cali Burger, Great American Cookies, Forever Yoghurt, Second Cup Coffee, Pie Face and Mr. Cod among others are actively looking at setting up and expanding the business in India.
Apart from the metros and mini-metros such as Delhi-NCR, Mumbai, Hyderabad, Chennai, Kolkata and Bangalore, major food service brands are also looking to spread out to a number of tier-II and tier-III cities, like Lucknow, Jaipur and Ahmedabad, on account of the growth in infrastructure and business opportunities there.
More than 50 international chains of restaurants have entered the country and have made inroads into even tier – II and tier – III towns. This has helped the existing domestic players to consolidate and thousands of new ventures to flourish.
With increased competition and cost of operations in the metros and tier I cities, a number of tier II and III cities may offer better growth prospects for players across sectors, driven by factors such as favourable demographics, infrastructure growth and higher disposable income driven by both strong economic growth.
Increase in literacy, high disposable income, exposure to media, greater availability and penetration of a variety of consumer goods into the interiors of the country have also resulted in creating lifestyle and aspiration levels on a par with other fast-moving metropolitan cities.
Growth Potential of Segments
The increasing income and exposure to new avenues to express consumption has brought sweeping changes. More than 65 per cent of the Indian population is aged less than 30 years and exposed to international brands. QSRs is one of the sector that has managed to grow even during the economic slowdown.
Going ahead, Café & QSR’s in the organised segment will continue to grow at a CAGR of ~11 per cent and ~14 per cent respectively. In the organised market, the chained segment is expected to grow at a healthy rate as compared to the licensed standalone segment. In the chained market, the QSR and the CDR constitute ~75 per cent of the total organised food service market followed by cafés (12 per cent). The Café and QSR’s are projected to grow at a CAGR of 15 per cent and 18 per cent respectively in the chained segment.
The higher growth in the chained segment for next six years will be driven by the increasing presence of international brands, strengthening of back end infrastructure, acceptation of new cuisines and formats, changing lifestyles and aspirations and emergence of entrepreneurial ventures in these segments.