India's quick-service restaurant industry expected to double in size to 70B rupees in next three years despite impact on discretionary spending due to economic slowdown, according to new report
September 18, 2013
– Currently, tier II & III cities account for just 25 per cent of total stores.
The Indian quick service restaurants (QSR) industry is expected to double its size from Rs 3,500 crore currently to Rs 7,000 crore in the next three years, according to a report by CRISIL Research. This is despite the impact on discretionary spend due to the slowdown which has also affected same-store sales growth of QSR chains in the country.
The report said same-store sales, which have been growing at a robust 20-25 per cent over the past few years, is expected to slow down significantly in the near term.
But on the positive side, over the next three years, new store additions will increase by 16-18 per cent annually, due to expansion of global players like McDonald's and Domino's into tier II and tier III cities. Same-store sales growth will be in the 8-10 per cent range, taking the overall revenue growth for the industry to around 27 per cent annually.
Currently, tier II and tier III cities account for just about 25 per cent of total stores but in the next three years, nearly 40-45 per cent of store additions will take place in these cities, according to the report.
CRISIL estimates that in tier I cities, the annual QSR spend per middle class household will surge by over 50 per cent to around Rs 6,000 by 2015-16 from about Rs 3,700 in 2012-13. It said in tier II cities, currently the QSR spend is around Rs 1,500 or less than half of that in tier I cities but will more than double to Rs 3,700 in three years.
"This quantum jump in QSR spend in urban areas will be propelled by an increase in the number of nuclear families and working women, a steady growth in income, changing lifestyle and eating patterns and, importantly, greater accessibility of QSR outlets," said Prasad Koparkar, senior director, Industry & Customised Research, CRISIL.
Global brands currently have an aggregate market share of 63 per cent of the domestic QSR market and will continue to grow on the back of expansion into smaller cities. Indian players too will grow, but not as fast as global players, according to CRISIL.
"In value terms, pizzas, burgers and sandwiches still account for 83 per cent of the domestic QSR market. Players have found it relatively difficult to adapt Indian food into an assembly line production model. On the other hand, foreign cuisine can be served quickly, and is more amenable to the cold storage format and a centralised kitchen" said Ajay D'souza, Director, Industry Research at CRISIL.
To compete effectively with their global peers, Indian players such as Jumbo King, Kaati Zone and Faaso's have already moved to a centralised kitchen model. Investing in centralised cooking and supply chain facilities is critical to success in the QSR space.
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