Unlocking the potential in

the food and beverage services sector

2015
Disclaimer:
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be reliable, but no representation or warranty is made to its accuracy, completeness or correctness. The
information contained in this document is published for the knowledge of the recipient but is not to be
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document is not intended to be a substitute for professional, technical or legal advice or opinion and the
contents in this document are subject to change without notice.

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neither Grant Thornton nor FICCI nor other legal entities in the group to which it belongs, accept any
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Contents

04 Foreword
05 Executive summary
06 Overview of the Indian F&B sector
11 Overview of the segments
22 Demand and supply drivers

27 Growth in investments in the F&B services sector

31 Key issues
44 Common pitfalls during expansion
47 About FICCI
49 About Grant Thornton
Foreword
The Indian Food and Beverage (F&B) This report titled ‘Unlocking the
service Industry is one of the most potential in the food and beverage
vibrant industries that has seen services sector’ highlights the overall
unprecedented growth in the recent past potential of the industry and some of
and continues to expand rapidly. This the challenges faced while opening a
can be attributed to the changing restaurant or restaurant chain in India
demographics, increase in disposable and points to ways to mitigate these
incomes, urbanisation and growth of challenges. The report also focusses on
organised retail. how to improve ‘Ease of Doing
Business’ in this sector and make it
The F&B service market is worth INR more attractive for both Indian and
2,04,438 crore and is expected to reach foreign investors.
INR 3,80,000 crore by 2017. The sector
is dominated primarily by the traditional I am confident that the deliberations of
segment. The brands and restaurant the seminar and the recommendations
chains of both Indian origin and of the report would provide a roadmap
multinationals have not optimally for the Industry to grow and achieve its
penetrated the market so far. The F&B true potential.
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 Dr. Arbind Prasad
investments into India and has played Director General,
an integral role in portraying India as a FICCI
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.

4
Executive summary
The Food and Beverage service industry The Restaurant Sector has been one of
is one of the most vibrant service the first sectors to attract foreign
industries within India with over 25% interest due to huge opportunity. Indian
yearly growth. Although predominantly entrepreneurs will capitalise on the
concentrated in the unroganised space, opportunity and it is likely for more
with the advent of foreign and Indian organised chains to emerge in the next
restaurant chains, the organised market decade.
is likely to expand quite rapidly.
Some of the key issues marring the
Food expenditure constitutes the industry include:
majority of our consumption basket and • Lack of quality infrastructure
with an increasing young population, • Shortage of skilled manpower
eating out will only grow. Eating out has • Increasing real estate cost
evolved from an occasion driven activity • The large number of licenses
to an occasion in itself for the youth for required and the lead time to obtain
whom eating out is the most favoured them
activity besides hanging out with • Tax incidence
friends.
In this report, we have attempted to
Amongst the various segments within highlight the key issues and suggested
the restaurant sector, Quick Service certain measures to counter these based
Restaurants and Casual Dining on industry feedback.
Restaurants constitute the largest
categories – combined they constitute
more than 77% of the overall market.

5
Overview of the
Indian F&B sector
Market overview - Indian F&B services
sector
• Changing demographics, increase in • The F&B service market is
income, urbanisation and growth in dominated by unorganised segment
organised retail is driving India's F&B and although it will decline
sector significantly over the next 4-5 years, it
• The combined F&B service market is is likely to remain more than 60% of
worth INR 204,438 crore, growing at the market
compound annual growth rate • Brands/ chains of both Indian and
(CAGR) of 23-24% and is expected MNC brands are still less penetrated
to touch INR 380,000 crore by 2017 and there exists a large opportunity in
• Quick Service Restaurants (QSR) and this space to create bigger restaurant
casual dining are the two most chains
popular formats that form 45% and • The maximum growth being
32% of the overall market witnessed is still in the standalone
respectively. restaurant space where local taste
along with uniqueness of concept are
the key deciding factors

Food and Beverage service industry (in INR lakh crore)

3.8

3.09

2.51

2.04

2013-14 2014-15P 2015-16P 2016-17P

Source: Grant Thornton Analysis, Industry Sources

7
Market overview - Indian F&B services
sector
Food and Beverage service industry composition

Fine Dining

12% Casual Dining

45% 7% Quick service

restaurants

3% Cafes

Others
32%

Sources - Technopak analysis

Segment share

8%

2013 5%

22%
2018 28%
3%
61%
70%

3%

Brands / Chains Standalone Restaurants

Standalone Restaurants (in Hotels) Unorganised

Source: Grant Thornton Analysis, Industry Sources

8
Food constitutes half of our consumption
expenditure. Thanks to the large young
population in the country, this trend is not
likely to witness a change in the next 20-25
years.
Age-wise consumption of food (Figures in millions)
258.2 243.3
187.0
165.0
118.7
105.3
43.6 43.2 34.1 37.8

0-14 15-24 25-54 55-64 65 and above

Men Women
Distribution of routine expenditure – Food is a major item in the
consumption basket

All India 51%

Urban 45%

Rural 55%

0% 20% 40% 60% 80% 100%

Food Housing Health Transport Education Clothing Durables Others
Source: Industry sources

A high percentage of India's population will be in the age group of 5-25

years– with increased urbanisation and consumerism, they will be more
likely to consume processed food and eat out more often.

• The Indian economy is expected to add another trillion dollars to its GDP in next 5-
6 years, enabling per capita CAGR of 12%. The resultant income growth would lead
to a rise in the number of middle class customers
• High expenditure on food and related items coupled with the large portion of the
population being a part of the target market, the growth of this sector is expected to
be high
9
The youth shall drive the food service
industry towards explosive growth due to
their sheer number and consumption habits.
• People in the young category are the • Besides hanging out with friends,
most likely to eat out – around 58% eating out is the most favoured
of the people eating out are in the activity amongst the youth (13-24
age group of 18-30 years years)
• This is the segment with the • Eating out has evolved from an
maximum disposable income and in occasion driven activity to an
the demographic pyramid, the largest occasion in itself. It has become a
segment within India form of entertainment for
• This segment is also the most price consumers today
sensitive and statistics show that • Indian consumers are increasingly
73% of the youth (13-24 years) dining out, particularly in urban areas
consider price the most important • Urbanising double-income
consideration while making households, changing lifestyles and
purchases. food preferences are spurring the
organised market within the dining
out sector

Age group profile of people Favourite outdoor entertainment

eating out activity

11% 18%
18% 10%

25%
31%

40% 39% 8%

18-20 Years 21-30 Years Eating Out

31-40 Years Above 40 Years Hangout with friends
Going out/picnic with family
None
Source: Marketing Whitebook, Industry Sources Others
10
Overview of the
segments
Quick Service Restaurants (QSR) – the
most popular category on the block

Definition Status
• Also called fast food joints; serve • QSR has remained a key segment of
processed foods fast at low prices; the Indian food service market and
typical menu items include burgers, has grown over the years
pizza, milkshakes, French fries; • A number of QSR chains have
minimal table service; also provide flocked into India over the past few
takeaway and home delivery years with specific cuisines and
product offerings fuelling the market
growth
• From metros and mini-metros, QSR
brands are now expanding into
smaller cities with smaller formats
• The overall market for QSR is
estimated to be around INR 92,000
crore and is estimated to grow at an
annual rate of 16%

Market break-up (INR crore)

198,284

92,018

2013 2017(P)
Key players
• The chain space in the QSR segment has 90 to 100 brands with around 3,000
outlets spread across various cities
• Both the international and Indian chains have a say in this segment
• While known Indian QSRs like Haldiram’s, Bikanerwala, etc. have a skew towards
vegetarian food, the international players like McDonald's, Dominos Pizza, KFC,
Subway, etc. offer a mix of both vegetarian and non-vegetarian offerings
12
QSR - Brands of Indian origin, although
playing second fiddle to foreign brands, are
growing much faster due to better
acceptance by Indian consumers and also
better localisation of tastes and preferences.

QSR of Indian origin Market break-up - QSR

The segment grew by 37% in terms
of number of outlets during 2013.
One of the key players driving this
segment has been Goli Vada Pav,
which registered a growth of 35%
in retail expansion. The revenue 37%
growth for the same period was
more than 40% for the segment as
63%
a whole.

QSR of foreign origin

Retail outlets grew by 28% against QSR India QSR Foreign
37% of Indian origin players. The
sale revenue also increased by same
percentage but the average sale per
square feet per month has been a
concern inspite of same outlet
growth being close to 27%. Some
of the major foreign QSRs are
McDonald's, Dominos Pizza, Pizza
Hut, Subway, Dunkin donuts, KFC,
etc.

13
Casual dining – the second most popular
category
Definition Status
• Offer moderately priced food, casual • The dining out culture has evolved in
atmosphere and quick table service India over time with casual dine
• Some also provide takeaway and restaurants now forming the second
home delivery largest segment (32%)
• In 2013, the size of the casual dining
market is estimated at around
INR 66,000 crore, and projected to
grow at a CAGR of 10% to reach a
size of INR 106,818 crore by 2018

Market break-up (INR crore) Key players

• Examples: SaravanaBhavan, TGI
106,818 Fridays, Punjab Grill, Zambar,
FresCo, Asia 7, Street Foods of
India, Baker's Street, Chili’s, Great
65,972
Kabab Factory
• The chain casual dine market in
India has around 1700-1800 outlets
spread across major cities
• Known brands include Moti Mahal,
Indigo Deli, Pizza Hut, Papa John’s,
Pizza Express, Rajdhani, Sagar
Ratna, etc.

2013 2017(P)

14
Fine dining – dominated by hotel segment,
but slowly seeing more international chains
also venturing into this
Definition Status

• Offer finest in food, service, and • The Fine Dine market thrives largely
ambience; high priced; staff highly on the affluent consumer and is
trained; usually located in luxury around 3% of the market
hotels in metropolitan cities. • The segment is growing at around
15% per year
• There is a renewed interest in this
segment and a large number of
multinational chains are entering the
market such as Haka San, Akira Bak,
Benihana, etc
• The Fine Dine market size is
estimated to be around INR 7,000
crore currently, and estimated to
reach almost INR 13,000 crore by
2018

Market break-up (INR crore) Key players

• Examples: Taj Hotels, The Leela
12,882
Hotels, Oberoi Hotels, Sheraton
Hotels etc all have fine dining
concepts
• The chain fine dine market in India
6,971 has around 50 players with 150 to
200 outlets spread across major cities
• Known brands include Haka San,
Akira Bak, Punjab Grill, Mainland
China, Smokehouse Grill, Olive Bar
& Kitchen, Taman Gang, etc.

2013 2018(P)

15
Cafés – A growing culture amongst urban
Indians
Definition Status
Outlets serving a range of coffee and • Coffee chains in India remained an
other hot and cold drinks, and quick underpenetrated market till recently.
bites such as pastries and sandwiches • The Café market has witnessed an
and breakfast. aggressive expansion by established
brands, both domestic and
international
• Over the past five years, the café
culture has grown with many new
cafés opening across all major Indian
cities
• The market size for cafe’s is around
INR 25,000 crore and is growing at
10% per year
• Newer brands such as Starbucks and
Costa have been aggressive with
opening new branches
• With the recent acquisition of
Barista, it is expected that the chain
will also start growing rapidly after a
brief consolidation of their portfolio
Key players

• Examples: Café Coffee Day, • Currently there are around 100 chain
Barista, Costa Café, Starbucks, cafes and bakery brands with an
Brahmin’s Coffee Bar, Gloria Jean’s, estimated 3,100 to 3,200 outlets.
Coffee Bean and Tea Leaf, Dessert Market leaders include Café Coffee
Café, Chai Point, Au Bon Pain, Le Day and Barista Lavasa with
Pain Quotidien, Cinnabon, Dunkin’ presence across all four formats –
Donuts lounge, café, express and kiosk; while
others like Starbucks, Gloria Jean’s
Coffee and Au Bon Pain have
presence in more than two formats.
Costa Coffee is presently only in the
Café segment

16
Cafés – A growing culture amongst urban
Indians
Market break-up (INR crore)

41,800

25,166

2013 2017(P)

India is a very large market and

we find that there is a very large
untapped opportunity in the Tier
II and III towns for quality eating
out chains.

Devndra Chawla
Co-Chair, FICCI Task Force
on Food Retail and CEO -
Food Bazaar, Future Group

17
Success story: Dominos India

Introduction The challenge

Jubilant FoodWorks Limited is a In 2005, Dominos was facing huge
Jubilant Bhartia Group company. It was losses financially. Business was highly
incorporated in 1995 and initiated cost focused, key divisions like quality
operations in 1996. The company got and HR were operating as one or two
listed on the Indian bourses in February men teams and focus on supply chain
2010. The company and its subsidiary and operations was lacking. They had
operate Dominos Pizza brand with the also opened as many as 40 new stores at
exclusive rights for India, Nepal, a frenzied pace and lacked the capability
Bangladesh and Sri Lanka. The to run them effectively and efficiently.
company is the market leader in the
organised pizza market in India with a
67% market share*. Dominos Pizza
India operates 772 restaurants located in
28 states and Union Territories,
covering 158 cities across the country.

*Euro monitor report 2013

18
Success story: Dominos India

The solution • Dominos also altered its products to

suit Indian tastes with the
• They started by introduction of localised toppings
incentivising employees by like “Peppy Paneer” and “Chicken
offering them ESOPs. They also Chettinad,” and it was also one of
made major changes to their entire the first fast food chains in India to
supply chain and logistics network spread its wings into the mini-metros
• They launched an IPO in 2011 and tier II & III locations
which was oversubscribed by 311% • What works for the company is that
it has been successful in establishing
a strong brand recall with the
“30 minutes” delivery
proposition

Result

The company is the market leader in In 2011, Jubilant was valued at par with
the organised pizza market with a the US brand owner, Dominos.
67% share in the pizza home delivery Dominos India is the second largest
segment in India. member firm of the chain after
Dominos USA.

Jubilant Foodworks has made the Indian franchise of Dominos one of

the biggest success stories in the F&B sector across the world. The
company has been able to do so through localisation of inputs and
standardisation of quality while focusing on a core value proposition –
Quality Pizzas delivered quickly!

Siddhartha Nigam
Partner,
Grant Thornton Advisory Pvt. Ltd.

19
Success story: McDonald’s India

• Opened first restaurant in 1996 but • They also had to set up the whole
work began as early as 1990 cold chain from scratch - they
• At that time the concept of eating introduced compartmentalised trucks
out and that of Western food was with specialised temperature
still not widely accepted controlled sections to ensure that
• The more pressing challenges at produce was transported under strict
that time were establishing the quality standards to ensure they
supply chain which could provide retained their freshness
quality food inputs and consistently • They then had to position the
• The company began working with restaurant and work towards making
farmers and empowering them with the brand as a family brand, a warm
the right technology to source the place to go for special occasions
right quality of inputs especially on • Completely Indianised the menu to
potatoes and lettuce match the local tastes and
• They worked with their global preferences
suppliers to bring international food • Value for money with special low
processing technologies to India pricing for certain menu items
and tied-up with local businesses to
ensure a smooth exchange of
know-how

20
Success story: McDonald’s India

Constraints for growth • Adequate infrastructure

• Multiple taxes development to help manage and
• Complex and multiple licensing better the supply chain and cold
system storage systems
• High food and commodity costs • Implementation of GST and its
• Shortage of skilled manpower impact
• Hindering laws such as permitted
operating hours and working hours
for women employees

Current situation
• 300 restaurants currently operated by • Hardcastle plans to open around
two partners – Hardcastle 250 outlets in the next 5 years with
Restaurants (West and South India) investments of more than INR 750
and Connaught Plaza Restaurants crore
(North and East India)

21
Demand and supply
drivers
Demand drivers
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.

23
Demand drivers
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.

24
Supply drivers
Economic liberalisation
A free economy enables growth in food sector
With economic liberalization in the early 1990s, barriers to doing business were
either removed or minimised. Economic reforms helped India attract
investments in the sector from foreign companies wanting to enter the Indian
market and also from private equity firms.

Infrastructure development
Growth of third party logistics providers
As an offshoot of the growth in this sector, third party logistics providers, which
transport the produce and food products from source to destination have also
emerged.

Contract cultivation
Global brands now outsourcing their raw materials
Companies are signing contracts with farmers to grow a specific crop and
guaranteeing to buy the produce at an agreed price—has emerged as a preferred
way to source agricultural produce. Take the case of potatoes. McCain Foods,
which supplies McDonald’s, has 400 farmers cultivating 2,000 acres of potato
fields in Gujarat under contract. Pepsi Foods has over 2,000 farmers on contract,
covering 7,000 acres across Haryana, Punjab, and Uttar Pradesh.

25
Supply drivers
Multiple cuisines

Increasing number of consumers accepting multiple cuisines

The foray of Indian restaurants into a variety of global cuisines is having a

positive impact on the F&B sector. Customers are more willing to experiment
with different cuisines because it is now easily accessible in the cities they live in,
and this trend could also increase Indian consumers’ frequency of eating out.

New retail formats

Food courts in malls have given a boost to the sector

Emergence of new and diverse retail formats in the F&B sector has resulted in
companies finding a new format for operations in the form of food courts in
large format malls. These food courts offer consumers, largely a conversion of
mall's footfalls, easy access to food at the time of shopping and entertainment
activities and also offer a choice of multiple cuisines.

26
Growth in investments
in the F&B services
sector
The restaurant sector has been one of the
first sectors to attract foreign interest due to
the large opportunity
• A large number of foreign brands • Foreign brand owners are now
have entered India over the last 15 exploring how they can be part of
years – with McDonald's, Pizza the investments in India and reap a
Hut, Dominos, Subway, KFC, better ROI in the bargain
Starbucks, Dunkin Donuts among • A case in point has been the success
the successful ones of Dominos in India as a franchise
• In the initial stages, foreign brands unit and its valuation which at one
were more concerned about Master point was much higher than that of
Franchise concepts and were not the foreign brand owner
open to investment exposure in the • Besides direct investments by
country foreign brands, there will also be
• With the success of many restaurant large scale investments in the value
chains and the Indian entrepreneurs chain – from kitchen equipment,
wanting to balance risks, newer cold chain, to development of a
investment led models have been vibrant processed foods market in
explored including complete India
ownership and JVs

Brand Year of entry Mode of entry Indian partner

Wendy’s (US) 2015 Master franchise Sierra Nevada Restaurants

Barcelos (South Africa) 2015 Company-owned N/A

Burger King (US) 2014 Master franchise Everstone Group

Fatburger (US) 2014 Master franchise VAZZ Foods Private Limited

Johnny Rockets (US) 2014 Master franchise Prime Gourmet Private Limited

Dunkin' Donuts (US) 2012 Master franchise Jubilant Foodworks

Starbucks (US) 2012 Joint venture Tata Global Beverages

Citymax Hotels India Pvt. Ltd. for

Krispy Kreme (US) 2013 Master franchise
southern and western India

Pizza Express (UK) 2012 Joint Venture Bharti Group

Constraints: Lack of ease of doing business in India; complex licensing

regime; high real estate costs; high tax incidence

28
Indian entrepreneurs will capitalise on the
opportunity and it is likely for more
organised chains to emerge in the next
decade.
ILLUSTRATIVE
• The F&B sector has been
dominated by Indian entrepreneurs
largely in the unorganised space Indian Restaurant Chains
• As the opportunity grows, it is
certain that more Indian
entrepreneurs will start getting into
organised restaurant chains
• In addition, this will also help
develop the largely unorganised
F&B catering industry
• There have been several success
stories in the past of restaurant
chains such as Café Coffee Day,
Barista, Sagar Ratna amongst others

Constraints:
• Lack of ease of doing business
in India
• Complex licensing regime
• High real estate costs
• High tax incidence

29
The investments in F&B sector will also
ensure indigenous development across the
value chain.
• With investments expected both
Kitchen equipment
for expansion and by new entrants,
there will also be a rapid
Technology tie ups with foreign
development of the entire value
brands, innovations to suit Indian
chain within India
requirements, Indian
• With emphasis on ‘Make in India’,
manufacturing units by foreign
it is expected that the major brands to lower costs.
international players for kitchen
equipment and processed food will
set-up units in India to supply to
this sector Processed foods
• In addition, there will be several Sourcing of sustainable and
domestic entrepreneurs who will consistent quality of processed
make investments to increase foods for the restaurants,
quality levels and standards to meet investments in food parks would
the requirements of the sector see better infrastructure and thus
sourcing of such items.

Cold chain

Cold chain infrastructure

becomes critical for supplying
consistent inputs across the
country. The central government
schemes for investments and
food parks would get more
investments in this space.

30
Key issues
Issue 1: Lack of quality infrastructure

Cold chain infrastructure

• The current cold storage capacity • The demand for cold storage is
of ~30 million Metric Tonnes (MT) expected to grow to 47 million MT
is dominated by storage facilities as food sector (retail and service) is
for potatoes, followed by multi- getting organised with support from
purpose cold storage facilities government initiatives on the back of
• India’s cold chain industry is still demand for processed and frozen
evolving, mostly in the unorganised food
sector with 50%+ of cold storages • The lack of proper cold storage
below the capacity of 1,000 MT infrastructure today hampers the
growth of the food service industry
as the restaurants rely on cold chain
infrastructure for procurement of
uniform quality produce
(unprocessed and processed) across
their outlets

The government has been of late focused on developing the food

processing infrastructure through the promotion of cold chains and
integrated food parks by subsidising the capital cost. This will not only
ensure the right infrastructure availability to setup processing units to
provide quality inputs to the restaurant sector, but also provide a big
boost to the availability of processed foods within the country, which
were in a number of cases, imported. These initiatives will go a long way
in promoting the ‘Make in India’ initiative.

Vinamra Shastri
Partner,
Grant Thornton India LLP

32
Issue 1: Lack of quality infrastructure

Food processing industry

• The food processing industry is • The government is also providing
among one of the largest industries incentives for reducing food wastage
in India and ranks 5th in terms of and increase the value addition to
production, consumption and the end produce
exports – its market size is estimated • The uniformity and quality of
to be around INR 7.5 lakh crore processed food available is still not
• The food processing industry has a at par with global standards which
large presence of about 42% in the are required by a buoyant restaurant
unorganised sector, whereas the industry – as the sector develops and
organised sector is only 25% and the focused collaboration starts for farm
remaining is small scale industries to fork production, the processed
• Consumption of processed food is food available in India would also
still nascent to India and with increase
growing urbanisation and disposable
incomes, this trend is now increasing

33
Issue 1: Lack of quality infrastructure

Our solutions
With limited food processing
capabilities, a lot of the processed
• Identification of key belts where ingredients are either imported or
cold chain infrastructure is needed done in-house. If such is available
more for the industry can be at an economical rate near to the
helpful restaurant locations, it would help
• Concept of a food processing and in reducing my costs and also add
pre-cooked food mall / industrial to the overall quality of my
shed where a number of units can dishes.
be housed and these are within
close proximity to large metro Devndra Chawla
cities which are restaurant hubs –
Co-Chair, FICCI Task Force
if these can be made under the
on Food Retail and CEO -
purview of food processing and
the food park scheme (thereby
Food Bazaar, Future Group
giving them an impetus through
grants & incentives), they can
provide an opportunity for small
& medium scale units to setup in
a concentrated fashion, use
common facilities and provide
pre-cooked food to a large
number of restaurants within the
city. This will not only ensure
quality & uniformity, but also
ensure that kitchen requirements
in restaurants decline. This will
also lead to lower real estate costs
for the operator

34
Issue 2: Lack of adequate skilled manpower

Shortage of manpower
• Gross annual demand of employees • The biggest gap is in the front
in the hospitality sector had crossed office/ restaurant service/ waiter
500,000 in 2009 – 10 and is likely to category:
grow to almost 920,000 in 2021-22 - Housekeeping, followed by F&B
• It has been estimated that current and front office, together
supply available for trained account for 68% of the
manpower for the entire hospitality workforce in the hotels industry
industry is only 9-12%. This leaves a - In restaurants and other eating
very large gap to be fulfilled outlets, F&B service closely
• With a fast growing industry, the followed by the kitchen account
problem only multiplies and this is for close to 70% of all
one of the main reasons hampering employees
the further growth & development • Formal training is required to
of the sector produce both managerial and non-
• There are a total of 337 training managerial personnel
institutes (March 2010) in the
hospitality sector. This includes 38
government owned hotel
management and food craft
institutes and almost 200 others
which are either affiliated to a
university or approved by the
AICTE

Source: National Skill Development Corporation (NSDC), Ministry of Tourism,

Industry sources

35
Issue 2: Lack of adequate skilled manpower

Our solutions
One of my biggest problems
• Industry sponsored training is the availability and
programs retention of quality trained
• Leverage NSDC platform for manpower. Chefs as well as
settting up a private training servers are often replaced and
institute funded by an industry this hampers my business.
consortia which can produce Besides, my expansion plans
manpower to be absorbed within always has to factor in the
the industry itself availability of the requisite
• Focus on grooming and manpower in the cities where
communication skills I expand – unavailability
• Upgradation of programmes often delays the plans and we
through revisions in the AICTE need to impart an in-depth
courses and working with those training programmes for our
specific institutes to focus on the employees.
skills required

Dhruv Agrawal
Co-founder and Director,
There is an evident shortage of Crazy Noodles
manpower in the F&B sector
which is leading to poor
customer service and also rising
salary costs. To enable better
standards in the service
industry, manpower needs to be
trained effectively and the
initiatives such as those
promoted by NSDC will
provide the boost required.

Prashant Mehra
Partner,
Grant Thornton India LLP

36
Issue 3: High real estate cost

High real estate costs are a big hindrance to growth

• While the Indian F&B service space • Real estate costs account for on an
has seen rapid growth in the past average 15-20% of the revenues and
few years, the rising real estate costs is the second largest item after raw
is proving detrimental to the materials – this is significantly larger
holistic growth of the industry than the global average of <15%.
• There is a shortage of quality real This is further accentuated with the
estate in India and due to the high addition of service tax on the rental
demand, restaurants often find value
themselves paying global rentals at • In such situations, the stand alone
Indian prices. Real estate rentals restaurants lose out as the larger
have increased 3 to 4 times in the chains / brand aggregators are able
past 4 years, contributing a to lower the rentals through effective
significant percentage to the total negotiations and cornering a large
costs incurred during operations chunk of the prime space available
• Innovative models have been
explored in retail which need to
percolate in the restaurant business
i.e. revenue share, deferred rents,
equity share, etc.

37
Issue 3: High real estate cost

Our solutions

High real estate costs limits the

speed of our roll-out – with high
• Lobby with real estate developers working capital requirements
to highlight that footfalls are and upfront deposits, the high
generated through restaurants first rentals not only hamper our
(eating out is one of the most overall margin, but also limits
favoured entertainment options of the scalability. Sharing of real
Indian consumers) estate costs between developer
• Real estate developers should and restaurant owner through a
offer the same deal to restaurant revenue share mechanism would
operators which they offer to help in lowering rentals and
retail i.e. revenue share, equity providing a kicker to the
share, deferred / bullet rentals, restaurant industry.
etc.
Dhruv Agrawal
Co-founder and Director,
Crazy Noodles

38
Issue 4: Licensing
There are several different types of • In addition to the time taken, the
licenses required before one can cost of compliance is also high which
commence his/her restaurant can be easily avoidable
operations. • Internationally, the ease of setting up
• With the large number of licenses a new restaurant is significantly high
required and the time taken for and in countries like Turkey, the
obtaining these, the restaurant number of licenses can be as low
industry always has a large lead time as 2
for opening new outlets

There are a large number of The major difficulties in the

license requirements for sector are plethora of multi-lateral
opening a restaurant in India statutory approvals required for
compared to 4 each in opening of any restaurant / food
Singapore and China – this is a & beverage outlet. There is no
pure hindrance to the industry central or single point agency for
and should be simplified. such statutory licenses. Secondly,
different state governments have
Anshuman Mohta different licenses / requirements
Founder, thus making it difficult for a
Market Cafe restaurant chain to plan timelines
for opening restaurant chain
across different states. The
guidelines in this regard should be
fulfilled on self-declaration basis.

Mayank Jalan
Managing Director,
Keventer Agro

39
Issue 4: Licensing
The license requirements are mostly consistent throughout India except for states
like Maharashtra that may have some regulations specific to that state only.
Following are some of the key licenses required to open a new restaurant in the
country:

General Licensing Requirements

Nature Of License Issuing and Regulatory Body Compulsory/ Optional

Municipal Corporation / State Health

Health/Trade License Compulsory
Department

Eating House License Licensing Branch – Police Commissioner Compulsory

Liquor License (L17 as per new Compulsory for service of

Excise Commissioner
excise law) liquor

Approval/ Re-approval of Compulsory for obtaining

Dept. of Tourism of the state concerned
restaurants a liquor license

Compulsory if recorded/
Playing Music in restaurants- Phonographic Performance Limited/ Indian
live music of copyright
License Performing Rights Society
holders is being played

Environmental Clearance As per state laws Compulsory

NOC ( Fire Department) State Fire Departments Compulsory

Concerned authority of states/ Office of the Compulsory if lift is to be

Lift License
Labor Commissioner operational

Insurance
1) Public Liability
Insurance policies are must can be
2) Product Liability Compulsory
obtained from any insurance company
3) Fire Policy
4) Building & Asset

Nominations Under PFA(Food

Compulsory and to be
Adulteration) Act Director Prevention of Food Adulteration of
applied for in prescribed
1) 1954 section 17 (2) the State
form
2) Rule 12 B of 1955

Shop and Establishment Act Applicable as per act and state law Compulsory

Signage License Municipal Committee/ Corporation of city Compulsory

40
Issue 4: Licensing

Our solutions
The time lost in obtaining the
large number of requisite licenses
• Simplified licensing requirements especially liquor (it can take more
with a single-window clearance than 40 days) are painful while
approach opening a new restaurant – my
costs are on and I cant expedite
• Also adherence to quick
turnaround times for licenses as
this as it is out of my hands. A
the real estate costs are being faster and simplified process with
incurred while waiting for the a unified license can ease this and
licenses help grow the industry faster.

Amit Arora
Founder and
Managing Director,
Buddy Retail

41
Issue 5: Tax incidence
• The Indian restaurant industry is • In addition, charging VAT and
burdened with multiple taxes like service tax on the same bill value
VAT, excise, and service tax, besides (even though 60% reduction is
different state taxes, which add up to available on service tax), amounts to
17.5-25% of the bill value double taxation as by definition, they
• The 2 key taxes levied are VAT and should not be charged on the same
Service Tax: item
- VAT rates can vary between 5% • This inflates the overall cost to the
and 20% usually and is different consumer thereby dissuading them
in case of food items & from returning frequently
alcoholic drinks – the states
decide on the rates
- Service tax is the tax levied by
the government on the services Our concerns primarily are on
rendered by specifically air- multiple taxes, high food and
conditioned restaurants and is commodity costs, shortage of
charged at 12.36% of 40% of the skilled manpower and archaic
total bill value. This can be laws on permitted operating
equated to 40% x 12.36% = hours and working hours for
4.94% on the total bill, including women employees and
food, drinks and the service infrastructure development to
charge help manage and better supply
• In comparison to regular retail, the chain and cold storage systems,
incidence of such taxes are around implementation of GST and
10-15% multiple licensing among others.
• Since this is usually charged to the We look to the government to
customers, with a customary tip / work closely with us on resolving
service charge of 10%, the incidence these issues.
of taxes and charges over and above
the bill value is almost 33%
Amit Jatia
Vice Chairman,
Hardcastle Restaurants

42
Issue 5: Tax incidence

Our solutions

We can have one of the taxes,

VAT or service tax which should
• Rationalisation of taxes levied on be mutually exclusive and levying
the restaurant industry – although both on the same invoice amount
GST would address this, but the leads to product going of reach of
rollout is still not underway consumers. This further limits the
• In the meantime, there should be consumption patterns of
a business case put forth to the consumers which limits the
government to relook at the growth of the industry.
incidence of service tax on the
restaurant industry and remove Devndra Chawla
the same
Co-Chair, FICCI Task Force
on Food Retail and CEO -
Food Bazaar, Future Group

43
Common pitfalls
during expansion
Common pitfalls
Grant Thornton has identified eight common pitfalls internationally that F&B
companies face while expanding their operations.

Follow the leader

Every company and every product is different in the eyes of
consumers. Do not assume that you can succeed internationally
based on the achievement of an established market leader or
competitor.

Hasty action
A distributor or retailer may want your goods in the market. They
say that you need to jump now at this rare opportunity. Be patient.
Apply the same analytical rigour and due diligence that you would
with any other opportunity.

Deep pockets
Only the largest F&B companies are likely to be able to launch and
sustain an international expansion through cash flow. Establish
realistic financial models that project cash requirements. Get a feel
for sources of available funding.

Foreign brands need to ensure that although they see India as a large
opportunity, there needs to be an appetite for risk taking. India is a
difficult terrain to operate out of with multiple taxes, complex
licensing and high operating costs. In addition, tastes and preferences
vary significantly based on the location within India. With correct
planning and customisations, companies can see explosive growth of
their concept in India.

Piyush Patodia
Executive Director,
Grant Thornton India LLP

45
Common pitfalls

One size fits all

It is rare that any company’s business model and organisational
structure translates precisely into a foreign market. Some elements
of how you do business will change.

Rigid planning
F&B consumers are fickle. Trends and trouble emerge overnight.
But change should not necessarily mean failure. Your expansion
plan should include regular monitoring of markets, competitors and
regulations so that you can adapt.

One more market

No corporate structure can be stretched without limit. As
international expansion occurs, make sure that existing domestic
and international operations retain the level of support necessary to
deliver required revenues and profits.

Just like home

Even the most promising market can turn sour quickly due to
geopolitical, economic or natural events. Monitor the political and
fiscal barometer of the market regularly.

No exit
Even a successful market expansion can have a shelf life. Develop
an exit strategy that allows your company to remove itself from
local partners and repatriate your cash without burning bridges.

Source: Expanding horizons: Food and Beverage looks for growth, Grant Thornton
Food and Beverage Report, 2014
46
About FICCI
About FICCI
Established in 1927, FICCI is the FICCI serves its members from the
largest and oldest apex business Indian private and public corporate
organisation in India. Its history is sectors and multinational companies,
closely interwoven with India’s drawing its strength from diverse
struggle for independence, its regional chambers of commerce and
industrialization, and its emergence industry across states, reaching out to
as one of the most rapidly growing over 2,50,000 companies.
global economies.
FICCI provides a platform for
A non-government, not-for-profit networking and consensus building
organisation, FICCI is the voice of within and across sectors and is the
India’s business and industry. From first port of call for Indian industry,
influencing policy to encouraging policy makers and the international
debate, engaging with policy makers business community.
and civil society, FICCI articulates
the views and concerns of industry.

FICCI Contact:

Ms. Shilpa Gupta

Head – Retail / FMCG / Gems
& Jewellery
FICCI
E: Shilpa.gupta@ficci.com
T: 011-23487270

48
About Grant Thornton
About Grant Thornton
Grant Thornton International Ltd. Grant Thornton in India

Grant Thornton is one of the world’s Grant Thornton in India is one of the
leading organisations of independent largest assurance, tax, and advisory firms
assurance, tax and advisory firms. These in India. With over 2,000 professional
firms help dynamic organisations unlock staff across 13 offices, the firm provides
their potential for growth by providing robust compliance services and growth
meaningful, forward looking advice. navigation solutions on complex
Proactive teams, led by approachable business and financial matters through
partners in these firms, use insights, focused practice groups. The firm has
experience and instinct to understand extensive experience across a range of
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respond with agility.

Over the years, Grant Thornton in

India has added lateral talent across
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Finance, Governance, Risk &
Operations, and Forensic &
Investigation. The firm's strong Subject
Matter Expertise (SME) focus not only
enhances the reach but also helps
deliver bespoke solutions tailored to the
needs of its clients.

50
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