A foodservice market of the magnitude of India, growing at a scorching 25-30 per cent year non- year, has barely 10-15 QSR brands. The opportunity is huge and so are the challenges.

1. COVER STORY
Fast
A foodservice market of
the magnitude of India,
growing at a scorching
and
25-30 per cent year-
on-year, has barely
Furious
10-15 QSR brands. The
opportunity is huge and
so are the challenges. So
what exactly are these
bottlenecks, and why does
so much of fast food in
India look so American?
By Bhavya Misra
24 July-August 2011 FOODSERVICE INDIA EDITION

2. T
he Indian economy opened up in Market Opportunity
the year 1991. This was the time Prior to the year 1996, there were barely any QSR
when leading multinational quick- brands present in India barring Haldiram’s (which
service restaurant (QSR) brands, jumped the chain-QSR bandwagon only much
including McDonald’s, Domino’s, KFC, later). Nirula’s, which had commenced operations
Pizza Corner et al, laid siege over a way back in 1928, launched its first family-style
consumption boom that was soon to explode. The restaurant only in the 1990s.
journey of some of these brands has been a mix of So, did the QSR phenomenon create a new
highs and lows. KFC, in fact, had to withdraw from consumption class altogether, or did the rapidly
the market during the initial entry phase after being evolving consumers drive the need for fast food?
buffeted by a storm over a controversial menu. “Over the past few years, urban Indian
“India may look like a market easy to enter, but consumers have become more “expenditure-
to be successful one really needs to have a lot of oriented,” with out-of-home dining being one of
energies invested towards getting the back-end the top leisure activities. There is a substantial
chain in place,” says K Ramchander Raman, head increase in both dine-in and delivery businesses in
of Food & Beverage at Cafe Coffee Day, which the industry. With the rise in disposable incomes
prefers to define itself as a cafe rather than a QSR. of the average urban Indian consumer, the market
“When McDonald’s decided to enter India in size and potential of restaurants are only expected
1989, there was nothing readily available here to rapidly grow in future,” states Ashish Kapur,
that would help us launch front-end restaurant managing director of Yo! China. In a market
operations instantly,” Vikram Bakshi, managing dominated by unorganized players, he reckons the
director and JV partner, McDonald’s India (North organized players accounting for only about 3,000
& East) explains. “The infrastructure was poor; outlets all over India.
the very concept of a cold chain did not exist! On Samir Kuckreja, managing director and CEO of
top of this, there were no ready suppliers available Nirula’s, says: “The Indian restaurant industry has
who could deliver the ingredients that make a all the right ingredients for robust growth. Factors
McDonald’s product.” such as rapid urbanisation, growth of mid-sized
Bakshi confirms that the chain spent the cities, improved infrastructure, rising population,
initial years in the country building everything rise in the number of working women and higher
from scratch – right from setting up suppliers by disposable incomes have together made QSRs the
teaching them how to produce the ingredients fastest growing foodservice segment, growing at an
that McDonald’s needed, with know-how and annual rate of 25-30 per cent.”
technology transfers from the global partners, to Bakshi estimates the overall size of the QSR
developing a menu which would be relevant to industry in India to be about Rs 43,000 crore,
Indian consumers along with segregation of non- with the organized segment accounting for a paltry
vegetarian and vegetarian cooking sections. 16 per cent of the market. However, this ratio is
expected to change in the next few years. “The
organised segment would increase to about 45 per
cent of the market by 2015, when the overall size of
the industry would reach around Rs 62,000 crore,”
he says. The Indian restaurant industry is growing
at a scorching pace of 20-25 per cent per annum.
The organised segment is expected to grow faster
at the rate of 25 per cent per annum. “I am seeing
a trend that shows unorganised segment fast
becoming organized. Added to this is the growth of
current organised players, which would double the
size of the sector,” adds Bakshi.
Indian Fast Food QSRs: Where are They?
The entry of multinational QSR brands appears to
have propelled the growth of indigenous chains,
which lay almost dormant until the entry and
rapid expansion of brands such as Domino’s,
Subway, KFC and McDonald’s. However, given the
rich diversity of Indian street foods, pan-Indian
specialist domestic QSRs are still hard to find in
the country. The main problem seems to be a lack
of standardization and the huge gestation period
required before a restaurant chain comes alive.
Says Harneet Singh Rajpal, vice president of
FOODSERVICE INDIA EDITION July-August 2011 25

3. COVER STORY
marketing at Domino’s India: “India has a rich there is a long gestation period, primarily to put
bounty of popular street foods, but the issue with up a viable supply chain. “Huge investments in
Indian food formats is that they lack scalability and the form of time, effort and capital are critical to
consistency of delivery. This is because there is no get the back-end infrastructure in place before the
standardisation of processes and ingredients. For operation is up and running,” he says.
example, a Domino’s pizza would taste the same,
whether you eat it in Delhi or Patna or Mysore. This
standardisation is not possible with Indian street
foods. Some QSR chains are however focusing on
this and trying to replicate the western fast-food
model with signature Indian foods.”
Manpreet Gulri, the development agent for
Subway in India, adds: “There are a few successful
Listen home-grown QSRs in India that are doing extremely
to your well. But to build a successful QSR, a brand
needs consistency in product and quality, and this
customers. comes only through standardisation.” Some of the
Innovate domestic QSR success stories include Café Coffee
continuously. Day, Barista, Haldiram’s, Bikanervala, Sagar Ratna
and Nirula’s.
Think long Bakshi notes that QSRs make for a high capex
term. business, requiring huge investments in not only
the front-end but also the back-end. “Food safety
– Vikram Bakshi,
managing director
& JV partner,
McDonald’s India
(North & East)
systems must be stringently followed across QSRs: Life Cycle Dynamics
cold chain and logistics, which requires huge While the potential of the Indian market is huge
investments as well,” he says. “With changes in and challenges stand equally tall, what really drives
lifestyles and increased awareness, customers now a foodservice operator specifically towards a QSR
prefer quality food in a safe, hygienic environment. format? And when does a QSR outlet breaks even?
This is something being acknowledged now, and According to Kapur, one of attractions of QSRs is
will contribute to the growth of Indian QSRs,” he the comparatively quicker returns on investment.
says. “Full-service formats take a longer gestation period
Kapur of Yo! China points out that for any investor to achieve favourable ROI compared to QSR outlets
intending to open a chain of restaurants in India, which generally generate payback within four years.
26 July-August 2011 FOODSERVICE INDIA EDITION

4. The QSRs often succeed in a big way because of Start-up Challenges Consumer Foodservice
speed of service and overall consistency, and also So even as the excitement about the QSR business by Location in India
because they are more accessible through multiple among restaurateurs and entrepreneurs seems • Standalone dominates,
touch points for families with children,” says he. justified, what about the multiple challenges that with an 87% share of
Kapur points out that casual-dining restaurants often queer the pitch, especially the start-up pangs? outlets in 2009
face more challenges in keeping up with Rohit Aggarwal, CEO of LiteBite Foods, highlights • Travel locations record
competitors because they are competing with both, some serious operational challenges that crop up the strongest growth of
fine-dining restaurants and fast-casual places, once any QSR commences operations. He says 17% in 2009 to reach
depending on subtleties in menu pricing and negative myths about QSRs as a potential career 64,000 outlets
atmosphere. gateway pose a problem in hiring people. “Beliefs • Shopping mall outlets
Bakshi however holds the opposite view. regarding pay scales and growth prospects make suffer from the
According to him, the break-even period of QSRs candidates think twice before joining any QSR economic downturn in
could be anything between 6-8 years versus 2-3 chain. Another issue is the unavailability of skilled 2009
years for fine-dining restaurants. “A restaurant is a staff. Pre-trained recruits are hard to find. Most • Foodservice operators
long-term business; it takes comparatively long to employees get their initial training for the job only expand in travel and
turn profitable. This is especially true for QSRs as after a QSR brand has hired them.” standalone locations in
the margins are thin, and menu pricing plays a big With 11,514 employees across 378 stores, the 2009
role in defining success or failure. Also, QSRs need HR department of Domino’s faces a big challenge, • Retail is expected to
scalability to become viable and succeed, which keeping the entire work force motivated to deliver record the fastest
is not the case with fine dining restaurants,” he their best. “There is a scarcity of professional and CAGR of 9% in terms
explains. “However, it is important to understand trained personnel at all levels to run the growing of outlets over the
forecast period
source: Euromonitor
International Report, Aug 2010
QSRs in India :
Snapshot
Total Number of Outlets
as of May ‘11
McDonald’s India
216
Domino’s
that QSRs would always have a larger pie of the IEO business. Given a typically high employee churn, it
368
(Informal Eating Out) market and their life cycle becomes even bigger challenge,” Domino’s Rajpal Subway
would always be far longer than that of a fine dining says. 204
restaurant.” While Yo! China’s Kapur agrees on the lack of
Yum Brands India
Dheeraj Gupta, managing director of Jumbo trained manpower in India as a big hurdle for QSR
King Vada Pav, offers a more optimistic outlook on outlets, he also mentions infrastructure issues like 300 Plus
business viability of QSRs. “A well-run QSR unit cold chains and power and water supply as other Nirula’s
should break even in 2-3 years,” he says. bottlenecks. “A complex maze of licensing and 85 Plus
Vinod Mahboobani, vice-president of business taxation laws – which differ from state to state – is
development at Yum! Brands India, believes the the other major irritant,” he says. Yo! China
life cycle of a QSR would vary across brands. “Big Jumbo King’s Gupta seconds this view. “Because 50 Plus
multinational QSR chains figure it out fairly quickly of multiple taxes varying from state to state, uniform Jumbo King Vada Pav
as recall for these brands already exists. The QSR pricing – which forms the essence of a national
43
model is far more scalable than a FDR or a CDR brand – becomes difficult”. He also mentions high
model due to the higher levels of transactions that it logistics costs as a major problem. “Transportation Cafe Coffee Day
drives. If you get the consumer proposition right and costs are high because the current QSR brands 1200 Plus
offer the right value, the returns are very attractive.” have relatively smaller footprints. These should
FOODSERVICE INDIA EDITION July-August 2011 27

5. COVER STORY
Market Share of Leading Foodservice Formats in India (Percentage Breakdown)
Brand Company name (GBO) 2004 2005 2006 2007 2008 2009
McDonald’s McDonald’s Corp 0.1 0.1 0.2 0.2 0.2 0.2
Café Coffee Day Amalgamated Bean Coffee 0.1 0.1 0.1 0.1 0.1 0.1
Trading Co Ltd
Domino’s Pizza Domino’s Pizza Inc 0.0 0.1 0.1 0.1 0.1 0.1
Indian Hotels Co Indian Hotels Co Ltd 0.2 0.2 0.2 0.2 0.2 0.1
Restaurants
Pizza Hut Yum! Brands Inc 0.1 0.1 0.1 0.1 0.1 0.1
Others Others 99.5 99.5 99.4 99.3 99.3 99.3
Total Total 100.0 100.0 100.0 100.0 100.0 100.0
Source: Euromonitor International Report, August 2010
however decrease as store count increases and
economies of scale kick in.”
Elaborating on the complexity of licensing issues,
Kuckreja of Nirula’s lists the following procedures
of documentation and licensing that are required in
India to open an independently-owned restaurant:
• Land Purchase/Lease: From government
agencies or private individuals
• Approval of development plans: From city
municipal body
• Planning permission / Retail permission: From
city municipal body, but other state and central
government agencies are also involved for
providing certain clearances
Raise Supply chain and distribution infrastructure are
funding via clearly big challenges in India, compared to the
professional developed markets. “There is a complete absence
investors and of big distribution companies in India, the cold
chain infrastructure is not developed and the
build that into condition of the roads is pitiable. In effect, the sheer
a business. cost of entering a new territory is a major drain,”
Select smart says Mahboobani of Yum! Brands.
Kapur agrees that there is a lack of inadequate
locations and supply chain infrastructure for restaurants. He
detail out all points that there are very few specialised supply
chain companies in this sector and there is huge
aspects of the requirement of an organised supply chain solution
operation. to help restaurants with procurements. “There
should be more companies looking at delivery and
storage cold chains, though there are indications of
– Ashish Kapoor, supply chain networks maturing in the metros,” he
managing director, states.
Yo! China Rajpal considers these bottlenecks as part and
parcel of every sunrise industry that is beginning
to take off. “Infrastructure scarcity, rising real
estate rentals, complex tax structures, shortages in
manpower, inflationary pressures, underdeveloped
supply chains, lack of quality and reliable suppliers
– these are typically features of a growing industry
in its early days,” he says, adding that there are
ways around them. Domino’s, for instance, enters
long-term contracts for the properties it leases for
opening stores. This, according to Rajpal gives the
company as well as the property owner a sense of
continuity and long-term relationship. Such long-
28 July-August 2011 FOODSERVICE INDIA EDITION

6. India Market Size: Historic and Forecast Foodservice Value (Rs mn/Current Prices)
Categories 2008 2009 2010 2011 2012 2013 India may
Consumer Foodservice by Type 3,195,019.1 3,546,940.7 4,200,133.7 4,850,054.2 5,487,054.7 6,115,853.1 look like a
and Chained/Independent market that
Consumer Foodservice by 3,195,019.1 3,546,940.7 4,200,133.7 4,850,054.3 5,487,054.6 6,115,853.2 is easy to
Location enter, but to
Source: Euromonitor International Report, Aug 2010
be successful
one really
term contracts are also signed with vendors and
suppliers of key ingredients.
Food customisation is an art and it is possible
to go overboard, cautions Mahboobani of Yum!
needs to have
“It is actually a win-win situation for the producer Brands India. “Simply put, you have to be an a lot of energy
and the consumer. To the supplier it conveys the international brand with an Indian heart. You have invested
security of assured billing and returns. For the
buyer, this brings cost efficiencies and also assured
to customise to an extent to suit local palates, but
have to stay true to the core international offering.”
towards
availability of raw materials,” adds Rajpal. Typical customisation of an international offering for getting the
Gupta of Jumbo King Vada Pav says that, all said India would include substituting beef with chicken, back-end
and done, the market scenario today is much better pumping up the spice levels and making sure the chain in
than what it was five years ago. His company is menu has some vegetarian offerings. Mahboobani
now focusing on expanding its footprint and hopes says they have a clearly defined menu vision based place.
that with every extra outlet added, supply chain
dynamics would improve further and reflect on
product quality and pricing. “A QSR business is a
largely volume-based game. When we were at five
outlets, no one wanted to give us our rates. Now
that we are approaching the 50-unit mark, everyone
wants to work on our terms,” he adds.
Think Global, Act Local
Apart from getting the logistics in place, developing
a menu that suits the tastes and preferences of
target customers forms an integral part of any
successful QSR business in India. This is very
important because of the unique tastes of Indians
that vary from region to region.
For some QSR chains, the mantra of success is
to have a mix of international and locally innovated
products in the menu, a strategy pioneered by
McDonald’s in India. “This strategy has worked for
us, and is also working for new players who have
entered India since we launched here in 1996,”
admits Bakshi whose company has introduced
such hybrid India-specific products as McAloo Tikki
Burger and steered clear of any beef or pork items
in its menu. Another factor helping this trend is an
evolution in consumption habits of Indians as they
turn increasingly cosmopolitan. “Today’s customers
have begun experimenting and are increasingly
open to new cuisines, foods and flavours. This
creates a very viable environment for the new
players to launch global products, while continuing
to build their portfolio with local flavours,” he adds.
The success of this localisation strategy has not
gone unnoticed by other QSR chains in India. As
the eating out habit of Indians increases and the
average bill value goes up, restaurant operators
across cuisines want to secure their share of
these higher spends. “To do so, it is not just the
international operators who have reviewed and
localised their offerings to attract more consumers;
domestic players are also continuously revamping
their menus,” notes Kuckreja.
FOODSERVICE INDIA EDITION July-August 2011 29

7. COVER STORY
on consumer insights and needs. “We have a
rich pipeline of products and a well established
R&D team that is constantly looking at product
innovation. The marketing, supply chain and R&D
teams work closely together to ensure readiness for
new product launches,” he explains.
Subway’s Gulri agrees that Indians have very
unique taste buds, and that all QSRs in the
market must recognise this and adapt their menus
accordingly. “Based on this insight, we at Subway
have been offering sandwiches successfully in India
over the past decade,” he adds.
Domino’s India also reworks its menu mix
from time to time based on continuous customer
feedback. For instance, the pizza-maker has
localized the toppings by adding uniquely Indian
If one is items such as paneer and spices, in an effort to
looking at make more Indians try pizzas and develop a taste
a franchise for them. “We have launched many pizzas with
ingredients that are in sync with quintessentially
model, one Indian flavours, but we also continue to have some
has to speak international favourites on our menu, and they are
to people who doing pretty well,” says Rajpal.
are already Domino’s has set in place a flexible supply chain
which can quickly adapt to the changing market
involved in requirements. “Our supply chain is always aligned
such a model. with the marketing department on new ingredients
Getting their as well as new vendor development for new product
opinions launches and menu enhancements,” he adds.
Despite the trend of customisation and
generates localization, not many specialised QSR concepts
a fair have emerged in the Indian market yet. Western
understanding fast food still appears the best bet for most QSRs.
New food concepts such as crepes, bagels, donuts,
before muffins and salads – popular abroad – are still
kicking off a unheard of in India.
foodservice Domino’s Rajpal explains the reason: popularity
venture. of a product depends on its taste and acceptance
by consumers. “It took almost 6-7 years for popular
– Harneet Singh food formats such as burgers and pizzas to gain
Rajpal, acceptance in India. It’s only in last five years
that the QSR industry has really started booming. Burgers, pizzas, fries and sandwiches are the
VP - marketing, forte of the currently operational QSRs and have
Domino’s Pizza therefore, become popular menu items.”
India He argues that specialized food concepts will
become popular once QSR chains start focusing on
them. Some of them are getting there. For example,
Dunkin’ Donuts is soon making its entry into India.
The international baked goods and coffee chain has
signed an exclusive master franchisee agreement
with Jubilant Foodworks, which also manages the
Domino Pizza franchise in the country.
The Indian market seems ripe for concept-
led chains and those focusing on new cuisines
because of changing lifestyles of consumers which
has made them more open to experimentation.
“International food has a strong presence in the
fine-dining segment. In future, there might be a
trickle-down effect from the fine-dining to the mid-
market offerings of international cuisine, as one has
seen in the case of Chinese, Thai and even Italian
cuisines,” says Kapur of Yo! China.
30 July-August 2011 FOODSERVICE INDIA EDITION

8. COVER STORY
Gaining Ground quick snack. It intends to explore non-traditional
Location is perhaps the most important factor in the location opportunities, but not immediately. “We
success of QSR chains. The Indian location strategy will eventually look at railway stations across the
of most of them until now seems to have been country, airports and bus stations as they evolve
driven by the “safety first” mantra. But what about and the highway petrol pumps as our national
International the under-leveraged opportunities in high-traffic highways develop,” Gupta says.
food has a public spaces such as highways, bus stations and
strong presence railway stations that are waiting to be tapped?
“It’s true that the location focus initially for most
in the fine- QSR chains in India was shopping centres and
dining segment. high streets,” Kuckreja agrees. “Highways certainly
In future, there offer very high seasonal growth, but building and
might be a operating costs are very high on such locations. But
trickle-down with improved infrastructure of cities, highways as a
effect from the new avenue for growth are surely being explored by
fine-dining to most chains.”
According to him the key determinants of
the mid-market a successful highway strategy are customer
offerings of convenience, service innovation, ample parking
international space and quality food. Currently, along with
cuisine. Nirula’s, QSR chains such as Café Coffee Day,
Barista, Haldiram’s and McDonald’s are operational The Final Take
on many national highways. What does it take to succeed in the Indian QSR
market? Why some prosper while others fold
up? Mahboobani says it is critical to understand
and crack the consumer proposition, offer what
consumers really want at the right price and with a
truly differentiated experience. “This requires a dive
into the market and consumer preferences and
adapting the offerings accordingly,” he adds.
Domino’s Rajpal emphasizes that it is crucial
for a QSR chain to understand the challenges
in the sector and the business model that one is
considering to enter. “For instance, if one is looking
at a franchise model, one has to speak to people
who are already involved in such a model. Getting
their opinions on the opportunities and challenges
generates a fair understanding before kicking off a
foodservice venture,” he advises.
QSR as a sector has a vast potential in India
and can be tapped with the right product, quality,
service, value for money and ambience. “The trick
lies in understanding who the customers are and
what their needs and requirements are. Provoking
What holds the QSR chains back from fully continuous feedback from customers is one of
exploiting the highways is an absence of localized the best ways to get them involved in the brand,”
supply chains, erratic customer inflows and poor Rajpal adds.
surrounding infrastructure. “QSR chains are Yo! China’s Kapur lays emphasis on defining
gradually moving into this segment and hopefully the value proposition and opportunity of the
we will see a richer QSR offer on Indian highways in business model. “Raise funding via professional
the years to come,” Bakshi says. investors and build that into a business, select
A major issue in exploring new locations off the smart locations and detail out all aspects of the
beaten track is the availability of quality retail real operation,” he says. “Moments of truth – the
estate for restaurants. “Locations such as airports, experiences that you deliver to your consumers –
railway stations, bus terminals and highways have have to exist. For instance, whenever we see our
great customer traffic, and they are certainly very customers waiting to get their orders delivered, we
under-leveraged. These can provide great leverage offer them a complimentary side order. It makes
to restaurant chains to expand, provided certain them feel special.”
real estate and other issues that exist in these Bakshi of McDonald’s has a rather short but
locations are corrected,” he adds. effective formula for success: “Listen to your
Jumbo King Vada Pav predominantly targets customers. Innovate continuously. Think long
the young on-the-go Indian who is looking for a term.” ••
32 July-August 2011 FOODSERVICE INDIA EDITION