EATING OUT

A Bite of F&B Food Service in India

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.

Agricultural and horticultural produce: Fruits,

vegetables, herbs, nuts, grains, pulses, seeds, other food
crops, milk, meats, eggs, poultry, fish, seafood

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
Industry

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)
Source: Enterprise Consulting, Athena Infonomics

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
1

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.

F&B Food Service Structure And Size

The F&B foodservice industry provides both direct and indirect employment to
millions of Indians. Latest industry estimates place direct employment at 5
million workers. In addition, there are 10 million street vendors in India. The
industry also makes a significant contribution in terms of tax revenue to the
government. It currently contributes $220 million to government coffers, which
has the potential to reach $770 million, according to industry analysts.
According to the National Restaurant Association of India (NRAI), the F&B
foodservice industry is growing at a rate of 5-6% per annum with revenues
amounting to $8.6 billion.
The F&B foodservice sector in India comprises two distinct market segments:
organised and unorganised. The organised segment accounts for 16% of the
industry and is worth about $2 billion. It is growing at a compound annual rate
of 25%. The organised sector is characterised by an organised supply chain
with quality control and sourcing norms, multiple outlets with standardised
design, and accounting transparency. The unorganised segment accounts for
the bulk of the industry (84%) and lacks technical and accounting
standardisation and a structured supply system or business practices.
The Indian market has been piquing the interest of global players and several
have already entered or are working on entering the fast-growing Indian
foodservice market. Domestic players are also beefing up their position to grab
their bite of the growing market. In the next 3 to 5 years, the organised segment
is projected to grow at 20-25% and reach almost 45% of the Indian F&B
foodservice sector, at the expense of the unorganised sector, which will shrink
to 55%.
A number of factors identified in this report will drive this growth in the
organised sector. The attractive growth potential of the organised segment has
generated a lot of interest among private equity investors who made
investments worth $100 million in the first half of 2011 itself.4

3
4

India Brand Equity Foundation

Associated Chambers of Commerce & Industry of India (ASSOCHAM)

Breakup of F&B Food Service, 2011

Projected breakup of F&B Food Service, 2015

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.

Slices of the Organised F&B Food Service Pie

Source: National Restaurant Association of India

Source: Enterprise Consulting, Athena Infonomics

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.

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.

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.

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.

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.

Unorganised Sector (84%)

Food Courts

Kiosks

Ice Cream and

Frozen Yogurt
Parlors
Juice Bars

Bars and Lounges

Cafes, Coffee/Tea
Bars, Bakery-Cafes

Quick Service
Restaurants

Full Service
Restaurants

Type

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

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

Indian F&B Food Service Formats

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.

NRAI Whitepaper on the Indian Restaurant Industry

Global Brands Biting Big in India

Hardcastle Restaurants, Indian partner of McDonald's,

is planning a massive expansion, doubling its India

stores over the next three years with an investment of
$100 million.
Yum Brands, which owns KFC, Taco Bell, and Pizza
Hut, plans to open 1,000 outletshalf of them KFC
restaurantsand over the next four years is projected to
rake in $1 billion in revenue from India.
Indian fast-food operator Jubilant FoodWorks Ltd. runs
the Dominos Pizza chain in India. Domino's Pizza India
has grown into a countrywide network of more than 300
stores with a team of over 9,000 people.
Dunkin Donuts along with Jubilant FoodWorks setup
its first Indian outlet in New Delhi earlier this May.
Cinnabon, part of Focus Brands, has set up shop in New
Delhi.
Subway Systems India Pvt. Ltd., part of the US
sandwich chain Subway, opened its first restaurant in
India in 2001 and has grown its operations to 183 outlets
in 26 cities. Competitor Quiznos has set up shop in
Hyderabad and Mumbai.
Pizza chain Papa John's International Inc. has 25
outlets in India.
Baskin-Robbins opened its first shop in India in 2010
and expects to open approximately 60 additional
locations over the next year. Baskin-Robbins India
launched a convenient home delivery service in Mumbai
and plans to expand this service to several other key
cities.
Dennys, part of CKE Restaurants, is gearing up to
enter India in summer 2012.
US bakery chain Au Bon Pain and Belgian bakery-caf
Le Pain Quotidien entered India in 2009 and 2011,
respectively.
Starbucks, which set up a 50:50 joint venture with Tata
Global Beverages Ltd., expects to open its first cafe in
2012 and aims to have 50 stores brewing coffee by
year-end.
Frozen yogurt chain Pinkberry announced it is entering
India via a tie up with JSM Corporation.
Others wanting a piece of the action include Burger
King, Churchs Chicken, Pollo Tropical, Wendys, Arbys,
Schlotzsky'sDeli, BannaStrow's Crepes, Raving Brands
(Carvel Ice Cream, Moes Southwest Grill, Aunt Annies
Pretzels), Ritas Italian Ice, and Johnny Rockets.

Dominos India: The Road to Success

With a compound annual growth rate of 40%, Dominos India is one of the biggest success stories of an international
QSR brand in the country. However, the road to becoming a leading player has not been easy and has taken a
decade of toil. Dominos opened its first Indian outlet in January 1996 in New Delhi. With the concept of home
delivery being new to India at that time, it wasnt easy work for Dominos to popularise the concept in the Indian
market. The company, however, was successful in putting in place an integrated home delivery system, which formed
the backbone of its Indian operations.
Dominos also altered its products to suit Indian tastes with the introduction of localised toppings like Peppy Paneer
and Chicken Chettinad, and it was also one of the first fast food chains in India to spread its wings into the
mini-metros and tier II & III locationsa move deemed risky by many at that time. In addition to its localised product
offerings, Dominos has also been supported well by its strong proposition of on-time delivery. What works for the
company is that it has been successful in establishing a strong brand recall with the 30 minutes delivery
proposition. To enhance this delivery proposition, the company started setting up stores on a franchisee model, in
locations that could cater the local demand within 30 minutes.
By 2005, Dominos had 102 outlets across the country. However, it was still behind McDonalds and realised that its
on-time delivery promise was not strong enough to convince many to switch tastes. It is at this point when Dominos
realised that just the promise of on-time delivery is not enough and started working on coming up with a low priced
menu. Lowering costs, however, was not easy and to be a market leader in India, Dominos had to spend
considerable time and effort in fine-tuning its supply chainan effort that took three years. By August 2008, Dominos
came up with one of the lowest priced pizzas in the Indian market, which sold for INR 35 (70). The low cost strategy
was well accepted by Indian consumers who had just become more careful about their expenditures as the financial
crisis hit the Indian economy.
By 2010, when Jubilant FoodWorks (the company managing Dominos India) came out with its IPO, it was
oversubscribed 31.11 times, a sign of investor confidence in the business. The total income in 4Q2010 for Jubilant
increased by 67.2% year over year to INR 1.24 billion (US$24.8 million). Dominos has, since then, ventured into six
new tier II cities and operates over 430 outlets in India and 70% of all home delivered pizzas are those baked by
Dominos.
The rising number of middle-class consumers and the youth segment will only add to its growth. The Indian market
is already amongst the top 10 contributors to Dominos global top line and by 2014, the chain expects it to be
amongst the top five earners globally.

Farm To Fork: The F&B Supply Chain

The food supply chain in India is complex, less developed,
and involves numerous small stakeholders at various stages:
farmers, wholesalers, food manufacturers, retailers, and
multiple intermediaries who add little value to the product.
One notable development since the advent of global brands in
the Indian F&B sector is direct procurement by way of contract
farming by large F&B players to source key products. While
contracting firms benefit from more assured supplies and
reasonable control over quality and other specifications, this
system does have its risks. In India, contracting agreements
are often verbal or informal in nature, and should there be a
breach, neither party will be keen to contest these issues in
court, where litigation can be an extremely slow process.

Source: Enterprise Consulting, Athena Infonomics

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.

The McSupply Chain

McDonalds spent four years developing its supply chain prior to setting up its first store. Today, McDonalds sources
95% of its food ingredients from 40 suppliers in a highly efficient operation that contributes to the companys success
in India. Most of the suppliers are local and a few are international companies that have set up shop in India to supply
McDonalds. The suppliers are two-tiered: Tier 1 suppliers receive fresh produce from Tier 2 suppliers (lettuce, potato,
cheese, and poultry farmers) and convert them into value-added ingredients such as vegetable and chicken
patties,french fries, and potato wedges. Trikaya Agriculture supplies the iceberg lettuce and Dynamix Dairy supplies
the cheese via a dedicated system of quality milk procurement. The Tier 2 suppliers are Vista Processed Foods Pvt.
Ltd. and McCain Foods India Pvt. Ltd. A dedicated fleet of refrigerated trucks then transports the processed products
to McDonalds distribution centers (in Noida, Mumbai, Bengaluru, and Kolkata). The fast food is then transported to
the over 200 McDonalds locations across the country. One aspect of the supply chain that is crucial to McDonalds
supply chain is return logistics. For example, the buns come packed in crates and once the buns are unpacked, the
crates are return shipped to the bakeries for use once again, so the process goes on. McDonalds has a sole distribution partner, RK Foodland Pvt. Ltd., which manages the four distribution centers and handles the refrigerated truck
transportation across the country.

Mahendra Swarup, President, India Venture Capital Association, quoted in the Hindu Business Line

Drivers Of F&B Food Service In India

Demand Side Drivers
Favorable Demographics: India, with its population of 1.2 billion, is
one of the largest consumer markets in the world. It is also
demographically one of the youngest with more than 50% of its
population below the age of 25 and more than 65% below the age of
35.7 The majority of Indian consumption of fast food is driven by people
between the ages of 18 and 40. The appetite of the young Indian
population has been a key driver in QSR industry growth. QSRs are
also increasingly becoming social hangouts, where the young
population gathers to meet friends and spend their leisure time. More
and more young Indians are gainfully employed in sectors such as
information technology and services, which has increased their
standard of living and wallet size. This change in the social landscape
in urban India has also spurred growth in fast food restaurants.
Increase in Income and Consumption Levels: Indias annual
growth of 8% is boosting incomes rapidly. According to the World Bank
and International Monetary Fund, per capita income surged to $1,265 in
2010 from $857 in 2006an almost 50% increase. Growing affluence
and higher spending capacity provides a huge opportunity for the
foodservice sector. With higher disposable incomes, consumers do not hesitate to spend more on eating out. By 2025,
India will have 583 million people living on incomes of above US$4,380 (around US$23,530 after accounting for the
purchasing power parity). With 65% of the population are under the age of 35, an increasing number of Indians are
capable of earning and have rising disposable incomes, which is driving up demand for specialty and value-added food
products.8 Indians spent an estimated $1.3 billion on chain restaurants in 2009. According to Euromonitor, about $400
million of that was at fast food restaurants.
According to a McKinsey Global Institutes (MGI) study titled Bird of Gold: The Rise of India's Consumer Market:

Total annual household consumption in India is likely to triple (from INR 82,000 in 2005 to INR 248,000 in 2025),

7
8

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.

India Census Report 2011

US Food and Agricultural Service

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.

Profile of a Working Woman: Boon to Indian F&B Sector

RasikaVyas, 35, is a mother and full-time financial analyst in Mumbai. Her 9 to 5 job often runs until 6 or 7 and when
she gets home, there is nearly no time to prepare a three course meal as her mother and grandmother did when she
was growing up. She relies heavily on packaged, prepared, and frozen foods to make cooking go fast, and several
times a week she stops by Dominos to pick up a couple of pizzas for dinner. Often, her banker husband, Raj, and
daughter, Riya, meet her after work at one of the many QSRs near her office to grab dinner. I have the money to spend
on eating out but I have no time to cook an elaborate Indian meal, she says. Since, traditionally, women have been
the decision makers on food in Indian households, this trend among working women to opt to eat out and buy prepared
foods to make quick meals at home bodes very well for the Indian F&B industry.

ASSOCHAM, Survey on Ready to Eat Food in Metropolitan Cities

Ibid.
Technopak, 2009

10
11

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.

Supply Side Drivers

Multiple Cuisines: The foray of Indian restaurants into a variety of global cuisines is having a positive impact on the
F&B sector. Indo-Chinese food has risen in popularity to almost become a staple cuisine across the country, and new
favorites such as Mexican, Italian, Thai, and Japanese food are tickling the palates of Indian consumers. They are
more willing to experiment with different cuisines because it is now easily accessible in the cities they live in, and this
trend could also increase Indian consumers frequency of eating out.
Improved Retail Formats: The development of malls and multiplexes has provided the F&B industry with ideal
spaces for operation. Malls have allowed new formats such as food courts to enter the market and offer consumers
access to multiple cuisines. A portion of the malls traffic is also converted into customers for the food courts (the
inverse also being true) and leads to an increase in revenue for both.
Emergence of Logistics Providers and Contract Cultivation: Contract farmingcompanies signing contracts
with farmers to grow a specific crop and guaranteeing to buy the produce at an agreed pricehas emerged as a
preferred way for big global and domestic F&B brands to source agricultural produce. Take the case of potatoes.
McCain Foods, which supplies McDonalds, has 400 farmers cultivating 2,000 acres of potato fields in Gujarat under
contract. Pepsi Foods has over 2,000 farmers on contract, covering 7,000 acres across Haryana, Punjab, and Uttar
Pradesh for crops ranging from potato to chilli and groundnuts. Nestle India, Rallis, and ITC are also contracting
farmers.12 Third party logistics providers, which transport the produce and food products from source to destination,
have also emerged as growth in the F&B sector picks up. As mentioned earlier, Radhakrishna Foodland, a back end
distribution and logistics company, offers its services to McDonalds, Pizza Hut, and Subway.
12

Wall Street Journal India and Times of India

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.

Starbucks Chooses 50:50, Not 100

Starbucks Corporation has inked a 50:50 joint venture with Tata
Global Beverages Limited to enter the Indian market. The new
company, Tata Starbucks Limited, plans to open 50 outlets across
India by end of 2012, with the first one to be opened in later
summer in Mumbai or Delhi.
Starbucks has not taken advantage of the new rule of 100% FDI in
singlebrand retail, which the Indian government now permits, nor
did it want to take 51% that the government previously permitted.
Speaking to the Financial Telegraph, the president of Starbucks
China and Asia Pacific, John Culver, said, We never considered
51percent. When we looked at the opportunity to enter India,
understanding the complexities of the market and the uniqueness
that is India, we wanted to find a local business partner.
The government permitting 100% FDI may not be that major an
incentive for global companies to pump investment into the
country. Given the complex nature of the Indian market, global F&B
companies looking to enter India will continue to not opt for full
ownership of the Indian operations and choose to tie up with a local
partner to gain a foothold. This would be a wise strategy on their
part as India can present significant challenges and to surmount
them, global companies would need the knowledge and expertise
that local partners possess.

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

Source: Athena Infonomics and National Restaurant Association of India

Challenges Facing F&B Food Service

Manpower Issues: The F&B industry requires employees with specific skill sets such as fluency in English and basic
knowledge of the workings of the sector. The current system of training in hotel management is not producing enough
graduates and getting English speaking staff with basic service skills is proving to be a challenge. The industry also
faces high levels of attrition of 40-50%.

A Wise Move: Investing in Human Capital

To address high attrition rates among employees, big QSR brands are investing in the development and growth of
their employees, especially at the entry level. For example, when a new employee joins McDonalds, he or she is
taken through a systematic induction programme. This is done through one-on-one interactions as well as exposure
to the customer through operations training in the restaurants for a specified period of time. Crewmembers are
trained extensively on all food safety and food handling processes. The crew trainees work shoulder-to-shoulder
with their trainers while they learn the operational skills necessary for running the restaurant from the front
counter to the kitchen areas. McDonalds also offers the Graduate Career Advancement Programme, which helps a
crewmember transition to the level of assistant manager. Several McDonald's managers had started as
crewmembers and have developed valuable career skills along the way. Nirulas also uses training of its employees
as a tool for their career development and to reduce attrition. Apart from companies conducting their own specific
training programs, the National Skill Development Corporation, an Indian Ministry of Finance initiative, has tied up
vocational staffing group Empower Pragati Vocational and Staffing to train over 20 lakh youngsters in the country
over the next 10 years. The project focuses on training for tourism, hospitality and travel, organised retail segments,
and information technology/BPO services.
High Real Estate Prices: There is a shortage of quality real estate in India and due to the high demand outlets often
find themselves paying global rentals at Indian prices. Real estate rentals have increased 3 to 4 times in the past 4
years, contributing a significant percentage to the total costs incurred during operations.
Poor Infrastructure: Irregular supply of electricity is a major challenge faced by the F&B sector in India. As a result
outlets have to contend with high costs of backup power, primarily through diesel-based generators. Access to purified
water is also an issue and significant costs need to be incurred for securing the same. In terms of transportation logistics,
India lags significantly behind other global markets: It takes three times as long to transport goods in India as it does in
the USA. Cold storage facilities are also less developed, as are refrigerated transportation services.
Over Licensing: The number of licenses required to set up shop in India is a big challenge faced by many firms that
are looking to set up operations in the country. There are, at the very least, 10 to 12 different basic licenses required; the
number can go up to 50 depending on the state one is dealing with. As noted earlier, typically, a restaurant is required
to obtain a health/trade license, eating house license, liquor license, environmental clearance, clearance from fire
department, lift license, playing of music in restaurants license, signage license and nomination under the Prevention of
Food Adulteration Act, to name a few. In addition, license fees are variable and are a significant burden on any
new establishment.

F&B Food Service Trends

More International Players Entering Indian market: Given its large and untapped potential, and despite the
challenges, a large number of international players are keen to enter the Indian F&B foodservice market. Many of them
are in talks with local partners. Most large players plan to first foray into the Indian metros and then expand to tier II and
III cities. Some multinationals are also expanding into India via the inorganic route by acquiring local brands.
Franchising: Food and beverage franchising is a very appealing business concept for an aspiring entrepreneur in India.
The franchising sector in general is growing at a swift pace of 35-38% per annum and the market size is expected to
reach $ 20 billion by 2013.13
Kiosks and Food Courts Are Increasing in Popularity: Given high property prices, rentals, and shortage of space,
there exists a large opportunity in setting up shop in kiosks and food courts. The proliferation of malls and better retail
infrastructure has presented an opportunity for players to share costs associated with operations. The number of food
courts has increased from 39 in 2007 to 270 in 2010, representing a compound annual growth rate of 27.36%. This
number is expected to go up to 1,200 in 2015, showing a compound annual growth rate of 34.76%.
Expansion into Smaller Cities and Towns: While new entrants tend to start their operations in metropolitan cities,
the existing players in the market are looking at smaller tier II cities such as Kanpur, Vadodara, Cochin, Lucknow, and
Pune as drivers of growth. Chains such as Nirulas have gone one step further and expanded into tier III cities such as
Meerut and Pathankot and plan to open more across the country.
Localisation of cuisine: When in India, do as Indians do. The Indian
market is typically split into vegetarian (31%) and non-vegetarian
(69%) restaurants. An important trend, especially amongst the
international players, is the Indianisation of cuisine. Over
the last decade, though, many of these players have
improved their performance through a better
understanding of the Indian market: Indianising
menus, introducing breakfast menus, sit-down
formats, and positioning outlets as destinations for
family outings. A prime example is McDonalds.
The brand has reaped rewards due to its
customer-friendly pricing (the INR 30 Chicken
McGrill burger, which is less than 60 US cents)
and an Indianised menu that includes the
McAlooTikki Burger. McDonalds today operates
across 30 Indian cities and more than 70% of the
items served in India are not available in other
stores worldwide.14 This strategy is especially
relevant in tier II and III cities, where the taste
preference is still highly local andchains that have
adapted their cuisineshave done well in
these markets.

Different Strokes for Different Folks

The signature Big Mac is not offered in India by McDonald's; neither is any other beef or pork product. Instead, on
the McMenu are Chicken Maharaja Mac,Chicken McGrill, McAlooTikki burger, the McVeggie, Paneer Salsa Wrap,
Filet-O-Fish, McChicken sandwich, and ChickenMcNuggets.Pizza toppings from Domino's and Pizza Hut do not
contain beef; instead a variety of traditional Indian ingredients are offered, such as the Domino's Keema Do Pyazza
pizza or Pizza Hut's Kadai Paneer pizza. The Indian Subway menu has chicken tikka sub or roast lamb sub. KFC
offers chickpea burger with Thousand Island dressing, slaw made with mixed vegetables, and mixed veggie fingers
with salsa. Taco Bells Indian menu features burritos stuffed with paneer and vegetables, Crunch wraps with
potatoes or chicken, and tacos with potatoes or chicken.

13
14

FICCI-CIFTI estimates
India Brand Equity Foundation

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.

Threat of New
Entrants

India has opened the

door to foreign fast
food players

MEDIUM

Bargaining Power
of Suppliers

Industry Rivalry

There are a numerous

suppliers available
in the market

Numerous companies are

vying for their share of the
pie; new retail formats are
heating the competition

LOW

HIGH

Bargaining Power
of Customers

Consumers in India have

numerous options and are
highly price sensitive

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.

About Athena Infonomics

Athena Infonomics is a boutique research and consultancy firm that applies an analytical approach to solving
development and growth issues. We are supported by an active network of distinguished industry leaders, policymakers,
academics, and intellectuals. Our team is a diverse mix of highly motivated individuals with backgrounds in engineering,
management, economics, statistics, and development. We distinguish ourselves through cutting-edge research methods
and tools, conceptual depth, analytical rigor, and holistic multi-disciplinary approaches to problem solving. Our research,
analytics, and consulting services are geared toward domestic and international industry associations, state
governments, multilaterals, and private companies. The sectors we focus on include Skill Development, Power,
Infrastructure, and Retail.
This report was prepared by Enterprise Consulting, Athena's full-service division providing the entire range of services
for companies and entrepreneurs looking to start or grow their business: from Micro Market Entry Strategies (market
research, feasibility studies, and business plan creation) to designing a roadmap and implementation.
Don Devprakash, Lead Consultant at Enterprise Consulting, has more than 10 years of experience in the USA and India
in Developing, Starting and Managing New Businesses; Franchise Ownership and Operation (both as a franchisee and
franchisor); and Brand and Vendor Development and Management. Don ran a group of franchise businesses and also
developed a micro credit company in the USA. Reach him at dd@athenainfonomics.in.

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