Praxis Business School

Retail Business Plan

On Snack Bar

A report

Submitted to

Prof. K. Dashrathraman

In partial fulfilment of the requirements of the course

Retail Management

On 7th August 2011

By

Ashwin Agarwal (B10004)

Deepika Agrawal (B10007)

Nishant Khattwani (B10013)

Sushmita Agrawal (B10035)

SUBMISSION: - 1

1. Environment Scan

a. Retail Scenario In India

Retail word comes from the French word retailer, which refers “cutting off, clip and device”. Retailing is the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers. A retailer is one who stocks the producer’s goods and is involved in the act of selling it to the individual consumer, at a margin of profit. As such, retailing is the last link that connects the individual consumer with the manufacturing and distribution chain. Indian retail sector comprises of organized and unorganized sector.

Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

The Indian retail industry has grown at a Compounded Annual Growth Rate (CAGR) of 13.3%

for the period FY06-10. The growth in the Indian economy since the last decade and the

change in consumption pattern of the Indian populace in terms of higher proportion of

middle class population, greater proportion of working women etc can unarguably be linked

to the growth of the Indian retailing industry. Of all the segments in retail, the contribution

Barter System

Currency was exchanged with goods and services

Hawkers carried out the first Retailing in Push Carts

Followed by Kirana Stores …….. Mom and Popup Stores

Finally Manufacturing era necessitated the small stores and specialty stores .

of ‘food & grocery’ remained the highest at 58% of the total retail sales during FY10, with

the ‘clothing & footwear’ segment remaining the second largest contributor occupying 10%

of the total retail pie during the same period. However in terms of growth figures, the

‘entertainment, books & sports goods equipment' segment outperformed the other retail

segments registering a CAGR of 22.5% during the period FY06-10.

In spite of the growth, the industry remains largely fragmented with the organized retailing

still at a nascent stage. In case of overall retailing revenues, the food & grocery segment

accounted for the highest share at 58% of the total retailing pie aggregating Rs.11.49 lakh

crore during FY10. In the organised retailing, the food & grocery segment stood as the

second largest contributor with revenues aggregating Rs.24273 crore during the same

period. However, the organised retail penetration of other segments such as clothing &

footwear, entertainment & books and furniture & furnishing surpassed that of the food &

grocery segment.

The Indian retail industry has witnessed rampant growth over the last decade. However,

during the economic recession since the latter half of FY09, the retailers especially in the

organised segment suffered a set-back in the form of declining revenues and halt in their

capex plans. The unemployment situation, further aggravating the fear of job losses during

the recession, resulted in muted consumer spending with the consumers choosing to spend

on necessities rather than discretionary items; the industry thus witnessed decline in

footfalls, conversion rate, which was especially apparent in the decline of same store sales.

The slowdown in consumer spending led to the inventory being stacked up resulting in a low

inventory turnaround ratio, registering a decline to 4.3 times during FY09 from 4.8 times

during FY08. Before the onset of recession, the large scale expansion plans of the Indian

retailers warranted an increase in inventory and greater store operating expenses in the

form of rentals and staff expenses thus increasing the working capital requirement.

However with the economic recession in effect, the retailers faced a liquidity crunch owing

to difficulties in raising funds both from the equity as well as debt markets. Additionally, the

funds raised during the economic boom attracted higher interest rates thereby affecting the

retailers' ability to service the interest as well as principal repayments during the downturn.

The total interest outgo of the retailers as tracked by CARE Research registered a y-o-y

growth of 78.6% during FY09.

Even though, post recession, the industry is witnessing a gradual turnaround, it is met by a

few stumbling blocks that constitute the challenges ahead for the Indian retail industry viz.

higher store rentals as compared to retailers globally, taxation & other policy regulations,

inefficiencies in supply chain management and higher rate of shrinkage.

In spite of the said challenges, CARE Research expects the Indian retail industry to grow on

the backdrop of expectant rise in the country’s Gross Domestic Product (GDP) during the

period FY11-FY13. The rise in income level of the Indian populace, in turn, is expected to

fuel the domestic consumption ultimately resulting in higher revenues for the Indian

retailers. Importantly, CARE Research expects the penetration of organised retail in the total

retail pie to increase by FY13 owing to the expanding reach of the retailers to tier-II & III

cities accompanied by higher consumer spend on discretionary items. Also, in an attempt to

increase margins, CARE Research expects the retailers would restore to adapting measures

such as increasing the share of private labels in the total store sales, reducing store level

operating expenses etc.

Key Players in Indian Retail Sector

Pantaloon Retail (India) – The first Pantaloon store was opened at Gariahat in

Kolkata in the year 1997 covering 8,000-square-feet area. Over the years, the store

has undergone several transitions. When it was launched, the store mostly sold

external brands. Gradually, it started retailing an eclectic mix of external brands as

well as private labels. Initially, it positioned itself as a family store targeted across

age and gender groups but later it shifted its focus towards being a fashion store and

gave more emphasis on the youth. As on Dec 2010, Pantaloons had around 44 stores

spread across major cities in India.

Shopper’s Stop- A menswear store owned by K Raheja in the Mumbai suburb of

Andheri in 1991 has now transformed into Shopper’s Stop, with 27 departmental

stores. The company entered airport retailing in a joint venture with the Nuance

Group. It also launched India’s largest hypermarket, hyper city. In 2005, it bought the

Crossword bookstore chain.

Lifestyle-Growing from one store in Bahrain in 1973, the NRI-led Landmark Group

today operates over 5 million sq ft in the Middle East and India. The group’s first

Lifestyle store in India opened in Chennai in 1999. Now it has 325,000 sq ft in

Chennai, Hyderabad, Bangalore, Gurgaon and Mumbai. Its first hypermarket,

branded as ‘Max’, is expected to open soon.

Reliance Retail- Reliance Retail Ltd, a subsidiary of Reliance Industries Ltd, has an

aggressive plan to expand its retail network across India. It entered the food and

grocery segment in November 2006 through its convenience store format Reliance

Fresh. The store offers a range of fruits, vegetables, personal care, home care and

kitchen utensils. It focuses on building a strong relationship with the agri-business

value chain and sources directly from wholesalers. Reliance Retail also plans to

invest Rs 25,000 crore on hypermarkets, supermarkets and specialty stores in the

next four years.

Aditya Birla Retail-The Company, which will operate under the brand ‘More’, has

selected two formats – hypermarkets and supermarkets – for its initial foray. The

first store has opened in Pune. Last January, the company acquired Trinethra Super

Retail, which has given it more than 5, 00,000 sq ft and a strong presence in the

South. The Birlas’ outlay for the business over the next three years is Rs 9,000 crore.

Bharti Retail- The world’s largest retailer Wal-Mart, which is entering India, chose

Sunil Mittal’s Bharti Enterprises as its partner in India. The venture has already

started with the cash & carry (wholesale) format, which could be extended to retail

operations once foreign direct investment is allowed in multi-brand retail, as is

expected.

The Indian retail sector can be broadly classified into:

a) FOOD RETAILERS

There are large number and variety of retailers in the food-retailing sector. Traditional

types of retailers, who operate small single-outlet businesses mainly using family labour,

dominate this sector .In comparison, super markets account for a small proportion of

food sales in India. However the growth rate of super market sales has been significant

in recent years because greater numbers of higher income Indians prefer to shop at

super markets due to higher standards of hygiene and attractive ambience.

b) HEALTH & BEAUTY PRODUCTS

With growth in income levels, Indians have started spending more on health and beauty

products. Here also small, single-outlet retailers dominate the market. However in

recent years, a few retail chains specializing in these products have come into the

market. Although these retail chains account for only a small share of the total market ,

their business is expected to grow significantly in the future due to the growing

consciousness of the buyers towards health and appearance.

c) CLOTHING & FOOTWEAR

Numerous clothing and footwear shops in shopping centres and markets operate all

Over India. Traditional outlets stock a limited range of cheap and popular items, in

contrast, modern clothing and footwear stores have modern products and attractive

Displays to lure customers. However, with rapid urbanization, and changing patterns of

consumer tastes and preferences, it is unlikely that the traditional outlets will survive

the test of time.

d) HOME FURNITURE & HOUSEHOLD GOODS

Small retailers again dominate this sector. Despite the large size of this market, very few

large and modern retailers have established specialized stores for these Products.

However there is considerable potential for the entry or expansion of specialized retail

chains in the country.

e) DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign

Companies during the post liberalization period. A greater variety of consumer

Electronic items and household appliances became available to the Indian customer.

Intense competition among companies to sell their brands provided a strong impetus to

the growth for retailers doing business in this sector.

f) LEISURE & PERSONAL GOODS

Increasing household incomes due to better economic opportunities have encouraged

consumer expenditure on leisure and personal goods in the country. There are

specialized retailers for each category of products (books, music products, etc.) in this

sector. Another prominent feature of this sector is popularity of franchising agreements

between established manufacturers and retailers.

b. Key Drivers

1) Changes in demographics- India has the lowest median age of 24 as compared to

developed countries. The composition of the Indian population is shifting towards the

age group of 20-49 i.e. the working population with purchasing power. Thus, India has

the largest ‘young’ population in terms of sheer size and this young segment is the major

driver of consumption as they have the ability and willingness to spend.

2) Increased credit friendliness- There has been a radical change in the Indian

consumers’ mindset regarding credit. With the easy availability of credit and declining

interest rates, personal credit has witnessed growth. The boom in financing has resulted

in an increase in spending on housing and consumer durables such as two-wheelers and

cars etc. Also the use of plastic money has led to a significant increase in consumers

engaging into shopping and eating out.

3) Rising Incomes- India is the second fastest growing economy in the world. A larger

number of households are getting added to the consuming class with growth in income

levels. Increasing instances of double incomes in most families coupled with the rise in

spending power is further fuelling the growth of retail sector. Though this growth is

most evident in urban areas, it has also taken place in rural markets.

4) Media- There has been an explosion in media as well during the past decade. This

media bombardment has exposed the Indian consumer to the lifestyles of more affluent

countries and raised their aspirations and expectations from the shopping experience —

they want more choice, value, service, experience and convenience.

5) Consumer Behaviour- The growth of modern retail is linked to consumer needs,

attitudes and behaviour. Rising income levels, education and global exposure have

contributed to the evolution of the Indian middle class. As a result, purchasing and

shopping habits have been inculcated and are increasing day by day. Today, people are

willing to try new things and look different, which has increased spending on health and

beauty products apart from apparels, food and grocery items.

6) Rural Market- The rural market is beginning to emerge as an important consumption

area, for most key consumer durables and non-durable products. In response,

manufacturers of consumer goods have begun developing new products and marketing

strategies with the rural consumer in mind.

7) Supply Chain- The consumer goods sector has been transformed by increased

liberalization, continuous reduction in customs duty, a shift from quota to tariff-based

systems for imports and sophistication in manufacturing over the past few years. Entry

restrictions for multinationals have been removed in nearly all sectors. All this has

enabled chain retailers to enjoy better range, depth and sourcing options as well as

improved average margins. There has been a proliferation in the range across all

categories, with a simultaneous increase in the supply of products and quality retail

space.

8) Entry of Corporate- In contrast to the situation a decade ago, the level of interest in

retailing as a growth opportunity has increased visibly now. Large conglomerates like the

Tata’s & ITC have initiated investment in retailing. Big business houses today are in a

position to provide the Indian masses with shopping satisfaction, entertainment, quality

products, educated salespersons, product information and discounts.

9) Foreign Retailers- The increasing attractiveness of the sector has drawn the interest

of a number of global retailers. With the opening up of the economy, more and more

MNCs have entered the Indian business arena through joint ventures, franchisees or

even self-owned stores.

While foreign retailers cannot start operations on their own mainly because of FDI

restrictions on the sector, a number of companies, are exploring entry options. In

apparel, Benetton, Lifestyle and Zegna are already in business, and Dairy Farm has a

number of retailing joint ventures in India.

10) Technology- The computerization of the various operations in a retail store —

including inventory management, billing and payments as well as database

management, widespread use of bar coding, point-of-sale terminals has changed the

face of retailing drastically. Apart from providing the retailers with better and timely

information about their operations, the technology also performs tasks such as

preventing theft, promoting the store's goods and creating a better shopping

environment. This is done with the help of closed-circuit televisions, video walls, in-store

video networks, and other forms of interactive applications ranging from CD-ROMs to

virtual reality to let customers select and buy products.

c. Key Challenges

Factors Description Implications

Barriers to

FDI

-100% FDI not permitted

-Franchisee arrangement

allowed

-Absence of global

players

-Limited exposure to

best practices

Lack of

Industry

Status

-Government does not

recognize the

industry

- Restricted availability

of finance

-Restricts growth and

scaling up

Structural

Impediments

- Lack of urbanization

-Poor transportation

infrastructure

-Consumers habit of

buying fresh food’s

administered pricing

-Lack of awareness of

Indian consumers

- Restricted retail growth

- Growth of small, one-

store formats, with

unmatchable cost

structure

- Wastage of almost

20%-25% of farm

produce

High Cost of

Real

Estate

- Pro-tenant rent laws

- Non-availability of

government land,

zoning restrictions

- Lack of clear ownership

titles, high stamp duty

(10%)

- Difficult to find good

real estate in terms of

location and size

- High land cost owing to

constrained supply

- Disorganized nature of

transactions

Supply Chain

Bottlenecks

-Several segments like

food and apparel

reserved for SSIs

-Distribution, logistics

constraints –

- Limited product range

- Makes scaling up

difficult

- High cost and

complexity of sourcing &

Restrictions of purchase

and movement of

food grains, absence of

cold chain infrastructure

- Long intermediation

chain

planning

- Lack of value addition

and increase in costs by

almost 15%

Complex

Taxation

System

- Differential sales tax

rates across states

- Multi-point octroi

- Sales tax avoidance by

smaller stores

- Added cost and

complexity of

distribution

- Cost advantage for

smaller stores through

tax

evasion

Multiple

Legislations

- Stringent labour laws

governing hours of

work, minimum wage

payments

- Multiple

licenses/clearances

required

- Limits flexibility in

operations

- Irritant value in

establishing chain

operations;

adds to overall costs

Customer

Preferences

-Local consumption

habits

- Need for variety

- Leads to product

proliferation

- Need to stock larger

- Cultural issues number of SKUs

at store level

- Increases

complexity in

sourcing &

planning

- Increases the

cost of store

management

Availability of

Talent

- Highly educated

class does not

consider retailing

a profession of

choice

- Lack of proper

training

- Lack of trained

personnel

- Higher trial and

error in managing

retail operations

- Increase in

personnel costs

Manufacturers

Backlash

- No increase in

margins

- Manufacturers

refuse to disinter

mediate and

pass on

intermediary

margins to

retailers

2. Choice of Retail Business:

a. Reasons for choice

Fastfood Joint

Name: - Adda

Business description: To open a food joint, serving a variety of fast food. The value

proposition is to make available all kinds of fastfoods preferred by individuals which can be

consumed at any point of time during a day. The attraction factor would be a joint which

would serve the following eatables:-

Chats

Rolls(Veg/Non-Veg)

Puchka

Fruit juices

Different types of sandwiches

Fruit salads

Cold drinks

Mineral water

Jhaal muri

Churmur

at cheaper rates and there would be provision for sitting as well as take away. This joint

would be located in Park Street in kolkata as currently there is no such organised retail

providing such a service. The target audience for the above joint would be the working class

having corporate offices nearby and the youth. The joint will be spread on a 1000 square

feet area and will have a wooden floor.

Reasons for choice:

Location: As Park Street is considered as one of the most convenient locations in

kolkata from where every aspect of entertainment is easily accessible and at that

juncture there is no such fastfood joint which provides such a variety of choices.

Urbanisation: With rising media exposure and consumer mobility, hanging out at

food joints in prime locations has been seen as a means of lifestyle in most cities.

Edge over local competitors: The eatables provided by the local competitors are all

scattered in different locations without a proper sitting arrangement. The edge

which we have over these existing players is that we are bringing all the different

types of products which they serve less than one roof along with providing them

with a congenial environment.

Other reasons

o As it is a made to order industry, demand forecasting is less required

o Scope for unlimited innovations according to the taste of the consumers

o Easy availability of raw materials with less initial investment

b. Others evaluated but dropped and why

Laundromat

One of the alternatives was to open a Laundromat. But it was discarded because we feel

that the Indian market is still not ready to accept this concept. Here the local laundries have

captured the major market. There exists stiff competition and hence scope for growth is

limited for a new player. Also, several added expenditures like maintenance, handling of

money which includes collections and loading coin changers, advertising, insurance,

licenses, rent, personal property tax, depreciation and interest charges are cutting a major

part of the profits.

We therefore felt that in this sector we wouldn’t be able to differentiate ourselves from the

local laundries already existing and hence opening a Laundromat did not incite us.

Highway cafe

Another alternative was to open a cafe lounge on a highway which would be atleast 4 to 5

kilometres from the city with added facilities like a ps3, foosegame and a wifi facility.

However, there are lots of challenges in pursuing this idea. One challenge we faced was the

security factor where customers would find it unsafe travelling on a highway at night.

Another hurdle we faced was the temperament of the consumers which was not in favour

to drive till highways to enjoy coffee. The plan would incur lots of capital expenditure. So,

we concluded that with an uncertainty of walk-ins, which will lead to less return on per sq.

ft. basis, the plan will not be feasible to carry.

3. For chosen retail business:

a. Environment scan

i. Global

The global fast food market grew by 6.6% in 2008 to reach a value of $154.7 billion. In 2013,

the global fast food market is forecasted to have a value of $200 billion, an increase of

29.3% since 2008. The global fast food market grew by 3% in 2008 to reach a volume of 85.8

billion transactions. In 2013, the global fast food market is forecasted to have a volume of

94.7 billion transactions, an increase of 10.4% since 2008. Quick Service Restaurant segment

leads the global fast food market, accounting for 66.3% of the market overall value.

Americans leads the global fast food market, accounting for 52.4% of the market overall

value.

Since, 1970, Americans spent about $6billion in the growth of fast food industry. In 2013,

global fast food market is forecasted to have a value of $200 billion. A generation ago,

three-quarters of the money used to buy food in United States was spent to prepare meals

at home. Today about half of the money used to buy food is spent at restaurants. Americans

now spend more money on fast food than on higher education, personal computers,

computer software, or new cars. Their expenditure on fast food is far higher than what they

spend on movies, books, magazines, newspapers, videos.

ii. India

Upto the year 1995 Indian food market was predominantly dominated by the traditional

dhabas, potential restaurants in the customer’s colony and some restaurants in a five star

hotel. Having fast food i.e., burgers, pizzas etc., was considered to be an option for eating

out. It was not synonymous with the American concept of fast food as a quick takeaway bite

or a substitute for lunch. Apart from fast food being available at the local colony restaurants

and at some five star restaurants, Nirulas was the only fast food chain existing in the country

with its restaurants expanding with every passing year since its inception. Nirula’s was the

first one to bring fast food to India in the 1950’s and since then it has evolved into a

common hangout for all age groups.

The Indian fast food market is growing at around 30-35 percent per annum and generates

over 4800 Crores in sales. Fast Food Market in India is anticipated to reach around INR 146

Billion by 2014, growing at a CAGR of around 34% during 2011-2014 Fast-food restaurants

seem to be big business in India, and so a many foreign chains have made an entry into the

market to joint the early movers like McDonald's or KFC. According to “Indian Fast Food

Market Analysis”, although the market has witnessed a robust growth in the past couple of

years, it remains largely under penetrated and concentrated into metropolitan cities. India is

the world’s second largest producer of food next to china, and has the potential of being the

biggest with the food and agricultural sector. The total food production in India is likely to

double in next ten years. The foreign players look to dominate the Indian fast food industry

and have large plans for expansion. For instance, Domino's plans to open 60-65 outlets

every year for the next three years. With greater plans to explore the Indian market, Yum

Brands plans to open 1000 fast food outlets by 2015. McDonald's has set an invest goal of

nearly $35 Million to double its store count to nearly 350 in India. Multinational chains like

McDonald's, Pizza Hut, KFC or home grown ones like Sagar Ratna, Yo! China, Haldiram's,

Bikanervala or Nirula's, they are all racing to open new restaurants. McDonald's, which had

20 outlets in India till 2002, has 187 today. It plans to open 200 more over five years with an

investment of Rs 500 crore. Yum! Restaurants, owner of the KFC and Pizza Hut brands, plans

to add 15 and 20 outlets respectively.

The eating out market is on an upswing. The rising number of working women and nuclear

households, and an increase in general affluence have led to higher discretionary spending

on food. According to the Food Franchising Report 2009, 30 per cent of working singles eat

out at least once a month, with a majority spending at least Rs 101-150 per outing. Urban

Indians now have a repast outdoor six times a month compared to 2.7 times in 2003. Retail

consultancy Tech-nopak Advisors says the expenditure on eating out at 11 per cent is

second only to groceries for Indian households. Growth isn't the only change in the food

business. The shift from unorganised or street food towards a cleaner, more hygienic

environment is one, even as the proliferation of stalls selling steamed corn, doughnuts and

even sushi across malls, along with the success of South Indian cuisine in Delhi and butter

chicken in the South shows that Indians are willing to experiment.

Each of the foreign food joints that have come into the country has their own strategy lined

up to differ from the rest. Each of these studied the Indian tastes and style and thereby

targeted the Indian customer. An average Indian restaurant goer is no convenience eater,

unlike the Americans.

Growth Drivers of India’s food Industry

The growth of the food industry is driven by:

Higher disposable incomes

Change in spending pattern

Increasing organised food retailing

Increasing export opportunities

Porter’s 5 force model

SWOT Analysis

Strengths

1. Quick Service: - one of the biggest strengths of fast food is that it provides quick

service. The biggest advantage of this is that it saves a lot of time. And in this modern

world time is money hence quick service is the biggest strength

2. Affordable: - Usually fast food is priced at a very affordable rate which starts from

rupees 2. Though the prices are low in the fast food industry, the quantity is more

and hence value for money.

3. Attraction: - The advertisements of fast food are very flashy and appealing

especially to the youth and the younger generation. One of the most important

people in the buying decision is the kids who are influenced by ads on TV who in turn

influence their parents. Hence it boosts the sales.

Potential Entry Relatively high initial capital outlay Growing industry consolidation Economies of scale Logistics learning curve Low switching costs for customers

Bargaining Power of Customers Fragmented customer base Relatively low average purchase Rising segment of discerning consumers

Buyer Bargaining Power of Buyers Regional franchises exhibit market power Many substitute suppliers Low operator brand loyalty Low switching costs (e.g. distribution channels)

Industry Rivalry Low pricing power Low margins Market consolidation

Threats of substitutes High product differentiation (e.g. meal solutions) Many local industry players (e.g., independent caterers) Few global industry players (e.g., KFC, McDonalds etc.). Low switching costs for customers

Weakness

1. Different Preferences: - India is a land of diversity. People in India have different

preferences and taste. The fast food industry cannot cater to all the tastes and

preferences of people. For e.g. some people eat Non – Veg and some don’t eat non –

veg, thus creating a problem. Such problems have risen at KFC and McDonalds.

Another difference in preference can be seen in the choice of the type of food. Some

people prefer South Indian while some prefer North Indian. So a south Indian joint

selling masala dosa cannot start selling chole bature as per customers’ preference.

2. Lack of customization: - Fast food is usually pre-made and pre-packed and not

fresh from the oven. So once the dish is made it cannot be altered according to the

customer’s choice or preference. For e.g. a McDonalds burger is prepared much

before the customer purchases it and he has to buy it as it is. Even if the customer

wants the burger without onion or cheese still he has to purchase it due to lack of

customization.

3. Unhygienic and unhealthy: - Most of the times though being tasty the oil

content in fast food is very high. Hence people are now moving away from fast food.

The fast food prepared is also unhygienic especially at the road side joints. Hence

these are considered weaknesses to the fast food industry.

Opportunities

1. Growing nuclear families: - Nowadays it is said to be the age of the fast food.

Parents and kids especially prefer fast food due to its quick service and for its

satisfying appetite at affordable prices. This is a growing opportunity for the industry

because families nowadays prefer eating out, rather than cooking at home.

2. Growing urban lifestyle: - The growth story of India is not limited to metro

cities. Now it has also found its way into some rural areas and some semi– urban

cities. Fast food joints are not a thing of big cities now. People in cities and towns are

now having additional incomes in their pockets. Eating out now is a normal thing for

the homely people in the semi urban areas.

Threats

1. Oppositions from various organizations: - Due to the various preferences in

the food some opposition is received by the fast food industry. As reported in the

papers organizations like PETA are opposing the use of beef fat in the items of

McDonalds. There was also a huge hullabaloo when Kentucky Fried Chicken (KFC)

was being introduced to India. This is a major threat to the fast food industry.

2. Location: - One of the major threats in India is from the location point of view. Fast

food joints can’t be opened in certain locations even though there might be evidence

of major consumer demand in the area. For e.g. a Hindu dominated area might pose

a threat to joints serving beef related products since the cow is considered sacred to

them.

3. Ready- to-eat: - Nowadays ready to eat products are more in demand in the

market owing to the fact that consumers have to take minimum trouble in

preparation out of which the results are healthy food, rich nutritional value, easy on

pockets and higher value for money as compared to the foods available in a fast food

joint.

4. Health Concerns: - Due to the low quality ingredients used in the majority of local

fast food joints, the sanitation and the hygiene factors which are mostly not

maintained, have given cause to various medical and other health related

organizations and certain NGO’s who have taken it up to voice these issues and bring

it to the attention of the general public. Thus directing the attention of the public to

change the tastes to foods that are more hygienic and safe. Here canned foodstuffs

stand to gain advantage.

b. Current Players

i. Global

Year 2010 Rs per Month Rs per sqft per Month Global

McDonalds Yum McDonalds Yum

Average sqft size of a 3000.00 3000.00

store

Net Sales2665394.5

31098243.2

4 888.46 366.08Gross Margin 0.77 0.72 0.77 0.72

RGM2058597.6

6 793885.14 686.20 264.63

OPEX1256917.9

7 632736.49 418.97 210.91EBITDA 801679.69 161148.65 267.23 53.72

ii. India

Jubiliant Food works Limited(JFL)

No of stores across india 378

Average store size in sqft 2000

Rupees

For a store Rs/month in 2011

Rs per sqft per Month

Total income 6783300000 Total expenditure 5581600000 EBITDA 1201700000 264925.0441 220.7708701

(Source: http://www.dominos.co.in/admin/en/filestore/9c2b2ac601ce0307f2c48b469b107711.pdf )

* Please refer to the attached excel for further details.

c. Market size in India:

i. Current

India's fast food market is worth US$9.33 billion, registering year-on-year growth of 9% in

2010. The market is stipulated to reach US$12.25 billion, with CAGR of 7% in the next 3-5

years (2010-2014).The moderate growth is primarily attributed to higher regional and local

penetration of fast food outlets in Tier II and Tier III cities along with improved household

disposable income. Demographic segments aged between 25-35 years are the largest

consumers of fast food, with approximately 35% eating out once a month in cosmopolitan

cities such as Bangalore, Hyderabad, Mumbai, Delhi, Kolkata, etc. The fast food market

volume sales stood at 455.9 billion transactions, with year-on-year growth of 9.1% in 2010.

ii. Look up in 5, 10 and 15 years and CAGR

Year 2011 2016 2021 2026Market Size(in

billion $)9.33 40.30934 174.1525 752.4084

CAGR 34% 34% 34% 34%

According to our new research report, “Indian Fast Food Market Analysis”, the Indian Fast

Food Industry is anticipated to grow at a CAGR of around 34% during 2011-2014.

Anticipating the future growth, many big international players are entering into the market

by making deals with the domestic players. And those already present in the Indian market

are expanding their presence in different provinces of the country. This trend will emerge

more strongly during our forecast period, providing opportunities to local players to widen

their product portfolios.

Key Drivers and Key Challenges

d. Key Drivers

-High cost of real estate-Health related issues: obesity-Lack of skilled manpower-Increased Competition

-Growing disposable income -Favourable demographics -Changing lifestyles and preferences -Increasing proportion of take away food -Increasing number of working women

Key Drivers

Key Challenges

Growing disposable income – emergence of double income group leads to

increase in disposable income. Now people have more disposable income so they

can spend easily in fast food and other activities.

Favourable demographics- Target market of fast food is normally considered

within the age of 15 to 50.The percentage of this age group is increasing very rapidly.

So, fast food players change their policies and products to attract this so much large

sector of population. When population increases, there is also an increase in

references because of large personality differences.

Changing lifestyles and preferences- Change in the lifestyle of demographics

is very important forces which become the cause of change in fast food industry near

in future. Fast food in developing countries is considered as junk but in some it is

considered as a status symbol. So, companies set their rices and other marketing mix

tools accordingly but now the lifestyle of developing countries is changing. So, fast

food chains in these places are changing their ways of doing business.

Increasing proportion of take away food- Nowadays it is said to be the age of

fast food. Parents and kids especially refer fast food due to its quick service and for

its satisfying appetite at an affordable price. This has resulted in an increasing

demand for take away food.

Increasing number of working women- working women have no time for

cooking, and if they have then also they don’t want to cook. Because they want to

come out of the traditionally defined gender roles. They do not want to confine

themselves to household work and upbringing of children’s.

e. Key Challenges

High cost of real estate- with the growing economy, land value is appreciating

continuously. Getting a land in a main area would cost a huge sum which would have

a direct impact on the investments.

Health related issues:

a) Obesity: Studies have shown that a typical fast food has very high density

and food with high density causes people to eat more then they usually need.

b) Low calories food: Emphasis is now more on low calorie food. In this line

McDonald has a plan to introduce all white meat chicken Mc Nugget with less

fat and fewer calories.

Lack of skilled manpower- To maintain a proper decorum and serving hygienic,

is not possible without skilled labour. Getting skilled labour in the budget would be a

challenge for the business.

Increased competition- While the fastfood sector has long been regarded as

competitive, the level of rivalry only intensifies. Numerous chains are expanding:

multi-unit development deals are being inked left, right, and centre. Brands like

Subway, Krispy Kreme, Camille's Sidewalk Café, Cosi Inc, Whata burger, Papa

Murphy's, Moes Southwest Grills and Bob's Big Boy are all on the expansion trail.

Meanwhile, a number of incumbent chains and/or their franchisees are struggling to

return positive results on existing operations. One well-known example is Burger

King where one high profile multi-unit franchisee went bankrupt, and improved sales

and profits are vital in turning other franchisees and the franchiser operation

around.

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