The market size of India’s food services industry is expected to reach a whooping US $75 billion by 2021 as it expands at a compounded annual growth rate of 15 per cent, according to a study by Technopak, a management consulting firm.
“In terms of size, foodservices industry is 25 times the size of Bollywood. It’s a fragmented industry, but an Omnipresent industry,” says President, Technopak Advisors, Saloni Nangia.
The foodservices industry in India has witnessed unprecedented growth over the past few years and the pace of expansion is likely to quicken further in the next five years.
Nangia touched upon some key aspects of India’s foodservices industry, offering a bird’s eye view of how its different segments are developing and the trends that will shape their growth.
Food Services Industry Classification
Organised formats: Organized stores as usually licensed stores across the country (i.e. chain and licensed standalone players across QSRs, full service, casual, and fine dining restaurants, hotels, bars, lounges, cafes, etc.)
Unorganised formats: Unorganized formats are the dhabas, street stalls, roadside vendors, food carts, etc and they account for the largest share – 67 per cent of the industry currently.
Market Overview
Chain formats across the QSR, FDR and CDR, which is currently worth around US $3 billion, are growing fast, making it one of the segments to watch out for growth. Food services or food retail is the largest consumption basket in India. About 67 per cent of all consumption is accounted for by food, making it the largest category at $460 billion in India. The food business in India is largely concentrated in unorganized formats and the organized formats have a market share of only 3 per cent. They are expected to grow to 5 per cent in the next five years, but have many challenges confronting them.
For perspective, the size of modern formats in grocery retail is roughly the same as the e-commerce market in India, which is around $15 billion. But the fact that the e-commerce market has been able to reach the same numbers as modern food and grocery in just five years speaks about the speed at which e-commerce is growing in this country and the challenges confronting modern retail.
Trends Having Immediate Market Impact
Demonetization: Discretionary spending has been going down in the wake of demonetization.
• Impact on the industry – Food services industry has been impacted, but F&G retail has been impacted positively, with sales going up for basic products.
• Impact on consumers – Consumers have tightened their purses and the spending on discretionary products has come down.
• Forecast – Consumer spending will be lower and focused mostly on essentials like healthcare and security. It will take six months (two quarters) for market sentiments to improve and things are expected to be normal by Diwali, 2017.
Consumers: It’s the Millennial’s Era
We have 50 million millennials in metros and 400 million in India. They are in the age group of 15-36 and the largest such demographic in the world. They are the consumers of the future. It is very important for brands to delve into their mindset and understand how they are going to evolve and grow in the next decade. They are the trendsetters and will set the trends for smaller towns and drive consumption.
Characteristics of Millennials
Completely synced: Their lives revolve around their mobile phone, be it shopping, searching for restaurants, making payments, etc.
Individualistic: They don’t conform. They like one thing today and another thing tomorrow.
Confident: Always looking to try new things.
Comfortable with the shared or gig economy: The gig economy or the shared economy – be it Uber, RentMojo or Flyrobe – is completely supported by the millennials and these services are developing in keeping with the millennials’ tastes and preferences.
“It is very important for us to understand how the millennials conduct themselves with technology and mobile phones and we need to figure out how we can be a part of that,” observed Nangia.
And it is not just the millennials. The rest of the consumer base too is becoming tech savvy. All forms of consumption are moving to the mobile phone, which is slowly covering all aspects of one’s life. With the number of mobile phone users projected to reach 750 million by 2020, it is essential for any business or brand to connect with the consumers through the mobile platform. Mobiles and app-based solutions are increasingly being adopted by businesses for consumer connects and feedback, operations and process management and for increasing productivity, among others. Tablets and smart phones are going to be the gadgets of the future.
A Food Tech World
• A whole range of food tech concepts have come in, be it for food exploration, discovery, reservations, delivery, feedback, Internet restaurants among others.
• There is increased competition and performance benchmarks for the restaurant industry.
• Internet only, curated and differentiated restaurants are gaining market share because they are cutting out the challenges, like high rentals and manpower attrition, and connecting directly with the consumers.
• Innovation with technology in the kitchen- both last mile cooking and in the commissaries.
“The spread of food technology is a very positive development as far as restaurants are concerned because you can reach a number of people for delivery, and it has also made the market very competitive and transparent,” noted Nangia.
Food on the Move
Dining in and food delivery are gaining market share and they account for 15-20 per cent of the market now. Projected to gain more market share rapidly.
• Tiffin and home style meals offer a scalable business opportunity.
• Food trucks, vans and carts too are gaining market share.
• Travel destinations (airports, metros, bus stations, railways), official and commercial complexes, campuses, among others are the upcoming locations for food retail.
“While there are a number of new formats and new cuisines coming in, Indian food continues to rule the roost. Be it regional or modern Indian cuisines, the core of it remains Indian. There are a lot of options that can be developed with Indian food. The same goes for food companies as well. There are a lot of opportunities for product development, which is based around Indian pickles, spices, ready to eat, and condiments, etc. An international QSR based around Indian food is a good investment opportunity,” said Nangia.
Fusion in Retail
Lines are blurring within formats, largely to maximize revenue and day parts. So we have Fast Casual, QSR Plus, Premium QSR, Bar +Cafe, Work+Cafe+Pub, Casual +Cafe, and others.
“A lot of interesting developments are happening in the restaurant industry where the lines are blurring and lot many formats are overlapping. The same fusion is happening in retail. There were very clearly brick-and-mortar formats and there were purely online businesses. But today each format is looking at the other to complement it. Almost all the brick-and-mortar formats have added online platforms while the e-tailers are looking at opening stores,” said Nangia.
Online + Offline Integration
Fusion is also taking place across retail formats as well with online adding offline, and vice versa. Today, we are seeing a rise in assisted commerce formats, which till sometime ago were pure online businesses, to connect with consumers and increase revenue.
Clustered Approach and Private Labels
Modern F&G formats, although around for years, continue to face margin pressures and profitability still eludes them. A more clustered approach, by defining clusters based on consumption and looking at what efficiency can come in from a certain region and then expanding, could be the way forward. Private labels will play a key role in business margins and profitability. There exists big opportunities to create private labels in some food categories, both online and offline, with increased Government focus and infrastructure support for food processing and investments in food parks. This will facilitate development and sourcing of private labels, according to Technopak.
The foodservices industry in India has witnessed unprecedented growth over the past few years and the pace of expansion is likely to quicken further in the next five years
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