The Indian food services market has gained momentum in the last decade due to changing consumption patterns that have seen an increase in a tendency to eat out that had not traditionally been a feature of Indians’ lifestyle. This has ensured a constant growth of the Indian food services market, which has evolved considerably since the 1980s, when the number of organized brands was negligible and the market was widely dominated by unorganized players. A noticeable shift began in 1996 with the opening up of restaurants such as McDonald’s, Pizza Hut and Domino’s Pizza, followed by Subway, KFC, Burger King, Haldiram’s, Moti Mahal and Taco Bell, among others.
The Indian food services market is classified into two segments, organized and unorganized, based on three key characteristics: accounting transparency, organized operations with quality control and sourcing norms, and outlet penetration. Any food services outlets that do not conform to these parameters are considered to fall within the unorganized segment, which primarily includes dhabas, roadside small eateries, hawkers and street stalls. By contrast, food services outlets that conform to these parameters fall within the organized segment and can be subcategorized as chains (domestic or international outlets that have more than three branches across the country) or standalone outlets.
Chains are further subdivided into six sub-segments based on average price per person, service quality and speed, and product offering:
1. Fine Dining (FDR)
Full service restaurants with high quality interiors, specific cuisine specialty, high standard of service translating to high average per cover. Fine dining targets rich and upper middle class consumer segments as it offers unique ambience and upscale service with highly trained staff.
2. Casual Dining (CDR)
A restaurant serving moderately priced food in an ambiance oriented towards affordable dining with table services. The offering bridges the gap between fast food establishments and fine dining restaurants.
3. Pubs, Bars, Clubs and Lounges (PBCL)
Outlets that mainly serve alcohol and related beverages and include night clubs and sports bars.
4. Quick Service Restaurants (QSR)
These are focused on speed of service, affordability and convenience and include the dine-in / takeaway / delivery sub-formats.
These include coffee bars and parlours, and chai bars. They are mostly casual restaurants that emphasize on serving beverages and food incidental to those beverages.
6. Frozen Desserts / Ice Cream (FD / IC)
Small kiosk outlets of ice cream brands which have been extended to dine-in concept of frozen yogurt and ice cream brands.
Tip: All the figures below are denoted in INR billion. For ease of comparison, ₹1 billion = ₹100 Crore.
The food services market in India has shown consistent growth since Fiscal 2014 and was estimated at ₹4,096 billion in Fiscal 2019. The food services market in India is projected to grow at a CAGR of 10.5% over the next five years and is expected to reach ₹6,753 by Fiscal 2024. In Fiscal 2019, the biggest segment of the food services market was the unorganized market, which accounted for ₹2,535 billion, followed by the organized standalone segment, the chain market and restaurants at hotels, each accounting for ₹1,096 billion, ₹350 billion and ₹115 billion, respectively.
Indian food services market size in INR billion.
|FY 2014||FY 2015||FY 2016||FY 2017||FY 2018||FY 2019||FY 2024 (P)|
The table below sets out the market share of each of the segments of the Indian food services market in Fiscals 2014 and 2019 and the expected market share for Fiscal 2024.
|Market Share||FY 2014||FY 2019||FY 2024P|
|Unorganized Market||69% (1,835)||62% (2,535)||50% (3,392)|
|Organized Standalone Market||23% (605)||27% (1,096)||34% (2,318)|
|Chain Market||5% (150)||8% (350)||13% (873)|
|Restaurant in Hotels||3% (75)||3% (115)||3% (170)|
The table below shows the Indian food services market CAGR by segment between Fiscal 2014 and Fiscal 2019, as well as expected CAGR by segment between Fiscal 2019 and Fiscal 2024.
|CAGR||FY 2014-19||FY 2019-24|
|Organized Standalone Market||13%||16%|
|Restaurant in Hotels||9%||8%|
In terms of geographical distribution, Delhi and Mumbai, the two mega metros in India, contributed a total of 21.5% of the total revenue of the food services market in Fiscal 2019, while the six mini metros contributed approximately 20% of the total revenue of the segment during the same period.
The chart below sets out the food services market by city type in Fiscal 2019 INR billion.
The largest eight cities of India have been the center of development, in particular for the organized food services market. Delhi and Mumbai accounted for approximately 42% of the total revenue of the chain food services market in India in Fiscal 2019, and when combined with the next six cities (Kolkata, Bengaluru, Chennai, Hyderabad, Pune and Ahmedabad) they accounted for approximately 87% of the total revenue of the chain food services market during the same period. This has been driven by increased economic activity, rising disposable income, a shift in lifestyle pushing for a higher need for convenience and an increase of women in the workforce. Delhi and Mumbai accounted for approximately 27% of the total revenue of the standalone food services market in India in Fiscal 2019, and when combined with the next six cities they accounted for approximately 50% of the total revenue of the standalone food services market during the same period.
In addition, the food services market has expanded beyond the mega and mini metros with an increased presence of QSR and CDR in Tier I and Tier II cities, driven partly by a lack of quality real estate in mega and mini metros, increased competition in these cities as well as higher disposable incomes paired with high aspirational value of the younger population. Tier I and Tier II cities have emerged as new urban powerhouses with higher disposable incomes clubbed with high aspirational values of the youth, fuelling growth of food service.
The food services market in India has evolved from home grown, standalone, family-run business ventures to international partnerships with multipolar and integrated business models. Players in the food services market in India currently operate under four key business models:
1. Master Franchise
The traditional franchising model remains one of the most attractive operating models for international brands entering the Indian market. Under this model, the international brand helps the franchisee set up the business by sharing its technical knowhow and lending the brand name. The investment is limited to pre-operative expenses such as supplier development, franchisee training, location assessment and consulting expenses. In return, the international brand charges a royalty fee from the franchisee. In certain instances, franchisees are allowed to operate a system of sub-franchises. The master franchisee is also allowed to make small alterations in the size of the format based on availability of real estate and for better unit economics in certain areas such as metro stations, tier II cities, highway locations, etc. Examples of companies operating under this business model in India include Domino’s Pizza and Subway.
2. Company Owned and Franchise
This model is very similar to the master franchise model. The key difference is that the international brand establishes its own representative office in the country and helps the franchisee in setting up its business. In addition to pre-operative expenses typically incurred in the master franchise, this model also requires the international brand to incur expenses related to setting up the representative office. The representative office has a team that is in close relationship with the franchisee and is responsible for creating and maintaining the brand image. Examples of companies operating under this model in India include Pizza Hut and Jumbo King.
3. 100% Company Owned
Under this model the brands set up their business with their own investment and, as a result, have full control of the operation of the business. The downside to this model is that it is capital intensive and, therefore, prone to high financial risk. The company is responsible for all operational aspects of running the business, including creating brand awareness, product development and quality control. This model tends to be more popular with brands that continue to be family run, business that operate under a niche concept or consider consistent service across outlets as a critical factor of operation. Examples of companies operating under this model in India include Café Coffee Day and Barbeque Nation. Some of the companies operating under this model are starting to create a hybrid between the 100% company owned and the franchise model, the franchisee owned company operated model, under which the franchisee develops an outlet which is then run by the brand in return for a percentage in the share of the overall revenue.
4. Joint Venture
Under this model, the international brand enters into a joint venture agreement with a local entity to create a new entity which operates as master franchisee for the operation of the international brand in the country. The local partner has deep understanding of the consumer behavior in the country and provides real estate to the international brand, as well as setting up the supply chain, which allows the international brand for a faster scale in the country. Companies operating under the joint venture model are allowed to make small alterations in the size of the format based on availability of real estate and for better unit economics in certain areas such as metro stations, tier II cities, highway locations, etc. Examples of companies operating under this model in India include Starbucks, Burger King and TGI Friday’s.
Organized Food Services Market
The organized food services market in India (chain and standalone outlets, excluding restaurants in hotels) was estimated at ₹1,446 billion in Fiscal 2019 and is projected to grow at a CAGR of 17% to ₹3,191 billion by Fiscal 2024, and is expected to increase its share of the total market from 35% in Fiscal 2019 to 47% by Fiscal 2024.
The table below sets out the Indian organized food services market size in INR billion.
|FY 2014||FY 2015||FY 2016||FY 2017||FY 2018||FY 2019||FY 2024 (P)|
The table below sets out the CAGR of each of the organized food services sub-segments between Fiscal 2014 and Fiscal 2019, and their expected CAGRs between Fiscal 2019 and Fiscal 2024.
|CAGR||FY 2014-19||FY 2019-24|
|Quick Service Restaurants||18%||19%|
|Casual Dining Restaurants||15%||18%|
|Frozen Dessert/ Ice Cream||12%||13%|
|Fine Dining Restaurants||4%||7%|
The table below sets out the market share of each of the chain food services sub-segments in Fiscal 2014, Fiscal 2019 and the expected market share by Fiscal 2024.
|Market Share||FY 2014||FY 2019||FY 2024P|
|Quick Service Restaurants||18% (137)||21% (307)||23% (742)|
|Casual Dining Restaurants||55% (412)||56% (813)||59% (1,885)|
|Café||8% (63)||6% (93)||5% (145)|
|Frozen Dessert/ Ice Cream||3% (23)||3% (40)||2% (75)|
|PBCL||13% (98)||12% (166)||10% (306)|
|Fine Dining Restaurants||3% (22)||2% (27)||1% (38)|
The chain market in India has evolved and witnessed a majority of changeover during the last three decades. The transition phase of the chain market can be divided into 3 stages as set out in the table below.
|Phase I (1991-2001)||Phase II (2001-2010)||Phase III (2010 Onwards)|
|High focus on Metro & Mini Metros||Thin Penetration in Tier I & II Cities||Penetration in newer segments (Travel, Education, Medical) and increased penetration in Tier I & II cities|
|Ownership/ Franchise Model & Management contracts||Continuation with franchisee model & JV’s||Emphasis on contracts more centred around revenue sharing|
|Funded by personal capital & conventional means||Partnerships/ JVs with related business interest, Initiation of PE funding||Expansions under brands & emergence of new brands/concept. PE driving expansion|
|Customer acquisition, sustainable revenue growth||New Opportunity areas with Focus on CRM, Expansion & extended capacity building||Customer engagement, format diversification & Product enhancement|
Chain QSR Market
In order to remain competitive in a growing market, achieve scale and increase consumer acceptance, most of the QSR companies are adjusting their offerings (including flavours, pricing and services) to meet the demands of the Indian market. Amongst the initiatives to achieve these goals are the opening of vegetarian restaurants in certain parts of the country, the creation of non-beef and non-pork based menus, the separation of vegetarian and non-vegetarian cooking areas, the introduction of local flavors to the menu, the roll-out of home delivery services and the setting of India-centric pricing with affordable entry level products in the menu.
Domino’s Pizza has achieved the largest market share of the chain QSR sub-segment by number of outlets (19% in Fiscal 2019) due to aggressive marketing, an attractive value proposition and a strong home delivery network. They are followed by Subway (10% in Fiscal 2019), McDonald’s (7% in Fiscal 2019), KFC (6% in Fiscal 2019) and Burger King (3% in Fiscal 2019), a relatively new entrant that has increased its count in the shortest span of time as compared to other international QSR companies and has become a prominent player in the QSR sub-segment. In terms of sales, Domino’s Pizza has the largest market share of the chain QSR sub-segment by revenue (22% in Fiscal 2019) followed by McDonald’s (12% in Fiscal 2019), KFC (11% in Fiscal 2019), Subway (8% in Fiscal 2019) and Burger King (4% in Fiscal 2019).
The following charts set out the market share by outlet count and by revenue in the chain QSR sub-segment in Fiscal 2019.
Growth Drivers and Market Trends
1. Increasing eating-out and ordering-in behavior
There is an increasing trend in urban cities in India, across all economic classes, to eat out without the need for a special occasion but rather as part of a shopping experience or a leisure outing. Indians are expecting not only to enjoy a meal but also to socialize and experiment various cuisines. This trend is particularly strong with population in the millennial age group of 15 to 34 years of age, which during Fiscal 2019 ate out approximately twice per month and ordered in approximately once per month. India has the highest number of millennials in the world, and the millennial population of India is expected to grow at a faster rate than other groups, which is likely to drive further growth in eating out behavior among Indian consumers.
The table below shows the average eating-out and ordering-in frequency and expenditure in various age groups during Fiscal 2019.
|Age Group||Eating-out Frequency/ Month||Ordering-in Frequency/ Month||Average Spend per Outing (₹)||Average Spend per Order (₹)|
|> 35 yrs.||1.5||0.3||300||105|
2. Format-wise Spend
During Fiscal 2019, the split of expenditure by sub-segment on eating out was 38% in QSR, 31% in CDR and 14% in Café. Easy access, competitive pricing, availability of combos and meal packages drive QSR’s preference between the younger population and professionals working in office environments.
The table below shows the average monthly spend on eating out per household during Fiscal 2016 and Fiscal 2019, as well as the CAGR between those periods.
|Format||Avg. Monthly Spend Per Household* (₹)|
|FY 2016||FY 2019||CAGR FY 2016-19|
|Quick Service Restaurants||1,573||1,747||3.6%|
|Casual Dine Restaurants||1,276||1,425||3.7%|
|Frozen Dessert/ Ice Cream||383||368||-1.3%|
|Fine Dining Restaurants||43||46||2.3%|
The table below sets out the out of home food expenditure by household in Fiscals 2013, 2016 and 2019 by type of city.
|City Type||Eating-out Frequency per Month||Average Spend per Outing (INR)||Ordering-in Frequency per Month||Average Spend per Ordering-in (INR)|
|FY2013||FY2016||FY2019||FY2013||FY2016||FY2019||FY2013||FY 2016||FY2019||FY 2013||FY 2016||FY 2019|
|Tier I & II||4.2||4.5||4.7||588||664||695||0.5||0.8||1.0||249||293||310|
3. Growth of Online Food Delivery and Food Tech
The online food delivery market in India operates mainly under two business models:
- Restaurant to consumer delivery: meals ordered online through a restaurant website and delivered directly by the restaurand without any intermediaries (e.g., McDonald’s, Domino’s Pizza, Burger King).
- Platform to consumer delivery: meals ordered online through a third-party platform which also arranges for the delivery independently from the restaurant (e.g., Zomato, Swiggy, UberEATS).
The overall delivery market in India is expected to grow at a CAGR of 18% to reach US$18 billion by Fiscal 2024 from US$8 billion in Fiscal 2019 (up from US$4.7 billion in Fiscal 2016). Platform to cosumer delivery has shown the strongest growth between both delivery business models, growing at a CAGR of 125% between Fiscal 2016 and Fiscal 2019, a trend that is expected to continue growing at a CAGR of 30% to reach US$12.5 billion in Fiscal 2024 from US$3.4 billion in Fiscal 2019.
1. Larger focus on value meals
Indian consumers, irrespective of socioeconomic class or type of city, are eating-out and ordering-in at a per-household average of six to seven times per month with a view to experiment and socialize over food. Whilst there is a willingness to spend more on these type of experiences, Indian consumers continue to be cost-conscious and look at value for money options when eating out and cost efficient functions when ordering in.
2. Contemporization of Indian cuisine
The contemporization of Indian cuisine allows consumers to experience tranditional flavors and regional specialties of Indian cuisine prepared using differentiated techinques and new world presentations.
3. Cloud-based kitchens
Cloud-based kitchens are emerging as an alternative channel for food delivery. Cloud-based kitchens are players in the food services market that, due to high rental prices and capex required for in-dining restaurants have focused on becoming delivery- only kitchens thus removing pressures from the bottom line of companies due to lower rentals, manpower cost and reduced cost of utilities.
These delivery-only kitchens aim to provide better quality meals at affordable prices to consumers and are largely targetting consumers who demand a healthy food offering. Due to a significant rise in awareness of healthy-eating habits among consumers, urban consumers in particular are putting emphasis on health and wellbeing, and as consumer health awareness becomes more sophisticated, particularly among younger demographic groups, players targeting health issues are expected to become more refined in their offering, focusing on particular conditions and nutritional requirements. In addition, internet and smartphone penetration in India have further helped the growth of cloud-based kitchens.
However, cloud-based kitchen lack brand recognition and awareness due to a lack of physical presence, and the loyalty of its customers tends to be more floating than that of companies with strong brand recognition such as Domino’s Pizza, McDonalds, Burger King, etc. Cloud-based kitchens will be able to further disrupt the market only to the extent that they manage to create a strong and loyal consumer base and are able to create brands that are scalable and accepted across consumer groups in different cities.
Source: Technopak BoK, Burger King DRHP, NRAI India Food Services Report 2016