India’s organised food services market is expected to grow by 16 per cent over the next five years and touch $ 28 billion on the back of changing consumption habits of consumers and emergence of new players in the sector, a report said today. The National Restaurant Association of India (NRAI) in its report said that the size of the total market (organised and unorganised) is $ 13 billion in 2013 and is expected to grow to $ 78 billion by 2018. Within this, the unorganised market holds a 70 per cent share with an estimated market size of $ 33.7 billion. The organised market (chain and licensed standlaone outlets) is currently estimated at $ 13 billion and is expected to touch “$ 28 billion by 2018”, the report, which was released by Commerce and Industry Minister Anand Sharma here, said.
“The organised food services market is slated to witness a double-digit growth of 16 per cent over the next five years, spurred by the changing consumption habits of consumers and the emergence of new players in the space,” it said. It said that the sector has a vast untapped potential with eating out becoming a regular form of entertainment for consumers today. Pointing out several issues and challenges the industry is facing, it asked the government to address those matters in order to catalyse growth to optimum levels. The report said that food price inflation is a key factor affecting the food services market in India and is impacted by delayed monsoons, economic slowdown and unfavorable demand- supply conditions. “Across all food service formats, food costs (raw materials) account for about 30-35 per cent of the revenues. The perpetual rise in food costs narrows the players’ margins. compelling them to increase menu prices,” it said.
It said that there is a huge shortage of skilled manpower in the sector besides the industry is facing challenges with regard to fragmented market and increasing competition. “The high labour and real estate costs, coupled with the high services tax on property are exerting pressure on store profitability and consequently deterring the growth of food services outlets,” it added. The report said that the inadequate infrastructure in terms of supply chain, warehousing, logistics and cold chain are also impacting the growth of the sector. It also raised the concerns related with liquor sourcing, over-licensing and high tax rates. The industry is “burdened with multiple taxes like VAT, excise and service tax besides different state taxes which add up to 17.5 per cent -25 per cent of the bill value. The high taxation is a serious impediment to market growth,” it said.