Fdi Food Retailing

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Te Indian Food and Beverage Services market isexpanding rapidly. Te compounded annual rate o growthis expected to be 25% and will continue to grow withsimilar pace in the next ew years. Te overall scenario o the F&B market has evolved over the ew years. Tere

was a time when handul o brands were available in themarket to eat out. But today, the customers are spoilt orchoices. We have witnessed immense activities in F&B

Services industry in the last 5 years, including exciting new concepts, ood and beverage oerings and new andinnovative service elements.. We have also seen increasedinterest in the investment circle or this segment with somebig investments deals taking place in the recent times.

Tereore, what are the emerging and current trends in theF&B Services industry? How will people eat, behave andbe served in coming years? In this document we look atsome o these oreseeable trends that will become part o the everyday lie soon.

Emerging Trends

in Food & Beverage Services

Retailing in India

Food & Beverage

a quarterly report by technopak | Outlook June, 2012

www.technopak.com



UNDERSTANDING THE F&BCONSUMER BETTER-ROLEOF ANALYTICS

01 09EVOLUTION OF BEVERAGEAS A GAME CHANGER

TRANSFORMATIONOF CUISINE

SOCIAL MEDIATRANSFORMINGRELATIONSHIP WITHCONSUMERS

03

11

INCREASING INFUSION OFENTERTAINMENT IN F&B

NEW EXPANSIONOPPORTUNITIES

SUSTAINABILITY GAININGCRITICAL IMPORTANCEIN F&B

GROWING IMPORTANCEOF GRADING SYSTEM

ABOUTTECHNOPAK

05 07

14 18 19

ContentsAuthors:

Inderpreet Kaur, Associate Director | [email protected]

Shruti Garyali, Senior Consultant | [email protected]

Ravindra Yadav, Senior Consultant | [email protected]

Samridhi Sancheti, Consultant | [email protected]

Design & Development

Bharat Kaushik, Sr. Design Manager I [email protected]

Arvind Sundriyal, Senior Designer I [email protected]



Outlook June, 2012 | Emerging Trends in Food & Beverage Services Retailing in India

1 2

ransormation

o Cuisine

Trend 1

Despite India’s great tradition o ood, eating out wasnot as common as in the West until recently. Now,eating out is a regular orm o entertainment, especially in the metros, mini-metros and ier I cities, driven by rise in income, greater number o nuclear amilies and

working women, and urbanization. Focused marketing by brands, with more emphasis on the menu, is alsoattracting customers, as is the dissemination o culinary concepts and preerences through print and televisionmedia. Closely linked to these developments is thetransormation o cuisine rom simple and amiliaroerings to a menu that oers diversity in taste, styleand origins.

At thecustomer end, a greater willingness to experiment with novelties, exposure to international cuisines, anda ast-paced liestyle have contributed to changing cuisine preerences. Ingredients like trues, artichokes,asparagus, Australian lamb, Norwegian salmon, black bean sauce etc. have ound their way to the IndianF&B space. Blending o cuisines, e.g. Italian with Taiis another customer choice. Te trend is increasing orcustomers to choose cuisines that reect their liestyle,

and in the process reject the traditional options.

Consequently, industry-side trends are also changing, with international players also entering the arena. Evencasual dining players are prepared to provide such avorsas quick Chinese, raw and rustic Italian, ne French,convenient American, etc. which were once specialty and ne-dining dishes. On the other hand, customersare also being wooed with “street ood” options served ina hygienic setting and good ambience. Another industry innovation is the dual ormat, e.g., caé + bar, caé + grill,bar + lounge, etc. While these give more choice tocustomers and can also make more prots or the brands,they need to be clearly positioned to avoid any conusionin the customers’ minds. Multi-cuisine restaurants,

which oer a non-specialized eel, are however losing ground to specialist players with customers willing topay more but unwilling to compromise on quality.

Te way orward is likely to be an adoption o bothlesser known Indian avors rom the Himalayan andtribal belts as well as other international cuisines. WhileSouth Indian, Punjabi and Mughlai cuisines tended todominate the Indian oerings, there is now also demandor such dishes as Andhra Chicken Pepper Fry. Similarly,Bhutanese, Arican and Korean cuisines can also ndacceptance among customers. Tus, there is opportunity or F&B players to mix the traditional and new Indianavors while oering both individually. Further,

while a niche segment may be created around specicinternational cuisines, customization may be needed to

ensure that they suit the Indian palate.

FineDining

Casual Dining/ Cafes

Street Food




3 4

Evolution o

Beverage as a Game Changer

Trend 2

Most people in India are exposed to a variety o beveragesrom an early age: mothers serve homemade milkshakes,sharbats, chocolate drinks etc. However, beverages arethemselves only a “sidekick” and at best served as llersin-between meals. Given this backdrop, the recentsurge in the Indian beverage segment is exciting andcan open up many retail opportunities. Tis emergencebegan with the introduction o coee chains more thana decade ago. Tis was also a rst in terms o organizedbeverage retail, since the segment was earlier dominatedby small local players like juice shops. Also, restaurants

which ocused solely on ood have also added/expandedtheir beverage oerings. Tis has boosted developmento both alcoholic and non-alcoholic beverages at bothproduct and retail level.

Non-Alcoholic Beverages

Tis segment primarily comprises coee, tea and aerateddrinks. In the past ew years, coee has become a ashionstatement among the young and upwardly mobile.

With both Indian and international coee chainsmushrooming across the country, caés are playing a key role in tuning customer preerences and also creating a retail space. Tis growth has also prompted biggerinternational brands like Starbucks and Dunkin’ Donutsto oray into the Indian market.Interestingly, the development o the coee segmentis set against the backdrop o India primarily reerredto as a ‘tea-drinking’ nation with the per capita tea consumption o 0.75 kilos per annum being almost10 times the per capita coee consumption. Te tea segment, despite a surge in opportunities, is presently

at a stage similar to that o the coee segment a decadeago. However, consumers are keen on trying out new

variants such as avored and herbal teas, and urther,understand the products’ novelty and are willing to pay a premium price. Growing awareness o the health benetsattributed to tea is another actor driving the expansiono tea-based chains like Chaipatty, Passion – My Cup o ea, apri, Innitea, Chai Point, ea Junction, ea Pot,ea Center, Cha Bar, and Wagh Bakri ea Lounge. A urther push to the tea segment comes rom introductiono tea options by leading coee chains.Brands are also experimenting with other beverage-based ormats, e.g. juice bars, especially in high ootallareas like airports and ofce complexes. Such brands asBooster Juice and My Orange cater to an increasingly health-conscious population through easy-to-access

locations. Tis has also added to the overall developmento the non-alcoholic segment.

Alcoholic Beverages

Te rising popularity o alcoholic beverages, especially among youth, can be attributed to dramatic liestylechanges which, in turn, are ueled by rising incomelevels. Te entry o international brands is also a actoror “social” drinking at get-togethers, which was onceconsider a taboo in India. Te youth however preerlighter spirits, due to which such white spirits as vodka,rum, gin and tequila are seeing growth. Given that thesegment on the whole was undergoing innovations evenprior to the development o F&B retail ormats theemergence o new ormats has given a urther boost atboth the product and retail level.

“Alcohol has not only become an occasionalpart o our lives but ithas evolved into one o

the strongest inuenceson our civilization”.Homer Simpson

AtProduct Level, there is a shit in preerence rom classicalcocktails and straight drinks to using signature spirits andpersonalized mixes. Inusion o avor into spirits, e.g. tea in

vodka, chili inused wine, is also becoming popular. Caésand casual dining chains like Caé Coee Day, Barista and Pizza Hut are also trying to cash in by oering beerand wine, with wine in particular gathering momentum– wine drinking is consistently growing at 20% to 25%per annum. Many Indian and international winemakershave run promotions and programs to educate the Indian

consumer in the past ew years, resulting in increased salesnot only in Metros and ier I cities, but also in ier IIcities. Another innovation in products is the introductiono diet versions o beer, vodka and whiskey by UnitedSpirits Ltd. to cater to health-conscious consumers.

New lounge ormats and microbreweries are among theRetail Level developments in the alcoholic beveragessegment. While new ormats provide an avenue orshowcasing an eclectic mix o beverages, microbreweriesreect an attitudinal shit towards consuming reshly-brewed beer. Tere are also places which combinebeverages with sports, e.g. Howzatt which oers bothbeer and cricket. Increasing awareness has also resulted inlaunch o exclusive ormats such as the Delhi Wine Clubor wine connoisseurs.

Going orward, brands are expected to ocus on thebeverage segment, which oers high margins and alsoa point o dierentiation rom competitors. However,such actors as complementary ood, ambience andengagement activities will also be crucial in determining the vitality o the business model and will help increating a niche or this segment.




5 6

Increasing

Inusion o Entertainmentin F&B

“And in my opinion,entertainment

in its broadestsense has becomea necessity ratherthan a luxury inthe lie….”Walt Disney

Te development o the organized F&B market in India has taken time, due to which brands are still ocusing ongetting the undamentals (the menu, the service etc.) inorder. Despite this, growth in the market has resulted ina shit towards customer engagement at the dining spacethrough dierent means. As a result, F&B brands now operate in two main spaces, viz.

• Brands which were established as F&B players haveintroduced entertainment-driven elements. E.g.,Caés oering live music or games

• Brands which were primarily entertainment oriented, with F&B elements as add-ons. E.g., Sports bars,bookstore caés

By adding entertainment options, F&B brands givecustomers another reason to spend more time at thedinner table, thus improving the average spend per visit.

While some orms o entertainment are oered reeo cost (or instance, live music), others games such assnooker require some additional payment. Further, withincreasing competition and ast-growing markets, F&Bbrands need to create an opportunity to diferentiatethem rom other brands. raditionally, restaurants wererated in terms o theme and ambience; now they vie inoering varied entertainment.

One benet o such extras is the buzz it can create among customers, who then become an alternative marketing tool by spreading the word about the F&B brand. Tis‘talk value’ is vital or brands as their customers are alsopassive advertisers. Brands which host musical events,or instance, may also capture indirect media attentionthrough such customers. However, the onus is on thebrands to ensure higher consumer interaction andengage younger consumers, who are more likely to seek such venues as “hang-outs” and visit requently.

Brands also have to make a studied choice in terms o these bonus oerings, which are limited in number andhave dierent levels o appeal among c ustomers. Musicis generally the strongest crowd-puller, and positively impacts a restaurant’s business, image and customerexperience. It can be oered variously through liveperormances, as songs played on request and karaoke.Blue Frog, Te V Spot Caé+Bar and Hard Rock Caéare some examples o successul players oering music.

Another entertainment choice is Comedy, which givescustomers a much-needed ‘laughter break’ in a stressul

world. Tis has been successully adopted in the West,but is still novel to India, with Te Comedy Store,Bombay Elektrik Project and Kyra the pioneers here.

Also attracting a good number o customers are Sportsoerings, with themed outlets cashing in on the popular

Trend 3

love or ootball (soccer), cricket, Formula 1 racing, etc.Players in this space include Te Manchester United CaéBar, Delhi Daredevils Sports Bar and Golworx. Onerelatively new option which is still being explored is A rt & Literature. It’s connection with the F&B space is not wellunderstood, and thus the existence o only a ew playerssuch as Mocha Arthouse and Indian Art Caé, whichencourage art and art appreciation, and places whichprovide books to read or customers, like Caé urtle.

Going orward, the need o the hour is to nd unique

ways to engage the consumer in ways that ensure a long term relationship between the brand and the consumer.Te primary goal in this space is creating excitement orthe consumer and giving them more than they asked orin terms o beyond-the-palate, entertainment options in a bid to encourage repeat visits.




7 8

according to customer liestyles and aspirations. Health-conscious customers are one such segment or such F&Bbrands as Soya Express. Restaurants have also introducedthemes and entertainment options to suit patrons whoare looking to have a “good time”. Eating-out is alsotrending in smaller cities as a result o liestyle changes,

viz. increase in disposable income, greater number o working women, etc. Again, consumers are switching loyalties rom tea stalls and roadside eateries to morehygienic dining options which have better serviceoptions, despite the higher expense involved.

Improved transport options have created new retailavenues at airports and metro stations and along highways. In the West, it is common to see quick

service restaurants and caés along reeways, unlikeIndia, where are only unorganized players like dhaabas.Tis opportunity or F&B brands is accentuated by consumers ocusing more on hygiene and quality.Te high ootall and captive customer population atrailway and metro stations and airports has resulted in a mushrooming o F&B brands in these locations. Tereis also more demand or “to go” ood options at transitlocations, oering another window or F&B players.Rising income levels and changing liestyle has giventhe F&B sector a chance to expand and tap new markets. Going orward, higher retail presence is one

way o exploiting this opportunity, while creating nichesegments is another. Te sector is also expected to expandits presence at transit locations.

New Expansion

Opportunities

Trend 4

India’s growth is seen not merely in big cities but alsoin smaller towns. Further, there is tremendous growthacross sectors, which has created deeper pockets. TeF&B sector is also booming, thanks to the new middleclass wishing to taste dierent cuisines and also due tothe youth looking to emulate the Western liestyle. Tus,F&B brands have an opportunity to consolidate in themetros and also oray into smaller cities and towns.

Te lack o uniorm economic growth meant that quick service restaurants and caés were largely located innorthern, southern and western India. Te NationalCapital Region, or NCR, o Delhi alone has 408ranchised brands, according to a study, while westernIndia has 386 brands with the majority concentratedin Mumbai. In southern India too, the 250 brandsare mostly split between Bangalore and Chennai. Incomparison, eastern India has a mere 58 brands, largely located in Kolkata.

On the brighter side, there has been a spurt in economicactivities in this region in the recent years. For instance,

automotive manuacturer Maruti registered a 40 percentyear-over-year growth in West Bengal and Orissa in thenine-month period ended December 2010, and alsoposted an improvement o over 30 percent in Bihar,Chhattisgarh and Jharkhand. Such indicators reect therising demand or improved liestyle options.

With the services sector also recording exponentialgrowth in the past ve years, a number o banks,insurance providers, telecom and I companies havecome up, bringing resh investment, projects and new employees to the eastern states. Te interaction betweenthe locals and the migrants help locals become awareabout branded Indian and international ood chains.Further, thanks to the introduction o special touristcircuits, e.g. the Buddhist Circuit in Bihar, there is aninux o both domestic and oreign tourists. Tus, there

is an opportunity or a variety o F&B brands, in variousormats. Players in this space have already begun to cashin on this – Caé Coee Day, or instance, has spreadinto Bihar, Jharkhand and West Bengal, while Barista operates in Kolkata. Smaller cities like Patna, Guwahatiand Ranchi are also coming up on the radar o F&Bbrands.

Evolving consumer needs have also contributed to thegrowth o niches within the F&B sector. Initially, theirsensitivity to price made the 25 to 40 age bracket the coretarget or F&B brands. With consumers now desiring

customization and showing a willingness to experimentand indulge themselves, F&B brands need to reposition

“Improvedtransport optionshave created new retail avenues at

airports and metrostations and along highways.”




9 10

Understanding the

F&B ConsumerBetter-Role o Analytics

Te Indian F&B sector continues to invite huge amountso investment and still sees high growth and opening o new chains at a rapid pace. Established players inthis space also need to consolidate and/or expand inorder to keep pace with competition and changing consumer behavior and choices. Tese brands will needto “understand” the consumer as not merely being a bill

value or table number and urther, manage the transitionin a systematic way, with adequate oversight. Embedding analytics into a business process can help F&B brands inthis process.

How Does Analytics Help an F&B Business?

Understanding the customer requires knowing whatthey buy, when they buy, how they buy etc. by analyzing customer data at both an overall and segment level.Tis analysis can require devising elaborate mechanismsor data collection, or, minimally, can be based onPoint o Sale, or POS, data. In the F&B sector, ‘ripSegmentation’ is popular as it helps understand the kindo meals customers expect. For example, customers whoonly order single items (dubbed “Solo rips”) may be

willing to buy another item i it’s oered as a “combo” with their usual item, thus boosting sales.

Another possible segmentation ocusses on time o theday to see which oerings can be oered at specic

Trend 5

times as per customer choices. Tis also helps in kitchenmanagement with the restaurateur being aware o whatorders to expect at what time. Continuing the solo tripexample, it might be that such items are most in demandbetween 3 pm and 6 pm on weekdays, and so oering combo items during this duration oers maximumpotential or the restaurant to maximize sales.

Analytics can also help in building a loyalty strategy, which is, surprisingly, rarely ound in the Indian F&Bsector despite a high probability o repeat visitors.

Loyalty programs need not be cash-heavy, or involveplastic cards and heavy discounts. Tey can also involveunderstanding the customers’ buying habits throughtracking their purchases (by, or example, asking ortheir personal question while making a seat reservationor while billing) and rewarding the customers suitably in small ways. An open communication channel, withincentives to promote requent trips, and a personalrapport with the customer can also be helpul. Forinstance, i the customer’s avourite starter or wine isknown, the waiter can serve/ask to serve the same, thuscreating an instant connect with the customer.

F&B brands also need to devise a pricing strategy in a well thought-out manner as price changes should becarried out strategically and only ater analyzing theimpact thereo. Implementing such a strategy also needs

care during both the pre-price change period - when thebrand decides which products’ prices need to be changed- and post-price change period – when the impact o theprice change is measured. For example, it is possible

that certain menu items can be premium-priced withoutadversely impacting sales, while others are highly price-sensitive. Also, while reducing prices can be intuited toimpact sales positively, it may happen that decreasing theprice o an item results in lower sales due to a perceptionthat the lower price implies lesser quantity. Broadly speaking, brands should only marginally change priceso price-sensitive items, but can increase prices o items

which are bought by upmarket customers. Introducing price trials to check price-sensitivity can be helpul.

Developing a menu strategy is another area whereanalytics nds a role. A amous example in the retailsector is the analysis that stocking beer adjacent to nappiesresulted in higher sales. Te F&B sector’s analogue o such “product bundling” is menu mix, e.g., McDonald’soering ries and a sot drink in combination with itsburgers. Such a “combo” reects the restaurant’s analysis

o, and response to, customer preerences, and alsoimproves customer service efciency. Also, customerspay less or such a combination as compared to the priceo each item individually and thus nd “value” in buying

the clubbed oering. On the ip side, too many c ombooerings can end up conusing the customer.

Menus can also be analyzed rom the perspective o incentivizing customers or purchasing their avoriteproducts, which would encourage repeat visits and buildloyalty. Further, analytics can help in product trialsby mapping the acceptance o the new product andcompare it with the sales o similar products to gaugeits success.

Tus, investing in analytics can help F&B brands developa robust database which is useul or developing businessstrategies. Given the current inationary scenario,analytics can help eliminate errors in understanding customers which can be crucial when contemplating growth and expansion.






13 14

In comparison, witter emerges as a channel buzzing with activity and hype, but is less-understood and hence lowerbrand presence and activity (able 2).

Going orward, F&B brands need to have a clear strategy as regards the tone and theme o communication via socialmedia channels. Further, such communication should be integrated and uniorm across various channels. Again,brands need to understand which mode o communication works best with the target consumer group so as not toalienate patrons.

Despite the current popularity o Facebook and witter, such channels as blogs and Youube have tremendous potentialand may be leveraged to improve brand presence. Tis is also necessitated due to the competition in the segmentand also wavering consumer preerences. Social media is thus an open eld which F&B brands can exploit to gaincompetitive edge.

Sustainability Gaining Critical

Importance in F&B

Trend 7

Sustainability, which encompasses health, environmentaland societal trends, is slowly getting incorporated intothe Indian psyche. Both consumers and businesses areincreasingly conscious about their carbon ootprint,

with businesses charting the complete route o alltheir products and services as a controlling measure.

A desire to reduce operational costs, changing investorattitudes, emergence o corporate social responsibility,or CSR, programs, and increased regulatory ocus onacility operations and development is also driving thesustainability trend.

While there is still need or more awareness regarding sustainability, certain initiatives like use o organicand locally sourced ood and adoption o healthierood options are gaining momentum. Tere are alsoactivities such as Indian restaurant chain Nirula’scollecting squeezed lemons, planting them in plasticcups and distributing the same to customers in a bidto promote recycling and planting trees. However,

the lack o understanding and appreciation prevents“green” restaurants both rom charging premium pricesto compensate or their environmental eorts androm reaping any benets to their brand image. Wideradoption o sustainability practices requires that suchexercises should be nancially viable and have a positiveimpact on the restaurant’s operations.

Focus Areas in Sustainability

Te use and conservation o energy is one area whererestaurants can contribute to sustainability and also saveon costs. Attempts to cut down on energy costs havehowever been limited to the ront-end, whereas the oodpreparation area accounts or 60% – 80% o energy usagein the orm o heating, lighting, rerigeration and air

conditioning. Also, kitchen equipment is oten neitherefcient nor environment-riendly, and there are limitedgovernmental regulations in this respect. Even existing norms like the BEE guidelines are not mandatory or therestaurant business.

While such environment-riendly equipment ascomputer-controlled ryers, ovens and rerigeratorsare available in the international markets, theircost, especially with the addition o import duties,is too steep or smaller and unorganized players.Construction o restaurant buildings can also contributeto energy savings. “Green” residential and commercial

“Use andconservation o energy is one area

where restaurantscan contribute

to sustainability and also save oncosts.”

*As on 19th March 2012 (Source: Twitter, Klout.com)

F&B Br an d N um be r o w it te r Fol lo we rs * o ta l N o. o Br an d w ee ts * o ta l N o. o Br an d R etwe et s* R etwe et %

CCD 5383 5393 929 4%

Hard Rock Caé 4651 2811 1300 46%

Dominos 3333 2375 1100 46%

KFC 1227 156 13 8%

Barista Lavazza 510 530 104 20%

Cocoberry 289 640 28 4%

able 2




15 16

construction projects are currently underway whichencourage, inter alia, the use o natural light as a way o lowering electricity costs. Another option in termso lighting is the use o compact uorescent lights, orCFLs, and Light Emitting Diodes, or LEDs, which canbe expensive, but are increasing in popularity.

Recycling and Waste Management is another concernor restaurants, which are required to “clean” their

wastes beore releasing them into the environment,usually using air scrubbers and euent treatment plants.People are also worried about the dangers associated

with landlls. In malls and shops, plastic bags are being replaced by paper bags. Some government policies helpurther such practices, but there is need or stricterregulations relating to recycling practices to be observedby F&B businesses. Restaurants need to switch to using recyclable paper and packaging and cut down on usageo plastic crockery and cutlery.

Also rising in prevalence is the use o resh, organic ood and ingredients, with India among the top ten countriesin terms o demand or s uch ood. Tough organic oodis not a part o consumers’ daily diet due to its higher cost,restaurants are however ocusing on developing back-end teams to access organic ingredients. Te bottleneck,again, is awareness, with customers not knowing thedierence between organic and non-organic ood. But

with more education, organic and locally-grown oodcould nd emphasis with restaurants seeking to create a premium aura and dierentiate themselves rom rivals.

Corporate Social Responsibility, or CSR, is anotheremerging trend among F&B brands as CSR initiativeshelp in enhancing brand image and have value ininternational markets. In India, restaurants have hiredspecially-abled and impoverished people, e.g., RJ Corp

employs over 450 specially-abled people across India.Caé Coee Day also employs about 90 people withhearing impairments. Encouraging government policiescan give a urther boost to such eorts.

Going orward, intensive and ar-reaching educationalprograms can be useul in promoting sustainability initiatives. Governmental measures, including grading restaurants on their “green” eorts and providing taxbenets/ subsidies, can also be helpul. Further, F&Bbrands need to implement sustainable systems at boththe ront- and back-end, in pioneering ways i needed.







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