India's food service sector braces for quick growth

Forecast to grow at a CAGR of 15.5% from $117.5 billion in 2020 to $219.4 billion in 2025

With the Covid-19 pandemic impacting the food service sector around the world with an average business drop of 35 per cent, food industries have started to adapt and innovate in the race to win back consumer confidence.

And India’s food service sector has emerged as a shining spot – forecast to grow strongly at a compound annual growth rate (CAGR) of 15.5% from the value of $117.5 billion in 2020 to $219.4 billion in 2025.

Delivery apps play key role

Food delivery apps have played a key role in this growth, as well as enhanced hygiene standards implemented by restaurants – which have improved the profits by 20 per cent. The new norms in the industries include the use of masks, frequent sanitation, temperature control and safe packaging of food. Along with these norms, contactless customer engagement has also become a priority in food industries through automated interaction between customers and service staff.

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“A drastic drop in the purchasing power of consumers and restrictions on operations of on-premise channels played a key role in the decline of sales across different profit sector channels,” said Ravi Teja, consumer analyst at GlobalData.

But increasing affinity among consumers for home deliveries will drive the growth of delivery service providers such as Zomato and Swiggy, which will be instrumental in pushing up the overall growth of the profit sector in the coming years, he said.

QSR category in focus

According to GlobalData’s report, ‘India – The Future of Foodservice to 2025’, the quick service restaurant (QSR) category remained the largest foodservice profit sector channel in 2020. At a CAGR of 5.5%, the channel registered the steepest growth among all profit sector channels.

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Growing popularity of the western fast food owing to its affordability and the increasing exposure of consumers to western media also drove QSR sales. The travel channel recorded the sharpest decline at a CAGR of -5.5% during 2015–2020. However, with the rebound in consumer confidence in coming years post COVID-19, all profit sector channels are projected to register growth during 2020–2025.

Investments set to grow

A reflection of this came when food industry sources revealed that Zomato – which is working to explore the public markets later this year – has reached an agreement to invest $100 million in Indian online grocer Grofers for about 10% stake in the seven-year-old startup. The proposed investment values Grofers, which counts SoftBank as its largest investor, at over $1 billion. Zomato’s proposed investment is part of a broader round, in which others including Tiger Global and SoftBank Vision Fund 2 are expected to chip in some capital.

With optimism returning to the sector as deliveries pick up, all food service sector channels are thus set for a period of robust outlet and transaction growth, with chain operators growing at a higher rate compared to independent operators across restaurant channels.