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operations 2013-12-17

QSR to grow fast in India: Report

Changes in food consumption habit in India has spurred domestic and foreign quick service restaurant (QSR) chains to implement aggressive expansion plans in the country, says a recent study by Rabobank.

By Deputy Features Editor
QSR to grow fast in India: Report

"QSRs will be a double-digit growth story in India in the medium to long term, as food consumption habits in India are changing fast," says Rabobank India Head F&A research & advisory Asitava Sen.

Market Overview

Quick services Restaurants (QSR) have remained a key segment of the Indian Food Services market and have grown over the years with their focus on affordable and competitive pricing clubbed with the growing need of the consumer for convenience, increased appetite and craving for international food. A number of international QSR chains have flocked into India over the past few years with specific cuisines and products offering fuelling the market’s growth.

The entry of a number of players in the QSR space has pushed the chain market and the size is estimated at INR 5500 crore (USD 1,060 million) by 2013. It is projected to grow at a CAGR of 25% to reach INR 16,785 crore (USD 3,230 million) by 2018. This segment is expected to witness increased activity via market expansion and entry by various players.

At the city level, a large share of the QSR market rests in metros and mini metros due to high consumption, heightened consumer awareness and exposure in key cities such as Delhi, Mumbai, and Bangalore. Slowly, QSR have established their foothold in the major cities and are now expanding into smaller cities with smaller formats.

Market Players

The concept of QSR has gained increased prominence in India, with the entry of Indian and international brands into the space encouraging affordable eating and enabling customers even within smaller pockets to indulge. The market is quite competitive in nature where players operate via core menu offerings and keep introducing variations in Indian and international foods.

Established international brands offer various specialties like burgers, pizzas, sandwiches, etc. The likes of Taco Bell have introduced cuisine option like nachos and falafel to the Indian platter. Interestingly, another cluster consists of several entrants who are mostly confined to specific regions (e.g, Jumbo King, Fast Trax, etc) and ley focus on providing customized Indian or international cuisines to suit the Indian consumer.

A noteworthy aspect is the focus of Indian players on multiple cuisines, which contrasts the international players focusing on a single cuisine or product category. In terms of menu, Indian QSR like Haldiram’s, Bikanervala, etc. have a skew towards vegetarian food in contrast to which international players like McDonals, Domino’s Pizza, KFC, Subway, etc. Offer a mix of both vegetarian and non-vegetarian offerings.

The chain space is marked by the presence of 90-100 brands with ~2900-3000 outlets spread across various cities in India. To withstand competition, most of the players are tailoring their offerings in terms of flavors, pricing, services, etc. to meet the Indian consumers’ inclinations. Some efforts reflecting this include the opening of pure vegetarian restaurants in certain parts of the country, offering no beef-based products, establishing separate cooking areas for vegetarian and non-vegetarian food, introducing local flavors in the menu, offering home delivery services, opening smaller sized formats in high density areas with higher rentals (like malls, office complexes), etc. Additionally, players are also expanding their presence at various destinations, viz. malls, high streets, office complexes, airports, hospitals, highways, through different formats like in-line/ mall, drive-through and express formats.

Brand Outlets Presence – City Type

The QSR segment has a concentrated presence across metros and mini metros with ~72% of outlets located there. Players like Domino’s Pizza and Subway have an even presence across various city types. Regional chains like Jumbo King, Burger man, Goli Vada Pav, Kaati Zone, Mast Kalandat etc. stand in close competition to national chains in terms of the number of outlets in their respective regions. These regional chains have shown a tendency to expand and are striving to gain a national presence.

Trade Dynamics

a. Products Sales and SKU Mix

Food is the prime focus of QSR that is visible from its dominance of sales and USK mix – 77% and 80% respectively, followed by beverage which constitute 18% and 13% respectively. The contribution of vegetarian food to total QSR sales mix is marginally higher, at an estimated 45% in comparison to 40% for non-vegetarian foods. Beverages and Dessert are add-ons/side dishes with a smaller share of the pie.

This segment attracts customers in huge numbers as consumers enjoy small bites, combo offers, and group meals in keeping with a low APC.

b. Sales Mix – Dine-in & Non-Dine-in

Dine-in contributes the highest (~67%) to total QSR sales (Exhibit 26) and is followed by take-away orders which account for ~19% of sales. Home delivery is also picking up with most chains offering this service to consumers, within a defined catchment. This skew towards dine-in finds an exception in brands like Domino’s Pizza and Pizza Hut Express by virtue of their business model.

c. Sales Mix- Peak Business Hours

The peak business hours for QSR are skewed towards dining i.e. 1900 to 2200 hours, with ~36% customers visiting these outlets in this duration (Exhibit 27). However, international QSR have also gained prominence for on-the-go meals during lunch hours (1300-1600) with 34% consumers flocking to them during office hours.

Others parts of the day register low business comparatively. An interesting observation is the highest contribution of breakfast hours (0700-1100) to the revenues at outlets in travel locations and office complexes. In order to this market many brands have introduced breakfast menus available at specific outlets.

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