The information in this section includes extracts from publicly available information, data and statistics and has been derived from various government publications and industry sources. Neither we nor any person connected with the issue have verified this information. The data may have been re-classified by us for the purposes of presentation. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and accuracy, completeness and underlying assumptions are not guaranteed and their reliability can not be assured and, accordingly, investment decisions should not be based on such information. You should read the entire Draft Prospectus, including the information contained in the sections titled ―Risk Factors‖ and ―Financial Statements‖ and related notes beginning on page 14 and 197 respectively of this Draft Prospectus before deciding to invest in our Equity Shares.
INDUSTRY OVERVIEW
The Indian Food and Beverage (F&B) service Industry is one of the most vibrant industries that has seen unprecedented growth in the recent past and continues to expand rapidly. This can be attributed to the changing demographics, increase in disposable incomes, urbanisation and growth of organised retail. The F&B service market is worth INR 2,04,438 crore and is expected to reach INR 3,80,000 crore by 2017.
The sector is dominated primarily by the traditional segment. The brands and restaurant chains of both Indian origin and multinationals have not optimally penetrated the market so far. The F&B sector has evolved over the past decade, giving rise to exciting new concepts in food and beverage offerings and new and innovative service elements.
Segments such as fine dining, casual dining, quick service restaurants, cafes, etc. have found favour with the consumers. The F&B industry has been at the forefront of attracting investments into India and has played an integral role in portraying India as a land of opportunity. Several success stories of both domestic and multinational companies tapping into the Indian food services sector are examples of the current trends.
Source: Unlocking the potential in the food and beverage services sector, 2015 FICCI www.ficci.com
GLOBAL ECONOMIC ENVIRONMENT
The global economic environment appears poised for a change for the better with the recent sharp fall in the international prices of crude petroleum, which is expected to boost global aggregate demand, and the sharp recovery in the US economy in the face of gradual withdrawal from monetary accommodation. Following the global crisis of 2008, the global economy came under a cloud of uncertainty and the prolonged weakness in the
euro area, particularly since 2011, led to the (IMF) often revising global growth downwards in its World Economic Outlook (WEO). In its Update, published on 20 January 2015, the IMF projected the global economy to grow from 3.3 per cent in 2014 to 3.5 per cent in 2015 and further to 3.7 per cent in 2016. This downward revision from its October 2014 projections owed to the weaker economic prospects in China, Russia, the Euro area, Japan, and some major oil exporters because of the sharp drop in oil prices. The United States is the only major economy for which growth projections have been raised by 0.5 percentage point to 3.6 per cent for 2015. 4.3 In the case of emerging market and developing economies (EMDEs), which continue to struggle with tepid domestic demand and headwinds from structural impediments, the IMF Update projects growth to moderate to 4.3 per cent in 2015 and 4.7 per cent in the year 2016.
Going forward, the lower oil price is likely to be more positive for the EMDEs that account for more than half of the global output (purchasing power parity terms) given their higher contribution to global growth with inflation remaining anchored. This might lead to a better outcome than projected. A sudden correction in financial markets and downside risks to growth with a possible further slowdown in the euro area along with the likely duration of the oil price supply shock effect, are some of the concerns that linger on.
Source: Economic Survey 2014-15 - Volume II; www.indiabudget.nic.in
OVERVIEW OF INDIAN ECONOMY
One of the redeeming features, while comparing economic performance across different countries for the year 2014-15, has been the emergence of India among the few large economies with propitious economic outlook, amidst the mood of pessimism and uncertainties that engulf a number of advanced and emerging economies. Brighter prospects in India owe mainly to the fact that the economy stands largely relieved of the vulnerabilities associated with an economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances, and oscillating value of the rupee in 2011-12 and 2012-13. From the macroeconomic perspective, the worst is clearly behind us. The latest indicators, emerging from the recently revised estimates of national income brought out by the Central Statistics Office, point to the fact that the revival of growth had started in 2013-14 and attained further vigour in 2014-15.
Factors like the steep decline in oil prices, plentiful flow of funds from the rest of the world, and potential impact of the reform initiatives of the new government at the centre along with its commitment to calibrated fiscal management and consolidation bode well for the growth prospects and the overall macroeconomic situation. Encouraged by the greater macro-economic stability and the reformist intent and actions of the government, coupled with improved business sentiments in the country, institutions like the IMF and the World Bank have presented an optimistic growth outlook for India for the year 2015 and beyond.
The possible headwinds to such promising prospects, however, emanate from factors like inadequate support from the global economy saddled with subdued demand conditions, particularly in Europe and Japan, recent slowdown in China, and, on the domestic front, from possible spill-overs of below normal agricultural growth and challenges relating to the massive requirements of skill creation and infrastructural up gradation. The encouraging results from the Advance Estimates for 2014-15 suggest that though the global sluggishness has partly fed into the lacklustre growth in foreign trade; yet this downward pressure has been compensated by strong domestic demand, keeping the growth momentum going.
Source: Economic Survey 2014-2015 – Volume I ; www.indiabudget.nic.in
GLOBAL RESTAURANT INDUSTRY
The global restaurant industry has been forecast to reach a value of $2.1 trillion by 2015, driven by increasing preference for eating out and waxing demand for take away foods among modern time crunched consumers. Robust growth in the number of franchise restaurants, especially exotic fast food restaurants, cafés and snack bars will translate into increased revenues in the industry in the upcoming years.
When the economy emerged from the 2008 / 2009 recession, the restaurant industry staged a strong rebound in 2010. As 2011 rolled around, rising commodity costs and political turmoil in the Middle East cast a pail of uncertainty on the industry's ability to continue on this path to a healthy recovery. Thankfully, the sustained
optimism of the everyday consumer carried the industry into another record year, with all dining segments achieving positive increases in comparable store sales. This optimism, combined with favourable economic indicators, suggests 2013 may represent the third consecutive year of real sales growth.
In this age of busy lifestyles, where people are left with little time to spend on preparing food at home, eating out at restaurants has become a common practice. Preference for restaurant food is even higher among younger consumers with high disposable incomes but very little time to spare. This scenario provides an opportunity for restaurateurs to offer food service options in morning breakfast, brunch, meals and dinner. Franchising of restaurants, food joints, and even food products and ingredients has helped boost overall growth in the global restaurant industry in recent years.
There are about 8 million restaurants in the world and some 300,000 restaurant companies. The restaurant industry divides itself into full-service and fast-food restaurants. Full-service restaurants include family restaurants (such as Denny's), dinner houses (Darden Restaurants' Red Lobster), and grill/buffet type eateries (Metromedia's Ponderosa). The fast-food sector includes sandwich shops, which means hamburgers and Mexican food, as well as pizza and chicken joints. Companies in this sector include giants such as Kahala (Great Steak & Potato, Frullati Cafe), Texas Pacific Group (Burger King), YUM! Brands (Taco Bell, KFC, Pizza Hut), and of course, McDonald's.
Fast food is the term given to food that can be prepared and served very quickly, first popularized in the 1950s in the United States. While any meal with low preparation time can be considered to be fast food, typically the term refers to food sold in a restaurant or store with preheated or precooked ingredients, and served to the customer in a packaged form for take-out/take-away.
Outlets may be stands or kiosks, which may provide no shelter or seating, or fast food restaurants (also known as quick service restaurants). Franchise operations which are part of restaurant chains have standardised foodstuffs shipped to each restaurant from central locations.
The world fast-food industry is expected to generate almost $240 billion in 2014, representing a 19% increase over five years. The market is predicted to reach a volume of almost 249 billion transactions in 2014. Quick- service restaurants represent the leading market segment, with 71% of overall market value. The Americas represent almost half of the global market share.
The US fast food industry is expected to record yearly growth of 4% through 2014. The US remains one of the world's dominant nations in the global fast-food market even during the economic recession. The market is driven by a growing young population and an expanding middle class with rising disposable income. Fast-food sector growth is outpacing restaurant industry growth in the US, with leading companies invested heavily in promoting their products to further fuel expansion. Burgers represent the largest market segment, followed by other products such as pizza, pasta, sandwiches and snacks.
The UK fast food industry will record weak growth during 2013-14 as some consumers trade down from more expensive restaurant meals and uncertain times lead others to their favourite comfort foods. Mobile and online technologies are changing the industry and many operators now offer online ordering and delivery services. Industry revenue is estimated to decline at a compound annual rate of 1.7% over the five years through 2013-14, to reach £5.5 billion. Revenue growth in the current year is anticipated to be 1.7%.
Fast food had been thought to be largely recession proof, and indeed the industry did not suffer nearly as much as other discretionary spending sectors. In fact, there was some increase in consumer visits as people choose cheaper fast food options over fast casual or traditional restaurant choices. But overall, the recession hurt spending, and consumers overall purchased less with each trip. Fast food franchises fared reasonably well but still felt some pain.
The restaurant world is growing beyond the usual suspects like Brazil Russian India and China - the "BRICs" get a lot of attention from the media, but there are untold stories of other emerging markets that foodservice executives should be considering. There are approximately 15 million restaurants in the world and approximately 1/3 of them are in China. Of course, the majority of those 5 million Chinese restaurants are street stalls, independently owned/operated and/or small chains by American standards.
The number one "chain restaurant" market in the world is still the USA, but the largest population centers in the world are India and China. It is forecast that as consumers in China (and India and other emerging markets) continue to grow wealthier and enjoy more buying power, that big-budget Western brands will go in and win not just a share of the growth in these markets but also claw-away share of the existing market; edging out less sophisticated and well-funded incumbent enterprises.
Although late, the restaurant sector is nevertheless catching up with healthy eating trend. A majority of restaurant goers prefer healthy food items in restaurants. Organic food, beverages and food with less trans fats are increasingly finding their place in restaurant menus. Quick Service Restaurants (QSRs) are most noteworthy given the strides taken by this category of restaurants in changing menus to include healthy foods. Freshly prepared salads and fresh cut meats have become part of standard menus at QSR outlets.
Source: Market Insight: Global Restaurant Industry www.companiesandmarket.com
INDIAN FOOD INDUSTRY
The Indian food industry is poised for huge growth, increasing its contribution to world food trade every year. In India, the food sector has emerged as a high-growth and high-profit sector due to its immense potential for value addition, particularly within the food processing industry.
Accounting for about 32 per cent of the country‘s total food market, the food processing industry is one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. The total food production in India is likely to double in the next 10 years with the country‘s domestic food market estimated to reach US$ 258 billion by 2015.
The Government of India has been instrumental in the growth and development of the food processing industry. The government through the Ministry of Food Processing Industries (MoFPI) is making all efforts to encourage investments in the business. It has approved proposals for joint ventures (JV), foreign collaborations, industrial licences and 100 per cent export oriented units.
Source: India Brand Equity Foundation www.ibef.org
INDIAN FOOD & BEVERAGE INDUSTRY
The Food and Beverage service industry is one of the most vibrant service industries within India with over 25% yearly growth. Although predominantly concentrated in the unorganized space, with the advent of foreign and Indian restaurant chains, the organised market is likely to expand quite rapidly. Food expenditure constitutes the majority of our consumption basket and with an increasing young population, eating out will only grow. Eating out has evolved from an occasion driven activity to an occasion in itself for the youth for whom eating out is the most favoured activity besides hanging out with friends.
Amongst the various segments within the restaurant sector, Quick Service Restaurants and Casual Dining Restaurants constitute the largest categories – combined they constitute more than 77% of the overall market. The Restaurant Sector has been one of the first sectors to attract foreign interest due to huge opportunity. Indian
entrepreneurs will capitalise on the opportunity and it is likely for more organised chains to emerge in the next decade.
MARKET OVERVIEW
Changing demographics, increase in income, urbanisation and growth in organised retail is driving India's F&B sector:
The combined F&B service market is worth INR 204,438 crore, growing at compound annual growth rate (CAGR) of 23-24% and is expected to touch INR 380,000 crore by 2017.
Quick Service Restaurants (QSR) and casual dining are the two most popular formats that form 45% and 32% of the overall market respectively.
The F&B service market is dominated by unorganised segment and although it will decline significantly over the next 4-5 years, it is likely to remain more than 60% of the market.
Brands/ chains of both Indian and MNC brands are still less penetrated and there exists a large opportunity in this space to create bigger restaurant chains.
The maximum growth being witnessed is still in the standalone restaurant space where local taste along with uniqueness of concept are the key deciding factors.
Source: Unlocking the potential in the food and beverage services sector, 2015 FICCI www.ficci.com
DEMAND DRIVERS OF THE FOOD & BEVERAGE INDUSTRY
Demographics - Youth is a growth driver for the food industry
India, with its population of 1.2 billion, is one of the largest consumer markets in the world. It is also demographically one of the youngest with around 50% of its population below the age of 25 and around 65% below the age of 35. The majority of Indian consumption of fast food is driven by people between the ages of 18 and 40. The appetite of the young Indian population has been a key driver in QSR industry growth.
Increase in disposable income - Growing economy has resulted in higher expenditure on food and related products
Increase in disposable incomes of middle class families resulted in them spending more on food consumption. Per capita income increased by CAGR 9% to US$ 1,350 in 2013 compared to US$ 450 in 2000. Consumers are now spending as high as 51% of their income on food products.
Change in customer preferences - Increasing number of people prefer eating out and convenience food
Food habits have changed due to changes in family structures. With the changing habits there is an increased preference for convenience and higher instances of eating out. Certain section has been exploring culinary experiences due to the global mobility of the Indian consumer. This resulted in the emergence of the QSR industry and also the ready-to-cook/ ready-to-eat segments of the food & beverage industry.
Rise in number of working women - Increasing incidence of working women is resulting in frequent eating out occasions
Women form nearly 25% of the workforce now. With more women spending a substantial number of hours at work, there is little to no time to prepare elaborate meals at home, as generations before them did. More working women are spending their disposable incomes on eating out or serving ready-to-eat or prepared foods picked up on the way home from work.
Health and hygiene consciousness - Awareness for hygiene and health have increased sale of organised section of market
Rising awareness and incomes among upwardly mobile urban consumers are making them care more about health and fitness. The mushrooming of juice bars and kiosks selling salads and wraps are cases in point. Consumers are opting for healthy options at the supermarket as well. Many now cook with healthier oils as opposed to ghee and butter, the traditional cooking medium in India.
Source: Unlocking the potential in the food and beverage services sector, 2015 FICCI www.ficci.com
CHALLENGES AND PROBLEMS FACING THE INDIAN FOOD & BEVERAGES INDUSTRY
Below are the challenges and problems faced by the Indian Food and Beverages Industry
1. Lack of quality infrastructure
The food processing industry is among one of the largest industries in India and ranks 5th in terms of production, consumption and exports – its market size is estimated to be around INR 7.5 lakh crore. The food processing industry has a large presence of about 42% in the un-organised sector, whereas the organised sector is only 25% and the remaining is small scale industries. Consumption of processed food is still nascent to India and with growing urbanisation and disposable incomes, this trend is now increasing.