While many international restaurant brands are already in India, a host of others are lining up to commence operations. But almost every CEO B&E met for this story lamented the over-policing by the government... We take a quantitative stock analysis! by Vareen Gadhoke Ray & Swati Sharma
Variety, they say, is the spice of life – a fact that Lee Iacocca (former CEO, Chrysler) vouched for in his autobiography. He mentions that when his parents immigrated from Italy to the US, his father Nicola started a hot dog restaurant, Yocco's Hot Dogs, (apart from two other businesses). And then the infamous 1929 Wall Street Crash happened, wiping out the savings of millions of Americans in one shot. Iacocca writes that while most other businesses in America collapsed, the restaurant business kept thriving – because people wanted to forget their worries. So customers kept streaming into Yocco's Hot Dogs, and business never seemed to go down. His family saw those times through relatively easily because of that. Iacocca was five years old then, but the lessons remained with him throughout his life. Almost everybody knows Iacocca worked in Ford, and then headed Chrysler till his retirement in 1992. Not many know that in 1998, Iacocca became the Chairman of the LA based restaurant chain, Koo Koo Roo Inc.
The anecdotes are placed simply to prove a point – the restaurant industry is interestingly one of the Indian economy’s best kept secrets. Fast food chains, QSRs, fine/casual dining, cafes, bars & lounges, food courts, take away kiosks, et al, from across the world have set up shop here. With a slew of customised product, offerings and pricing strategies coupled with an armoury of aggressive expansion plans, the restaurant sector (which is growing at 5-6% per annum) is now worth a huge Rs.430 billion! But strangely, there's generally never any kind of a brouhaha over this sector within India – no particularly data-heavy media reports, no statistics, no intrinsic analysis... So B&E decided to go one-up and bring a collation of the latest status of this industry, and the challenges that stand within.
The Economics of Food
Notwithstanding its increased prominence in recent years, the restaurant industry has a history of being fragmented & unorganised, and often suffers the consequence of being compared to the small sweet shops & roadside snack outlets spread across the country. In a market dominated by the unorganised players, the organised segment is estimated to be Rs.70-85 billion [as per "Indian Restaurant Industry 2010", a White Paper prepared by National Restaurant Association of India (NRAI) in association with Technopak Mindscape]. The organised segment of the restaurant industry forms 16-20% of the total restaurant market of Rs.430 billion.
In spite of the slowdown, the restaurant industry in India is still expected to be one of the fastest growing, with a growth of 5% plus until 2011. The organised segment is in fact expected to grow faster than the overall restaurant industry, at 20-25% per annum. And given the faster growth of the organised segment, its share of the pie is expected to increase to 45% (to a size of Rs.280 billion). The reasons for this growth are two fold. First, the growth of current and new organised players, and second some of the unorganised operators becoming organised.
As per a Technopak report, by 2015, the restaurant industry will become Rs.625 billion plus. While this is a fast paced growth, had the Indian restaurant industry occupied a similar share of GDP as the restaurant industry of the US occupies of the US GDP, its value would be Rs.1,800 billion, so the untapped potential is immense. Among the various formats, QSRs & cafes have had the maximum growth over the last few years. While most other countries in the Asia region witnessed single-digit growth, QSRs are expected to grow at 15-20% over the next five years.
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Source :
IIPM Editorial, 2010.
An Initiative of
IIPM,
Malay Chaudhuri and
Arindam chaudhuri (
Renowned Management Guru and
Economist).
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