Unlocking the potential in the food and beverage services sector 2015
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Unlocking the potential in the food and beverage
services sector 2015
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03
04
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Overview of the Indian F&B sector
Key takeaways
Investment drivers
Key issues & solutions
Contents
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Indian F&B service industry – Fast growing & vibrant
• Current market at INR 204,438
crores (2013-14)
• CAGR @ 24%
• Expected to reach INR 380,000
crore by 2016-17
• Dominant categories:
- QSR : 45%
- Casual Dining : 32%
• Majority in unorganised segment
F&B service industry
(in INR lakh crore)
2.04 2.51
3.09
3.8
2013-14 2014-15P 2015-16P 2016-17P
Source: Grant Thornton Analysis, Industry Sources
F&B service industry composition
3%
32%
45%
12%
7%
Fine Dining
Casual Dining
QSR
Cafes
Others
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Key takeaways
Food constitutes half of our consumption expenditure. Thanks
to the large young population in the country, this trend is not
likely to witness a change in the next 20-25 years.
Growing economy has resulted in higher expenditure on food
and related products
Increasing incidence of working women is resulting in frequent
eating out occasions
Awareness for hygiene and health have increased sale of
organised section of market
Increasing infrastructure development providing the platform
for organised players to establish large supply chain networks
New retail formats such as Food Courts in malls have given a
boost to the sector
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F&B is an attractive sector for investors – Both foreign and
Indian • Foreign brands have been quite successful in the Indian market
- Example: McDonald's, Subway, Dominos, KFC, Pizza Hut, Cinnabon, Starbucks, etc.
• A number of Indian entrepreneurs have also established large chains across India
- Example: Mainland China, Street Foods of India, Café Coffee Day, Zambar, Fresco,
Sagar Ratna etc
• This has also led to rapid development of the value chain in India across kitchen
equipment, processed foods and cold chain infrastructure
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Key issues in the Indian F&B service sector
1. Lack of quality infrastructure
2: Lack of adequate skilled manpower
3: High real estate cost
4: Licensing
5: Tax incidence
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Issue 1: Lack of quality infrastructure
• Effective & efficient cold chain needed to ensure supply of right quality of inputs
to the restaurants
Cold Chain
• The uniformity and quality of processed food available is still not at par with
global standards
Food Processing
• Food processing and Pre-Cooked Food Mall
• Extend incentives to this via the Food Park
Scheme
Our solutions
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Issue 2: Lack of adequate skilled manpower
• Industry sponsored training programs
• Leverage NSDC platform for setting up a private
training institute funded by an industry consortia
• Upgradation of programmes through revision in
the AICTE courses
Our solutions
• Gross annual demand of employees in the hospitality sector is likely to grow to
almost 920,000 in 2021-22
• Current supply is only 9-12% = Very Large Gap
• Biggest gap is in the front office / restaurant service / waiter category
Lack of Manpower
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Issue 3: High real estate cost
• Real estate costs account for on an average 15-20% of the revenues and is the
second largest item after raw materials
• Further accentuated with service tax on the rental value
• Global Average < 15%
• Stand alone restaurants stand to be the biggest losers
High Cost of RE
• Lobby with real estate developers to develop a
better formula of Rent Sharing
• Innovative models for Rent:
- Revenue share
- Equity share
- Deferred / bullet rentals
Our solutions
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Issue 4: Licensing
• Large number of licenses required results in delay in time taken for obtaining
these
• Leads to a large lead time for opening new outlets
• Cost of compliance is also high
• Globally, places such as Turkey require as little as 2 licenses for opening a new
restaurant
Complex Licensing
• Simplified licensing requirements with a single-
window clearance approach
• Quick turnaround times
Our solutions
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Issue 5: Tax incidence
• Rationalisation of taxes levied on the restaurant
industry – as a precursor to GST
Our solutions
• Multiple Taxes - VAT, excise, and service tax, besides different state taxes,
which add up to 17.5-25% of the bill value
• VAT and service tax on the same bill value amounts to double taxation as by
definition, they should not be charged on the same item
• Average increase to consumers over listed food price is 33%
• With the increase in service tax from June 1, 205, this would further hinder the
industry
High Taxes
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Contact us
For more information or to get in touch with our
subject matter expert, write to us at
www.grantthornton.in
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