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research 2014-02-25

Rationalizing the Growth of the Food Services Market

With a prospering economy and a vibrant population of ~1.2 billion people, India is under the global spotlight terms of being a consumption-Oriented economy.

By Deputy Features Editor
Rationalizing the Growth of the Food Services Market

The changing lifestyles of Indian consumers, alongside an increase in nuclear families, have been fuelling the trend of out-of-home consumption of food. This market’s growth is further sustained by the rise in working population and the spurt in disposable incomes which have resulted in higher expenditure on eating out/ordering-In. It is envisioned that that these factors, along with other growth drivers, will continue to propel the market’s growth over the short to long term.

Demand Side Drivers

Changing Indian Demographics – Young Population

At an average of 26 years, India has the lowest median age across the world, with 65% of the population under 35 years of age. This young consumer segment is prone to indulgence, as they have the opportunity to find employment much earlier in life and are thus empowered by their spending capacity. This group, also being well-connected, well-travelled, and brand-aware, has an eagerness to explore and experiment.

The concentration of purchasing power in young hands has a significant impact on the food services market, especially on segments like QSR, cafés, and pubs. It is expected that this population segment will continue to drive the growth of the food services market.

Growing Consumer Base

The Indian consumer base has a diverse profile with varied consumption patterns. Food and other essential goods alone form the common thread between all these diversities. An increase in the number of consumers in the upper segments of society (SEC A and B) is the catalyst for discretionary spending on food and food services. SEC A and B together comprise ~36% of the population in the top 70 cities in 2012 and will continue to widen, creating an opportunity for more brands to cash in on the segment’s potential.

Increasing Share of Consumer’s Wallet

Indian’s burgeoning population has thrown up some very favorable aspects, the key being drastic                changes in lifestyle, which is now more consumption-oriented, this consumerism underpinned by a well-paid salaried class. Again, such consumption is no longer need-based, having evolved to aspirational/lifestyle-based products and services. Consumers are splurging on categories which were absent/insignificant two decades ago. As a result, need-based categories have seen lower levels of consumer involvement, with a greater quantum of time spent on discretionary products and services like accessories, personal grooming, jewelry and watches, eating out, etc.

Eating out and ordering-in as activities have picked up and are an important part of the consumer’s wallet today. The tread is here to stay, thanks to the increasing propensity of consumers to eat out with family and friends on various occasions.

Increasing Experimentation

With seamless interactions being facilitated by the proliferation of communication channels such as the internet, mobile phone, etc. and the partly-necessitated travel to a broader range of destinations, Indian consumers have been more thoroughly exposed to global treads. They are always on the lookout for a new dining option, exploring new cuisines and formats, experiencing different varieties of food and ambience, etc.

In terms of offerings, consumers are virtually demanding the use of varied ingredients and styles in the preparation of possibly unique and exotic dishes, which may correspond to a gamut of cuisines from regional to ”western”. Further, the entire experience surrounding food is becoming paramount, with consumers becoming more nuanced in their choice of experience and indulgence. The experimentalist outlook of the Indian consumer is a further fillip to the fine dining segment, beyond starred hotels, as evidenced by the presence of many outlets across prominent locations.

Increasing Time Poverty

With the spurt in the number of double –income households, consumer lifestyles are shifting in a direction that leaves little time for household activities like buying vegetables, cooking, etc. This “shortage” of time, due to which consumers are looking to eat out or order in more, is also instrumental to the food services market’s growth. In essence, it is the convenience offered that builds the image and business of food services players.

Indulgence in Smaller Cities

The Smaller Indian cities are moving up the social ladder with their relatively large consumer base indulging more in eating out. This is primarily an offshoot of their increasing exposure to the metropolitan lifestyles, and is equally fostered by the consumers’ own evolving aspirations and growing drive to experiment. Aspiring for parity with their big city counterparts these consumers are emerging as a strong segment, which, despite a lower incidence of eating out, presents a big opportunity for brands.

Emergence of New Customer Segments

India is a heterogeneous market representing varying consumer attitudes, preferences and behaviors, across regions. New consumer segment keep evolving as consumer needs and aspirations undergo changes-even a bracket comprising people of similar age may constitute multiple consumer segment. For example, health – conscious consumers have today emerged as a major consumption class. With the increasing incidence of lifestyle diseases, sedentary life style, and the desire to stay healthy and look fit, consumers are on the lookout for meals structured around the ‘health’ platform. They are also willing to pay a premium for ‘healthier’ products, thus presenting a lucrative opportunity for food services players who can cater to different consumer choices such as fresh and nutritious, oil-free, low calorie food, etc.

The other consumer class that has emerged is the over 60years of age generation which is mostly retired or in the final phase of employment. This class is free from responsibilities towards children and has the requisite finances for higher spending on discretionary and leisure activities. This group is well exposed to brands, is willing to travel, and is actively indulging in eating out and exploring newer indulgence avenues.

Supply Side Drivers

Consistent Growth of Indian and International Brand

The existing potential in the Indian food services market has resulted in forays by several    international players, besides promoting enthused domestic players to expand and cater to a larger customer segment.

These Players, and others, with their expansion and investments will continue to drive growth in the food services market.

Growth in Real Estate Space

The boom in the real estate sector has led to the mushrooming of malls across various Indian cities. These in turn act as enablers for the growth of food services players by providing a dedicated space for outlets, and also by acting as preferred locations for consumers to spend time on shopping, consumption of food, and entertainment, while assuring auxiliary facilities like parking, security, etc.

Simultaneously, the development of space in locations such as office complexes, educational institutions, hospitals, highways, etc. is helping players establish a widespread presence across cities and tap into a fairly large consumer base.

Strengthening the Back-End

The fragmented supply chain and disorganized back-end processes present a challenge to food services outlets in ensuring consistency and quality in food preparation. To secure their presence in the market, players have begun investing in commissaries, besides expanding their cold chain and logistics network. Also, new raw material suppliers are being added, enhancing the sector’s growth across segments. Few examples include.

Café Coffee Day (CCD): The brand has invested in technology to regulate most of its supply chain operations. The company has two well-equipped roasting facilities in Karnataka with state-of-art packing machinery installed for increasing shelf life of roasted coffee beans, and to increase packing capabilities. The brand procures from multiple vendors, and technology helps to link its supply chain with vendor’s supply chain.

Brands like Lite Bite Foods, Devyani International, Pan Foods, Azure Hospitality amongst other have made substantial investment in back end by setting up large scale commissaries that not only fulfill internal demand but also cater to external demand resulting in increased revenues.

In the frozen dessert/ice-cream space, Gelato Vinto and Natural have made significant investment in not only the front end but back-end including transport and logistics to strengthen their supply chain.

Overall, the Indian food services market has the potential to expand on the back of various demand and supply side factors. The increasing affluence and exposure of consumers and their drive to experiment, along with the emergence of several domestic and international brands in the space, will ensure sustained growth of the current phenomenon. It is however imperative that players already present in the market continue to innovate and customize their offerings to suit the changing tastes of the Indian consumer. 

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