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growth 2015-05-27

Why restaurant industry is less visible despite its tremendous growth?

Restaurant industry is much larger than the film industry but is less visible due to lack of quality infrastructure, shortage of adequate skilled manpower and proper license and government body has been hampering the growth of the industry for years now.

By Deputy Features Editor
Why restaurant industry is less visible despite its tremendous growth?

Restaurant industry is much larger than the film industry but is less visible due to lack of quality infrastructure, shortage of adequate skilled manpower and proper license and government body which has been hampering the growth of the industry for years now.

To discuss and find a solution to overcome the prevailing key issues in the development of Restaurant industry, Ritu Marya, Editor-in-Chief, Restaurant India, a part of Franchise India Media together with industry panellists including Zorawar Kalra, MD, Massive Restaurants; Rahul Kumar, CEO, Red Mango India; Rahul Singh, Founder & CEO, The Beer Cafe; Chetan Arora, DA, North and West, Subway India and Devendra Chawla, Ceo, Food Bazaar, Future Group joined hands at the conference held at FICCI to bring the best in the food industry partnering with government bodies to unlock the growth potential in this business. 

Industry Overview Food and Beverages industry which is growing phenomenally at a CAGR of 23-24 per cent is one of the fastest growing sectors in India. Highly dominated by the unorganised segment which constitutes over 60 per cent of the total industry, the organised, mainly the standalone players have lots of opportunities to expand their businesses in the country.

Food and beverages sector is one of the vibrant sectors which has seen unprecedented growth in the last five years. Presently, the market has a size of Rs 2, 04,438 crore which is expected to reach Rs 3,80,000 by 2017. However, despite tremendous growth in the sector, both national and global restaurants and food brands have not optimally penetrated the Indian market so far.

Dominated by the QSR and casual dining chains, segments like fine dining, cafes, bars and beverages chain have found favour with the consumer who now prefers to eat 5-6 times a week which was earlier 2-3 times a week. Not only this, during the last one year, the industry has seen many innovations and investments happening in the industry with the emergence of tech-food players in the country and with this, today the industry is at the forefront of attracting the investors.

Commenting on the same, Devendra Chawla said, “India is a very large market and we find that there is a very large untapped opportunity in the Tier II and III towns for quality eating out chains.”

Meanwhile, food expenditure today has larger portion of the consumers’ total consumption basket and with a population of more young generations, eating out is believed to grow as it has become an occasion in itself which was earlier restricted to an occasion-driven activity. And with global and youth centric chains like Starbucks, CCD, Social, Domino’s, Pizza Hut, Farzi Cafe, Out Of the Box opening at cool locations like Hauz Khas Village, Cyber Hub, Connaught Place and Epicuria Mall amongst others,  food industry is surely going to rule the Indian industry leaving behind most celebrated industries like Film and Cinema.

“We are the fastest growing industry in India where more than 50 per cent of population is less than the age of 25 years with high spending power and where 50 per cent of the spend on total expenditure goes on food as compared to developed countries where people only spend 30 per cent on food,” shared Zorawar Kalra. 

Major Challenges

Despite all these growth in the last few years, food industry is lagging behind due to some of the major issues like high real estate costs, the large number of licenses required to operate in the sector and a plethora of taxes, which is still a roadblock in the growth of the industry.

And to lead the foundation of growth within the industry, the new government is bringing new laws and policies; the report by FICCI- Grant Thornton also states that the government’s intervention in creating good infrastructure and developing skilled manpower would help boost the growth of the sector. It furthermore proposes that real estate costs can be reduced by lobbying with real estate developers to develop a better formula of rent sharing and developing innovative models for rent.

“The government recognises the F&B sector’s great potential for growth and job creation. Hence, it has been identified as a priority sector in the National Manufacturing Policy and is also amongst the top 25 priority sectors, which are being promoted across the globe to attract investments and as ‘Make in India’ initiative, we are looking at growth in this sector and the growth can happen only if we can get more and more investments coming from local as well as global markets,” said Atul Chaturvedi, Joint Secretary, DIPP.

Meanwhile, according to the industry people simplified licensing requirements with a single-window clearance approach and rationalisation of taxes levied on the restaurant industry are a few solutions proposed in the report to effectively tackle licensing and taxation issues, faced by the industry.

“Despite the fact that we are India’s one of the largest alco-beverage chain, we have only 11 per cent sale of beer in India which is approximately 70 per cent globally and this is due to the law of this country as every state for us is a different country,” pointed Rahul Singh of the Beer Cafe.

Adding on the same line, Rahul Kumar shared, “We are a global yogurt brand and we import most of the raw materials from the US market, the export law is too stringent for us that sometimes the delivery of the end product is delayed by the same.”

Unlocking the growth potential

Despite all these challenges, today the maximum growth being witnessed is still in the standalone restaurant space where local taste along with uniqueness of concept is the key deciding factor.

Also, amongst the various segments within the restaurant sector, Quick Service Restaurants and Casual Dining Restaurants constitute the largest categories – combined they constitute more than 77 per cent of the overall market. Café segment emerges as the third category with the market size around INR 25,000 crore and is growing at 10 per cent year on year. Though the Fine Dine market constitutes only 3 per cent of the market, the segment is witnessing a renewed interest and a large number of multinational chains are entering the market.

“The food industry has evolved over the years and India needs to be prepared for the new importance that would be given to the sector. He added that like the developed economies, India too had begun indulging in lavish food and experimenting with new cuisines and it’s a new beginning for the sector,” added Chawla.

Meanwhile, India has a greater potential of global food brands who are one of the major contributors driving the growth of eating-out trend in the country.

Commenting on the same, Piyush Patodia, Executive Director, Grant Thornton India LLP, pointed, “Foreign brands need to ensure that although they see India as a large opportunity, there needs to be an appetite for risk taking. India is a difficult terrain to operate, with multiple taxes, complex licensing and high operating costs. In addition, tastes and preferences vary significantly based on the location within India. With correct planning and customisations, companies can see explosive growth of their concept in India.”

And bridging the gap between the industry and the government, Shilpa Gupta of FICCI asked the industry panellists to come together and participate in the government’s initiative to create more skilled labours and job opportunity, and inviting them to set a separate body for restaurant growth in the country.

However, with lots of developments taking place in the sector, where industry and the government have come together, food industry as a whole is looking at a larger share of its pie in the Indian economy.

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