X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Prospects of Indian food services industry - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 19, 2010

    Prospects of Indian food services industry

    The size of the Indian food industry estimated at US$ 200 bn in the year 2006-07, is estimated to reach US$ 300 bn by 2015. The food service industry has two distinct sectors - the organized segment and the unorganized segment. The food services industry in India was estimated to be worth Rs. 580 bn in 2008, out of which Rs. 80 bn, or 7.24%, was accounted for by the organized sector. It is estimated that the consumer food services value sales grew by 20% in 2008 over 2007. Dhabas and roadside eateries comprising street stalls are the most common forms of restaurants and have traditionally addressed eating out requirements of Indians. The organized foods services segment is characterized by accounting transparency, organized supply chain with quality control and sourcing norms, and multiple outlets.

    Growth Drivers for the food services industry

    Rising income levels: The average real per capita income growth in India rose from 3.3% during the Ninth Plan (1997-2002) to 6.1% during the Tenth Plan (2002-2007). Growing affluence and higher spending capacity provides a huge opportunity for the food services sector.

    Growth of middle class: India has the presence of a strong 300 m middle class population. This is roughly equal to the population of US, the country with the third largest population in the world. The middle class has been the largest patron of the food services industry and the increase in the middle class is expected to lead to its growth.

    Younger population: Over 65% of India's population is below 35 years of age. A majority of this age group eats out. An increase in this population segment provides opportunity for the growth of the foods segment industry.

    Rising urbanization: On an average, the spending on eating out in Tier 1 and Tier 2 towns is double that of Tier 3 towns. With 29% of India’s population residing in urban centers and growing fast, higher spending on eating out is expected to benefit the industry.

    Increase in nuclear families: Going out and ordering in are more prevalent food habits among the nuclear families than the joint families in India. According to estimates, approximately 1.5-2% of joint families give rise to nuclear families every year. This is expected to benefit the industry.

    Increase in number of working women force: Participation of urban Indian woman in the workforce increased from 14% to 17% between 2000 and 2005. 51% of the population which eats out constitutes of woman. With the number of women who are joining work force on the rise, households are expected to increase the frequency of eating out. This is as a result of less time available for women for household activities. This is expected to directly aid in the growth of the foods services industry.

    Challenges faced by the food services industry

    Poor infrastructure: A major concern for a country like India is poor infrastructure. Food companies suffer from poor transportation facility and erratic power supply. An indication of the severity of the infrastructure problem is the spoilage of 25-30% of the crops each year due to infrastructure bottle necks. The result of these bottle necks is that prices for food material tend to be on the higher side with the quality being suspect.

    Lack of organized supply chain: Food companies in India suffer on account of non availability of facilities like high tech controlled production, on farm grading, packing, cold chains, logistics, warehousing, integrated processing units, inefficient supply chain and lack of specialized distribution companies for perishables produce/ processed food products. Such facilities are basic requirements for a food companies in the west where specialized companies provide such services, thus ensuring that food of the required quality and quantity is procured and it reaches the end customer on time with little or no loss.

    Food regulation and licenses: The Indian food and processing industry is governed by multiple legislations and dealing with the collection of food laws and governing bodies is a challenge. Furthermore, the number of licenses required to operate a food service store is a signification road block. There are at least 10 basic licenses which vary from state to state which have to be procured before setting up a food supply store. In addition the duration of these licenses vary from 1 to 3 years. The red tape provides hurdles for the growth of this industry.

    High price of real estate: The location of a food service outlet is critical to the success of the venture. However, high prices of land and high rentals have impacted the food service sector.

    Shortage of skilled and semi-skilled manpower: The food services industry is highly dependent of man power whether it is the chef or the delivery boy. Presently, there is a shortage of trained man power which is serving as a bottle neck for the growth of the industry.

    What we expect?
    With growing urbanization, rise in income levels and a young population, the food services industry in India is in a sweet spot. However, it has still to reach critical mass. While the industry faces several road blocks, as the organized industry matures, we expect to see better infrastructure facilities which will help the industry achieve high growth going forward.

     

     

    Equitymaster requests your view! Post a comment on "Prospects of Indian food services industry". Click here!

      
     

    More Views on News

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    ITC: Demonetisation woes pull down business growth (Quarterly Results Update - Detailed)

    Feb 8, 2017

    ITC Ltd has announced third quarter results of the financial year 2016-2017 (3QFY17). The company has reported 4.7% YoY and 5.7% YoY growth in revenues and net profits respectively. Here is our analysis of the results.

    ITC: A Decent Quarter Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Dec 7, 2016

    ITC has announced second quarter results of the financial year 2016-2017 (2QFY17). The company has reported 8% YoY and 10.5% YoY growth in revenues and net profits respectively.

    ITC: Numbers Go Nowhere in FY16... (Quarterly Results Update - Detailed)

    Jun 8, 2016

    ITC declared results for the quarter and year ended March 2016. During the year, the company's net revenues and profits rise by 1% YoY and 3% YoY respectively.

    GSK Consumer: A Forgetful Year (Quarterly Results Update - Detailed)

    Jun 1, 2016

    GSK Consumer Healthcare announced its results for the quarter and year ended March 2016. During the quarter, sales and profit came in lower by 9% YoY and 8% YoY respectively.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    MARKET STATS