Burgeoning QSR industry in India
The Quick Service Restaurant (QSR) sector in India has rapidly evolved from its earlier hygienic and cost-effective format. It now offers both comfort and cuisine, invariably meeting the needs of its various consumers.
As QSRs are gaining popularity across the country, the domestic QSR market is expected to reach US$ 32.22 billion by 2028.
Food and Indians have a special relationship, and rightly so India is a nation of foodies. Casual dining restaurants and QSR (Quick Service Restaurants) account for over 74% of the market and are rampantly growing. The Quick Service Restaurants industry, as the name suggests is the industry constituting the fast food restaurants offering food that does not require much time for preparation and can be served instantly. It even involves a minimum cost. QSRs are established where the footfall remains maximum, like places near the movie theatre or shopping malls.
The propitious demographics, steady urbanisation, growing per-capita GDP and the huge expanse available for penetration are together shoving the Indian quick service restaurant (QSR) industry. The QSR market in India was valued at Rs 171.90 Billion in FY 2022. According to the projections made by Research and Markets, India’s Quick Service Restaurants market is expected to be over US$ 16.72 Billion in 2023. On the back of rising demand and increasing penetration (in terms of rapidly emerging stores) the domestic QSR industry is expected to log a year-on-year growth of 20-25% in FY2024 and is expected to reach US$ 32.22 Billion by 2028, growing at a CAGR of 14.2%.
Some of the important players in the domestic QSR industry include Domino’s Pizza, Dunkin’ Donuts, Haldiram’s, Adyar Ananda Bhavan, Barista, Burger King Corp., Cafe Coffee Day, Yum Brands, KFC, McDonald’s Corp., Pizza Hut, Starbucks Corp., and Subway. The major players in the domestic QSR industry are expected to add nearly 2,300 stores during the period FY2023-FY2025 with an estimated capex (capital expenditure) of around Rs 5,800 crore for the said period.
The capex is expected to be largely funded by internal ‘accruals and cash on the books’, the money raised through the pre-IPO or IPOs (Initial Public Offering) in the last two fiscals.
In the long-term revenue growth in the QSR sector shall be on the back of factors like enhanced QSR penetrations, shifting from the unorganised to the organised segment with a preference for branded QSR players, hygiene and convenience factors, preferring delivery over dine-in, and such other factors. Further improvement in penetration of QSR sector will be led by higher technological absorption, increasing formalisation of the sector and the changing consumer behaviour post-Covid that exhibits a preference for food delivery.
Having said that, it is not to be presumed that the domestic quick-service restaurant industry is devoid of any risk or challenges. As India is largely dependent on the imports of edible oils to meet its domestic requirement, the margins of domestic players, thus remain exposed to geo-political risks and forex fluctuations.
According to Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, “The high lease costs, as well as rising overheads related to a growing delivery model, also impacts the cost structure. The operating margin in FY2023 and FY2024 is, therefore, expected to be flattish (despite the benefits of scale economies) and is likely to remain in the range of 20-22 per cent compared to 20 per cent in FY2022.” The emergence of any further Covid waves or weakening of purchasing power due to a high inflationary interest-rate regime are other risks that could besiege the revenues of the sector.
The quick-service restaurant industry in India has evolved from being just a hygienic and cost-effective setting to one that now offers both comfort and cuisine. As a result the QSR sector now has a larger market as it meets the passionate needs of consumers who are price sensitive as well as those who are high-income consumers.
Quick Service Restaurants (QSR) are now being more liked in both urban and suburban regions in the country, owing to their success in adjusting to the changes. As such their popularity will go on increasing in the future.