The Food Service Sector in India, a USD 50 billion Industry growing at 16 percent p.a, is fast transforming from unorganised (70 percent) to organised sector supported by increased investments from private equity and strategic players in the market spanning from farm to the table. The size and transformation is substantially driven by the youth (with 90 percent falling below 40 years). Consumption is driven by convenience, aspiration, cultural shifts, changing retail landscape and unparalleled access to information backed by some innovative marketing and product revitalisation.
Increasing regulatory pressure is also driving change albeit creating challenges as well. The FSSAI registration drive is a step in the right direction but execution might be an issue as less than 10 percent of food business operators have signed up for it. Licensing complexity especially for full service restaurants and bars is something that needs immediate attention.
The sector is supported by a 100 percent Foreign Direct Investment (FDI) which has been helped build supply chain and is driving quality and increased organized play in the sector. Baker’s Circle, Cremica, Holyland Marketing are a few taking the lead. There is a significant private equity interest in the space as well as strategic interest from international players. Logistics and cold chain players have also evolved, Snowman, Radhakrishna Foodland, Gati kauser, Kelvin and Crystal are making investments and growing to service the sector demands.
Organised food service market has grown despite economic slowdown. It currently stands at US$ 13 bn and is expected to grow to US$ 28 bn (at a CAGR of 16 percent). There has been a significant growth in QSR, pubs/bars and casual dining.
As the industry matures and business environment improves, India continues to attract global chains. Burger King, Taco Bell, Starbucks are the most recent to enter the country and multiple casual dining/pubs/bar majors are enhancing roll-outs across the country. Changing food service concepts from traditional institutional catering to organised food service delivery and retail by food service players at institutions (office, education and hospitals) are gaining traction.
Overall, it has been a year that has continued and reaffirmed sector opportunity belief while enhancing focus on costs, service, prudent expansion and customer focus.
The Food Service Sector has seen strong deal activity in the last 3 years, with over 30 investments totaling USD 250 mn invested in early and growth stage companies. In the same period the sector saw few exits, given most companies are in the growth phase. Exit by TVS Capital in Om Pizza, Navis Capital’s exit from Nirulas to A2Z Excursion Group and Sequoia’s exit from Amalgamated Bean Coffee Trading Co were the key exits in the 3 year period. Specialty Foods was the only IPO, where the initial PE remain invested. The number of scale players (USD 100 mn or more in sales) are still in low double digits, prominent being Café Coffee Day, Jubilant Foods Hardcastle Restaurants and Devyani Foods. The next three years are thus likely to see a spectrum of players targeting listing or subsequent rounds of PE investing.
