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INDIA is one of the worlds largest producers as well as consumers of food. Changing food consumption patterns of Indias population is expected to not only increase consumption volume in absolute terms to US$230 billion by 2013 but also shift peoples diet qualitatively towards richer, processed foods, which will force increased commodity requirements.1 Thanks to a population of more than one billion people and food constituting a major share of the Indian consumers budget, the industry has continued to perform well despite the poor economic performance across the board during the global recession of 2008-09. The F&B industry comprises three distinct categories: (1) agricultural and horticultural produce, (2) processed foods and beverages, and (3) food and beverage retail.
Processed food and beverages: Packaged staples, processed fruits and vegetables, ready-to-eat foods, canned products, dairy products, baked goods, snacks, alcoholic beverages, nonalcoholic beverages (juices, cola, health drinks), tea, coffee, confectionery Food and beverage retail: Food retailing (grocery stores and supermarkets) and food service establishments (organised sector--quick service restaurants, full-service casual and fine dining restaurants, hotels, bars and lounges, cafes; unorganised sector--dhabas, street stalls, halwais (sweet shops), roadside vendors, food carts)
Indias agricultural sector is large and diverse, accounting for about 16% of GDP and 10% of export earnings. Its arable land area of 159.7 million hectares (394.6 million acres) is the second largest in the world (after the United States), and its gross irrigated crop area of 82.6 million hectares (215.6 million acres) is the largest in the world. India is among the top three global producers of a broad range of crops, including wheat, rice, pulses, peanuts, fruits, and vegetables. Worldwide, India has the largest herds of buffalo and cattle, is the largest producer of milk, and has one of the largest and fastest growing poultry industries.2
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Past and Prescriptions for the Future, released at CIIs Conference on Crop Diversification US Department of Agriculture
The Indian food processing sector has an abundant agricultural base to rely on and is a fast growing sector in the economy. Standing at $135 billion, the sector is poised to grow at a compound annual rate of 10% to reach over $200 billion by 2015.3 Dairy products, in particular packaged milk, biscuits, snacks, packaged staples (flour, cooking oils) are among the leading growth segments in this sector. Industry experts point to ready-to-eat foods, indulgence foods (ice cream, salty and sweet snacks), and health foods as holding significant potential. Changing demographics and lifestyles with consumers seeking more convenience and choice, rising disposable incomes, and government initiatives are infusing this sector with huge opportunities for new and existing players. These changes will spur improvements in much-needed food processing infrastructure and bring about further growth in new and existing segments. The F&B retail industry, which sells the fresh agricultural produce and the processed and prepared foods to people, has grown considerably in the last few years, with organised retailing becoming more prominent in urban India. On one side of the F&B retail coin are the unorganized sellers (kirana stores and neighborhood fruit/vegetable vendors) and the organized grocery stores and supermarkets such as Food World, Nilgiris, and Spencers, which are doing well in cities across the country. These primarily sell packaged, processed foods, staples, and fresh produce. On the other side of the F&B retail coin are casual/fine dining restaurants, quick service/fast food restaurants, food courts, cafes, and the numerous away from home eateries in the unorganized space. The market is still concentrated with unorganised retailers but the organised sector is fast gaining ground. This report is a primer on the Indian F&B food service sector with particular focus on quick service/fast food restaurants and eateries.
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India Brand Equity Foundation Associated Chambers of Commerce & Industry of India (ASSOCHAM)
The organised segment is dominated by restaurants, both full service and quick service (40%), followed by cafes, pubs, clubs, and bars (31%), takeouts/home delivery formats (17%), and hotels (9%). The unorganised segment consists of individuals or families selling ready-to-eat food through roadside vending, dhabas, food carts, and street stalls.
Dhabas: Often referred to as rural Indias fast food joints, these are located street side, at truck stops, and along highways. Typical fare includes spicy Indian food and snacks, lassi, and chai. Characterised by tandoors (pit oven) and chaarpais (cots), dhabas offer the authentic, raw Indian experience.
Halwais: Confectioners and sweet-makers found mainly in north India. The name is derived from the word halwa, a popular sweet made of flour, ghee, sugar, almonds, and raisins. Typical fare includes mithai (sweets) like laddus and burfi and savoury snacks like samosas and pakoras.
Food carts and trolleys: These are stand-alone units run by individuals and typically sell street food and snacks such as grilled corn, boiled or roasted peanuts, chaat, paubhaji, idlis, fruit juices, and samosas. They are more commonly found in busy streets and tourist spots and tend to move around.
Roadside hawkers/vendors: These are found at street corners and usually set up shop at the same location every day. These vendors sell street foods, juices, lassi, ice cream, snacks, and cater to lowincome populations who want a quick bite on the go.
Kiosks
Organised Sector (16%) Description Examples Fine Dining: Offer finest in food, service, and Taj Hotels, The Leela Hotels, Oberoi Hotels, Sheraton ambience; high priced; staff highly trained; usually Hotels located in luxury hotels in metropolitan cities Casual: Offer moderately priced food, casual SaravanaBhavan, T.G.I. Friday's, Punjab Grill, Zambar, atmosphere, quick table service; some also provide FresCo, Asia 7, Street Foods of India, Baker's Street, takeaway and home delivery Chilis, Great Kabab Factory, California Pizza Kitchen, Hard Rock Cafs, Sbarro, Yellow Chilli, Spaghetti Kitchen, Noodle Bar, Bombay Blue, Copper Chimney Also called fast food joints; serve processed foods fast McDonalds, Nirulas, Taco Bell, KFC, KaatiZone, Pizza at low prices; typical menu items include burgers, Hut, Dominos, Haldirams, Papa Johns, Subway, pizza, milkshakes, French fries; minimal table service; Quiznos, Caf Darshini, South Thindies, Rasnas Devils also provide takeaway and home delivery Workshop, Bikanervala, Wimpy, Adiga, Faasos Outlets serving range of coffee and other hot and cold Caf Coffee Day, Barista, Costa Caf, Starbucks, drinks, quick bites such as pastries and sandwiches, Brahmins Coffee Bar, Gloria Jeans, Coffee Bean and and breakfast Tea Leaf, Dessert Caf, Chai Point, Au Bon Pain, Le Pain Quotidien, Cinnabon, Dunkin Donuts Casual or upscale establishments serving alcoholic Mai Tai, Shiro, Aer, Aurus, Dome, Wink, Mocha, beverages and food Esocobar, Vie Deck and Lounge, Enoteca, Flame Le Club, Leather Bar, Zara Tapas, Gallop, Bike and Barrel, Poker, Provogue, Geoffreys Outlets usually exclusively selling ice cream, gelato, Haagen-Dazs, Hapinezz (Vadilal), Movenpick, sundaes and shakes, sorbet, and frozen yogurt Swensens, Baskin Robbins, Amul, HatsunsIbacco (formerlyArun), Natural Ice creams, Kwality, Pinkberry Stores usually exclusively selling fresh and bottled HAS Juice Bar, Tropical Smoothies, Amoretto, fruit and vegetable juices, smoothies, and juice Evolution Fresh (from Starbucks) , Juice Lounge, Blendz blends; some also sell soups, salads, and wraps Juice Bar, Fruit Shop On Greams Road, Booster Juice Small standalone structures dispensing quick snacks Salad Chef, Big Mos' Rolls and Wraps, Yo China, Chai and drinks; typical items include wraps, Indian Garam, Chokola, Candy Treat, Sweet World, Mr Orange, snacks, sugarcane and fruit juice, Chinese food, corn, VadaaPaa, Burgerman, Nirula's Express, Go Chatzz, ice cream, salads; commonly found in public spaces GoliVadaaPav, Cane-o-la, Petawrap, Caf Coffee Day, like shopping malls Chamosa, Gelato Italiano A designated area in large public places (shopping malls, airports, hospitals, offices) with several quick service brands serving food at designated stalls Comesum, Spoon, Yatra, Foodtalk, Polynation, SagarRatna, Kailash Parbat
Diners, drive-ins, and dives: These are the numerous standalone joints along streets (e.g., at bus stops) serving affordable Indian foods and beverages to the mass market. Many also offer takeaway and home delivery services.
Food Courts
Competitive Landscape
Amongst the various formats in the organised sector, quick service (or fast food) restaurants (QSRs) have been growing the fastest, registering year-over-year growth of 15-20%a trend that is expected to continue over the next five years.5 The QSR market in India is worth $13 billion and is dominated by global players like Domino's, McDonald's, KFC, and Pizza Hut. QSRs are well-entrenched in the big metropolitan cities, and companies are now pushing into tier II and III cities such as Pune, Ahmedabad, and Chandigarh. Indian consumers are more than ever willing to try new cuisines and foods and have the purchasing power to back it up. Increasing brand awareness through travel and media has also fueled the growth of QSRs in India. The rise of large organised retail formats like malls, multiplexes, and food courts has provided ideal spaces for QSRs to set up shop. International fast food brands have teamed up with small Indian franchisors to setup their brands in India, and this route is working out well for the companies. Although QSRs have expanded exponentially, their share of the entire F&B foodservice industry continues to be low. There is immense scope for further penetration and increased consumption. Evolving lifestyles, younger population, increasing income, expansion of retail space, increase in travel and commuting, media exposure to global brands, and other factors indicate that more and more Indians are choosing to eat out, thus creating vast opportunities for new players and existing players to expand. In the flurry of global QSR activity in India, domestic QSR brands are also upping the ante and vying for their slice of the market. These have traditionally had a loyal following in their regions of operations. Unlike Western brands, local chains have largely been confined to specific areas. Nirulas, one of Indias oldest QSRs, is well established in the northern part of the country. In 2006 Navis Capital Partners and Managing Director Samir Kuckreja acquired the Nirula's Group of Companies. The new team at Nirula's undertook a massive brand revamp exercise. While retaining the brand name and logo of "Nirula's," new sub-brand logos were created for Nirula's ice creams, pastry shop, delivery business, and others. Bengaluru-based fast food chain Kaati Zone offers a range of quick-to-eat kaati rolls and other on-the-go assortments. CEO Kiran Nadkarni has expressed interest in taking Kaati Zones existing franchise model to the next level and aggressively pursuing it. Coffee Day Group, Haldirams, Bikanervala, and Rasnas Devils Workshop are making ambitious plans to open new outlets across the country. Even traditional joints like the Bengaluru-based MTR Restaurant and the Chennai-based MuruganIdli Shop are looking at Delhi and Mumbai for the first time in 80 years.
While the supply chain is dominated by the traditional set up of traders and intermediaries, a lot of venture capital and private equity activity has been taking place in developing robust foodservice supply chains with modernisation of cold storage and transportation. Most of the investment is going towards supply chain management and building cold storage infrastructure. Investments in 2012 are expected to rise by 50 percent, hitting $750 million from about $500 million in 2011.6 Among recent investments, World Banks arm the International Finance Corporation has reportedly invested $6.5 million in food supply chain company Snowman Logistics. SwastikRoadlines Private Limited, the Gwalior-based food cargo supply chain service provider, has raised $10 million from India Equity Partners. The company offers India-wide solutions in both long haul (primary) movement of temperature sensitive goods, intra-city secondary distribution in over 55 cities, and surface transportation for specialised dry cargo. In 2010 the Coffee Day Group acquired control of Sical Logistics, which provides integrated multimodal logistics services. IL&FS Private Equity has invested INR 40 crore in Indore-based JICS Logistics Limited. Formerly known as Jhawar Ice and Cold Storage, the company provides a wide range of services including warehousing, collateral management, commodity funding, and export. IDFC Private Equity has invested INR 150 crore in Jaipur-based Staragri Warehousing and Collateral Management Limited, which provides post-harvest management solutions. Staragri plans to add allied services like cold chain, seed and liquid warehousing, agri retailing, and farmer clubs. It is crucial to employ the right sourcing strategies in a market like India. A well planned supply chain requires strong domain knowledge as well as a localised approach and is a major contributor to running an efficient, successful Indian QSR operation.
Mahendra Swarup, President, India Venture Capital Association, quoted in the Hindu Business Line
Total annual household consumption in India is likely to triple (from INR 82,000 in 2005 to INR 248,000 in 2025),
making India the fifth largest consumer market by 2025. Urban India will account for nearly 68% of consumption growth while rural consumption will account for the remaining 32% by 2025. Indias Middle Class population is expected to increase from the present level of ~150 million to ~550 million by 2025.
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The projected drop in the relative share of food and beverages in Indian consumption is due to the rise in share of rest of the categories, not an actual fall in food consumption. When incomes rise, it is natural for households to begin to spend more on categories other than food. In fact even though the relative share of food falls, food demand and consumption will accelerate significantly in the next decade.
Lifestyle Changes: The shift to nuclear families and with both parents working and bringing in dual income in most urban households, lifestyles and routines of people have changed, including food habits. There is increased demand for affordable food on the go and prepared ingredients to make cooking faster. According to an ASSOCHAM survey, 86% of households prefer to have instant food thanks to a rise in dual income level and standard of living, convenience, and influence of western countries. The same survey reveals that 85% of parents with children under the age of 5 are serving easy-to-cook meals at least 7 to 10 times per month due to increased pressures at work and reduced time for household activities.9 In addition, 92% of nuclear families feel that they have less time than before they had kids and are spending less time in the kitchen and turning to takeout, delivered food, and semi-prepared meals. Of the bachelors surveyed, 72% prefer ready-to-eat food because it is low-cost and saves time and energy in their busy lives.10 Rising Number of Working Women: Along with an increase in Indias working population, there has also been a stark increase in the number of working women. With more women spending a substantial number of hours at work, there is little to no time to prepare elaborate meals at home, as generations before them did. More working women are spending their disposable incomes on eating out or serving ready-to-eat or prepared foods picked up on the way home from work. Urban Indian women who earned an equivalent of $90 per month in 2001 were, on average, taking home as much as $189 in 2010. The rise in urban womens income is directly reflected in the average monthly household income of urban India going up from $165 in 2001 to $330 in 2010. Participation of women in the workforce increased from 14-17% between 2000 and 2005.11 Nearly 2.1 million people have joined the list of double-income homes between July 2010 and June 2011. This is a major driver that will contribute to the growth of the food service industry, in particular the QSR sector. According to Technopak, women constitute 51% among those who eat out at least once a month.
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ASSOCHAM, Survey on Ready to Eat Food in Metropolitan Cities Ibid. Technopak, 2009
Health and Hygiene Consciousness: Indian consumers are becoming ever-more conscious of the quality of the food and drinks they consume. Rising awareness and incomes among upwardly mobile urban consumers are making them care more about health and fitness. The mushrooming of juice bars and kiosks selling salads and wraps are cases in point. Consumers are opting for healthy options at the supermarket as well. Many now cook with healthier oils as opposed to ghee and butter, the traditional cooking medium in India. The fortified/energy drinks segment is also picking up pace. These include fortified milk and buttermilk, vitamin water, enhanced iced teas, and other restorative drinks. According to Euromonitor International, urban Indian consumers are looking for easy-to-consume fortified beverages because they are concerned they are not consuming enough nutrients due to their erratic eating habits and schedules. Euromonitor estimates India's functional drink market at INR 546 crore in 2011, 19% more than in 2010. Urbanisation: At present the QSR/fast food phenomenon is largely an urban story. Urbanisation in India is growing by the day, which will further contribute to increasing demand among urban Indians to eat out. The proportion of Indian population living in urban areas is expected to grow substantially through 2030.As urban concentration rises, so will income levels of the people dwelling in the urban areas. A McKinsey study on urban India estimates that by 2030, the population of Indian cities will reach around 590 million40% of Indias total population. With economic growth reaching beyond urban areas, Indian consumers in tier II and III cities are also experiencing a rise in incomes and purchasing power. QSRs are rightly eyeing these markets as they hold enormous opportunities to expand and grow.
Government Regulations
Foreign Direct Investment in India
In January 2012, the Government of India announced it is permitting 100% FDI in single brand retail under the government approval routei.e., global single brands such as Starbucks, Louis Vuitton, Ikea, and Gucci can have full ownership of their Indian businesses. Under the old rules, the government required single brand companies to own 51% of their Indian business and therefore they had to find a local investment partner who would own 49% of the business. QSRs like McDonalds, Pizza Hut, and KFC entered India under the old rules. For new entrants, this new policy could be good news, but there is a catch: Global single brand companies choosing to own their Indian operations 100% (i.e., beyond 51%), are subject to the condition that they will have to procure at least 30% of the value of products from Indian small industries/village and cottage industries, artisans and craftsmen. Small industries are defined as industries with a total investment in plant and machinery not exceeding US$1 million. For QSRs well established in the Indian market, this does not seem attractive and is a major reason why the likes of McDonalds and Yum Brands (Taco Bell, KFC) do not want to break away from their Indian partners. Companies interested in setting up shop in India make an application to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy and Promotion. The application should specifically indicate the product/product categories that are proposed to be sold under a single brand. Any addition to the product/product categories to be sold under a single brand requires fresh approval of the government. The Department of Industrial Policy and Promotion processes the applications to determine whether the products proposed to be sold satisfy the notified guidelines, before they are considered by the Foreign Investment Promotion Board (FIPB) for government approval. FDI in single brand product retail trading are subject to the following conditions: (a) Products to be sold should be of a single brand only. (b) Products should be sold under the same brand internationallyi.e., products should be sold under the same brand in one or more countries other than India. (c) Single brand product retail trading would cover only products that are branded during manufacturing. (d) The foreign investor should be the owner of the brand. (e) As noted earlier, proposals involving FDI beyond 51% are subject to mandatory sourcing of at least 30% of the value of products sold from Indian small industries/ village and cottage industries, artisans, and craftsmen.
Licensing
The Indian F&B Industry is highly regulated with numerous requirements that need to be fulfilled. When opening a new outlet, the following licenses should be obtained:
Type of License Food Safety and Standards (Licensing and Registration of Food Businesses) Regulations, 2011 Registration under Factories Act Shop and Establishment Act Liquor License L-4 (L-17 as per new Excise Rule) Environmental Clearance No Objection Certificate/Fire License State Tax and Value Added Tax Trade License Health Department Clearance Signage License Eating House License Playing of Music in RestaurantsLicense Lift License Insurance required to be taken: Public Liability, Product Liability, Fire Policy, and Building & Asset
Requirement/Issuing Authority Compliance is MANDATORY; obtained from Food Safety and Standards Authority of India and Commissioner of Food Safety If number of employees exceeds 20; issued by Department of Labour MANDATORY; issued by Department of Labour For service of liquor in the restaurant, otherwise not needed; obtained from Department of Excise MANDATORY; obtained from Pollution Control Board MANDATORY; obtained from states Fire Department Obtained from Department of Commercial Taxes MANDATORY; obtained from Corporation or Municipality of the area MANDATORY; obtained from Health Commissioner, Corporation or Municipality of the area MANDATORY; obtained from Corporation or Municipality of the area MANDATORY; issuing authority is the Police Commissioner MANDATORY when recorded / live music of the two copyright holders is played in the restaurant. If lift is to be installed; issuing authority is Electrical Inspector, Office of the Labour Commissioner MANDATORY
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Five Forces
The Indian F&B industry, while having immense opportunity and witnessing high growth rates, is also one that is highly competitive and price sensitive. Understanding the industry dynamics is a crucial component for a new entrant to be successful. An international QSR seeking to enter the market should be aware of five forces operating in the market.
MEDIUM
Numerous companies are vying for their share of the pie; new retail formats are heating the competition
Industry Rivalry
Consumers in India have numerous options and are highly price sensitive
LOW
HIGH
HIGH
Threat of Substitutes
Most Indians still prefer to eat at home
HIGH
The Bargaining Power of Suppliers is LOW in the industry as it is characterised by a large number of suppliers, highly
fragmented supplier base, and negligible product differentiation. The Bargaining Power of Customers is HIGH due to the many alternatives available in the market. The Indian consumers are also highly price sensitive. However, the penetration of western fast food chains in India is still low compared with other mature world markets and there exists immense opportunity in both the metropolitan as well as tier II cities. Threat of Substitutes is HIGH as consumers can opt to either eat at home or eat at the numerous unorganised eateries that exist as an alternative. Threat of New Entrants is MEDIUM due to the high barriers to entry. Setting up an outlet in India requires a high level of documentation, permits, and licenses compared with other countries. It is imperative that any potential entrant should partner with a domestic firm to navigate through the maze of procedures that are required to set up shop in the Indian market. In addition, the capital costs required to set up a new outlet are high due to high property costs and rentals in major Indian cities. Industry Rivalry is HIGH, especially in the more developed cities where there are a large number of competitors in the market. The proliferation of newer food retail formats such as food courts has created a situation in which a high number of players are aggressively competing for business.
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