Trends in Food Industry

Prepared by Dinchi Navdiwala

Trends of Food Industry

Executive Summary
This research project an in-depth analysis and understanding of the Food service industry in the country with a focus on Indian culture and food habits in different religion and different states, transition phases over the decades, structure of the industry, challenges and growth of the food industry.

This report gives a brief overview of the different drivers for the growth of the industry which includes demand side drivers and supply side drives and how it is contributing to the growth of the industry. It also provides the detail about the structure of the industry which includes unorganized and organized. Unorganized segment includes dhabas and roadside eateries while organized segment include fine-dine restaurants, food courts, cafes, bar-lounge, etc.

The study is mainly based on secondary data sourced from Internet portal and newspaper & magazines. Secondly, benchmark survey data are collected from food sector industry and used for graphical representation. Data collected and shown in this report are related to food service industry and by end of 2011.

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Table of Contents
1. 2. 3. History of Indian Food Culture .............................................................................................4 Indian Food Service Industry - Sector Highlights ..............................................................4 What Drives the Growth of the Industry? ............................................................................6 3.1. Demand Side Drivers The Demographic Profile of the Indian Consumer Segment ......................................................................................................................................6 3.2. 4. 5. 6. 7. 8. 9. 10. Supply Side Drivers Industry Trends Encouraging Growth ..................................7

Transition Phases ...................................................................................................................9 Structure of the Industry ..................................................................................................... 10 Challenges............................................................................................................................. 12 FDI in Hotel & Tourism sector in India ............................................................................... 13 India rising Global cuisines driving food retailing ........................................................... 14 Growth and Future of Food Industry ................................................................................. 15 References ......................................................................................................................... 17

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1. History of Indian Food Culture
Most Indian cuisines are related by the similar usage of spices and the use of a greater variety of vegetables than many other cuisines. Religious and caste restrictions, weather, geography and the impact of foreigners have affected the eating habits of Indians. In Rajasthan and Gujarat, a great variety of dals and preserves (achars) are used to substitute the lack of fresh vegetables and fruits. Tamilian food uses a lot of tamarind to impart sourness to a dish, whereas Andhra food can be really chili-hot. An everyday meal of a Punjabi farmer would be centered on bread, corn bread, greens and buttermilk (lassi). Buttermilk is whipped yogurt, and can be had sweetened or with salt and is usually very thick. Wheat is the staple food here. The special wheat bread cooked over the tandoor is called Naan. In Bombay, the food is a happy combination of north and south. Both rice and wheat are included in their diets. A lot of fish is available along the long coastline and the Bombay Prawn and Pomfret preparations are delicious. In the beautiful and rich valley of Kashmir, all dishes are built around the main course of rice. A thick-leafed green leafy vegetable called hak grows in abundance here and is used to make the delicious saag. The tea drunk in Kashmir is not orange pekoe or Twinning, but a spice-scented green tea called kahava. Bengalis eat a lot of fish and one of the delicacies called the hilsa is spiced and wrapped in pumpkin leaf and cooked. Another unusual ingredient used in Bengali cooking is the bamboo shoot. Milk sweets from this region like the Roshgolla, Sandesh, Cham-cham are world famous. In the south of India, rice is eaten for breakfast, lunch and dinner. Steamed rice dumplings or idlis, roasted rice pancakes or dosais are eaten along with coconut chutneys for breakfast. A dosai stuffed with spiced potatoes, vegetables or even minced lamb constitutes the famous masala dosai. Coconut, either in a shredded, grated or blended form is a must in most dishes here. Tender coconut water is drunk for its cooling effect(now available in most supermarkets in cartons) on the system. The Chettinad dishes from Tamil Nadu consist of a lot of meat and poultry cooked in tamarind and roasted spices. Sweets are very popular all over India and are usually cooked in a lot of fat. Jalebis, luscious pretzel shaped loops fried to a golden crisp and soaked in saffron syrup can be had from any street vendor in North India. Kheer or payasam are equivalents of the rice pudding and Kulfi is an Indian ice cream made in conical moulds and frozen. Many varieties of foreign whiskies, rum, even Tequila is available in India now. Indian beers like Kingfisher and Kalyani are mild in comparison to the Australian ones.

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2. Indian Food Service Industry - Sector Highlights
The importance of food service industry stems from the large direct and indirect employment it provides, the revenue it generates for the government and the role it plays in promoting tourism. The industry provides direct employment to 5 million individuals, five times the IT industry and 10 times the Hotel industry. There are 10 million street vendors in India, of which 6 million sell ready to eat food. The evolving industry is a significant contributor in terms of tax or VAT to the economy. Currently it contributes $220 million and has the potential to reach $770 million. According to a report, the market size of the food service sector is estimated to be $8.1 billion by 2013 and $9.6 billion by 2018. It is growing @ 5-6% per annum. This segment is dominated by restaurants which constitute 40% of the market. Cafes, pubs, clubs and bars together constitute 32% of the organized food service industry.

Segments of the Organized Food Services Sector

15% Pubs,Clubs & Bars 40% 9% 3% Hotels & Lodgings Restaurants Cafes Takeaways 16% 17%
Source: NRAI, Datamonitor, Franchise India, Technopak Analysis

Others

India is beginning to show up on the radar of the top food service chains and is likely to account for 10% of new unit growth in the next four to five years.

100% FDI is permissible in the sector under the automatic route.

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3. What Drives the Growth of the Industry?
3.1. Demand Side Drivers The Demographic Profile of the Indian Consumer Segment Favorable demographics and growing working population to augment demand for food service chains - With a population of 1.2 billion, India represents one of the largest consumer markets in the world. Additionally, the country enjoys one of the largest and most balanced demographics in terms of age, as India has more than 50% of its population below the age of 25 and more than 65% is below the age of 35. Currently, 63.38% of the population is between15-59 years. The tremendous growth in its population of young people is likely to bring about a shift in the Indian food service trends, as young population drives the demand for processed and health foods. This would provide an impetus for the growth of the food service industry.

Growing disposable income - Growing affluence and higher spending capacity provides a

huge opportunity for the food services sector. With higher disposable income, consumers do not hesitate to spend more on eating out.

Increasing number of working women - Not only has the working age population risen but the

proportion of women among the employed has also gone up. With the number of working women on the rise, households are expected to increase the frequency of eating out as a result of less time available for women for household activities.

Increasing urbanization - The proportion of Indian population living in urban areas has

displayed an upward trend for several years. Expected to grow even further, the urban population will contribute to increasing demand for eating out.

Growing Middle Class - The middle class has been the largest patron of the food service

industry and is expected to grow by 67% by 2015. This would definitely increase the dining out consumer base.

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3.2. Supply Side Drivers Industry Trends Encouraging Growth

Diversifying into multiple cuisines in tune with changing consumer preferences Consumerism now is not only about increasing the consumption of one food but it is also about consuming different types of food. To address the need for variety, restaurants have started serving multiple cuisines. Chef-led innovations into fusion cuisine and growing popularity of international food and styles are fuelling the growth of the industry.

Improved restaurant experience - The focus of eating out has now shifted from food being a

necessity to a form of entertainment, whether it is family entertainment, activities, live performances or music. The restaurateurs have begun to understand that today's consumers seek a 'dining experience' for even the smallest catered function.

Growth of tourism industry - Domestic tourist segment is rapidly growing owing to more

affordable air travel and higher disposable incomes. The growth of the tourism sector and food service industry is inter-dependent.

India gaining attention of international players - Global players are entering India and

expanding into smaller cities and newer locations. Food franchising is gaining popularity as more and more master companies are readily tying up with small franchisors and mall owners to promote their brand.

Improving Retail Infrastructure - Increasing real estate development is proving a boon. The development of malls and multiplexes has popularized kiosks and food courts as food centers.

High quality food for a health conscious consumer segment - Consumers today want more

for their money and now actively seek quality. Apart from demanding time saving and easy to handle goods, they are interested in low calorie, environment friendly and wellness foods and are willing to pay a premium for these products. Being assured healthy and wholesome food options and quality outlets is a significant crowd puller.

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Interesting Trends in high growth Quick Service Restaurant (QSR) Industry QSRs Caf Coffee Day Domino's Pizza Barista McDonalds Pizza Hut US Pizza Nirula's KFC Costa Coffee Approximate Number of Outlets 1400 378 225 200 170 90 60 107 75 Expansion Plans 20-25 cafes every month 500 outlets 2012 300 outlets by 2012 300 outlets by 2012 200 outlets by 2012 100 outlets by 2011 140 outlets by 2011 1000 outlets by 2014 100 outlets by 2011

Source: National Commission of Population, India Urbanization Econometric Model; McKinsey Global Institute analysis, MDI India Consumer Demand Model

High speed and consistent food service and efficiency Convenient locations with easy accessibility from places of work, commuter routes and shopping areas Limited menu choice of standardized items Fast turnaround time through efficient model of drive- thru and quick order placement and delivery Value proposition for customers due to low average checks

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4. Transition Phases
Geographic Penetration Phase I 1991 2001 Phase I 2002 2010 Phase I 2010 2020 Tier I Cities Focus only on Metros -Delhi, Mumbai, Hyderabad, Bangalore & Chennai Promotion of Tier II & III cities

Destinations offering multi-tourism options emerging

Operating Model Phase I 1991 2001 Phase I 2002 2010 Phase I 2010 2020 Ownership & Franchise Model Emergence of management contracts Shift towards management contracts

Management models to continue

Investment Needs Phase I 1991 2001 Phase I 2002 2010 Phase I 2010 2020 Funded by conventional methods, JVs and tie- ups with international brands JVs with engineering, construction, real estate companies, PE firms Acquisitions Refurbishments & Expansions under brands and emergence of new domestic brands/concepts

Strategic Focus Phase I 1991 2001 Phase I 2002 2010 Phase I 2010 2020 Revenue growth and Maximization, Customer Acquisition Identification of untapped segments, Focus on CRM, Diversification and Addition of new capacity Customer retention, Business diversification and Loyalty factor, Product Enhancement

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5. Structure of the Industry

Average Unorganized Price

The unorganized segment dominates the Indian food service industry. It lacks technical and accounting standardization. It comprises Dhabas and roadside eateries that have been the most common form s of restaurants and have traditionally addressed eating out requirements of Indians.

1. Dhabas 2. Roadside Eateries Street stalls Hawkers Trolleys Standalone sweet shops .

10-100

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Organized Formats

Average Price Point (INR)

Fine Dining - A full service restaurant with a specific dedicated meal course. Dcor features high quality materials with an eye towards the atmosphere desired by the restaurateur. The staff is usually highly trained. Fine dining restaurant usually targets rich and upper middle class consumer segments and offers unique Dining ambience and upscale service. Casual Dining - A restaurant serving moderately priced food in a casual atmosphere oriented towards affordable family dining. Except for buffet style restaurants, these typically provide table service. This addresses the price point between fast food establishments and fine dining restaurants. Bars and Lounges Mainly serve alcohol and related beverages. Includes night clubs, sports bars, etc. Example: F-Bar, Xtreme Sports Bar They emphasize on speed of service, low cost and convenience. Also known as fast food outlets, for practical purposes, they are Quick Service Restaurants (QSRs) McDonalds, Nirulas, Dominos, Haldirams, Subway, Bikanerwalas are some of the leading names in this category. A relatively nascent phenomenon and being popularized by mall Food Courts developers; also present at other shared spaces (for example airports, hospitals and office complexes). Comprises coffee bars and parlours (for example Barista Lavazza, Cafes Caf Coffee Day) and chai bars. These are casual restaurants that emphasize on serving beverages and food is incidental. A relatively new format which comprises Chinese food, corn, chat Kiosks kiosks and those from established branded players like Caf Coffee Day or Nirulas. Also includes ice cream kiosks. 100-200 100-200 100-300 essentially characterized by minimal table service and can have a take away and/or home delivery format. 100-350 500-3000 250-750 750-3000

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6. Challenges

Food regulation and licenses - The Indian food and processing industry is governed by multiple legislations and dealing with them is a challenge. Starting a restaurant

requires all permits and licenses from local governing bodies and a d e q u a t e insurance coverage. There are up to 10 basic licenses to be procured before setting up a food supply store. In addition the duration of these licenses vary from 1 to 3 years. Highly fragmented and competitive industry - The competitive organized market is highly The

and fragmented with a large number of Indian and foreign players.

demographic profile of the country and expectations of a strong GDP growth and rising disposable income are attracting many foreign as well as domestic increase their footholds in India, which will make the organized competitive. Poor infrastructure - A major concern for a country like India is poor infrastructure, players to

market even more

poor transportation facility and erratic power supply. An indication of the severity of the infrastructure problem is the spoilage of 25-30% of the crops each year due to infrastructure bottle necks. The result of these bottle necks is that prices for food

material tend to be on the higher side with the quality compromised.

Lack of organized supply chain - Food companies in India suffer on account of availability of facilities like high tech

non-

controlled production, cold chains, logistics and

warehousing, lack of specialized distribution companies for perishables produce/ processed food products. An inefficient supply chain creates hurdles in ensuring that food of the

required quality and quantity is procured and it reaches the end customer on time with little or no loss.

High price of real estate - The location of a food service outlet is critical to the success of the venture. A majority of the restaurant players operate under leased premises. Hence, high real estate lease rentals impact profitability and the growth of the industry.

Shortage of skilled and semi-skilled manpower - The

food

services

industry

is

highly dependent on skilled and well-trained manpower especially experienced chefs and managers. With growth in other sectors, the hospitality industry as a career option finds few takers.

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7. FDI in Hotel & Tourism sector in India

100% FDI is permissible in the sector on the automatic route. The term hotel includes restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists.

Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from the RBI or Government of India for the investment.

Besides the entry conditions on foreign investment, the investment/investors need to conform to all relevant sectors laws, regulations, rules etc.

The

national

security/internal

security

related

conditions

as

contained

in

relevant

statutes or notifications of the Government will also have to be complied with. The State Governments/Union Territories have regulations in relation to the subjects in their legislative domain. These regulations also have to be met/complied with.

As per the recent circular on Foreign Direct Investment issued by the Government of India, foreign investors are now allowed to bring in fresh money and technology to India irrespective of the impact on local partners in any existing joint venture.

Source: Consolidated FDI Policy, Effective April 2011, Government of India

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8. India rising Global cuisines driving food retailing

India is still in the experimental stage when it comes to getting used to international cuisines, vendors are ensuring there is substantial variety and that cuisines introduced are being customised according to Indian taste buds. For example, Mediterranean or Lebanese cuisines offered in India are including a Jain diet and health benefits of such cuisines are being propagated. Indian metros now boast of a range of authentic cuisine restaurants that serve cuisines from across the world. Be it Thai, Japanese, Korean, Italian, Mediterranean or Middle Eastern or even different Indian cuisines, customers get to choose from all these and more. An absolute success in tier-I cities, this retail business model has not just enabled entrepreneurs to record huge profits, but has also helped in strengthening their ambition of taking the food retail business to smaller cities in India as well.

The vegan advantage: We are definitely witnessing a change in the culture of eating out whether its related to celebrations or family events, people are dining out more often than they used to. But one challenge that most food retailers or restaurateurs need to deal with is to ensure the offerings provided are pure vegetarian. Around 30% of Indias population claim to be vegan - a majority being from tier-II and III cities - and this makes up for around 70% of the worlds vegetarian populace. If food retailers want to tap these markets, then they need to provide variety with a vegetarian twist. For example, Lebanese cuisine restaurants will get more footfalls if retailers begin promoting a vegetarian diet. To sum up, India has a huge opportunity to become a leading global food supplier and to achieve this end, it is important for food retailers to incorporate the right strategy to connect with the target audience and ensure that the supply chain is in sync with the current demand. Indians continue to have a feast despite the recent economic slowdown, which negatively impacted almost all the other industries. However, the growth potential of this segment is even better now, especially in the tier II and III markets that are yet to be tapped. In fact, with the rising challenge to provide customers with convenience, choice and value for money, we are seeing innovative retail formats and options entering Indias food and beverages (F&B) market worth Rs 8,97,000 crore.

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9. Growth and Future of Food Industry
The diverse culinary habits, wide range of cuisines and the diverse cooking techniques are some of the main factors behind the growth of restaurants in India. With the market liberalization policies undertaken by the government, India has also become a consumer market with a huge customer base. This has provided a fillip to the restaurant industry in the country. With the high standard of living and the change in the lifestyle of the people, more and more consumers are also flocking various restaurants.

The growth of the tourism industry has also been a positive factor behind the growth of restaurants in India. With more and more domestic and foreign tourists going to the popular tourist destination, it has been a boon for the restaurants. According to recent surveys, India has become one the top five destinations among the 167 popular tourist destinations. With more and more foreign tourists coming in, the restaurant industry is expected to grow at a rapid pace and more categories of eating outlets will come up.

According to recent surveys, the rate of growth of the restaurant industry in India is expected to be around 4.5 % on an average. A significant number of the workforce in the country is also engaged in the restaurant industry. According to recent surveys, by the end of the year 2012, the overall restaurant industry in the world will employ around 13.3 million people, of which India will have a significant share. However, the main challenge is to enhance the market growth of the industry. Today, the Indian restaurant industry is mainly based in the urban areas the tourist destinations. Efforts need to be made to increase the market in the rural areas as well. There are restaurants in the rural areas but most of them fall under the unorganized sector. A systematic approach is required to increase the target audience in the rural sector.

With the open market and liberalization policies, more and more international restaurant chains are also opening their branches in various cities of the country. This has increased the rate of foreign investments in the country having a favorable effect on the overall economy of the country. The foreign restaurants are setting up bases to cater to the vast consumer market in the country.

The growth of the restaurants in India has directly led to the growth of fast food eating outlets in the country. The Indian youth of today is very much inclined towards fast food and this has become a major factor towards the growth of these types of restaurants.

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The future of the restaurant industry looks bright. With the increase in demand, the consumer patterns, the profit of this industry will also significantly rise. In fact, the restaurant industry has become a popular career option for the youngsters of India. More and more people are opting to work in different segments of this industry to start a highly successful career. New courses and study programs based on various sectors of the restaurant and food processing industries are also coming up to cater to students.

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10. References
http://www.indianfoodindustry.net/ http://www.moneycontrol.com/news/features/three-food-habits-well-see2012_641161.html http://www.scribd.com/doc/19018679/fast-food-industry-in-india-a-study http://www.corecentre.co.in/Database/Docs/DocFiles/food.pdf http://www.slideshare.net/jwtintelligence/whats-cooking-trends-in-food http://www.nytimes.com/2005/04/20/dining/20indi.html?_r=2&ex=1271649600&en=6a7c1c6a8f47 e15e&ei=5090&partner=rssuserland&emc=rss

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