India’s economy is firmly set on a growth path, with its GDP rising to 7.1 per cent in 2018 and expected to reach growth of 7.7 per cent by 2023. Currently, the seventh largest economy in the world, India is expected to surpass United Kingdom and France to become the fifth largest 2023. In fact, as 2020 approaches, India is expected to become world’s youngest country with a median age of 29. As the youth of India emerge to shoulder the swelling numbers, this working population also exhibits the potential of causing an additional two per cent GDP growth rate with high consumption expenditure.
Market outlook
With factors such as urbanisation, rising income levels and improved investment climate, the food service sector holds a huge opportunity. The sector has observed tremendous development in the past three years, which grew at 11 per cent CAGR during 2015-16 to 2018-19. The sector is estimated at Rs 4,23,865 cr in 2018-19 and is projected to reach Rs 5,99,784 at a CAGR of 9 per cent by 2022-23.
The growth is noticeable at segment and format levels as well of the food service sector in India. The organised segment, which holds a share of 35 per cent, witnessed a CAGR of 13 per cent during 2015-16 to 2018-19. The sector is estimated to have a market size of Rs 1,48,353 cr in 2018-19. The segment is further estimated to grow at a CAGR of 15 per cent to reach Rs 2,57,907 in 2022-2023.
The unorganised sector’s size is estimated to reach Rs. 2,75,512 crore in 2018-19, with a 65 per cent share of the overall food service market. The segment witnessed a CAGR of 10 per cent during 2015-16 to 2018-19. The segment is further estimated to grow at a CAGR of six per cent from 2018-19 to 2022-2023 to reach a value of Rs 3,41,877 cr. However, the share of the unorganised sector is forecast to drop to 57 per cent by 2022-23.
The organised segment comprises standalone and chain restaurants. The organised standalone market has a share of 75 per cent with an estimated size of Rs 1,10,534 cr in 2018-2019. The standalone market has grown at a CAGR of 11 per cent between 2015-16 and 2018-19. The chain format within the organised segment has a 25 per cent market share, with an estimated size of Rs 37,819 cr in 2018-19, which has grown at a CAGR of 23 per cent from 2015-16 to 2018-19.
Consumer outlook
The Indian market for non-home cooked food has grown rapidly during the last several years. India has one of the highest millennial population (People aged 18 to 35), whose food habits and tastes are very different from those of previous generations.
Many of the millennials happen to be tech-savvy, independent, career-driven individuals with global exposure possessing a higher spending capacity. It is this segment of the Indian population which is responsible for the burgeoning market of non-home cooked food, with increased frequency (6.6 times a month) and more spends on a monthly basis (Rs 2500 a month). Eating non-home cooked food on weekdays has become a common phenomenon, as opposed to only it being a weekend activity. Popularly of north Indian cuisines has also increased over a period of time. Chinese and south Indian cuisines stand second and third respectively, in popularity.
Employment
The food service industry has a direct impact on the employment, which currently stands at 7.3 mn in 2018-19. The organised sector is estimated to employ 3.7 mn people in 2018-19, contributing 51 per cent to the total food service industry workforce. The unorganised sector employs an estimated 3.6 mn people in 2018-19, contributing to 49 per cent of the total workforce in the sector. Overall, employment in the food service industry is forecast to grow at six per cent CAGR to hit 9.2 mn in 2022-23.
Fiscal contribution
The organised food service market is estimated to be at Rs 18,000 cr for 2018-19, which is about 12 per cent of total organised market. Tax contribution by F&B (non-liquor) is 38 per cent input tax credit contributes 33 per cent followed by liquor with 23 per cent.
Impact on allied industry
It may not be an overstatement that food service industry is intertwined in the social, economic and cultural fabric of India. With its rapid growth over last few years and a promising future, it supports not only millions of households but multiple allied industries such as real estate, food processing, consulting, etc.
- Demand for retail spaces has climbed steadily due to the rapid growth of food-service sector.
- Intense competition between domestic and international players entering the F&B segment has resulted in super-specialisation of food menus requiring specialised commercial kitchen equipment.
- Demand for fresh, organically grown and high-value ingredients is on the rise giving boost to the agriculture sector.
- Accelerating internet and smartphone penetration has led to the growth of the food tech industry, estimated at over 12 per cent CAGR between 2016 and 2021.
- Increased demand for food service consulting has been observed from tier I and II cities as well.
- Propelled by growing use of digital technology in loan processing and disbursal and new initiatives to extend financing facilities to smaller players, financial service sector is witnessing a resolution.
- Demand for alcoholic beverages is being driven by high disposable income, a young population base and increasing consumption by a new generation of Indians.
Investment
The restaurant space has witnessed a gradual rise in capital invested across all time periods. Within a short span of six years, the sector has witnessed investment of – US$ 2.4 bn, more than double the amount received by the restaurant segment over the last 12 years.
Global scenario
As consumption burgeons, the need for variety in food service is greater than ever. Future for the industry globally looks bright with growth at a CAGR of 4.98 per cent during the period 2017-2021.
Countries are focusing efforts to establish themselves as gastronomical hubs. Globally, food businesses are being promoted to boost tourism.
Trends
- Indian consumers are becoming increasingly willing to experiment giving restaurants serving authentic regional cuisines a boost.
- From introducing digital menus, interactive smart tables and virtual bars to replacing servers with robots, restaurateurs are revolutionising the food service industry using technology.
- Restaurants are focussing on creating health menus and revising their offerings regularly based on consumer preferences.
- The advent of social media has given rise to home chefs and bakers, making them a range.
- Digitalisation has changed the entire marketing universe replacing traditional methods.
- Third-party delivery services are making home delivery a lucrative option for standalone restaurants.
Challenges
Dearth of skilled workforce and high attrition, high real estate cost and removal of ITC has impacted the restaurant industry leading to an increase in operational costs.
Conclusion
The Indian food service industry is rife with opportunities. The combination of rising incomes, urbanisation, internet penetration, and changing consumer preferences towards eating non-home cooked food among others are reshaping the industry. Efforts are required to iron out challenges and ensure smooth functioning of the food service industry. In terms of policy formulation, a joint discussion between the industry players and government will help facilities a constructive way forward. Similarly, identifying means and ways to facilitate ease of doing business in the food services industry will further fuel its growth.
(Courtesy: NRAI)
