The $ 40 billion (nearly Rs 2.4 lakh crore) domestic food services market is attracting increased attention from leading players in India Inc and global chains, given rapid urbanisation and changing food habits.
And, recognising the long-term opportunities in this sector, the Mukesh Ambani-led Reliance Retail recently took a 45 per cent stake in UK headquartered Two Sisters Foods India (TSFI), and plans to run a chain of restaurants in direct competition with global QSR giant - KFC.
A recent report by CRISIL also highlighted that annual spends at QSRs in non-metros are forecast to surge 150 per cent to Rs 3,750 per household over three years.
The food service industry has also recognised the growth ‘story’ in these smaller towns and are relying on a combination of franchisee-and company-owned outlets, in a bid to quickly expand their network. Dheeraj Gupta, Founder and MD, Jumboking, said, “We are aiming to expand our presence to the top 50 cities across the country over the next few years via franchising.”
Striking a similar view, Smita Jatia, Managing Director, McDonald’s India (West & South), said, “We have a capital expenditure of Rs 500 crore over the next three years and plan to expand our presence to several fast growing cities in the south.”
However, several ‘roadblocks’ in the short-term have made it difficult for both small and large players to realise their growth objectives.
Weak consumer sentiment
The restaurant industry is currently grappling with inflation in food ingredients running close to double digits as well as consumers keeping a tight check on discretionary expenditure. Apart from that, with the government imposing a service tax of 12.36 per cent on all air-conditioned restaurants, it has put further pressure on footfalls at food service outlets.
For instance, in a recent report by NPD Group, which provides market information and advisory services, pointed out that restaurant visits by those less than 26 years, a key consumer segment, has fallen by nearly 16 per cent vis-a-vis earlier years.
This in turn has forced the food service outlets to respond “appropriately”, in terms of pricing and allied consumer-related activities. For instance, McDonald’s has the ‘Happy Price Menu’ and offers products from Rs 25, while Jumboking has ensured its relevance by ensuring its vada pavs and allied products are “correctly” priced.
Jatia of McDonald’s India, said, “We offer value and convenience to consumers, and it has helped us to deal with a rather challenging environment.”
Similarly, Gupta of Jumboking, said, “We offer products for consumers ‘on the go’ and it has helped to ensure stability in our operations even during the current downturn.”
Infrastructure constraints
The operating cost for food service outlets has shown an upward trend despite sluggish growth in footfalls over the past several quarters. Industry experts highlight that outlet rentals, as well as staff and allied costs typically account for 10-12 per cent of sales, and have grown substantially vis-a-vis earlier years.
As a result, restaurants and allied chains are facing increasing pressure on margins, and are evaluating their supply chain costs as well as employee costs.
Ajay Bhati, Vice President – ROC Retail, Alchemist Foods & Hospitality, which manages the restaurant chain - Republic of Chicken, said,“In the depressed market, too, there are suitable avenues for growth, and senior managers also need to focus on improving overall efficiency in their operations.”
Clearly, senior managers
in the restaurant industry would need to find a right balance between matching customer expectations and profitability.
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