Chapter 2

2. CONTEXT OF THE STUDY

In September 2013, CRISIL Research, India’s largest and integrated research house, estimated

that the fast food market in India will double to around Rs. 70 billion in 2015-16 from Rs. 34

billion in 2012-13. The report emphasised that the fast food sector managed to grow even during

the economic slowdowns driven largely by new store additions. “Over the next three years, new

store additions will increase by 16-18 per cent annually, propelled by the rapid expansion of

global players into smaller cities,” reported Crisil. The 2013 Barnes Report1 on worldwide fast

food restaurant industry depicted the total number of fast food establishments in India to be

984,328 with a year on year change of 3 percent and a total turnover of Rs. 1,390,567 million.

The fast food industry in India has evolved with the changing lifestyle of the Indian population.

The sheer variety of gastronomic preferences across the regions, hereditary or acquired, has

brought about different modules across the country. Industry experts believe that growth trend of

the fast food industry in India is fueled by the rising disposable income, changing consumer

behaviour and favourable demographics, exposure to western cuisine, the rising number of

nuclear families and growth in the number of employed women. Additionally the entry of

multinational fast food chains has created a stiff competitive senario in terms of business with

both national and international firms jostling for profits and market share. Therefore from a

managerial point of view, research which focus of on understanding the value percieved by

consumers that affect customer attitude, customer satisfaction and customer loyalty towards

making the choice of fast food outlets seems neseccary.

1 The 2013 Worldwide Fast Food Restaurants Industry report is the leading annual publication by C. Barnes & Co.

that describes the industry in over 45 countries. Published each year in January, the report provides the most current

and accurate estimates of the sales, employment and establishments in the industry.

Its noteworthy to mention that the fast food sector in India comprises two distinct market

segments: organised and unorganised. The organised segment is estimated to account for 16 to

18 percent of the industry. This segment is characterised by an organised supply chain with

quality control and sourcing norms, multiple outlets with standardised design, and accounting

transparency. On the contrary the unorganised segment accounts for the bulk of the industry (82

to 84 percent) and lacks technical and accounting standardisation and a structured supply system

or business practices. However, with the piquing interest of global players and several others

who have already entered the fast-growing Indian fast food service market, in the next 3 to 5

years, the organised segment is projected to reach almost 45 percent of the Indian fast food

sector according to industry experts.2

2.1. DEFINING FAST FOOD

Fast food is the term given to food that can be prepared and served very quickly. While any meal

with low preparation time can be considered to be fast food, often the term refers to food sold in

a restaurant or store with preheated or precooked ingredients, and served to the customer in a

packaged form for take-away. According to a report by US based food consulting firm

Technomic, fast food is being redefined by consumers who are looking for quick, quality menu

items of value in modern dining rooms throughout the quick-service industry. “You have always

heard the term ‘fast food,’ and now you are hearing the term ‘food fast,” remarks Darren

Tristano, executive vice president at Technomic.3 CRISIL research provides an elaborate

definition of a fast food or quick service restaurant (QSR) in India that not only seperates it from

2 Associated Chambers of Commerce & Industry of India (ASSOCHAM), 2012

3 Industry News, April 19, 2010, The New Definition of "Fast Food", www.qsrmagazine.com

a fine dining restaurant but also identifies certain operational issues and customer segments

targeted by fast food restaurants: “A quick service restaurant (QSR) is characterised by fast food

cuisine, minimal table service and a fixed menu. The food (or ingredients) is prepared in bulk in

advance and is packaged to order. QSRs are usually part of a restaurant chain or a franchise

operation, which provisions standardised ingredients and/or partially prepared foods and supplies

them to each restaurant through controlled channels. It is different from fine dining, as the later

usually targets rich and upper middle class consumers. Fine dining restaurants also offer a unique

ambience and upscale service. Although fine dining restaurants do not compete directly with

QSR, a moderate casual dining restaurant could be a competitor. It is pertinent to note that while

QSRs typically target customers within the age group of 16 to 35 years, a casual dining

restaurant would target people across age groups. QSRs are able to compete with casual dining

restaurants on the basis of factors such as consistency in quality and speed of delivery.”

However, the term “Fast Food” has been inconsistently classified across research studies and is

not based on differences in food types, nutritional content or other nutrition related

variable. The criteria for defining Fast food are often arbitrarily ascribed to the study

participants’ subjective perception of fast food, and not based on scientific or nutritionally

meaningful characteristics of the fast food consumed. Please refer to Table 2.1 for a list of some

popular definitions of fast food altough the fact still remains that fast foods are quick, reasonably

priced, and readily available alternatives to home cooked food.

Table 2.1

Popular Definitions of Fast Food

Source Definition

Bender and Bender A general term used for a limited menu of foods that lend themselves to

(1995) production line techniques; suppliers tend to specialize in products such as

hamburgers, pizzas, chicken, or sandwiches.

Data Monitor (2005) The fast food market is defined as the sales of food and drinks for immediate

consumption either on the premises or in designated eating areas shared with

the food service operators, or for consumption elsewhere.

Austin (2005) Eating places wher the customers order items and pay before eating and has

eat out option.

Smoyer-Tomic (2008) Walk up counter service selling predominantly pre processed and prepared to

order foods.

North American

Industry Classification

System (2012)

Comprises establishments primarily engaged in providing food services to

patrons who order or select items at a counter, food bar or cafeteria line (or

order by telephone) and pay before eating.

National Institute of

Health (2013)

Fast foods are characterized as quick, easily accessible and cheap alternatives

to home-cooked meals. They also tend to be high in saturated fat, sugar, salt

and calories. Many fast food chains have responded to growing public

awareness about nutrition by offering some food that is lower in fat and

calories than their normal fare.

Macmillan Dictionary

(2013)

Fast food is the food that is made and served very quickly, especially food such

as a burger that you can take away with you.

Oxford Dictionary

(2013)

Fast food is easily prepared processed food served in snack bars and

restaurants as a quick meal or to be taken away.

The Free Dictionary

(2013)

Fast food is “inexpensive food, such as hamburgers and fried chicken,

prepared and served quickly.

Merriam-Webster

Dictionary (2013)

Fast food is designed for ready availability, use, or consumption and with little

consideration given to quality or significance.

2.2. THE FAST FOOD MARKET IN INDIA: AN OVERVIEW

2.2.1. INDIAN FAST FOOD HABITS

India, is a country of rich culture and heritage. Her strong traditions are beautifully expressesed

in customs like respect for elders, maintainance of joint families, and dedicated religious

perspective which even extends to the food habits and forms an extremely strong and integral

part of an Indian’s life. When it comes to eating out, majority of the Indian consumer prefer

eating at roadside eateries called “dhabas” and street side stalls. These food outlets occupy a

major share of the food industry, where traditional fast food is available.Therefore Indian food

completely differs from the food habits of the other parts of the world. Being a subcontinent with

the wide diversity of cultures and people across the entire nation, geography specific fast food

plays a major role in normal day to day life of an Indian. Natives are mostly fond of their own

regional food such as samosa4, kababs

5, pakoda

6, aloo-paratha

7, poori-bhaji

8, dosa

9, sambar

vada10

etc. which are not only available in both specialty and multi-cuisine restaurants

throughout India but also across the street side stalls and dhabas mentioned earlier. Additionally,

home cooked foods are not only a preference for most, but is also a matter of self esteem for

most Indians.

The emergence of the fast food companies therefore had an utter skepticism as it would have

been a lot tougher for the foreign food markets to survive in a country which is already biased

towards their own rich food habits and varieties. But, contrary to others expectations and

nightmares, the foreign food companies were gladly welcomed into the periphery of the Indian

food circle and initially the problems that were considered fatal were erased and the foreign food

products were immediately taken into the household of the Indians. There were a sudden and

4 A samosa is a stuffed pastry and a popular snack in South and Southeast Asia. It generally consists of a fried or

baked triangular, semi-lunar or tetrahedral pastry shell with a savory filling, which may include spiced potatoes,

onions, peas, coriander, and lentils, or ground beef or chicken. 5 Kababs are a wide variety of meat dishes originating in Persia and later on adopted by the Middle East and Turkey,

and now found worldwide. 6 Pakoda is a fried snack (fritter) found across South Asia.

7 A parantha is a kind of flat-bread that originated in the Indian subcontinent. Parathas are usually stuffed with

vegetables or paneer (South Asian cheese). Aloo-parantha is the variety that is stuffed with boiled potato and spices. 8 The bhaaji is a vegetarian dish made from a vegetable. A typical north Indian lunch or dinner usually starts with

Poori (flat bread), accompanied by one or more bhaaji(s). 9 Dosa is a fermented crepe or pancake made from rice batter and black lentils. It is indigenous and is a staple dish in

the southern Indian states of Andhra Pradesh, Karnataka, Kerala, and Tamil Nadu. 10

Vada can vary in shape and size, but are usually either doughnut or disc shaped. They are made from lentil, gram

flour or potato. Vadas are preferably eaten freshly fried, while still hot and crunchy and is served with a variety of

dip called sambar.

quick emergence of KFC, McDonald’s, Subway, Dominoes and Pizza Hut. The biggies of the

fast food companies started raging in the Indian food business as they made their strong

standpoints in the country. For a nation that has historically been so particular about its food

habits and fond of home cooked fresh food, the emergence of multinational fast food giants is

definitely paving the way towards globalisation of India and the increase of new markets not

witnessed in India before. With increasing number of people eating out the fast food industry

promises major opportunities to the new and existing players to capture a larger consumer base.

2.2.2. THE MARKET SIZE AND GROWTH

The concept of fast food in India was established with the entry of McDonald’s in 1996. Several

global brands followed suit since then, either through a franchisee model or company owned

stores or, or a mix of both. Its not only the multinational player, several Indian fast food brands

also mushroomed across the country over the past 5 to 6 years. They are either serving foreign

cuisine or adapting Indian cuisine to the fast food service format. CRISIL research estimates the

Indian fast food market to reach a turnover of Rs. 70 billion by 2015-16, growing at an average

annual rate of about 27 per cent with the global brands expanding to smaller cities across India.

Figure. 2.1

Fast food Market Growth (in billion INR)

Source: CRISIL, 2013

On analysis of the per-household spend on organised fast food for the tier I and tier II cities11

(together these markets account for about 85 to 90 per cent of the fast food industry’s revenues)

CRISIL Research, 2013, found out that, on an average, a tier I middle class household12

spends

about Rs. 3,700 per annum for eating at fast food outlets. This roughly corrosponds to about 12

pizzas per household per annum give current approximate prices and is expected to increase by

more than 60 per cent to about Rs. 6,000 by the year 2015-16. However, in the tier II cities

CRISIL estimated the annual spends on fast food by middle-class households to surge by 150 per

cent to Rs. 3,750 per annum over the next three years.

Figure 2.2

Fast Food Spend per Urban Middle Class Household

Source: CRISIL Research, 2013

This expected quantum surge in fast food spends across urban areas in India according to

CRISIL experts is speculated to be propelled by an increase in nuclear families and working

11

Indian cities are classified into Tiers based upon the extent of commercialization, infrastructure development (real

estate activity, sales tax revenue, petroleum consumption, number of phone connections, etc.) and its population.

Tire 1 cities include Bangalore, Chennai, New Delhi, Hyderabad, Kolkata, Mumbai, Pune and Ahmadabad. 12

Middle class has been defined as households having annual income in excess of Rs. 200,000.

• INR 25.5 billion per annum (Total spend on fast food)

• 6.8 million (Total tire I middle class household)

• INR 3700 / annum (Total fast food spend per household)

Tire I (8 cities)

• INR 5.1 billion per annum (Total spend on fast food)

• 3.4 million (Total tire II households)

• INR 1500 / annum (Total fast food spend per household)

Tire II (31 cities)

women, steady growth in incomes, changing lifestyle and eating patterns, and more importantly,

greater accessibility of fast food outlets.

The CRISIL report also mentions that the 27 percent growth mentioned earlier would be largly

driven by new outlets at an average annual rate of 16 to 18 per cent. Of the total store additions,

40 to 45 per cent would take place in tier II and tier III cities. Currently which accounts for just

25 per cent of total outlets across India. The remaining 8 to10 per cent growth is expected to

come through an increase in same store sales.

Figure 2.3

Break Up of 27 Percent Expected Growth

Source: CRISIL Research, 2013

In the next three years, the already established large players in the tire I, tire II and tire III cities

are expected to grow roughly 70 per cent through new store additions. These large players may

capitalize on their strong brand name and has the ability to take advantage of the lower lease

rentals and limited competition that smaller cities offer. On the contrary, relatievely new brands

in the fast food sector are expected to focus more on tire I cities inorder to consolidate their

operations in a single region before diversifying to newer markets. Same store sales growth is

Total fast food restaurant growth

27 %

New store addition

16 - 18 %

Established foreign brands

(tire II and tire III cities)

New indian fast food brands

(tire I cities)

Same store sales growth

8 - 10 %

Price hike

(5 - 6 %)

Increase in transactions

(3 - 5 %)

expected to come from a standard 5 to 6 per cent hike in prices (in line with the typical hikes

made every year) and a 3 to 5 per cent increase in the number of transactions at existing stores.

Indeed, existing store sales continued to grow at a robust 20 to 25 per cent over the past few

years, however there exist possibilities of a slow down significantly due to the cannibalisation of

store sales due to opening of multiple outlets in the same geographic proximity area and also as a

resultant increased competition, reports CRISIL.

2.2.3. MAJOR PLAYERS

The entry of McDonald’s in 1996 was followed by other international brands such as Dominos,

Subway, Pizza Hut and KFC. These foreign players have established themselves strongly and

currently dominate the organized Indian fast food market with an aggregate share of 63 per cent

(based on the number of operational outlets).

Figure 2.4

Market Share of Fast Food Brands

Source: CRISIL Research, 2013

These brands typically prefer to operate through the franchise model, helping them to expand

rapidly with minimal capital investments. Modern retail formats like malls and supermarkets

have also become a favourite destination for these outlets. More often than not these companies

have teamed up with small franchisors and mall owners to promote their brand. The

multinational fast food chains have had no problems accommodating different menus for the

Indian consumer taste buds. McDonald’s offer chicken tandoori13

and aloo (potato) patty

sandwiches. Subway offers mint, chili and eggless mayonnaise (for strict vegetarians) as

toppings. Chicken is the main meat offering and most restaurants do not serve beef or pork, in

deference to Hindu and Muslim religious sentiments. For example, McDonalds in India never

sell chicken burgers instead of beef burgers (more popular in developed countries) and have a

larger selection of vegetarian food compared as to the western world. Figure 2.4 provides a

detailed break up of the market share of the major fast food brands operating in India. A snapshot

of the major foreign and Indian brands operating in India is provided in Table 2.1 and Table 2.2.

Table 2.2

Major Players of Foreign Origin in the Indian Fast Food Industry

Name Cuisine Parent Company/ Master Franchisee

Origin Location No: of Outlets

McDonalds Burgers HardCastle Restaurants USA PAN-India 250+

KFC Chicken Devyani International USA PAN-India 296

Chicking Chicken Mirah Group UAE South Zone 14+

Pizza Hut Pizzas Devyani International USA PAN-India 171

Dominos Pizzas Jubilant Foodworks USA PAN-India 364+

Papa Johns Pizzas Om Pizzas & Eats USA West Zone 25+

Costa Coffee Coffee Devyani International England PAN-India 75+

Gloria Jean’s Coffee Citymax Hospitality Australia Metros 15+

Subway Sandwiches Subway Systems India USA PAN-India 200+

Tacobell Tex-Mex Yum Restaurants USA Bangalore 3

Wimpy Burgers Famous Brands Ltd. UK Delhi 3

13

A traditional style of cooking chicken in a clay oven practiced in northern India and Pakistan.

Table 2.3

Major Players of Indian Origin in the Indian Fast Food Industry

Name Cuisine Parent Company/ Master Franchisee

Origin Location No: of

Outlets

Bangs Chicken Chicken Bangs India India South Zone 7

Pizza Corner Pizzas Global Franchise India South Zone 50+

US Pizza Pizzas United Restaurants Ltd. India PAN-India 77

Smokin’ Joes Pizzas Smokin’ Joes Pizza India PAN-India 52

Garcia’s Pizzas Garcias Famous Pizza India West Zone 20

Slice of Italy Pizzas Green House Foods India North Zone 16

Barista Coffee Barista Coffee India PAN-India 230+

CCD Coffee Bean Coffee Trading India PAN-India 1090+

Kent’s Food Burgers Kents Fast Food India North Zone 15

Falafel’s Lebanese Mirah Group India Mumbai 8

Yo! China Asian Moods Hospitality Delhi, India PAN-India 80+

Dosa Plaza Southern Prem Sagar Dosa Plaza Mumbai, India PAN-India 35

Jumboking Vadapav Jumboking Foods Mumbai, India West Zone 43

Kaati Zone Mughlai East West Ethnic Foods Bangalore South Zone 15

Mast Kalandar Indian Spring Leaf Retail Bangalore South Zone 21

Nirula’s Multi Nirula’s Corner House Delhi, India North Zone 80+

Kailash Parbat Multi Kailash Parbat Mumbai, India PAN-India 15+

Comesum Multi RK Group Delhi, India PAN-India 11

Haldiram’s Multi Haldiram Snacks Delhi, India North Zone 18

Bikano Cafe Multi Bikanervala Foods Delhi, India North Zone 68

Sagar Ratna Multi Sagar Ratna Hotels Delhi, India North Zone 53

Tibbs Frankie Frankie J.Tibbs & Co. Mumbai, India West Zone 20+

Table 2.4

Segmentation of Fast Food Brands based on Size of the Chain

Local Chain National Chain International Chain

Jumboking Comesum McDonalds

Nirulas Dosa Plaza KFC

Mast Kalandar Kailash Parbat Subway

Kaati Zone Yo! China Wimpy

Garcia’s Smokin’ Joes Dominos

Falafel’s US Pizza Pizza Hut

Bang’s Barista Pizza Corner

Haldiram’s Café Coffee Day Papa Johns

SagarRatna Tibbs Frankie Tacobell

Bikano Chat Café Costa Coffee

KentsFastFood Gloria Jeans

Table 2.5

Segmentation of Fast Food Brands based on Cuisine

Pizzas Burgers &

Sandwiches Coffee Shops Indian Specialty Cuisine

Dominos McDonalds CCD Comesum Jumboking

Pizza Hut KFC Barista SagarRatna Yo! China

Pizza Corner Wimpy Costa Coffee Kailash Parbat Tabobell

Papa Johns Subway Gloria Jeans Mast Kalandar Falafel

Smokin Joes Kents Fast Food Kaati Zone Tibbs Frankie

Garcia’s Haldirams

Slice of Italy Nirulas

US Pizza Bikano Chat Cafe

2.2.4. FAST FOOD IN INDIA VERSUS THE WORLD

The MarketLine Industry Profile on Fast Food in Asia-Pacific, February 2012 reported that the

Asia-Pacific fast food market grew by 8.4% in 2011 to reach a value of $98,573.8 million and by

2016, the fast food market is forecasted to have a value of $147,496.4 million, an increase of

49.6% since 2011. Quuick service restaurants is the largest segment of the fast food market in

Asia-Pacific, accounting for 62.6% of the market’s total value and China accounts for 36.7% of

the Asia-Pacific fast food market value. India contributes 11.5% to the total geographic

segmentation of fast food which is expected to grow at a rapid pace.

The Times of India, 2013 reported that Indians are eating out more often as many as 7 times as

compared to 2 times in 2002. However it is less than that of Brazilian (11 times) or the

Americans (14 times).

Figure 2.5

Asia–Pacific Fast Food Market Category Segmentation

Source: MarketLine Industry Profile, 2012

Figure 2.6

Asia–Pacific Fast Food Market Geography Segmentation

Source: MarketLine Industry Profile, 2012

Figure 2.7

Number of Times Natives Eat Out

Source: Times of India, 2013

2.3. DRIVERS OF FAST FOOD RETAIL SERVICE IN INDIA

2.3.1. DEMAND SIDE DRIVERS

2.3.1.1. Favorable Demographics

With a population over 1.2 billion, India continues to be one of the largest consumer markets in

the world. Additionally in terms of demographics India has one of the youngest set of consumers

with more than 50 percent of its population below the age of 25 years and more than 65 percent

below the age of 35 years14

. The Indian fast food consumption is majorly driven by people

between the ages of 18years and 40 years reports Athena Infonomics15

.

Figure 2.8

Fast Food Consumption by Age Group

14

India Census Report 2011 15

Athena Infonomics is a boutique research and consultancy firm in India.

Source: Athena Infonomics, 2012

The key driver of the fast food industry growth has been the appetite of the young Indian

population. The fast food restaurants have increasingly become social hangouts, where these

young people gathers to meet friends and spend some of their leisure time. The increased

employment of the young Indians in sectors such as information technology has increased their

standard of living and wallet size significantly. This change in the social landscape is apparent

acrocss urban India has contributed to the spurr in growth of fast food restaurants in tire I and tire

II cities. On similar lines The Times of India, 2013 reported that by the year 2020, 51 percent of

the Indian population would be between the age 5 years to 35 years, a generation more likely to

consume processed fast food16

.

2.3.1.2. Increase in Income and Consumption Levels

India is reported to have an annual growth of 8% resulting in increased income of people. It is

expected that with higher disposable incomes, consumers will not hesitate spending more on

eating out. Given that 65 percent of the population is under 35 years of age, withh rising

16

The Times of India, 2013

disposable incomes the demand for specialty and value-added food products is bound to

increase17

. In a study titled “Bird of Gold: The Rise of India's Consumer Market” in 2012,

McKinsey Global Institute’s (MGI) reported that the total annual household consumption in

India is likely to triple from Rs. 82,000 in the year 2005 to Rs. 248,000 by the year 2025, making

India the fifth largest consumer market. Nearly 68 percent of consumption growth will be

accunted by urban India while rural consumption will account for the remaining 32 percent by

2025. The MGI study also estimated India’s middle class population to increase from the present

level of 150 million to 550 million by 2025.

2.3.1.3. Lifestyle Changes

The life style and daily routine including food habits of Indians have changed rapidly as a result

of the shift to nuclear families and with both parents working and bringing in dual income in

most urban households. This has resulted in an increased demand for affordable “food on the go”

and prepared ingredients to aid cooking. An ASSOCHAM survey reports that almost 86 percent

of Indian urban households prefer instant food due to rise in dual income levels, standard of

living, convenience, and influence of western cultures. The survey points out that 85 percent of

Indian urban parents with children under the age of 5 opt for easy-to-cook meals at least 7 to 10

times per month due to increased work pressures and reduced time for household activities.

Additionally, 92 percent of nuclear families felt that they have less time than before they had

kids and thus prefer spending less time in the kitchen. Thereby these families turn to takeout,

delivered food, and semi-prepared meals. Of the Indian bachelors surveyed, nearly 72 percent

17

Technopak, 2009

prefered ready-to-eat food because of its low-cost and ability to save time and energy in their

busy lives.18

2.3.1.4. Rising Number of Working Women

The most remarkable growth in the percentage of working women have also come into limelight

apart from the increase in growth of working population.Due to this increase, working

professionals hardly can spare time in the kitchen like the older generations could afford to and

thus they depend on the ready to cook meals, or the take outs on their way back home, given they

scarely can provide the time in the kitchen. Urban Indian women who earned an equivalent of

$90 per month in 2001 were, on average, taking home as much as $189 in 2010. The rise in

urban women’s income is a direct reflection in the average monthly household income of India

in its urban state has been going up from $165 in 2001 to $330 in 2010. Participation of women

in the workforce has seen an impetus from 14-17% between 2000 and 2005.11 Nearly 2.1

million people have joined the list of double-income homes between July 2010 and June 2011

and this contributed as a major drive in the food industry. Women constitute 51% among those

who eat out at least once a month, according to Technopak.

2.3.1.5. Health and Hygiene Consciousness:

Consumption of proper food and drink and the consciousness of its quality is therefore being a

major concern for the urban Indians. There is a rise in the awareness and incomes among

upwardly mobile urban consumers, so are their notions about health and fitness. The

mushrooming of juice bars and kiosks selling salads and wraps are an apt example if this

statement.Even Supermarkets have an option for healthy consumption of food. Healthier oils as

18

ASSOCHAM, Survey on Ready to Eat Food in Metropolitan Cities

opposed to the traditional indian ghee and butter are in rampant use so are the abundant uses of

fortified energy drinks and liquids-including fortified milk and buttermilk, vitamin water,

enhanced iced teas, and other restorative drinks. Euromonitor International claims, urban Indian

consumers are searching for easy-to-consume fortified beverages as they are worried about not

consuming enough nutrients, given their erratic eating schedules and food habits. According to

Euromonitor estimations, India's functional drink market is at a whooping INR 546 crore in

2011, 19% more than in 2010.

2.3.1.6. Urbanisation

The QSR/fast food phenomenon is largely an increasing urban story as one can see that

Urbanisation in India is growing by the day, therefore stimulating more urban Indians to eat out

on a regular basis. In all probabilities, the proportion of Indian population living in urban areas

will grow substantially through 2030. The income levels of the people dwelling in the urban

areas will rise with the concentration of urban population. A McKinsey study on urban India

estimates that by 2030, the population of Indian cities will reach around 590 million—40% of

India’s total population. Indian consumers in tier II and III cities are also facing a rise in incomes

and purchasing power as the growth of economy is reaching beyond urban areas. QSRs are

eyeing these markets correctly as they hold opportunities for amazing expansion and growth.

2.3.2. SUPPLY SIDE DRIVERS

2.3.2. 1. Multiple Cuisines

F&B sector is positively influenced by the arrey of the global cuisines that are introduced in the

foray of Indian Restaurants. An ultimate favourite is the Indo Chinese Cuisine, and following its

train are favorites such as Mexican, Italian, Thai, and Japanese food pampering the palates of

Indian consumers. They are eager to experiment with different cuisines because of its easy

accessibility in the cities they dwell in, and this trend could also adhere to Indian consumers’

frequency of eating out.

2.3.2. 2. Improved Retail Formats

The development of malls and multiplexes has provided the F&B industry with perfect spaces

for the F & B sectors to function properly. Newer formats are allowed by the malls to allow such

as food courts to enter the market and provide multiple cuisines to the eager customers.. A

portion of the malls’ traffic is also successfully converted into customers for the food courts (the

inverse also being true) and leads to a handsome revenue for both.

2.3.2. 1. Emergence of Logistics Providers and Contract Cultivation

Contract farming—Contracts signed with farmers by various companies to grow a specific crop

and the required assurance to buy the produce at an agreed price—has emerged as a preferred

and easy way for big global and domestic F&B brands to increase their agricultural produce.

Let’s look into the case of Potatoes. McCain Foods, which supplies McDonald’s, has 400

farmers cultivating 2,000 acres of potato fields in Gujarat under contract. Pepsi Foods has over

2,000 farmers on contract, covering 7,000 acres across Haryana, Punjab, and Uttar Pradesh for

crops ranging from potato to chilli and groundnuts. Nestle India, Rallis, and ITC are also

contracting farmers.12 Third party logistics providers, which transport the produce and food

products from source to destination, have also emerged as growth in the F&B sector picks up. As

mentioned earlier, services to McDonald’s, Pizza Hut, and Subway are offered by Radhakrishna

Foodland, a back end distribution and logistics company.

2.3.3. GOVERNMENT REGULATIONS

In January 2012, there was an announcement by the Government of India that it is permitting

100% FDI in single brand retail under the government approval route—i.e., global single brands

such as Starbucks, Louis Vuitton, Ikea, and Gucci can have full ownership of their Indian

businesses. Under the old rules, the government required single brand companies to own 51% of

their Indian business and therefore there was a need of a local investment partner who would

own the business by 49% QSRs like McDonald’s, Pizza Hut, and KFC entered India under the

old rules. For new entrants, this new policy could be good news, but there is a catch: Global

single brand companies choosing to own their Indian operations 100% (i.e., beyond 51%), are

subject to the condition that they will have to procure at least 30% of the value of products from

Indian small industries/village and cottage industries, artisans and craftsmen. “Small industries”

are defined as industries with a total investment in plant and machinery not exceeding US$1

million. For QSRs well established in the Indian market, this does not seem attractive and is a

major reason why the likes of McDonald’s and Yum Brands (Taco Bell, KFC) do not want to

break away from their Indian partners. Companies interested in setting up shop in India make an

application to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial

Policy and Promotion. The application should specifically indicate the product/product

categories that are proposed to be sold under a single brand. Any addition to the product/product

categories to be sold under a single brand requires fresh approval of the government. The

Department of Industrial Policy and Promotion processes the applications to determine whether

the products proposed to be sold satisfy the notified guidelines, before they are considered by the

Foreign Investment Promotion Board (FIPB) for government approval. FDI in single brand

product retail trading are subject to the following conditions:

(a) Products to be sold should be of a single brand only.

(b) Products should be sold under the same brand internationally—i.e., products should be sold

under the same brand in one or more countries other than India.

(c) Single brand product retail trading would cover only products that are branded during

manufacturing.

(d) The foreign investor should be the owner of the brand.

(e) As noted earlier, proposals involving FDI beyond 51% are subject to mandatory sourcing of

at least 30% of the value of products sold from Indian small industries/ village and cottage

industries, artisans, and craftsmen.

2.4. IMPORTANCE OF THE STUDY

Anticipating the future growth, many international players have entered the fast food market.

And those already present are on an expansion mode to solidify their presence in different

provinces of the country. Coupled with the increasing popularity of eating out in India, restaurant

operators are required to safeguard their share of consumer spending. he only way to achieve that

is to ensure a loyal customer base. Service providers do acknowledge the importance of a loyal

customer however the strategies being implemented seem scattered. Some pioneer speedy

delivery to 24-hour call centre and online ordering where as others resort to indianized menu,

vegeterian offerings and value combos. Few even focus on health and hygiene. International

brands go a step ahead to collect feedback from customers in an attempt to improve ther services.

Others focus on visibility in high traffic areas often leading to cannibalization of sales. Vinod

Mahboobani, vice-president of business development at Yum! Brands India, acknowledged the

the criticality involved in understanding and cracking the consumer value proposition, offering

what consumers really want at the right price and with a truly differentiated experience. “This

requires a dive into the market and consumer preferences and adapting the offerings

accordingly,” he asserted. Harneet Singh Rajpal, vice president of marketing at Domino’s India

emphasized that fast food as a sector has a vast potential in India and can be tapped with the right

product, quality, service, value for money and ambience. “The trick lies in understanding who

the customers are and what their needs and requirements are. Provoking continuous feedback

from customers is one of the best ways to get them involved in the brand,” Rajpal added. Given

this senario, the research on service value, attitude and loyal behavior of customers towrds fast

food retail has the potential to provide meaningful managerial insights to aid fast food retailers in

India in designing efective marketing strategies in addition to the academic implications that

goes along with the study.