Sector research report- QSR Chains

Executive summary

The size of the Indian consumer market is poised to reach $ 4 trillion by 2025.

It could be seen that population drawing income between INR 500,000 and INR 20,00,0000 (i.e. Aspirers and Affluent, in the above classification) is growing at faster rate than any other segment in the above analysis. Together they are expected to make up 45% of the total consumption expenditure in India in 2025. (Boston Consulting Group 2017) This strong domestic consumer base is the strength of the Indian economy. This strong consumer base is what makes India a favorite destination for FDI. Indian Food Services market in India (organized and unorganized) is estimated at INR 3,37,500 crore in 2017 and is projected to grow at a CAGR of 10% over the next 5 years to reach INR 5,52,000 crore by 2022. (Technopak 2017)

Over the years the market size of the restaurant chains in the food industry has been growing.

Year	2013	2014	2015	2016	2017
Market size	128	150	175	204	235
(Rs. In ‘00 Crores)
CAGR (Computed)		17.18%	16.67%	16.57%	15.19%

(Technopak 2017)

As it can be seen, the market for the restaurant chains has grown at a steady rate. Therefore, the sector as a whole is promising in terms of consumer demand.

However the supply side economics should also be considered. Given the unpredictability of daily demand, there is always the risk of wastage of production on daily basis. On the other hand, not meeting the consumer demand would impinge badly in the minds of the customers. Hence, it is crucial to strike a balance between excess production and short production.

Much of the solution to this problem lies in garnering a reliable consumer base. A regular and predictable demand for the food would help the firms to produce enough to meet the requirement.

This reliable demand base, in turn could be formed, only through offering food at cost effective rates. The highest share of consumption expenditure in Indian market comes from people, whose annual income is between INR 150,000 and INR 500,000. They alone account for 38% of the total consumption expenditure in India as at 2016.

If the sector could come up with innovative cost effective business models that could cater to the later consumer segment, the prospects for this sector is very bright.

1. Sector size, Composition and Constituents

(Technopak 2017)

Major Players

a)      Domino's Pizza

b)      McDonald's 

c)      Saravana Bhavan

d)      Anjappar Chettinad Restaurant

e)      Barbeque Nation

f)       Dindigul Thalappakatti Restaurant

g)      KFC

h)      Faasos

i)       Pizza Hut

j)       Pizza Corner

​2. Key trends in the Sector

The following factors affect the growth of the restaurant industry

a)      Increasing varieties

The ever increasing culinary recipes make dining an important experience of respite and relief.

b)      Growing mobility of restaurant services

In the recent years food delivery service providers like Swiggy, Ubereats, Eat24 have made dining easier.

c)      Amenities

Customer’s experience at the restaurant apart from eating influence the customer demand. More the amenities, more the restaurant would be appealing to customers.

d)      Demographics

Almost 45% of the population is less than 24 years. The young demographic population of the country serves as the prime market for these restaurants.

e)      Increasing Urbanization

About 34% of India's population now lives in urban areas, the U.N. World Urbanization Prospects 2018 report has said. This is an increase of about three percentage points since the 2011 Census. The increasing urbanization is a promising factor for the industry to grow as these restaurants operate in urban cities primarily.

f)       Increasing women labor

It is expected that women employees in service sector would increase from 20% in 2011 to 25% 2020. (Technopak 2017)With more women entering the working population, cooking at home has decreased. This in turn has increased the demand for food at restaurants.

g)      Nuclear families

About 68% of the Indian families are nuclear families. It is expected to grow to 75% by 2025. Nuclear families tend to diverge from conventional practices of avoiding outside foods. With increasing number of nuclear families, the restaurant business could see better prospects in their way.

3. Value chain of the sector and various business models

a)      Primary activities

·               Deciding the menu for service

·               Cooking

·               Service of the food

b)      Support activities

·              Sourcing of the ingredients

·              Dining experience provided

·              Provision of other amenities like TV, Lounge etc..

·              Marketing

·              Delivery services

The above classification of primary and secondary activities has become more of a theoretical exercise, given the competition in the industry. In order to be successful, a firm has to provide rich experience to its customers in each of the aforesaid fronts.

4. Various business models

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5. Cost and Revenue drivers

a)      Considerations for Cost

·                     Cost of the ingredient products

·                     Cost of skilled and unskilled labor

·                     Rental cost

b)      Revenue drivers

·                    Quality of the food served

·                    Cost effectiveness

·                    Other Amenities offered at the restaurant

6.Risks specific to the sector 

a)      Skyrocketing rental costs

With the increasing real estate costs, expansion for the restaurant chains has become a great deal.

b)      Too much concentration in the metro cities

With almost all the restaurant chains focusing on capturing the market in metro cities, there is too much strain on the markets in the urban cities. This mutually affects the profitability of the market participants at urban centers.

c)      Risk of losing the brand value

Any action that could affect the credibility of the restaurant at one place could affect the restaurant chain as a whole. This is perhaps, the single most deterring risk factor that the market players need to be wary of.

Eg: Recently central kitchen of a famous restaurant chain was sealed for unhygienic practices by the regulators. This has led to the restaurant chain losing competitive edge and credibility in the public arena.

7.Funding overview of the sector

Company	Debt to equity *	Market capitalisation**	Product
Westlife development	0.30	5,477.02	1,643.11
Jubilant Foodworks	-	16,409.13	-
Total		21,886.15	1,643.11
Net Debt to Equity Ratio			0.08

*Debt to equity ratio is derived from the 2^nd quarter financial results of the companies for the FY 2018-19.

**Market capitalization is in Crores as at 09^th December 2018.

Westlife development and Jubilant Foodworks, who are considered  to be representative of the sector, have been taken as proxies for the computation of the debt to equity ratio. As it can be seen, the sector is least funded by debt and is operating primarily on its own capital.

8.Key performance metrics at firm level and sector level

Firm level

·         Number of customers visits per day

·         Average revenue per customer

·         Number of repeat visits of a customer per year

Sector level

·         Number of new restaurants opened in the country during a particular period

·         Contribution of the sector to the national GDP

·         Revenue growth of the sector Y-o-Y and Q-o-Q

8. Summary of industry level financial performance

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The chain market is expected to grow at a CAGR of 21% to reach INR 62,000 crore by 2022 from INR 23,500 crore in 2017.The market size was at the tune of INR 20400 Crores as at 2016 and the projected market size for 2018 was INR 28,500 Crores.

9. List of key players in the sector

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(Technopak 2017)