Feb. 21, 2013
Rabobank has published a report outlining the growth in the quick-service restaurant sector in India. The report includes a forecast of 30-percent segment growth in the market through 2015. This is compared to the 10-percent growth forecast expected for the overall Indian foodservice sector.
The report, published by Rabobank's Food & Agribusiness Research and Advisory department, said that rapid change in food consumption habits in India has spurred domestic and foreign QSR chains to implement aggressive expansion plans. To sustain growth while focusing on quality and profits, Indian market QSRs will have to build collaborative and dedicated supply chains from the ground up — connecting local business partners, high quality vendors, commissaries, and state-wide or nationwide supply chain solution providers.
"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," said Asitava Sen, head of F&A Research & Advisory for Rabobank in India. "A younger population, higher rate of urbanization, larger disposable incomes, higher protein consumption, increased participation of women in the workforce, and exposure to Western lifestyles are leading to the experimentation with, and adoption of, new dietary habits and more occasions to eat out for all levels of Indian society."
Total industry size for the Indian foodservice sector was INR 460 billion (USD $8.6 billion) in 2011, and is expected to grow at a compound annual growth rate (CAGR) of 10 percent until 2015. Out of this total, the QSR segment is worth INR 33 billion (USD $600 million) and is expected to grow at a CAGR of 30 percent over the same period.
At present, according to the National Restaurant Association of India, 50 percent of Indian consumers are eating out at least once every three months, and this shift is epitomized by the growing presence of QSR concepts, among them many global QSR players.
Within the past year alone, for example, McDonald's and Subway have expanded their all-vegetarian presence in the country. Subway announced a plan to add 700 India units within five years. Yum! Brands leveraged its strong presence in India by introducing its global tagline "So Good" there and, at the end of 2011, the company created a separate India division to support its expansion in the market. Even doughnut concepts are jumping in, with Dunkin' Donuts and Krispy Kreme both making their India debut recently.
The need for an efficient supply chain
Because of the rapid growth, there will also be an emergence of Indian food processors and supply chain partners, according to the report.
"Rabobank believes that there is significant potential for commissaries to establish themselves as a link between QSRs and food producers and processors," Sen said.
An efficient supply chain will help provide standard product quality to customers across stores, but supply fragmentation in India is significant, creating quality issues at the back-end. Limited modern storage and transportation infrastructure compound the problem, which is even more pronounced in perishable products. As such, capital investments in the upstream and midstream processing parts of the supply chain are critical, especially since food production, processing and preparation on a large scale are just beginning in India.
Relationships between QSRs and their channel partners have worked well in categories such as cheese, poultry and frozen foods in India, and there is room for such partnerships to expand in other key categories of commodities and processed foods.
QSR players prefer to have multiple supplier options to diversify the risk and help in price negotiations. In segments such as poultry, cheese and French fries, there are only a few processors currently, but Indian QSRs may look at either developing small players as vendor partners or even consider backward integration into the business.
"QSRs have proven very successful in the U.S., with some of the leading brands having a greater than 50-year pedigree. Many of the lessons learned by these companies — such as how to weather economic downturns, manage input costs, and maintain brand relevance — will be very relevant to the emerging opportunities in India," said Nicholas Fereday, Rabobank analyst and author of a 2011 report on the U.S. QSR industry.
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