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DISSERTATION REPORT SUBMITTED TOWARDS FULFILLMENT OF

GRADUATION DEGREE IN B.COM. HONORS

INDIAN FOOD SECTOR AND CHANGING


CONSUMER PREFERENCES
SUBMITTED TO:

SUBMITED BY:

Ms. Sarika Jain

Chandrabhan Solanki

Faculty, B.Com.

A3146912001
B.COM. HONS. (EVENING)

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AMITY UNIVERSITY UTTAR PRADESH
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CERTIFICATATE OF ORIGIN

This is to certify that Chandrabhan Solanki a student of B.Com. Hons. (Evening), ACCF,
Noida has successfully completed the project entitled INDIAN FOOD SECTOR AND
CHANGING CONSUMER PREFERENCES under the able guidance of Miss Sarika
Jain. This report has the requisite standard for the fulfillment the Graduate Degree in
B.Com. Hons. for the year 2012-2015.

Signature

Signature

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ACKNOWLEDGEMENT

The successful completion of this project work was made possible with the help and
guidance received from various quarters. I would like to avail this opportunity to express
my sincere thanks and gratitude to all of them.
I am sincerely grateful to my Faculty Guide Miss Sarika Jain for her keen interest and
encouragement in my project work whose co-operation and guidance helped me in
completing the project successfully and completely.
I would also like to thank all the staff members of the Department of B.Com. Honors, for
providing the necessary co-operation.

Chandrabhan Solanki
(A3146912001)

ACCF

TABLE OF CONTENTS
Chapter No.

Subject

Page No.

Ch.-1

Executive Summary

Ch.-2

Research Methodology

Ch.-3

Critical Review of Literature

Ch.-4

Organized Fast Food Sector

Ch.-5
Ch.-6
Ch.-7

Processed Food and Beverages


Food and Beverage Retail In India
Changing Consumer Behavior

36
40-42

Ch.-8

Entering the Market

48

Ch.-9

Future Prospects

50

Ch.-10

Findings and Analysis

51-54

Ch.-11

Conclusion

55

Recommendation

56

References

57-58

Bibliography

59

Annexure

60

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1. EXECUTIVE SUMMARY
The aim of the project was to have an in-depth knowledge of the growing fast food sector
and ready to eat market in India and to study the various reasons, which have changed the
consumers perceptions towards eating out options.
The study involves understanding the current scenario of the fast food restaurant industry
and ready to eat food market and understanding the change in consumer approach
towards eating out options and towards ready to eat meals available at food retail stores.
It deals with the growing consumption of processed food in India. Emphasis is also given
on the competitive advantage of the processed food industry. All the data collected is
secondary and the recommendation are on the basis of this data.

2. RESEARCH METHODOLOGY
2.1 PRIMARY OBJECTIVE:
To Study the current scenario of the fast food restaurant sector, ready to eat
meals market and to study the changing consumer behavior towards the same.

2.2 SCOPE OF THE STUDY:


The project is carried in order to have an in-depth knowledge of the growing fast
food sector and ready to eat market in India and to study the various reasons,
which have changed the consumers perceptions towards eating out options. All
the data collected is secondary and the recommendation are on the basis of this
data.

3. CRITICAL REVIEW OF LITERATURE


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Researches have shown that like most Asian economies, India has a long tradition of
eating away from home, at a plethora of roadside eateries, snack shops and at lodging
places. Not only does the traditional eat-at-home type prefer to eat out, he is very
demanding too. Eating out no longer marks a special occasion. The estimated industry
growth in 2006 has been between 25-30%.
According to a survey by ACNielsen, an urban adult Indian is among the top 10 in the
world in terms of frequency of fast-food consumption. The going-out-to-eat culture is
evolving fast in India, as more consumers seek variety in their food choices. Urban
Indians are aware of international cuisines, and an increasing number are willing to try
new foods. About 4.5 percent of urban consumers eat outside of their home at least once a
week, and about 12 percent eat out once a month.

Euromonitor International, a market research company, says the amount of money


Indians spend on meals outside the home has more than doubled in the past decade, to
about US$ 5 billion a year and is expected to double again in about half that time.
Fast food restaurant sectors growth is expected to be stronger in the coming years due to
the GDP growth, changing lifestyles and strong income growth. Growing double income
families will also help in boosting the eating out option.

4. FAST FOOD SECTOR:


4.1 ASIA PACIFIC- FAST FOOD CONSUMPTION :
According to the latest ACNielsen Online Consumer Survey, Asians are emerging as the
worlds greatest fast food fans. Two thirds of Hong Kongers frequent a take away outlet
at least once a week. Price, type of cuisine & locality are the key drivers of choice.
McDonalds ranks as the most popular take away globally. According to findings from the
latest ACNielsen Online Consumer Survey, nearly all Filipino (99%), Taiwanese and
Malaysian (98%) and Hong Kong people (97%) are fast food patrons.

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According to the ACNielsen survey, 30% of Asia Pacific consumers eat at take-away
restaurants at least once a week, closely behind fast food fans in the US (33%). At the
other end of the scale, however, only one in ten European adults eat takeaway once a
week.

Asia Pacific, despite 12% claiming never to eat fast food, the region has the most takeaway addicts, with 35% reportedly eating fast food at least 3 times a week, to as often as
more than once a day. Hong Kong ranks the worlds No. 1 in terms of frequency of fast
food restaurant visits followed by Malaysia (59%) and the Philippines (54%).

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Europeans appear to be less interested in takeaway food, perhaps due to a prevailing


culture of meal times being a social or family occasion, rather than simply a need to
satiate ones hunger, while for people in Asia and the US eating takeaway has become
way of life. Accordingly, nearly a third of Europeans said they would consider fast food
only if there was no time for a proper meal whereas in Asia, only 7% considered this a
reason for having take-away.

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The ACNielsen survey found that while Breakfast was the least popular occasion for fast
food meals across the three regions, it was the most popular in Hong Kong (21%) and
made Hong Kong into the worlds No.1 consumer of take-away breakfasts. Americans
considered take-away more an option for both lunch (29%) and dinner (48%) while 31
percent of the fast food fans in Europe would take it for dinner.

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Type of Cuisine (52%), Price (52%) and a Convenient Location (47%) were found to be
the most important choice criteria around the globe.

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Brand image has little influence


While building a good brand image is close to the heart of most marketers, its worth
noting that brand image appears to have little influence on consumers choice of take
away restaurants. Across the three regions, Brand Image ranked the least important
among all respondents, from as low as 9% in Germany to a high of 18% in Taiwan.

4.2 RESTAURANTS IN INDIA


There are approximately 500,000 restaurants in the organized sector (restaurants with
more than twenty seats and restaurant menu), mostly serving ethnic cuisines; this number
is expected to grow at about 7-8 percent annually for next few years because of
increasing urbanization and increasing disposable incomes. International and local multiunit restaurant groups will drive the expansion in the restaurant industry. South India is
emerging as a key region for growth of multi-unit ethnic restaurant chains that supply
reasonably-priced ethnic food with a quick-service concept.
According to a survey by ACNielsen, an urban adult Indian is among the top 10 in the
world in terms of frequency of fast-food consumption. The going-out-to-eat culture is
evolving fast in India, as more consumers seek variety in their food choices. Urban
Indians are aware of international cuisines, and an increasing number are willing to try
new foods. About 4.5 percent of urban consumers eat outside of their home at least once a
week, and about 12 percent eat out once a month.
After a slow start, Western-style fast food restaurants have grown impressively at 12-15
percent annually over recent years. Most foreign chains (McDonalds, Dominos, Pizza
Hut, Subway, KFC, and TGIF) and local chains (Nirulas and Pizza Corner) are doing well
in major cities, and are expanding into smaller cities. Most of these fast food chains have
developed a range of Indian-styled products to suit local preferences (such as the
Maharaja chicken burger, veggie burger, etc.).
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Pubs and independent bars are also becoming popular among higher income Indian
consumers in Indias major metropolitan cities. Increasing demand from middle class
consumers is expected to spur robust growth in value-for-money restaurants.
Two of America's biggest brands, Starbucks and Burger King, are looking to tap the
Indian market.
The more than $250 million retail coffee sector is coming into its own, fed by a growing
economy and rising incomes. The foreign players in India include Costa Coffee (plans
more than 300 outlets, with investment more than $33 million in India), Gloria Jeans
Coffee (plans 750 outlets in India), Coffee World (more than 20 outlets, investment $3
million), while the Indian ones are Cafe Coffee Day (CCD), Barista and Qwiky's.
In fast food, Yum Restaurants International, owner of Pizza Hut and KFC, with global
sales more than $13 billion, has announced that it will invest close to $25 million;
Domino's, world leader in pizza delivery, has an annual expansion expenditure of $1.5
million; US-based Papa John's, the third-largest pizza company, has 100 outlets lined up
in northern India; KFC is planning 1,000 restaurants. The $5 billion US fast-food major
Subway is planning to invest more than $40 million, planning 200 outlets by 2009.
The market has been witnessing a marked change in consumption patterns, especially in
terms of food. The household in middle, upper, and high-income categories has grown
significantly. There has also been an increase in the number of dual-income households
that has led to more meals eaten away from home.

Profile of Restaurant Chains in India

Name of the chain


McDonald

Type
Fast food

Ownership Type
Two regional franchisees

Pizza Hut

Fast food

A master franchisee
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operating outlets
through subfranchisees
Pizza Corner

Fast food

Indian company
Operating through
subfranchisees

Dominos Pizza

Fast food

A master franchisee
Operating outlets
through subfranchisees

Subway

Fast food

Franchisee operating
Outlets through
subfranchisees

KFC

Fast food

Franchisee operating
Outlets through
subfranchisees

TGI Fridays

Casual Dining

All-India franchisee

Nirulas

Fast food/ Casual Dining

Indian company with


Few franchisees

Barista Coffee

Coffee shop

Indian company owned

Caf Coffee Day

Coffee shop

Indian company owned

5. PROCESSED FOOD AND BEVERAGES


5.1WORLD SCENARIO
Overall, Food & Beverages grew globally by 4% though mid-2006

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The global growth of Food & Beverage categories measured was 4%. The largest share
of Food & Beverage value sales came from Europe, followed by North America. Asia
Pacific was number three, accounting for 13% of total Food & Beverage sales.

Source: Executive News Reports- Whats Hot Around the Globe: Insights on Growth in Food & Beverages
AcNielsen

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Top Global Growth Categories:


Drinkable Yogurt: +18% Growth
Fresh Fish and Seafood: +12% Growth
Alcoholic Cider: +11% Growth
Ready-to-Eat Salad: +10% Growth
Baby Formula: +10% Growth
Dairy-Based Drinks: +10% Growth
Asia Pacific
The Baby Food product area stood out in this region, primarily driven by the large
increases in Baby Formula in China (+50%), which is now over US $1 billion and
growing quickly.
The Baby Formula category also showed strong gains in Sri Lanka (+42%) and Thailand
(+22%), while Baby Food also grew in markets including Australia, China, Indonesia and
Sri Lanka. There is clearly a shift among developing Asia Pacific markets, where
purchased baby food is continuing to become more available and acceptable for
consumers of growing affluence. Dairy products are not as prevalent in Asia Pacific as
they are in Europe or North America, but within this product area there has been some
interesting growth. Similar to global trends, yogurt has been popular in many markets in
this region both the drinkable and the kind you eat with a spoon. Spoonable Yogurts
grew most strongly in China, Thailand and New Zealand, pushing the category to grow at
7% in the Asia Pacific region. Drinkable Yogurts grew in India, China, Singapore, Taiwan
and Malaysia, giving this category a 28% growth rate across the region. Overall, the
Dairy product area grew two percentage points more than the global average for Dairy.
Other product areas showing stronger increases include the Confectionery, Sweet Biscuits
and Snacks area, which was partially helped by modest growth in Energy Bars in Japan
and Fruit/Muesli Bars in New Zealand. Perhaps more surprising was the strong growth in
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China

of

Snacks/Chips

(+28%),

Non-Chocolate

Candy

(+24%),

and

Sweet

Biscuits/Cookies (+19%). Consumers in this market are becoming more willing to


purchase these treats as they gain in spending power, causing these categories to show
double-digit growth. In fact, Snacks/Chips are coming close to being a US$ 1 billion
category in China alone. Non- Alcoholic drinks are growing in India .

5.2 INDIA
The packaged food industry has around over 60,000 bakeries, 20,000 traditional food
units and several pasta food units. In the past decade several new biscuits &
confectionery units, soya processing units and starch/glucose/ sorbitol producing units
have come up. Multinational Companies are coming up in confectionery and cocoa based
products areas.
The industry structure and ongoing transformation offers opportunities for organised
players to invest and grow. As the Indian market matures and consumers become more
quality and brand conscious, the organised sector is poised to grow and gain prominence.

5.2.1 GROWTH IN PACKAGED CONSUMER FOODS:


Consumer food industry includes packaged foods, aerated soft drinks, packaged drinking
water and alcoholic beverages.
Packaged or convenience foods
This segment comprises bakery products, ready-to-eat snacks, chips, namkeens (salted
snacks and savouries) and other processed foods/ snack foods. The market size of
confectioneries is estimated at US$ 484.3 million growing at the rate of 5.7 per cent per
annum. Biscuits have a market of US$ 373.4 million, growing at 7.5 per cent per annum.
Other products like bread, chocolates are also growing at a significant rate. There is a
demand for Indian snack food (Ready-To-eat) in overseas markets. The exports market is
estimated at US$ 33.4 million and is growing at around 20 per cent annually.
Aerated soft drinks
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The aerated soft drinks industry in India comprises over 100 plants across all States. It
has attracted one of the highest foreign direct investments in the country, amounting to
around US$ 1049 million. Two of the biggest global brands in this segment are well
established in India.
Presently there are more than 7000,000 outlets retailing soft drinks in the country. Soft
drinks constitute the third largest packaged foods segment, after packed tea and packed
biscuits. Total export earnings of the industry are over US$ 156 million per annum.
Penetration levels of aerated soft drinks in India are quite low compared to other
developing and developed markets, an indication of further potential for rapid growth.
Packaged drinking water
The market size for packaged drinking water in India has been estimated at around US$
223 million. The industry comprises 215 companies which have been granted license for
manufacturing packaged drinking water and 3 for manufacturing packaged natural
mineral water.
Trends such as shortage of drinking water in the large metropolitan cities, changes in
consumer lifestyles leading to demand for convenience and availability of various
packaged sizes to suit different needs have led to a spurt in growth over the last 3-4 years
and these trends are expected to continue to fuel demand in this sector.
Alcoholic beverages
India is the third largest market for alcoholic beverages in the world. The demand for
spirits and beer is estimated to be around 373 million cases per annum. There are 12 joint
venture companies producing grain based alcoholic beverages that have a combined
licensed capacity of 33.9 million litres per annum. 56 units are engaged in manufacturing
beer under license from the Government of India.
The demand per annum for wine in the domestic market is estimated to be around 6
million bottles (750 ml), while the domestic production of wine is over 2.4 million
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bottles. The market is estimated to grow at a healthy rate of around 25 per cent per annum
in the next five years, indicating attractive investment potential.

5.2.2 CONSUMPTION RATE OF PROCESSED FOOD:


The greatest organized retail growth opportunities by size of segment are in food and
beverage. While the organized sector accounts for only 2-4 percent of the total retail
market at present (although the proportion is growing fast), only around 0.5 percent of all
food retailing takes place in large shops and supermarkets, according to the EIU, which
forecasts that food and beverage retailing will grow at 9.2 percent over the next five years
against a total GDP growth rate of around 7 percent.
India is also one of the worlds major food and drinks markets, reflecting the large
population rather than high spending levels. Estimates of the size of the market vary as
the true size of the informal market is difficult to measure: the EIU estimates that
combined food beverages and tobacco spending totaled US$190 billion in 2004
(compared to around US$240 billion in China, which is of similar population size); a
study by the Federation of Indian Chambers of Commerce and Industry (FICCI)
concluded that the food market alone was around US$70 billion in 2004. The EIU
forecasts that spending growth will rise, from around 6 percent in 2000-2004, to around 9
percent in 2005-2009. The forecast growth in personal disposable incomes will allow
food and beverage spending to rise faster than average GDP growth, while still falling
marginally as a proportion of household spending.

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5.2.3 REGION WISE SURVEY:


5.2.3.1 Ready to Eat Meals
In 2003, Indian consumers purchased INR 643 million worth of ready meals. The largest
market, by value, was West India where INR 223 million worth was sold. The second
largest market was North India with sales of INR 191 million. West India had the highest
level of per capita consumption of 8 gms per person worth INR 1.03, followed by both
North and South India at 4 gms per person worth INR 0.60 and 0.68 respectively. The
East & Northeast region is the smallest market for ready meals but is growing rapidly. In
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the future, South India is expected to become the largest regional market for ready meals.
This growth is based on the regions increasingly sophisticated retail environment.
It is forecast that by 2009, Indians will purchase INR 2.91 billion worth of ready meals
with South Indians buying 4.86 thousand tonnes worth INR 909.99 million. The second
largest market, by value, is expected to be West India with sales of 6.43 thousand tonnes
worth INR 827.57 million.
By 2009, West India is expected to have the highest level of per capita consumption at 27
gms worth INR 3.46, followed by South India at 19 gms per person worth INR 3.56.

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5.2.3.2 Frozen Processed Products


In 2003, Indian consumers purchased INR 3.95 billion worth of frozen processed
products. The largest market, by value, was West India where INR 1.40 billion worth was
sold. The second largest market was North India with sales of INR 1.30 billion
West India had the highest level of per capita consumption of 35 gms per person worth
INR 6.44, followed by North India and South India at 22 gms per person in each region
worth INR 4.07 and INR 3.81 respectively.
Increased sales of frozen processed food in the North India and West Indian regions will
be based on their relatively high degree of affluence and increasing westernization among
the younger generation in New Delhi and Mumbai. It is forecast that by 2009, Indians
will purchase INR 6.67 billion worth of frozen processed products with West Indians
buying 11.72 thousand tonnes worth INR 2.31 billion. The second largest market is
expected to be North India with sales of 11.30 thousand tonnes worth INR 2.27 billion.

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By 2009, West India is expected to have the highest level of per capita consumption of 49
gms per person worth INR 9.67, followed by North India at 32 gms per person worth INR
6.48.

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5.2.4 PROFILE OF DOMESTIC PLAYERS:

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5.3 COMPETITIVE ADVANTAGE:

Source: Food Processing report by IBEF (India brand equity foundation)-2006

India has several competitive advantages in the food processing sector, which have been
analysed using the framework shown below.

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Source: Food Processing report by IBEF (India brand equity foundation)-2006

1. Demand conditions
India offers a huge growth opportunity for the food processing sector due to the positive
impact of demographic trends and expected regulatory changes.
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Large target consumer base and rising income levels:


India population is nearly 23 per cent of the global population and is one of the most
attractive consumer markets in the world today.

Source: Food Processing report by IBEF (India brand equity foundation)-2006

Income levels across population segments have been growing in India. According to
NCAER data, the consuming class, with an annual income of US$ 980(INR 45000) or
above, is growing and is expected to constitute over 80 per cent of the population by
2009-10. The increase in income levels of the Indian population and the emergence of the
consuming class that has higher propensity to spend, offers great growth opportunities for
companies across various sectors.
Changing age profile of the Indian population
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As a consequence of the high birth rates prevalent until the 1990s, a large proportion of
the Indian population is relatively young - in the age group of 20- 59 years. This group is
also high in consumption and therefore, this trend is expected to provide a further boost
to the growth of consumption in India.
Changing lifestyles
Urban consumers in India have become more exposed to western lifestyles, through
overseas travel and presence of foreign media in India. For example, more than 5 million
Indians traveled abroad last year and this number is expected to increase by 15 per cent to
20 per cent per annum. Increase in the population of working women and increasing
prevalence of nuclear double income families, especially in urban areas, are other trends
shaping lifestyles. The food processing sector has been impacted by these trends as there
has been an increase in the demand for processed, ready-to-cook and ready-to-eat food. It
has been assessed by Euromonitor International, a market research company, that the
amount of money Indians spend on meals outside the home has more than doubled in the
past decade to about US$ 5 billion a year, and is expected to further double in the next 5
years. These trends imply significant growth potential for the sector in future and add to
its investment attractiveness.

2. Factor conditions
India has a comparative edge over several other nations in terms of its access to natural
resources.

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Source: Food Processing report by IBEF (India brand equity foundation)-2006

Due to its diverse agro-climatic conditions, it has a wide-ranging and large raw material
base suitable for food processing industries. Presently a very small percentage of these
are processed into value added products. The semi-processed and ready to eat packaged
food segment is relatively new and evolving.
India has the largest irrigated land in the world. It is also worlds largest producer of milk,
tea and pulses. India has large marine product and processing potential with varied fish
resources along the 8,041 km coastline, 28,000 km of rivers and millions of hectares of
reservoirs and brackish water. India also possesses the largest livestock population in the
world with 50 per cent of worlds buffaloes and 20 per cent of cattle. Also, India is the
worlds largest milk producer. Indias comparatively cheaper workforce can be effectively
utilized to set up large low cost production bases for domestic and export markets. Cost
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of production in India is lower by about 40 per cent over a comparable location in EU


and 10-15 per cent over a location in UK.
Along with these factor conditions, India has access to significant investments to
facilitate food processing industry. There have been increasing investments not only by
domestic firms and Indian government, but also foreign investors.
3. Related and supporting industries
The Indian food processing industry has significant support from the well-developed
R&D and technical capabilities of Indian firms. India has a large number of research
institutions like Central Food Technological Research Institute, Central Institute of
Fisheries Technology, National Dairy Research Institute, National Research and
Development Centre etc to support the technology and development in food processing
sector in India.
4. Industry competitiveness
The Indian food processing sector is highly competitive. There are a large number of
players in the organised as well as unorganized sector. The organised sector is small but
growing - for example, it forms less than 15 per cent of the dairy sector and around 48
per cent of the fruits and vegetable processing. The sector offers potential for growth and
a large number of MNCs have entered into India to leverage this opportunity.
Some of the successful overseas players in this sector include Unilever, Cadbury, Nestle
and Pepsi. These players face competition from strong Indian brands. Companies have
adopted various strategies to maintain and increase their market share in India. These
include competitive pricing, aggressive advertising campaign, expansion plans etc.

5. Government regulations and support


The Government of India has been working to develop the food processing industry in
India through several initiatives. One indication of the importance that the sector receives
is the almost doubling of the present outlay for the sector from US $19.5 million in 2004ACCF

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05 to US$ 41.35 million next year. The government has been developing agri-zones and
the concept of mega food parks to promote food processing industry in India. It is
considering investing US$22.97 million in at least 10 mega food parks in the country
besides working towards offering 100 per cent foreign direct investment and income tax
benefits in the sector.
In order to promote investment in the food processing sector, several policy initiatives
have been taken during recent years. The liberalised overall policy regime, with specific
incentives for high priority food processing sector, provides a very conducive
environment for investments and exports in the sector.

6. Food Retail in India


The food business in India is largely unorganized adding up to barely Rs. 40,000 crore,
with other large players adding another 50% to that. The All India food consumption is
close to Rs. 900,000 crore, with the total urban consumption being around Rs.330, 000
crore. This means that aggregate revenues of large food players is currently only 5% of
the total Indian market, and around 15-20% of total urban food consumption. Most food
is sold in the local `wet' market, vendors, roadside pushcart sellers or tiny kirana stores.
According to McKinsey report, the share of an Indian household's spending on food is
one of the highest in the world, with 48% of income being spent on food and beverages.
Euromonitor International, a market research company, says the amount of money
Indians spend on meals outside the home has more than doubled in the past decade, to
about US$ 5 billion a year and is expected to double again in about half that time.

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6.1 ORGANIZED RETAIL:

Though there are about 12 million retail outlets in India, organized retailing accounts for
less than 3 percent of the total retailing in India, although new format stores like
hypermarkets, supermarkets, mini supermarkets, convenience stores and discount stores
are fast appearing in cities and large towns.

For a long time, roadside grocery stores have been the only available choice for urban,
semi-urban and rural areas. But the traditional grocery and food stores have experienced
the emergence of organized supermarkets and grocery chains.

Organized Retailing in the last decade has emerged as one of the sunrise industries in
India, closely following the Information Technology and Biotechnology industries. The
boom in the sector started after the liberalization measures were initiated in 1991 in the
country. Several large chains have entered the bandwagon and have achieved fair to
significant success. Indian retailing has evolved over the past decade, from largely an
informal and disorganised marketplace to an increasingly corporatised industry, at least
in the urban India. With the increased popularity of food retailing in an organised way
this sector has thrown up a wide range of opportunities for Indian agribusiness.

Organized retailing, considered a sunrise industry after InfoTech, is one of the most
happening industries with many big players (Tata, RPG, Times, ITC as well as foreign
firms like Wal-Mart) vying for a share of the coveted pie. Organized retailing, considered

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a sunrise industry after InfoTech, is one of the most happening industries with many big
players (Tata, RPG, Times, ITC as well as foreign firms like Wal-Mart) vying for a share
of the coveted pie.

6.2 THE KEY DRIVERS:

The changes in the nations social structure like, improvement of the


Indian economy, consumerism, urbanisation, profusion of brands have
been the main causal factor for the development of these modern
formats. Indian food buying behaviour is gradually changing in
response to the changing social structure.

The increasing number of nuclear families, double income households,


working women, greater work pressure and increased commuting time
has put the consumers under constant time pressure. The other
equally important factors in the changing Indian landscape are the
increasing influence of children, gradual acceptance of frozen, semiprocessed and processed foods by the Indian consumer, the growing
influence of television in decision making and improvement in literacy
rates. As the modern housewife starts shopping for herself she
appreciates and welcomes:

a pleasant shopping environment;

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convenience of one-stop shopping with wider product portfolio at


a single location;

speed and efficiency in processing;

more information;

better quality and hygiene; and

Discount too if possible.

The improved income and the increased purchasing power of a larger


section of the Indian population makes the opening of outlets, which
provide the whole bunch of these improved services a viable
opportunity.

The major formats being followed for organized food retailing in


India are:

Supermarket: Relatively larger-low cost, low margin, high volume,


self service operation designed to serve total need for food, laundry,
and household maintenance products. E.g.: Food World, Nilgiris,
Shoppers Stop

Discount Store: Standard merchandise sold at lower prices with lower


margins and higher volumes. True discount stores regularly sell

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merchandise at lower prices and mostly national brands. E.g. Margin


Free Markets, Subhiksha.

Fresh Product outlets: Outlets selling fruits and vegetables in valueadded packing. These outlets generally cater to the higher segment of
the society. E.g. Namdhari and Safal.

Specialty

Stores:

Narrow product line of an individual food-

processing firm. E.g. Haldirams, MTR.

Convenience Store: Relatively small store located near residential


area, open long hours seven days a week, and carrying a limited line if
high-turnover convenience products at slightly higher prices. E.g.
Outlets near petrol pumps, cinema halls etc.

Off-Price

Retailer:

Merchandise

bought

at

less

than

regular

wholesale prices and sold at less than retail.

7. CHANGING CONSUMER BEHAVIOR

According to a survey by ACNielsen, an urban adult Indian is among the top 10 in the
world in terms of frequency of fast-food consumption. The going-out-to-eat culture is
evolving fast in India, as more consumers seek variety in their food choices. Urban
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Indians are aware of international cuisines, and an increasing number are willing to try
new foods. About 4.5 percent of urban consumers eat outside of their home at least once a
week, and about 12 percent eat out once a month.

A rapidly growing Indian economy (6 percent annually over the last decade) has
increased incomes of the consuming class. By 2007, approximately 22 percent of
households (44 million) are expected to have an average annual income of $3,150
($17,300 on a purchasing power parity basis) compared with less than seven percent in
1995.

The expanding young population, more women in the workforce and increasing
urbanization support HRI food sales. Today, close to 30 percent of the population live in
urban areas, and this share will grow to 40 percent by 2025. Sixty-five million people are
expected to enter the 20-34 year age group from 2001 to 2010. The number of dual
income households, with both husband and wife working, has been expanding rapidly in
urban areas.

7.1 DRIVERS OF CHANGE:

High income

Changing Attitude

International

Necessities to

opportunities
Service sector:

From Save to

Exposure
Highest growth rate

lifestyle
Shift to expense

creating new jobs

Spend

of out bound tourists basket from basics


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to lifestyle
IT industry:

High disposable

Increasing business

increasing

income family

travel

professional &

structures on a rise

entrepreneurial

products

Spend on eating out,

Nuclear

Indian students

Apparel, films,

families

highest amongst all

entertainment,

DINKS

nationalities in US

mobile phones on a

Rising salary levels

(Double

and Australian

rise

MNCs entering

Income No

Universities

India and home-

Kids)

opportunities

grown companies
going global

Multi-

Exposure to global

income

trends through TV

families

networks

1. Higher Disposable Incomes

The disposable income of Indian consumers has increased steadily. The proportion of the
major consuming class (population that has an annual income that is higher than Rs
90,000) has risen from 20 per cent in 1995-96 to 28 percent in 2001-02; this is expected
to move up to 35 per cent by 2005-06 and to 48 per cent by 2009-10. This translates into
a CAGR of 9.3 per cent over the next 8 years and will result in higher spending capacity
and eventually into greater consumption

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2. Higher level of working women

According to the 2001 census report, the population of workingwomen has increased
from 22 per cent in 1991 to 26 percent in 2001. Increased number of working women
leads to an increase in the demand for processed, ready-to-cook and ready-to-eat food.

3. Increase in nuclear families

In the recent past, nuclear families as a percentage of the total household population have
increased. Average household sizes have decreased from 5.57 in 1991 to 5.36 in 2001.
Per capita consumption increases in the case of a nuclear family.

4. Higher Growth In Urban Population

Urbanization has increased at a rate of 2.7 per cent over the last 10 years (1990-2000). In
2000, the urban population was estimated to be 281 million (27.7 per cent of the total
population). This pace of urbanization is expected to be maintained, and urbanization is
expected to increase at 2.4 per cent from 2000 to 2015. In 2015, the population in urban
areas is expected to touch 401 million, accounting for about 32.2 per cent of the total
population.

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India: Increasing Urbanization

26

27

28

29

30

32

74

73

72

71

70

68

1990

1995

2000

2005

2010

2015

Rural Population

Urban Population

Source: Census 2001

Assuming a similar age profile in urban and rural India, the urban population in the 15-60
age group is expected to grow from 164 million (18 per cent of total population) in 2000
to 287 million (23 per cent of total population) in 2015.

5. Baby Boomer Effect

In 2000, the 15-60 age groups boasted 593 million people, that is, 58.3 per cent of the
total population. This figure marks a 77 per cent (CAGR of 2.3 per cent) increase from
the figures recorded 25 years ago, when the 15-60 age group was 335 million strong (54
per cent of the total population); during this period the total population grew by 64 per
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cent (CAGR of 2 per cent). Over the same period, the population above the age of 60
increased by 99 per cent (CAGR 3 per cent).

India: Baby Boomer Effect

10

57

57

58

62

63

> 60 years
15-60 years
< 15 years

37

36

34

30

28

1990

1995

2000

2005

2010

Source: KSA Consumer Outlook 2006

Over the next 15 years, the strength of the 15-60 age groups is expected to increase to
782 million, which means a share of 62.8 per cent in the total population. Sixty-five
million people are expected to enter the 20-34 year age group from 2001 to 2010. Over
the same period, the population aged above 60 years is expected to increase to 9.6 per
cent, thus aggregating to a population of 119 million.

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8. ENTERING THE MARKET


The data analysis shown above shows a positive growth of the food industry in India
whether it is eating out or ready to eat meals. There are various business opportunities in
this sector. For eating out options one can set up his own restaurant and to sell ready to
eat meals one can set up his own retail outlet. There are various options in setting up a
restaurant or a retail outlet. Such options are given below.

8.1 TYPES OF FAST FOOD RESTAURANT:


1. Independent: An independent restaurant owner owns one restaurant.
2. Chain: A chain retailer operates multiple outlets under common ownership.
3. Franchising:

Franchising involves a contractual arrangement between a

franchisor and a retail franchisee, which allows the franchisee to conduct business
under an established name and according to a given pattern of business. The
franchisee typically pays an initial fee and a monthly percentage of gross sales in
exchange for the exclusive rights to sell goods and services in an area.
An example of franchise of Dominos is given below.
Concept
Hot and Fresh Pizza Delivery

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USP
Fastest Delivery of Food (30 minutes or Free)
Franchising Requirements

Investment Required: Rs. 5,000,000 - 6,000,000

Franchise Fees: 1,000,000

Area Required: 800-1200 sq ft

Breakeven: 3-5 Years

Location Specification: Location should have a minimum frontage of 20 ft on a


ground floor and have sufficient pizza eating households within a perimeter of 10
minutes drive.

Franchisor Support

Projects Store Layout, Store construction, Vendors, Equipment procurement

Marketing Store opening Plan, Print Material, Promotions, and Data Analysis.

Commissary High Quality and Hygienic Food, Regular and Emergency supplies,
Best Competitive Rates.

Product Development New Product Development, Product up gradation, Quality


Audits.

Ongoing Operations Training, Audits, Customer Related issues, POS.

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8.2 TYPES OF FOOD RETAIL OUTLET:


1. Independent: An independent retailer owns one retail unit. Such a unit involves
low capital requirements.
2. Chain: A chain retailer operates multiple outlets under common ownership.
3. Franchising:

Franchising involves a contractual arrangement between a

franchisor and a retail franchisee, which allows the franchisee to conduct business
under an established name and according to a given pattern of business. The
franchisee typically pays an initial fee and a monthly percentage of gross sales in
exchange for the exclusive rights to sell goods and services in an area.

9. FUTURE PROSPECTS
The industry is estimated to grow at 9-12 per cent, on the basis of an estimated GDP
growth rate of 6-8 per cent, during the tenth five-year plan period. Value addition of food
products is expected to increase from the current 8 per cent to 35 per cent by the end of
2025.
Two of America's biggest brands, Starbucks and Burger King, are looking to tap the
Indian market.

In fast food, Yum Restaurants International, owner of Pizza Hut and KFC, with global
sales more than $13 billion, has announced that it will invest close to $25 million;
Domino's, world leader in pizza delivery, has an annual expansion expenditure of $1.5
million; US-based Papa John's, the third-largest pizza company, has 100 outlets lined up
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in northern India; KFC is planning 1,000 restaurants. The $5 billion US fast-food major
Subway is planning to invest more than $40 million, planning 200 outlets by 2009.
India's Panban International, which imports hotel equipment, has tied up with the
successful Quick Service Restaurant chain in the United Kingdom, Dixy Fried Chicken
Euro Ltd, with plans to roll out 100 outlets in five years.

10. FINDINGS AND ANALYSIS

Changing demographics:

Income levels across population segments have been growing in India. According
to NCAER data, the consuming class, with an annual income of US$ 980(INR
45000) or above, is growing and is expected to constitute over 80 per cent of the
population by 2009-10.

By 2007, approximately 22 percent of households (44 million) are expected to


have an average annual income of $3,150 ($17,300 on a purchasing power parity
basis) compared with less than seven percent in 1995.

As a consequence of the high birth rates prevalent until the 1990s, a large
proportion of the Indian population is relatively young - in the age group of 20-

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59 years. Sixty-five million people are expected to enter the 20-34 year age group
from 2001 to 2010.

Increase in the population of working women and increasing prevalence of


nuclear double income families, especially in urban areas has shown an increase
in the demand for processed, ready-to-cook and ready-to-eat food.

Fast food sector:

According to a survey by ACNielsen, an urban adult Indian is among the top 10 in


the world in terms of frequency of fast-food consumption.

As per a survey by ACNielsen, 37% of Indian population eats at take away


restaurants once in a week.

About 4.5 percent of urban consumers eat outside of their home at least once a
week, and about 12 percent eat out once a month.

It has been assessed by Euromonitor International, that the amount of money


Indians spend on meals outside the home has more than doubled in the past
decade to about US$ 5 billion a year, and is expected to further double in the next
5 years.
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While food accounts for only 9.7% of the total private consumption expenditure
for an average American person,15% for the Japanese and 15% for the British, for
the Indian it is the single largest component of their total consumption
expenditure, accounting for as much as 53%.

Like most Asian economies, India has a long tradition of eating away from home, at a
plethora of roadside eateries, snack shops and at lodging places. But it is only in recent
decades that an organised, institutional food service sector has started to develop,
requiring larger-scale and more organised supply chains. India is showing a changing
face. There is an increase in the population of working women and increasing prevalence
of nuclear double income families, high income opportunities, changing attitude from
saving to spending, multi income families, shift to expense basket from basics to
lifestyle products. All this has shown an increase in the demand for processed, ready-tocook and ready-to-eat food and eating out options.

With the changing life styles of the consumers and rising disposable income of the
growing middle-income group, Branded Food, Health food and Convenient Food are
rapidly rising segments of this industry which are gaining vast popularity. The market for
branded foods is growing at a healthy 10%-15%.

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There is a huge opportunity in both fast food market and ready to eat food market as both
the industries are growing very fast and are expected to grow faster because of the
changing consumer lifestyle.

11. CONCLUSION
Fast food industry growth in 2006 has been between 25-30%. The food business in India
is largely unorganized adding up to barely Rs. 40,000 crore, with other large players
adding another 50% to that. The All India food consumption is close to Rs. 900,000
crore, with the total urban consumption being around Rs.330, 000 crore. An urban adult
Indian is among the top 10 in the world in terms of frequency of fast-food consumption.
The amount of money Indians spend on meals outside the home has more than doubled in
the past decade to about US$ 5 billion a year, and is expected to further double in the next
5 years.
Both fast food sector and ready to eat meal market are witnessing a positive high growth
rate. With the changing lifestyles people are spending more on eating out. Due to
increased number of working women in urban population market of ready to eat meals
has shown a positive growth.
Till now the fast food sector is dominated by unorganized players. There is a huge
opportunity for branded outlets to enter the market because with the changing scenario
people are more inclined towards brands. As eating out involves health issues people
prefer eating at branded outlets.

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48

Food retail outlets are also gaining much importance now a days as they help customers
to enjoy their food shopping by providing them attractive ambience, hygiene,
convenience, range and variety of goods. But this sector is also dominated by
unorganized retailers and there is a huge opportunity for organized retail outlets because
of changing consumer preferences.

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RECOMMENDATIONS

1. More fast food restaurants in organized sector:

Till now fast food restaurant industry is dominated by the unorganized players.
With the changing life styles of the consumers and rising disposable income of the
growing middle-income group, Branded Food, Health food and Convenient Food
are rapidly rising segments of this industry which are gaining vast popularity. So
there is need for increasing the number of branded-fast food outlets.

2. More emphasis on ready to eat food market:


Ready to eat food market is growing very fast and hence the sector shows a lot of
potential. The industry is estimated to grow at 9-12 per cent, on the basis of an
estimated GDP growth rate of 10 per cent, during the eleventh five-year plan
period.

3. Organized retail food outlets:


Organized food retail outlets will help customers by providing them attractive
ambience, hygiene, convenience, range and variety of goods. So more organized
retail outlets will result in increased sales of processed food and beverages.

4. Open theme based restaurants:

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Theme based restaurants are popular around the world. This concept should be
popularized in India too.

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REFERENCE

http://www.fas.usda.gov/gainfiles/200506/146129952.pdf

http://www.fas.usda.gov/gainfiles/200612/146269832.pdf

http://www.nfis.com.au/india/pdfs/3_how_is_food.pdf

http://www.fas.usda.gov/htp/highlights/2001/india.pdf

http://www2.acnielsen.com/reports/documents/2006WhatsHotFoodBev.pdf

http://ibef.org/download/The_Indian_Hotels_Company.pdf

http://www.ibef.org/industry/tourismhospitality.aspx

http://library.corporate-ir.net/library/11/117/117941/items/176210/06-%20Yum!
%20India.pdf

http://www.hotelbenchmark.com/resources/marketsnapshots/13042005IndiaEN.aspx

http://www.domainb.com/industry/foods/20010220_pizza_dough.html

http://in.acnielsen.com/industry/fmcg.shtml

http://www.hotelassociationofindia.com/home/hai_activities.htm

http://www.ficci.com/surveys/food.pdf

http://mofpi.nic.in/presentations/fpindia.pdf
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52

http://mofpi.nic.in/

http://india.mapsofindia.com/travel/eating-out.html

http://www.indiaonestop.com/fdi-food-processing.htm

http://www2.acnielsen.com/reports/documents/2005_lifechoices.pdf

http://mofpi.nic.in/technologies/rural/beverages/bev_commutedorange.htm

http://mofpi.nic.in/industryspecificinformation/index.htm

http://mofpi.nic.in/industryspecificinformation/packaged/pack_investopp/pack_in
vestopp.htm

http://mofpi.nic.in/oppertunities/investment/why_invest/why_invest.htm

http://mofpi.nic.in/industryspecificinformation/fruits&vegetables/veg_investopp/v
eg_investopp.htm

http://mofpi.nic.in/industryspecificinformation/pack_drinks/pack_drinks.htm

http://members.rediff.com/vinil/vin1.htm

http://www2.acnielsen.com/reports/documents/2004_ap_fastfood.pdf

http://www.ibef.org/economy/consumermarket.aspx

http://www.ibef.org/industry/foodindustry.aspx

http://www.kpmg.com/NR/rdonlyres/426CCCE9-733A-43B3-A27D0EE157EFDB9F/0/ConsumerMarketsinIndia.pdf

http://ats.agr.ca/asia/4144_e.htm

http://www.dnb.co.in/food%20processing/overview.asp

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BIBLIOGRAPHY
1. Michael Levy, Barton A. Weitz, Retailing Management, Tata Mc Graw Hill Ed;
2006, Page no 41-45
2. Barry Berman and Joel R. Evans, Retail Management, Pearson (ninth edition2006) Pg.109-115

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ANNEXURES
Asia Pacific study includes following countries:

Australia

Bangladesh

China

Hong Kong

Indonesia

India

Japan

South Korea

Sri Lanka

Malaysia

New Zealand

Singapore

Thailand

Taiwan

Vietnam

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