India's Food Business Revenues Seen At $33 Billion By 2020

Online food portals and quick service restaurants who have been facing the heat to keep their bottomlines intact have reasons to cheer. As per a new research report by CMR, the market for organized food service industry that currently stands at $15 billion of the total market and is expected to grow at a CAGR of 17 per cent to reach $33 billion by 2020, capturing 36 per cent of the total market.

This spells significant opportunities for the sector which has been in news as several ventures have been struggling to keep pace to mounting competition.

Take the online space for instance. Several online ventures have come into existence over the past few years to grab a slice of the growing of the growing food market in the country. What’s more, with technology is disrupting all aspects of food, there are now ‘new age digital dabawallahs’ too which are mushrooming across the country. However, not all of them are doing well as the market, experts say is over saturated.

It was only recently that Zomato that recently faced a markdown in its valuation by about 50 per cent by HSBC Securities and Capital Markets (India). Other ventures which have hit headlines for not so positive news are TinyOwl Technology, a Mumbai-based online food ordering firm, Bangalore-based food tech startup Dazo, online restaurant SpoonJoy and FoodPanda among others. While some have had to slash their workforce, others have actually shut down operations.

In the QSR space too, venture are struggling and this is true for both international and domestic chains. Rob Young, chairman at Australia-based firm DC Strategy — a franchising and International consulting group — explains that global food chains entering India with its diverse culture make decisions on the basis of speculation rather than ‘actual fundamentals’. Also, the Indian franchisers who partner with foreign multinational QSRs don’t themselves have enough knowledge about the vastness of the Indian market. “It’s one blind man leading another,” says Young.

Foreign chains that have forayed into India recently include Carl’s Jr, Fatburger, Johnny Rockets, Burger King, Wendy’s and Barcelos. While Indian chains tend to have an advantage in terms of pricing, they are having to fight competition to sustain their presence.

However, that’s not to say that the sector will not witness growth. Going forward, the Indian food service industry is expected to witness unprecedented growth due to the changing demographics, increase in disposable incomes of the Indian middle class, women in workforce, increasing urbanization and families eating out more often.

And within the organized food service industry, one segment that is growing the fastest is the Quick Service Restaurants (QSRs), which is a price sensitive segment, and caters to majorly the youth. Increasing disposable incomes, the shift in consumer preferences to increasingly eat out, and greater hygiene consciousness are some of the factors contributing to the rise of QSRs. As per CMR, the QSR segment in India is slated to grow at a CAGR of 18 per cent to reach $4.13 billion by 2020 from $2.13 billion in 2016.

However, a word of caution here. While the numbers seem to catch the fancy of food ventures, food business still need to tread with caution. Even as there is a significant business opportunity here of billion-plus, one has to weigh the pros and cons of domestic market which is already seeing a problem of plenty.