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By 2018, QSR business in India expected to grow at CAGR of 15 per cent
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Anurag More, Mumbai
February 17 , 2015
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Quick service restaurants (QSR) primarily work in the licenced
standalone restaurant format, which holds a share of approximately 11
per cent in the Indian market. According to D’Essence Hospitality, it is
expected to increase to Rs 10,050 crore by 2018, with a compound annual
growth rate (CAGR) of 15 per cent.
With the high projected
market growth rate, a substantial rise of QSR in the food service space
in India, globalisation and the increasing per capita spending in this
category, QSR attracts a massive consumer base, who have a penchant for
foreign ingredients localised to suit Indian taste buds.
This
has culminated in a rapid shift in the food consumption and service
patterns, paving the way for multi-cuisine restaurants and trends such
as the fusion of Oriental and western cuisines in the Indian context.
According
to CRISIL, global brands currently account for about 63 per cent of the
domestic QSR market, which is expected to witness an increased
activity, due to its expansion into smaller cities and the entry of new
players in the near future.
Not only are international fast food
chains excited about venturing into India, but entrepreneurs and
retailers in India are also taking the global business hands-on.
The
reasons are simple. The Indian food and beverage market is at its peak,
with evolving consumer needs and a growing inclination towards foreign
brands. The youth in India is brand-conscious and open to
experimentation and innovation.
The eagerness to try new things has led global brands diversify their product offerings in the Indian QSR market.
For
instance, burger chains are now offering wraps, and pizza chains are
selling Mexican tacos and Chinese food, besides introducing Indian
versions of their signature products.
Talking about the Indian
QSR business, Manpreet Gulri, country head, Subway Systems India Pvt
Ltd, said, “The organised segment of the fast food sector has survived
the economic slowdown better than other sectors.”
“That is one of the main reasons international players are looking at exploring opportunities in the Indian market,” he added.
“Once
a foreign concept, eating out has grown exponentially in India, thanks
to our changing lifestyles, the rise in our disposable incomes, the
rapid urbanisation, the increase in the number of working women, and the
fact that the Indian consumer is rapidly becoming indulgent,” Gulri
said.
ASSOCHAM paper
According to a study by the Associated
Chambers of Commerce and Industry of India (ASSOCHAM), Indians eat out
as many as eight times a month. However, Americans (14 times),
Brazilians (11), Thais (10) and Chinese (nine) eat out more often.
D
S Rawat, the Chamber’s secretary general, said, “After capturing the
Tier-I cities, the Indian fast food market is now spreading its wings to
the Tier-II and III cities, which is where its future lies. There is a
huge scope for growth in untapped Tier-II and III cities.”
“Due
to the growing need of consumers for convenience, the increased
appetite, the insatiable hunger for international food, the exposure to
global media and cuisine, the average annual expenditure by middle-class
households at fast food restaurants in the Tier-II and III cities has
increased by Rs 2,500 to Rs 5,200 (a growth of 108 per cent) in the last
two years,” the study revealed.
As far as Tier-I cities in
concerned are concerned, the annual average spending by middle-class
households at fast food restaurants has increased by over 35 per cent to
Rs 6,800 on fast food restaurants in the same period.
The study
enumerated the propellors of the spending patterns at QSR in Tier-II
and III cities. These include the increases in the numbers of nuclear
families and working women, the steady growth in disposable incomes (the
drivers of which are strong economic growth and the government’s
support [through various employment schemes]), the changing lifestyles
and eating patterns, and importantly, the greater accessibility to QSR
outlets.
“As both the competition and the cost of operations have
gone up in the metropolitan and Tier-I cities, several Tier-II and III
cities are now offering better growth prospects for players across
sectors, driven by factors including favourable demographics and
infrastructure growth,” it added.
The study also attributed it to
the increase in literacy and the availability and penetration of a
variety of consumer goods into the interiors of the country, which have
created lifestyle and aspiration levels that are on par with other
fast-moving metropolitan cities.
Rawat added that the fact that over 65 per cent of customers were under 30 was a key growth driver too.
Challenges
When
quizzed about the challenges, Gulri said, “With the changing market
dynamics, the challenges facing the QSR segment are also changing with
time. Today, these have more to do with manpower availability, real
estate rates, compliance with the legal framework, offering localised
menus and consumer engagement strategies, and, at the same time,
ensuring that the uniformity and standardisation of the product are
maintained.”
He added, “Most of the food chains are now working
towards innovating and localising their products. All successful global
brands have localised, more so in food; even if it means rejigging the
entire range of menu offerings.”
“A chain, renowned for its
fried chicken, started offering vegetarian product in India following a
study, which revealed that a large number of Indian consumers were
vegetarian,” Gulri said.
“Such strategies illustrate the
willingness of the global food service brands to delight local
consumers. Also, it helps establish a connection by offering the
consumers a mix of what they are familiar with and what they would like
to familiarise themselves with (a mix of global and local flavours),” he
added.
“Subway, for instance, created a range of Indian subs,
such as Chicken Tikka Sub, Roasted Chicken Sub, Veg Shammi and Paneer
Tikka Sub, which have become popular among food lovers in India,” Gulri
stated.
Kashiff Khan, founder chairman, The K Group Pvt Ltd,
said, “Food price inflation is the biggest challenge faced by QSR in the
Indian market. The customers at these eateries are not keen on brand
loyalty. They may easily switch over to another brand.”
“However,
they are very particular about matters of hygiene and price. One way to
stay ahead of the competition is by offering a more affordable product
than theirs,” he added.
Coping with challenges
Khan said,
“Today, QSR initiators are choosing the products that satisfy the
consumers’ demand. They are following the four Ps of the market
(product, price, place and promotion).”
“They regularly change
and add new products, and introduce offers to survive, make profits and
keep up with the pace of competition,” he added.
Trends and growth drivers in QSR
Gulri
said, “QSR have made eating out affordable and convenient, giving even
the customers with smaller pockets the opportunity to indulge. From
cheesy pizza and oversized burgers to healthier sandwiches, the Indian
consumer today has a wide variety to choose from depending on the tastes
and preferences.”
“Competitive pricing, menu localisation and
aggressive marketing strategies have done their bit to draw consumers
into their stores. A relatively new trend is the segmentation of
categories within categories in the QSR space,” he added.
“For
instance, the burger segment is now occupied with global players
offering premium burgers, specialised burgers and affordable burgers,”
Gulri said.
“Similarly, the coffee segment is now categorised into on-the-go coffee, premium coffee or American high-end coffee,” he added.
A
decade or more since the fast food companies made their mark in India,
the consumers are now making a shift towards healthier-eating and an
active lifestyle.
There’s a pronounced focus on reading food
labels before consumption and eating right. While the emphasis of most
of the quick service brands has been on catering to the mass segment,
there are a few brands that are renowned for their unique propositions.
Khan said, “QSR is the most efficient and profitable sector in India, it has captured the F&B market tremendously.”
“In
spite of the competition, every QSR outlet is making profits on a daily
basis. It holds a huge market share and provides potential businessmen
huge opportunities. One of the biggest benefits of QSR is that the
service is consistent service and it offers quality food at a high speed
to match up with the fast-paced lives of people,” he added.
“Subway
tried to break this mould, and merged eating out with healthier eating
to give Indian consumers a healthier eating-out option,” Gulri said.
“Opened first in 2001, Subway is preferred by consumers who make healthier choices and want to keep fit,” he added.
“With
evolving attitudes towards health and nutrition, Subway is driving a
change in consumption, both as a meal option as well as a snacking
opportunity,” stated Gulri.
“The brand has positioned itself uniquely in the healthier eating-out space by propagating the value of eating right,” he added.
The
growth in nuclear families, particularly in urban India, exposure to
global media and Western cuisine and an increasing number of women
joining the workforce have had an impact on eating out trends. This has
led us to a new era of eating - fast food.
Despite the
challenges, the organised food services market is slated to witness a
double-digit growth (16 per cent) in the next five years, spurred by the
changing consumption habits of the Indian consumer and the emergence of
new players in the space.
In hindsight, the market represents a
vast untapped potential, with eating out becoming the most common form
of recreation for consumers today.
Sector in next five years
In
the next coming five years, QSR would continue to steer the growth in
the food service industry. The concept of QSR has gained its prominence
in India, with the entry of Indian and international brands into the
space encouraging affordable eating and enabling the indulgence by
customers with smaller pockets.
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