The market size of chain outlets is projected to grow to INR 33,250 crore (USD 6.5 billion) by the year 2018. All credit goes to the angel investors, Private Equity (PE) and venture capitalist (VC) firms, across various realms of the market.
Need for Capital
To meet the growing, dynamic consumer needs in the food service market, players need to constantly delight customers through a wide range of products offerings and cuisines, clubbed with distinct flavours and a good ambience. This requires an expansion of business across different formats and locations (given the high real estate costs) and also a smooth supply chain (currently fragmented in India).
Further, the capital- intensive nature of business, together with long gestation periods, inhibits growth in the food services sector in the absence of sufficient funding. Adding to the problem is the difficulty in raising funds from government institutions. Organizations like the Small Industries Development Bank of India (SIDBI) provide financial support only to Micro, small, and Medium Enterprise (MSME), and that too in the form of fixed schemes to meet long-term financial requirements, making it difficult for businesses to use the funds optimally. Even the process of obtaining funds is extremely complex with stringent eligibility criteria.
According to experts, the Private Equity space in India is changing, more and more entrepreneurs are asking very tough questions to investors’ particularly good entrepreneur and good businesses have multiple revenues to raise funds.
Over the past five years, the organised food services market has emerged resilient even in the face of recessionary pressures and has grown in double digits year-on-year. Many new brands, both Indian and international, have entered the space and are expanding through 3 courses-
- 1)New Cities: Cities beyond metros have now emerged as potential locations for food service outlets, providing volume and a wider customer base to players. Among the top 70 cities in India, ~90% are Tier 1 and tier 2 locations which represent an untapped opportunity for expansion beyond metropolitan cities.
- 2)New Formats: Players are looking to branch out through multiple formats, e.g. by establishing their presence in food courts, through express formats, Kiosks, etc. This enables them to cash in on the potential presented by these formats and, in addition, rationalise on costs, primarily rentals, which is one of the key P & L costs, primarily rentals, which is one of the key P & L cost for any outlet.
- 3) New Locations: With the developing travel infrastructure in the country, the prospects for the future expansion of food services outlets lie in exploring travel retail locations such as highways, airports, and stations. These locations give a captive audience, assure high footfalls and provide brand visibility. Apart from these, opportunities also exist in locations such as educational institutions, office complexes, fuel stations, and hospitals.
- 4)These trends along with the expanding consumer base, mounting disposable incomes, and ever rising drive to experiment, will continue to promote growth in the food services market and thus making it more attractive to investors. Investments have already started pouring into the market, with annual investments totalling INR 1,263 crore (USD 243 million) in 2011, up from INR 350 crore (USD 67 million) in 2010 as per Venture Intelligence.
Over the short to long term, companies can expect to be a part of the food service growth story in different ways:
B2C Opportunities (Front- end)- Business to Consumer growth is the result of the favourable consumer dynamics, the Indian food services market has been on an exponential growth trajectory for the past few years, and generates opportunities in the business to consumer segment.
B2B Opportunities: Business to business opportunity is transaction between businesses, like between a manufacturer and a wholesaler, or between a wholesaler and retailer etc. This also called the back-end investment which exists for PE/ VC firms.