Restaurant is a commercial establishment committed to the sale of food and beverage. A restaurant may be a licensed part of a Hotel operation, whereby the sales of the restaurant contribute to the sales performance of the hotel as a whole. Restaurants may also be independent business entities under individual ownership and management. Basically, restaurants provide tables and chairs for people to sit and eat food prepared by an attached kitchen. They are equipped with crockery, cutlery and linen, which are determined, by its décor, independent bar, entertainment facilities and above all, the quality of service.

The growth story of Indian restaurant business is majorly contributed by factors like changes in the lifestyle, a growing younger population, rise in nuclear families, wider exposure to new culture and cuisines etc. A report by the National Restaurant Association of India (NRAI) and Technopak says the size of the food services market in India is estimated at USD 48 billion in 2013. This is projected to grow at a CAGR of 11 per cent over the next five years to reach USD 78 billion by 2018. The report also says the market is mostly unorganised where chains account for as much as five per cent of the total market.

Issues and Challenges by Restaurant Industry

Sluggish Economy and High Inflation

As soon as our finance minister announced a service tax of 12.36 per cent on all air-conditioned restaurants, leading chains had to increase their prices by 5-10 per cent. When consumers struggled amidst slowing economies, the fast food chains witnessed slow business. The reason for this clearly points to fluctuating food costs. Food retail sales slowed down by 5% in the first quarter this year and prompted the industry to dole out its most aggressive promotion and value deals.

Manpower Issues: Shortage of Quality Staff and High Attrition

The Indian hospitality industry is highly labor-intensive, but the availability of trained chefs, managerial staff and other support staff is low. According to a study by the Ministry of Tourism, the current supply of skilled/ professionally trained manpower is estimated to be ~9% of the total manpower requirement. Given this shortfall of quality manpower and the industry’s high attrition rate of 20-25%, the cost of labor is high. To bridge the demand and supply gap, currently players are hiring in huge numbers and increasingly investing in in-house training programs.

Rising Food Costs

Food price inflation is a key factor affecting the food services market in India, and is impacted by delayed monsoons, the economic slowdown, and unfavorable demand- supply conditions. It keeps fluctuating and reached a peak of 18% in 2010 (Exhibit 100). While it affects consumer indulgence across all formats, it also hits the margins realized by players.

The Indian Restaurant Industry is comprised of the unorganized and organized restaurant market.

The unorganized restaurant market includes the roadside vendors, Dhabas, Chinese vans and trolleys. The organized restaurant market includes the Quick Service Restaurants (QSR), the full service restaurants, PBCL (Pubs, Bars, Clubs and Lounges) and the food courts and kiosks. The report provides the market share and company profiles of major players in major segments.

Vikram Bakshi, Managing Director, Northern and Eastern Region, McDonald’s India, said, “When it comes to breakfast, it is still a blue ocean out there. Globally, it is a popular concept but in India it is still to catch on.”

“Consumers are eating out nearly six to seven times a month as per our research, as lifestyles are changing. There is a huge opportunity for us as we are targeting people on the move,” Bakshi added. McDonald’s has about 300 stores across India in formats including drive-through, full menu restaurants and kiosks.

According to the NRAI report, the chain restaurant space is marked by the presence of almost 100 brands with more than 3,000 outlets spread across various cities.

Dine-in contributes the highest, 67 per cent, to the total QSR sales and is followed by takeaway orders which account for 19 per cent of the sale. Home delivery is also picking up with most chains offering this service to consumers within a defined catchment. On-the-go meals too seem to have picked up with about 34 per cent of the total consumers flocking to them during office hours.

Interestingly, the QSR (quick service restaurant) and casual dining formats together account for 74 per cent of the chain market while cafes make up 12 per cent. Cafes make for an impulsive option to hang out while fine dining places are reserved for families.