Eating-out market bloats @10%
Oct 27 2013
Industry set to double by 2020; exposure to global cuisines raises Indians’ appetite
Of the food service market, valued at present at $48 billion, the unorganised segment takes home $34 billion. The organised market represented by the restaurant chains and licensed standalone restaurants account for only $14 billion. Of this, chains make for a miniscule revenue contribution of $2.5 billion. The restaurant chains include, QSR, cafes, frozen dessert, casual dining and fine dining brands, which have more than three outlets.
“The organised sector is currently relevant to maybe 100 million people in the top cities. Expanding our customer base to 200 or 300 million in the tier-II and III cities will help us grow along with the market as well as grab a portion of the unorganised market,” said Devashish Dasgupta, director, corporate affairs, Yum Restaurants India.
The organised chains are expected to grow by a CAGR of 18 per cent to $8 billion by 2020. Nevertheless, there are a few challenges in terms of supply chain, real estate, human resource and basic infrastructure.
Finding right locations at right rentals is a challenge in bigger cities as the competition between brands leads to higher rentals. Irregular supply of electricity, under optimised transportation and insufficient development of market place make functioning of restaurants difficult. “Small formats in the neighbourhood will work for the unorganised sector, but not all the organised players can get into smaller formats to beat the high rentals,” said Nanette D’sa, CEO of Indian Cookery.
According to Dasgupta, more than the inadequacies in the basic infrastructure, the long list of licences required to open restaurants and the restrictions with regard to parking in high streets hinder the growth of the organised sector.
Supply chain would remain a challenge for new brands due to their smaller scale. Apart from a few top brands, most of the chains do not have full control over their supply chain. Having multiple intermediaries in the supply chain would make it difficult to streamline operations to increase profitability. “We have a common team that synchronises the back-end operations and this adds to the value, which is passed on to the customers,” said Dasgupta.
According to D’sa, streamlining local procurement and helping partners to access best produce would work well for the chain more than a centralised supply chain.
Restaurant chains would continue to face the problem of supply of trained manpower as per the growth requirements. The cost of training would be high, while attrition too would remain higher, says the study.
However, the demand for eating out services would grow as the country gets younger. Almost 65 per cent of the population is below 35 years of age. Increasing income levels and growing number of working women would drive the business of restaurants.
Moreover, the Indian palate is evolving with aspirations for diverse culinary experiences and exposure to global cuisines is also growing with international travel, says the study. “Eating out on a regular basis and celebrating special occasions outside has been on the rise Despite all the challenges, this demand from the consumers will keep the industry growing,” said D’sa.