The report also suggests that the top five players in the domestic quick-service restaurant (QSR) industry are likely to add ~2,300 stores between FY2023-FY2025 with an estimated capex at around ~Rs. 5,800 crore (excluding refurbishment) for this period, twice that of the levels seen during the pre-Covid era.
Given the favourable demand outlook, the domestic QSR industry is looking at aggressive store capex over the medium term. Majority of the capex is expected to be funded through internal accruals and cash on the books, having raised money through the pre-IPO /IPO route in the last two fiscals to support the planned capex in the near to medium term.
“The capex spree in the QSR industry is likely to be driven by favourable demographics, steady urbanisation in India, growing per-capita GDPand significant headroom available in terms of QSR penetration, compared to a developed economy like the US. Increasing formalisation of the sector is expected to improve the penetration levels considerably. Also,higher technological absorption amidst the changing consumer behaviour post Covid, wherein delivery as a medium is much more accepted, shall support the increasing penetration. The CAPEXover FY2023-FY2025 is estimated at around ~Rs. 1,800 crore to Rs. 2,000 crore (excluding refurbishment) per annum,which would be around ~2.5 times that of the levels seen in FY2020 (pre-Covid),” shared Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited.
The domestic QSR industry witnessed a sharp recovery in ADS and revenues during FY2023, supported by demand drivers like changing food consumption habits, favourable demographics, improving purchasing power, steady urbanisation, and new store additions. Also, other factors like better value proposition from QSR players with enhanced product and service offerings, wide adoption of user-friendly and convenient delivery applications, and tech-enabled delivery networks also fuelled growth.
With the waning effect of the pandemic and increased vaccination coverage, the industry witnessed a strong growth momentum with notable recovery seen in the ADS levels to ~Rs. 85,789 in FY2022 compared to ~Rs. 67,479 in FY2021. The ADS further rose to ~Rs. 97,696 in 9M FY2023 compared to ~Rs. 85,355 in 9M FY2022.
On the back of a robust industry revenue expansion of ~30-35% in YoY terms estimated for FY2023, ICRA projects growth to moderate somewhat while remaining strong at 20-25% in FY2024on account of the demand uptick and increasing penetration driven by a rapid expansion of stores. However, downside risks to the estimates remain from the emergence of any further Covid waves or any material weakening in purchasing power due to a high inflationary interest-rate regime. Over the longterm, revenue growth shall be supported by factors like rising QSR penetration levels, a shift from the unorganised to the organised segment with a preference for branded QSR players, given the hygiene and convenience factors (delivery over dine-in), etc.
In the last two decades, market share of beer by value has increased to 25%, says a report by Alea Consulting, a risk mitigation and investigative consulting firm. The growth is driven by a growing middle-class segment, rising affluence of youth and urbanization. With the rising demand for craft beer, there has been a shift from industrial producers to local producers, and recently to bottled craft beer.
The Microbrewery sector emerged in 2009-10 with the inception of Doolally and has grown from 20 microbreweries in 2012-13 to over 200 microbreweries across India. Some of the other early entrants in craft beer market were Independence Brewing Co., Toit Microbrewery, Gateway Brewing Co., Geist, and White Owl Brewery, amongst others.
According to Euromonitor, the Indian alcohol market is 3rd largest and one of the fastest growing in the world and It is expected to grow by 25% to US$41 billion by 2022. The alcoholic beverage market can be classified into three classes: beer, wine and spirit. Beer is the second most popular alcoholic beverage after whisky, in India. A decade old Indian craft beer industry is at a nascent stage with a market share of ~2-3% of India’s beer market (US$7 billion) against 12% in the US. The All India Brewers Association estimates sales of craft beers to grow at 20% y-o-y, which is higher than 5-7% y-o-y growth in the beer market.
Key Drivers
Over 30% of India’s population lives in the urban regions that have witnessed steady growth in restaurants, pubs and a more recent phenomenon, the brewpubs. Growth is driven by millennials who find craft beer more authentic and premium, compared to regular lagers. Alcohol is a State-administered subject in India. While States like Gujarat, Bihar, Nagaland, Manipur and Mizoram have imposed a ban on alcohol, other such as Maharashtra, Punjab, Tamil Nadu, Goa, West Bengal, Himachal Pradesh, Odisha, Assam and Telangana allow setting up of microbreweries.
Franchisee Model
Strong growth in the sector has paved way to new opportunities like franchisee model. Brands such as Punjab-based, The BrewMaster Micro-Brewery and US-based World of Beer have started franchising their microbreweries in India. A Chennai-based, beverage equipment maker Shivsu Canada Pure Fillers has formed a JV with Belgium-based Prodeb Brewery to manufacture craft breweries. The venture allows the Indian partner to franchise Prodeb’s Belgian craft beer forroyalty to pubs in India.
Key Issues
Varying, restrictive and excessive State Government regulations, separate licenses for each state, increasing raw material costs, and inadequate infrastructure are some of the concerns. Since liquor isoutside the ambit of GST, rate of applicable tax is decided by each state / UT. This forms a significant portion of the total revenue of most states.
Compared to big brands like United Breweries and Ab InBev that together own majority share of the beer market; microbreweries struggle due to smaller budgets, cold chain supply infrastructure and a short shelf-life for craft beer. In August 2019 the Delhi Government’s Excise Department directed hotels and restaurants to destroy unsold alcohol longer than 8 days to curb adulteration and pilferage, wherein beer and wine cannot be stored for longer than 3 days and hard liquor for more than 5 to 8 days, depending on its price band.
FDI
The 2011 National Manufacturing Policy allows 100% FDI through the automatic route in the Alcohol (Distillation & Brewing) sector.
Key Players
With craft (bottled/unbottled) beer gaining popularity and share, market leaders like United Breweries are to be launching bottled craft beer soon.In October 2019 Ab Inbev signed an exclusive agreement with luxury hospitality group, Indian Hotels Company Ltd. to launch 15 microbreweries over the next 5 years to sell craft beer at its hotels in India.
Industry Opportunity
A healthy growth rate of beer industry indicates huge potential for breweries in India. The first wave of craft beer led to setting up of brewpubs, which are now gradually shifting to bottled craft beer to reach a growing consumer base. The opportunity in bottling craft beer requires establishing cold chain supply, increasing volumes and scale of production, and working capital for brand building.
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