What's Cooking In India's Food & Beverage Industry? Here's Why The Sector Is Poised To See Rapid Post-Pandemic Growth

It has been expected that India’s food services market is likely to project robust growth with an impressive CAGR of 11.19 per cent and reach $79.65 billion by 2028

QSR companies bounced back sharply during Q2FY22 owing to higher footfalls as the unlocking of lockdown restrictions and the pace of the vaccination drive picked up in the country.

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The Indian food and beverage (F&B) industry, which reopened after the pandemic shocks, is gearing up for some good business. After two consecutive washout years in the aftermath of the Covid-19 pandemic, the industry is poised for rapid growth. Currently, the market size of the industry is Rs 4.5 lakh crore, of which almost 65 per cent comes from the unorganised sector.

Sector experts said the Indian F&B industry is growing at a double-digit compound annual growth rate (CAGR) which is a healthy sign for the industry. It is targeted to be at Rs 6 lakh crore over the next two years. 

According to the ‘Food, Service and Restaurant Business Report 22-23’, the restaurant sector is showing new trends which are critical to the industry’s success in the coming years. Overall, the industry is in a highly disruptive state of affairs and inflation is one of the major operational challenges.

The market value of the restaurants and food services industry, which was over Rs 4 lakh crore, is primarily divided into two segments – the unorganised segment that accounts for the major share of the market size and the organised sector that grew at a strong rate between 2014 and 2020.

It has been expected that India’s food services market is likely to project robust growth with an impressive CAGR of 11.19 per cent and reach $79.65 billion by 2028. The report has pointed out that the value of the chain segment, including quick service restaurants (QSR) which doubled and saw a 9.3 per cent rise in the value of the global food services industry after subtracting the inflation rate at 4 per cent.

The unorganised segment comprises individuals or families selling ready-to-eat food through vendors, dhabas, food carts, street stalls, and more. Based on the survey, the take-away and home delivery segments are seeing moderate growth after a higher growth rate between the FY20 and FY21 period, as compared to the dine-in segment which is now growing steadily from FY21.

FOOD CHAIN STORES SAW BIG GROWTH IN 2021-2022

QSR companies bounced back sharply during Q2FY22 owing to higher footfalls as the unlocking of lockdown restrictions and the pace of the vaccination drive picked up in the country. The QSR sector grew 67 per cent YoY with a 383bps improvement in margins during Q2FY22. It pegged the QSR chain market to be the highest-growing sub-segment in the food services market over the next five years.

“Over FY20-25, the QSR chain market is estimated to be the highest growing sub-segment, 23 per cent CAGR, of not just the chain market, but also the entire foodservice market,” the Edelweiss report said. The increasing trend of eating out in urban cities in India, across all economic classes, without the need for any special occasion, has boosted the demand for QSRs. People increasingly prefer eating outside as a part of their leisure outings or shopping experience. This trend is mainly visible among the millennial age group of 25 to 40 years.

Moreover, with the growing exposure to international lifestyles and culture, people have started developing their tastes and are eating out at restaurants more often to have different cuisines. In India, food services companies are likely to invest 4-6 per cent of their net revenue in marketing, of which 45 per cent is on online and digital media marketing.

INDIAN QSR SECTOR

India’s quick-service restaurant (QSR) market is expected to clock a CAGR of 23 per cent between now to the fiscal year 2025 as large food services chains such as McDonald’s, Burger King, and Domino’s, among others, deepen their reach in India’s smaller cities and benefit from a younger demographic. The QSR industry is growing at a rapid pace leading to a $134.3 million industry in tier-II and tier-III towns alone.

BIG GROWTH IN 2021-2022

Owing to higher footfalls after unlocking of lockdown curbs, QSR companies bounced back sharply during Q2FY22. The sector grew 67 per cent year-on-year (YoY) with a 383bps improvement in margins during Q2FY22. It pegged the QSR chain market to be the highest-growing sub-segment in the food services market over the next five years. “Over FY20-25, the QSR chain market is estimated to be the highest growing sub-segment--23% CAGR—of not just the chain market, but also the entire foodservice market,” Edelweiss said in its report. The increasing trend of eating out in urban cities in India, across all economic classes, without the need for any special occasion, has boosted the demand for QSRs. People increasingly prefer eating outside as a part of their leisure outings or shopping experience. This trend is mainly visible among the millennial age group of 25 to 40 years.

INNOVATIVE PRODUCTS & MENU REJIG

New product development strategies and menu themes are now being seen in the restaurants. New product development to remain a key traffic driver despite headwinds.

Exploring Collaborations: This is on the back of collaborations between two groups that have synergies and are consumer favourites. Restaurants are pushing the boundaries of brand collaborations to interesting and unexpected places to stand out. For example: For the first time in what undoubtedly is the most epic collaboration of 2022, KFC India partners with Nestle to delight fans with the KFC Popcorn Bowl Made with Maggi.

Products Positioning: Products positioning around health, nutrition, wellness, convenience, local sourcing, and sustainability will remain favourable to consumers amid current conditions. Like the Subway has been our go-to restaurant when it comes to a healthy diet. Keeping in mind the customer taste, in 2021, Subway India has enhanced the quality of its protein flavours and revitalised its menu across its 660-plus restaurants in the country. With this, Subway aims to bring in more wholesome and a flavourful meal experience for its customers.

HEALTHY FOOD

The focus on protein-based diets is also very large in today’s time. Focus on plant-based proteins continues to grow to meet the dining-out experience for vegans and vegetarians. However, restaurateurs are also adding chicken variety menus through salads and fried chicken. Harnessing the plant-based revolution, Starbucks has launched its new dairy free addition to its menu across outlets in India - Oat Milk. Addition of oats is an extension of the coffee major’s already existing variety of plant-based choices such as almond and soy.

ROADBLOCKS

Food costs, labour costs, and supply chain disruptions are the prime challenges for the industry.

Food costs: According to the restaurant supply chain companies, food costs increased 38 per cent during the pandemic, with some industry staples. The cost increases are happening with a variety of food products. According to the Poultry Federation of India (PFI), the cost of production for eggs has increased by 20-25 per cent this year, while inflation in chicken prices rose by more than 20.74 per cent in March 2022, while the overall food inflation in the meat and fish category was 9.63 per cent. The new average retail prices for common garden vegetables have now shot up to Rs 120-140 per kg from Rs 60-80 earlier in metros.

Labour costs: The human resource structure is at the core of the hospitality industry, and the labour cost accounts for the majority of expenses in the restaurant business. The percentage of restaurant labour costs to sales averages 22-40 per cent, and in some cases, it can be almost as high as 75 per cent. Add to this, the potential for minimum wage increases and a still uncertain future, and restaurant owners are going to be paying more for staff than ever before.

Supply chain disruptions: Supply disruption issues have made a significant impact on the industry. Along with Covid-19 lockdowns, the geopolitical tensions around the globe have impacted restaurant supply chains, making it difficult for some restaurants to source their normal ingredients affecting raw material prices.

INDUSTRY VIEWS

Rajat Agrawal, CEO, Barista: Business post-Covid has come back with a vengeance and eat-out ratios and home deliveries have picked up very well. We would like to compare our business with pre-Covid period, which shows a steep recovery. Compared to FY21, our business in FY22 grew by 70 per cent and trending at similar growth in FY23, as well over FY22. Further, we have gained market share and increased our points of presence. An attractive real estate and consolidation in the industry has happened as independent cafes were not being able to sustain through the Covid era. Barista has opened almost 100 plus stores in the past two years that includes a large part of the period which was impacted by the pandemic. Today, we operate 340-plus outlets across multiple cities. 

Himanshu Chawla, co-founder, Bakingo: The Covid-19 pandemic has impacted a number of industrial sectors, including tourism and hospitality, food processing, and other retail sectors. The restaurant industry has been devastated by this pandemic across the nation.  Cloud kitchens, delivery apps, and home chefs took the market by storm back in 2020 during the lockdowns. This year the restaurants were more focused on learnings from these trends and developing niche experiences to drive customer loyalty and international experiences. The entire restaurant industry has improved since the pandemic becasue of new developments such as cashless transactions, a greater emphasis on practices around health and safety, and newly enhanced digital menus. A significant rise in online deliveries has also been a major contributing factor. These developments didn't negatively affect the industry but served as an obvious benefit, resulting in much smoother operation than pre-Covid times.

There have been both positive and negative effects on the restaurant industry, while the dining experiences had taken a back seat, the online deliveries have been booming. Post-Covid, as the world has slowly started to recover and things move towards normalcy, the dine-in restaurants have started to make a comeback, while the Cloud kitchens with their at-home delivery services continue to prosper as well.