Why this is important to Wisconsin businesses: 100 percent foreign direct investment is allowed, with both the quick service and fine dining segments presenting opportunities.
The food and beverage industry in India has grown considerably over the years. The introduction of innovative service features and exciting new concepts by various market players has led to an increase in investment in this field. The compound annual growth rate is 25 percent, and is projected to continue at a similar pace over the next few years. Key drivers of this growth are the country’s changing demographics, domestic consumption, rising disposable income, steady growth of retail chains and rapid urbanization. The restaurant sector has been at the forefront of attracting investment into India, and has played an integral role in portraying India as a land of opportunity.
By allowing 100 percent foreign direct investment (FDI), the government of India has been instrumental in the sector’s growth and development. Several success stories of both domestic and multinational companies tapping into the Indian food service sector are examples of the current trends. The food and beverage service market in India, which was worth about $33 billion in 2015, is expected to reach around $80 billion by 2020.
According to a report published by the Federation of Indian Chambers of Commerce & Industry (FICCI), the informal segment will continue to dominate the Indian food and beverage market at least for the next five years, and is expected to enjoy a market share of over 60 percent. However, with the arrival of new foreign and domestic players, this segment is expected to decline steadily thereafter.
The report also suggests that quick service restaurants and casual dining chains are the two most popular food and beverage formats in India, forming 45 and 32 percent of the market respectively, with 90 to 100 brands in the quick service chain space. There are around 3,000 outlets spread across various cities in India. While well-known Indian quick service restaurants like Haldiram and Bikanervala skew toward vegetarian food, international players like McDonald's, Domino’s Pizza, KFC and Subway offer a mix of vegetarian and non-vegetarian food. Indian quick service restaurants make up only 37 percent of this market; the rest is dominated by international brands like Domino’s and McDonald’s.
The fine dining segment, which caters to the affluent consumer, takes around 3 percent of the market share. The segment is growing at around 15 percent annually. Multinational chains such as Hakkasan, Akira Back and Benihana have made considerable inroads into the Indian market. Also, the café culture rules the streets of India. As a result, the café segment has been burgeoning, with several domestic and international brands making inroads.
The industry is grappling with a lack of quality infrastructure, a shortage of skilled manpower, increasing real estate costs, and challenges in sourcing raw foodstuffs, as well as issues of licensing and taxation.
With the success of many restaurant chains and Indian entrepreneurs wanting to balance risks, newer investment-led models are being explored, including complete ownership and joint ventures. Foreign brand owners are now exploring how they can invest in India and reap better returns. Besides direct investments by foreign brands, there will also be large-scale investments in the value chain, from kitchen equipment and cold chain to development of a vibrant processed foods market in India.