Wednesday, July 24, 2024

Mapping the Indian Foodservice Sector

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The Indian foodservice sector is a vibrant and dynamic industry that has undergone significant growth and transformation in recent years. With a diverse culinary heritage, a rapidly expanding middle class, urbanisation, extensive inbound and outbound travel, mobile phone penetration, and rapid proliferation of social media all leading to changing consumer preferences, this sector has become a hotbed of innovation and investment.

The foodservice sector is one of the fastest-growing sectors in India. According to a sector report on the foodservice industry released by the National Restaurant Association of India (“NRAI”), the Indian restaurant industry contributed a share of 2.1% to the GDP in 2021. In this article, we will delve into the Indian Foodservice sector, exploring its market size, providing an overview of its landscape, identifying key trends, and uncovering the plethora of opportunities that it offers.

The Indian food service sector has witnessed remarkable growth over the past decade, driven by factors such as rising disposable incomes, urbanisation, changing lifestyles, nuclear families and a growing young population.

According to NRAI, the sector’s market size was estimated to be around INR 4.23 lakh crore (approximately USD 57 billion) in 2020. This number is expected to continue its upward trajectory, reaching INR 6.19 lakh crore (approximately USD 83 billion) by 2024, representing a Compound Annual Growth Rate (CAGR) of over 10%.

One of the key drivers of growth in this sector is the increasing trend of eating out and ordering in. The ordering-in has been a more recent phenomenon facilitated by the aggressive growth of aggregators. Over the last decade or so, we have been witness to the average eating out of home / ordering in going up almost four fold. Indian consumers are gradually moving away from traditional home-cooked meals and are embracing the convenience and variety offered by food service establishments.

Moreover, the COVID-19 pandemic accelerated the adoption of food delivery services, further boosting the sector’s revenue

Overview of the Indian Food Service Sector

The Indian food service sector is highly diverse, comprising of various segments that cater to different customer preferences and needs. It is still estimated that over two-thirds of the foodservice sector remains in the

unorganised segment. However, we are witnessing a conversion of the foodservice sector into the organised segment predominantly in the urban areas of India. The organised segment of the food service sector alone is still one of the largest employers in India.

Here are some of the key segments within the sector:

Quick Service Restaurants (QSRs): QSRs are known for their fast, convenient and predictable food & service offerings. Led primarily by the International QSR Brands like McDonald’s, KFC, Domino’s, Subway, etc., QSRs have a strong presence in urban India and cater to a wide range of customers. Over the years, they have built a strong back-end supply chain that is enabling them to expand their store presence at a rapid rate.

Casual Dining: This segment includes restaurants where customers can enjoy a more relaxed dining experience. Listed domestic restaurant brands such as Barbeque Nation, Mainland China, etc. have carved out a niche in this segment. The casual dining segment is seeing rapid innovation, introduction of new cuisines and riding the culinary wave. From traditional local and regional fares being offered to multi-cuisinary fusion offerings, we are seeing a rapid scale up of such restaurants

Fine Dining: Fine dining restaurants focus on offering high-quality food and a luxurious dining experience. Indian cuisine, as well as international cuisines, is served at these establishments. Earlier, fine dining was a prerogative of  only 5 star hotels, but today, the Tier 1 cities have a sprinkling of such high end restaurants as standalone establishments addressing the consumer needs with top class food and service.

Cafes and Coffee Shops: Cafes and tea / coffee shops such as Starbucks and Chaayos are popular among the urban youth for their tea, coffee, snacks and cosy ambience, typically with Free WiFi thrown in. Coffee shops have become a meeting point for the young and the old alike, and a number of business meetings are held at such cafes and tea / coffee shops as well. We are also seeing a rapid proliferation of such cafes in Tier 2, 3 and 4 towns, but these are mainly local or regional brands.

Bars & Pubs : Another rapidly growing segment despite it requiring a set of state-specific licenses to operate and has far more governmental control over its operation than the other categories of establishments in this sector. As is often said, a meal without a beverage is incomplete. With a rapidly growing alcoholic and non-alcoholic segment, there is tremendous innovation in flavours, introduction of local ethnic flavours and competition with international bestsellers for the consumers’ thirst.

Ice Cream & Dessert parlours: This is yet another category experiencing fast growth and displays high potential with Indians having a sweet tooth. Product ranges extend from Ice Creams and Sundaes to Cakes and pastries, from traditional Indian Mithai to western desserts such as Waffles and Donuts, a wide range of Milk shakes – the variety is truly astounding

Street Food: Street food vendors offer the local cuisines and snacks of India and are an integral part of the Indian foodservice landscape. They are known for their affordability and flavours but largely remain in the ambit of the unorganised sector. Concerns regarding licensing and hygiene remain largely unaddressed.

One common factor binding the entire foodservice sector are the food delivery platforms such as Zomato and Swiggy, who have revolutionised the food service sector by providing a wide range of food options for delivery at customers’ doorsteps. Though we witnessed heightened activity on the delivery platforms during the COVID-19 pandemic, which has certainly fallen from its peak levels, but nevertheless it constitutes an important revenue stream for the entire foodservice sector. The convenience the delivery aggregators offer the consumers in terms of a Mobile platform to order and pay is unmatched.

Trends Shaping the Sector

The Indian food service sector is constantly evolving, driven by changing consumer preferences and technological advancements. Below are some notable trends shaping the industry

Healthy Eating: What was previously seen as a New Year resolution phenomenon, this is now taking deeper roots especially post COVID. Consumers are becoming more health-conscious, leading to increased demand for healthier menu options. Restaurants are incorporating vegan, low-calorie, organic, lactose free, Sugar free and gluten-free choices into their offerings.

Regional and Fusion Cuisine: There is a growing interest in regional and fusion cuisines. Restaurants are exploring the diverse culinary traditions of India and merging them with international flavours to create unique dishes.

International favourites: This is an evergreen and ongoing trend with international flavours, dishes, cuisines and palate preferences making their way into the Indian foodservice sector and evolve as time passes.

Digital Transformation: The sector has witnessed a digital revolution, with online food delivery platforms, digital menus, and contactless payments, and subscription-based services becoming the norm. This trend has been further accelerated by the pandemic.

Sustainability: Sustainable practices are gaining traction, with restaurants adopting eco-friendly packaging, reducing food wastage, and sourcing ingredients locally. Further, the local Governments in many towns have mandated requirements on use of sustainable packaging which is leading to innovations in this sphere.

Ghost / Cloud Kitchens: Ghost kitchens, which operate solely for food delivery, are on the rise. They save on dine-in infrastructure costs and focus solely on delivery, catering to the ever-growing demand for online food ordering These Ghost kitchens also today serve a wide variety of culinary options.

To navigate the Indian food service sector successfully, it is crucial to understand its competitive landscape and consumer behaviour. It is commonly seen that very few restaurants actually survive past the first year of operations. While it looks very glamorous to the outsider, it is an operationally intensive business where it is critical to account for every penny spent.

With India having a rich and long culinary history, our taste preferences quite literally change every few kilometres. Thus, addressing the constantly changing needs of this fickle customer is extremely challenging. Addressing the unit economics of the restaurant operation, ensuring consistency in the food and the service offerings, providing value for money and above all ensuring a safe & hygienic operations complying with all regulatory compliance is extremely critical. Now, in addition, adapting technology to facilitate ease of operations in all fields from search, to order booking, to customer feedback to maintaining the back end is equally challenging and essential.

The Indian foodservice sector is a dynamic and ever-evolving industry that offers a wide range of opportunities for entrepreneurs and investors. With its diverse culinary heritage, changing consumer preferences, and rapid digital transformation, this sector is poised for continued growth.

Whether you are interested in starting a restaurant, investing in a food delivery platform, or developing innovative tech solutions, the Indian foodservice sector presents a buffet of opportunities waiting to be explored.

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