Winning Recipe for Food Brands in India- Redseer Report

Winning Recipe for Food Brands in India- Redseer Report

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  February 2024 Bangalore. Delhi.Mumbai. Dubai. Singapore. New York © 2024 Redseer Strategy Consultants Confidential and Proprietary Information Summary Report Winning Recipe for Food Brands in India
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  Consumer behaviour evolution toeat more outside Need for more variety in cuisines/ avenues etc More choices available to consumers More brands emerging serving consumers across channels Indian food services flywheel Descriptive Food services market (value) segmented by organized and unorganized USD Bn (INR Cr.), %, 2022-2023E, 2028P Source(s): Secondary Research, Redseer Analysis © Redseer 02 Indian consumer behaviour is evolving resulting in increasing organization 42% 58% 44% 56% 55-60% 40-45% Organized Unorganized USD 62 Bn (INR 500k Cr.) USD 70 Bn (INR 560k Cr.) USD 115-120 Bn (INR 900-1,000k Cr.) 2022 2023E 2028P 10-12% 13-18% ~3X XX% CAGR 3-5%
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  2018 2023E 2028P 20182023E 2028P USD 1 Bn (INR 8k Cr.) USD 18 Bn (INR 150k Cr.) USD 23 Bn (INR 185k Cr.) USD 40-45 Bn (INR 300-350k Cr.) USD 7 Bn (INR 55k Cr.) USD 15-20 Bn (INR 100-150k Cr.) +38% +15-20% +5% +10-15% Source(s): Secondary Research, Redseer IP, Redseer Analysis © Redseer 03 This growth is being led by both online food delivery and organised dine-in Online food delivery growing fast on a lower base, driven by discounts provided to drive adoption COVID severely impacted the dine-in space with restaurants bearing negative effects till 2022 With new brands/ eating out avenues, the space has been re-energised Discounts rationalized, and the sector maturing in certain high demand pockets Availability OFD platforms have created a flywheel ~100 stores 2016 OFD Increase since 2019 1,700+ stores 2023 Dominos has expanded across India Affordability Both Swiggy and Zomato have reduced the prices of their loyalty program to acquire and re-acquire consumers Network Effect 2x MTUs 2.4x Restaurant Partners Online food services market size and growth USD Bn (INR Cr.), 2018, 2023E, 2028P Offline organized food services market size and growth USD Bn (INR Cr.), 2018, 2023E, 2028P XX% CAGR XX% CAGR
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  No cooking facility Hectic schedule Recreation 34% 29% 25% 2.0 2018 2023E 0.5 0.6 3.0 Therehas been significant uptick in outside food consumption Outside eating frequency evolution # of outside meals eaten outside weekly, 2018, 2023E Top 3 reasons for preferring outside food % of respondents, N=170 Q. What are the key reasons to eat outside food? © Redseer 04 And is largely centered around young consumers in metro and tier 1 cities for whom outside eating is now a habit Outside meals is now a habit for both students/young adults and midlifers+ Occasions Recreation Hectic schedule 42% 35% 19% 30% growth 20% growth Students and Young Adults Metro + Tier 1 (70 Mn ~5% of India’s population) Midlifers + Metro + Tier 1 (150 Mn ~10% of India’s population) Students/Young adults Midlifers+ Source(s): Customer Surveys, Secondary Research, Redseer Analysis Note(s): 1. Consumers considered for Metro + Tier 1 cities
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  Major QSR brandsoutlet count, and top 25 cities share As depicted, FY23 Source(s): Company Filings, Secondary Research, Customer Surveys, Redseer Analysis © Redseer 05 Brands are capitalizing on this by expanding their presence Major QSR brands have a 50%+ share of outlets in top 25 cities And significant plans for further expansion going forward 1,700+ 55-60% 65-70% 45-50% 60-65% 90-95% 1,000+ 800+ 500+ 350+ Number of outlets in top 25 cities as a % of total XX
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  Categorization of organizedbrands – by revenue¹ INR Cr., FY23 Source(s): Secondary Research, Company Filings, Redseer Analysis Note(s): 1. Companies considered are illustrative and not exhaustive, basis the data available through annual reports and secondary articles © Redseer 06 However, only a few companies have been able to scale beyond INR 100 Cr. Emerging < INR 50 Cr. Growth Stage INR 50-100 Cr. Large INR 100-300 Cr. > INR 300 Cr. # of Companies Revenue (INR)
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  Key cuisine categoriessplit by region¹ Bubble: Represents size of food services market in a particular region Source(s): Secondary Research, Redseer Analysis Note(s): 1. Includes only region-specific dishes and does not include universal dishes such as Italian, Asian, Fast Food, etc., which form a smaller portion of the overall consumption © Redseer 07 This is driven by the heterogenous nature of the market North India ~USD 24 Bn West India ~USD 16 Bn South India ~USD 24 Bn East India ~USD 6 Bn Key dishes eaten in North India Meal Slot Key food Parathas, Poha, Omelette, Tea, Chole-bhature, Khichdi Breakfast Punjabi, Mughlai, Paneer dishes, Roti, Rice Lunch Samosa, Chaat, Pakoras, Momos Snacks Punjabi, Chicken Dishes, Paneer Dishes, Roti, Mughlai, Dinner Key dishes eaten in West India Meal Slot Key food Parathas, Dhokhla, Khakhra, Tea, sabudana khichdi,Poha Kachori, Samosa,Misal Pav Breakfast Khichdi, Roti, Thepla, Dal, Rice Sea-foods, Dal Bati Churma Lunch Pav Bhaji, Bhelpuri, Chivda, Chaat, Mirchi Vada Snacks Lal Mans, Roti, Sea-foods, Khichdi, Dal Dinner Key dishes eaten in East India Meal Slot Key food Poori-sabzi, Poha, Pitha, Thukpa, Tea Breakfast Rice Dishes, Fish-dishes, Pakhala Bhat, Khar, Tenga Lunch Litti-chokha, Sattu, Jhal-moori, Pitha, Tea Snacks Rice Dishes, Fish-dishes, Sattu Paratha, Pulao Dinner Key dishes eaten in South India Meal Slot Key food Dosa, Idli, Vada, Upma, Sambhar, Uttapam, Pongal Breakfast Rice Meals, Biryani, Flavoured Rice Dish Lunch Vada, Bonda, Murukku, Bajji Snacks Rice Meals, Parotta, Biryani Dinner
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  Source(s): Redseer IP,Redseer Analysis Note(s): 1. Total 8 cities are taken as metro with a metro city market share of 10%; 2. We have assumed that metros will have 75% of the organized market share across cuisines; 3. Representative list of players © Redseer 08 Which restricts the TAM for any brand offering limited cuisines in limited cities Reasons for limited geographical expansion As depicted, 2023 Overall market size Organized market size Avg. Organized size in a Metro City 1, 2 Market share required for INR 100Cr+ revenue For any given cuisine USD 3-4 Bn (INR 20-30k Cr.) USD 1-2 Bn (INR 10-15k Cr.) USD 100-150 Mn (INR 800-1200 Cr.) USD 20-22 Bn (INR 160-180k Cr.) USD 2-3 Bn (INR 15-25k Cr.) USD 250-300 Mn (INR 2000-2500 Cr.) USD 4-5 Bn (INR 30-40k Cr.) USD 1-2 Bn (INR 10-15k Cr.) USD 150-200 Mn (INR 1200-1600 Cr.) USD 9-10 Bn (INR 70-80k Cr.) USD 5-6 Bn (INR 40-50k Cr.) USD 500-600 Mn (INR 4000-5000 Cr.) 10-15% <5% 5-10% <5% To scale beyond INR 100 Cr. brands have had to expand their presence across cities3 Biryani Indian Asian Desserts In Biryani segment a player will need 10-15% market share in a metro city to reach INR 100 Cr+ revenue
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  Source(s): Secondary Research,Company Filings, Redseer Analysis Note(s): 1. The list of HoBs and their brands is representative in nature and not exhaustive; 2. Revenue figures basis public sources for top 20 food services companies have been added © Redseer 09 In this context, HoBs have emerged as the best way to scale food services companies in India HoBs definition and India HoB representative players¹ Descriptive Annual revenue of top food services companies² In INR Cr. FY23 HoB is a company that owns multiple brands (across different cuisines) under same corporate umbrella Representative HoBs Representative Brands House of Brands Standalone Brands 6,000 0 1,000 2,000 3,000 4,000 5,000 Average HoB revenue Average standalone brand revenue ~5X
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  Source(s): Secondary Research,Redseer Analysis © Redseer 10 As they cater to larger TAMs across meal-slot and cuisines Indicative TAM benchmarking for key players X-axis: TAM for a brand basis the cuisines it caters, Y-axis: TAM for a brand basis the meal slots it caters Low (Present in a single niche cuisine) Low (Present in single niche meal slot) High (Present across multiple meal slots) High (Present across multiple cuisines) Cuisine coverage Meal-slot coverage Both brands cater to only beverage cuisine resulting in a limited meal slot coverage Curefoods and Rebel cater to 5-6 cuisines which result in them covering all 5 meal slots
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  Source(s): Secondary Research,Expert Interaction, Redseer Analysis © Redseer 11 Which allows them to utilize their resources more efficiently Typical kitchen utilization across meal slots Descriptive COGS – Standalone vs. HoB restaurants % of revenue, 2023 Salary costs – Standalone vs. HoB restaurants % of revenue, 2023 HoBs have a higher kitchen utilization across the day owing to their multi cuisine coverage This results in higher operating leverage Pizza South Indian Desserts Breakfast (6-10 AM) Lunch (10-4 PM) Snacks (4-7 PM) Post Dinner (12-6 AM) Dinner (7-12 PM) Kitchen utilization Low High Standalone HoB ~5 p.p. Standalone HoB ~3 p.p.
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  Source(s): Redseer Analysis ©Redseer 12 To fully utilize their potential, HoBs need to scale multiple diverse brands and achieve operational excellence HoB opportunity flywheel Descriptive HoBs’ success can be measured on these two pillars Consumer behaviour evolution to eat more outside Need for more variety in cuisines/ avenues etc Consumer need for more variety results in a brand building opportunity. Be present in the right use cases to expand their toplines This let’s HoB develop a scalable and diversified brand portfolio To successfully scale, brands HoBs need to.. Optimize their operations to become bottom- line efficient More choices available to consumers Brand building ability Operational excellence
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  Source(s): Expert Interaction,Secondary Research, Redseer Analysis © Redseer 13 New Age HoBs have developed a playbook enabling them to scale their newer brands faster Time to reach INR 100 Cr. # in years from its inception, 2023 Case Study – Rapid growth of Olio Descriptive 1st Brand Capex investment requirement of only INR 9-10 lakhs per kitchen enabling rapid growth across metro and T1 cities Wood-fired pizza against the traditional hand tossed or pan pizza offerings Cuisine customization through its SKU such as Half-Half Pizza Slightly lower AOV making it more pocket friendly for students 2nd Brand 3rd Brand 4th Brand 6-7 Years 5-6 Years 4-5 Years 3-4 Years Olio has been successful in growing its revenue by 18X This has been possible due to 2 major factors Newer brands have taken ~half the time to scale FY22 FY23 FY24P INR 1.5 Cr. INR 12.0 Cr. INR 25.0 Cr. ~18X Revenue Growth 1. Plug and Play model 2. GenZ consumer focus 4 FY22 100 FY24 No. of outlets
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  Source(s): Expert Interaction,Secondary Research, Redseer Analysis © Redseer 14 While also having an inherently agile and cost effective operating model Upfront CAPEX – cloud kitchen vs. dine-in restaurants %, 2023 Property cost (upfront deposits) Licenses Equipment, furniture and other setup cost 79% 13% 9% 2% 13% 32% Particulars Cost share Interior design 2-5% Equipment 70-80% of the equipment and other furniture costs are salvageable resulting in efficient experimentation to optimize their brand and outlet portfolio 60-70% Furniture 5-10% Inventory costs (kitchen wares etc.) 10-15% Civil costs 5-10% Dine-in restaurant Cloud kitchen ~2x cost for setting up outlet led restaurant
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  Sl. No. KeywordsDefinition 1 Metro cities The top 8 cities – Delhi NCR, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata, Pune, Ahmedabad 2 Tier 1 cities Indian non-metro cities with population of at least 1 million 3 Tier 2+ Rest of India 4 USD INR Exchange 1 USD = 80 INR 5 Food Services Food prepared and sold by restaurants, cloud kitchens, hotels, unorganised make-shift units, and catering services of India 6 Organized food services players Food services players which are registered with concerned authorities from a business and taxation perspective and have the required food safety certifications 7 Unorganised food services players Other food services players who lack either the relevant registrations or certifications 8 House of Brands food services players (HoB) House of Brands is a company that owns multiple brands under a common corporate umbrella 9 Standalone food services players Companies that have a single brand under the corporate umbrella 10 Students/Young adults Studying in school or college and young working professionals between the ages of 18-30 years 11 Midlifers+ Experienced employees or self-employed, in the age group of >31 years Glossary
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  © 2024 RedseerStrategy Consultants Confidential and Proprietary Information For inquiries and discussions regarding the report, please contact Rohan Agarwal [email protected] Partner | Head of Food Practice at Redseer