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Industry Sheet - Indian QSR Industry - As on 5 February 2021

VALUE PROPOSITION

Customer Segments

Customer Segments for QSR can be divided on different basis –
1. On the basis of Location – Urban and Non-urban

2. On the basis of purpose – Travel, Leisure, Routine Consumption

3. On the basis of Age Group

4. On the Basis of Income Level

5. On the basis of Product Preferences

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Customer Gains

Major Gains that the customers seek to create are as follows –

1. Good Taste
2. Clean and Hygiene Food
3. Social Value of Dining Out and Outing
4. New cuisines
5. Convenience
6. Fun Activities

Also, then each customer segment has specific customer gains that they seek to create.

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Customer Pains

Major Customer Pains that they wish to solve are –

1. Poor Nutrition Value of Junk Food
2. Unhygienic
3. Adulteration
4. Expensive

Individual Target segments have different customer pains.

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Products and Services

We see that QSR Chains have come up centered around different cuisines. The common cuisines offered by QSR are –

Burgers
Pizza
Sandwiches
Mexican
North Indian
South Indian
Fusion
Rolls
Biryani

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Activities and Participants

Value Chain

Key Activities to Operate in the Industry-
1. Site location evaluation and new store role-outs
2. Physical Infrastructure Management
3. New Product Roll-outs
4. Procurement Network
5. Cold Chain Logistics Network
6. Marketing and Engagement for In-store and Digital Traffic

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Industry Map

Key Players to deal with to operate in the Industry-
Vendors of Raw Materials
Third Party Logistics
Real Estate provider
Third Party Aggregators
Regulatory Authorities – FSSAI
Master Brand Owner

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Demand- Supply Scenario

Industry Characteristics

Market Size Study

Total food service market size = INR 4,236 Bn
Standalone (Licensed) market Size = INR 1,203 Bn
Chain market size = INR 398 Bn
Restaurants In Hotels = INR 116 Bn
Unorganised Market size = INR 2,519 Bn

Total QSR organised market size = INR 348 Bn
Chain market size = INR 188 Bn
Standalone market size = INR 160 Bn

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Industry Stability

The Industry is a relatively stable one for those with strong brands.
Players have been able to retain market share.

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Pricing Power within Industry

Few Players in the Industry seem to have significant pricing power. They have successfully increased their menu prices over years.

The same has also reflected in their Gross Profit Margins.

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Competitive Life Cycle

Industry Seems to be in Growth Stage. This is because the following characteristics are evident in the Industry –

1. Rapid Growth in Sales
2. Product Suite Enhancements
3. Increase in Profits
4. Increase in Competition
5. Strengthening Distribution Channel
6. Investment Entering the Industry

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Disruption Threats

Major Disruptive and Innovative Forces playing out in the Industry are –
1. New Retail Formats -Drive Thrus and Order Kiosks
2. Rise of Food Aggregators
3. Rise of Food-tech companies
4. Rise of Cloud Kitchen
5. Monthly Subscription based food ordering

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Regulations and Licenses

Key Licenses Required-
Food Safety License
Health or Trade License
Beverage License
Environmental Clearance
NOC from Fire Department
Shop and Establishment Act
And Many more..

All these Licenses are required to operate each store in the QSR segment.

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Porter's Profit Forces

Supplier Power

Low Supplier Power

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Buyer Power

Low Buyer Power in the Industry

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Threat of Substitution

Threat of New Entry

High Threat of New Entrants in the Industry. Local Players scaling up and becoming competition.

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Competitive Rivalry in the Industry

Moderate to High Threat of Competitive Rivalry impacting industry’s profitability

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Financial Health of Companies in the Industry

ROE and DuPont Analysis

Jubilant Foodworks (FY2020) – ROE = 7.1% x 1.2x x 3.0 = 24.6%

Westlife Developments (FY2020) – ROE = -0.5% x 0.9x x 3.1 = -1.2%

Burger King India (FY2020) – ROE = -9.2% x 0.7x x 4.3 = -27.9%

Not a lot can be said about margins and asset turnover for the industry.

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Growth

Jubilant Foodworks 5 year Sales CAGR – 13.4%

Westlife Developements 5-year Sales CAGR – 15.2%

Burger King India 5-year Sales CAGR – 56.2%

The industry is in Growth Stage currently.

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Investment Needs

Jubilant Foodworks Ltd – High Fixed Investment but met by internal cash generation

Westlife Developement – High Capital Investment

Burger King India – Very high Fixed Investment

Industry generally needs to keep investing cash to open new stores. Mature companies generate higher free cash flow as compared to younger ones.

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Outlook

Trends in the Industry

1. Rise of Domestic QSR Food Chains
2. Rise in Off-premises consumption
3. Increase in Health Awareness amongst customers
4. Environmentally Aware consumption
5. Increased Focus on Hygiene and Safety
6. Ghost Kitchens on the rise
7. Rise in Fusion Food
8. Consolidation and Shutdowns in the Industry forced due to COVID19 impact

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Industry- Specific Risks

Major Risks in the Industry are –
1. Rise of Third Party Aggregator Apps
2. Rising Health Awareness among customers.
3. Lack of Organized Supply Chain
4. Risk from Master Franchise Owner
5. High fluctuation in Raw Material prices
6. Local Competition intensifying in the field.
7. New Retail Fomats coming up

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Growth Factors

Major Growth Factors in the Industry-
1. Increasing Investment in the Industry
2. Increase due to Third Party Aggregator Apps
3. Increased demand from younger population.
4. Shift from Unorganized to Organized Space (Boosted by COVID19)
5. New Product Lines
6. Introduction of New Retail Formats

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Variables for Success in the Industry

Key Variables for success in Industry –
1. Number of Stores
2. Same Store Sales Growth
3. New Product Introductions
4. Footfall – Physical and Digital

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Additional Notes

Sector Sub-segmentation

The Different Food Segments for FSI space includes-
1. Fine Dining Restaurants (FDR)
2. Casual Dining Restaurants (CDR)
3. Pubs, Bars and Lounges (PB&L)
4. Quick Service Restaurants (QSR)
5. Food Courts
6. Ice Creams and Frozen Desserts (ICFD)
7.Kiosks

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Operating Models in Industry

Various Operating Models in the Industry-
1. Master Franschisee
2. Company owned and Franchise
3. Joint venture
4. 100% Company owned and operatied

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Evolution of Industry

Different Phases in the Evolution of QSR in India are –
1. 1990s – Entered India in the 1990s and started challenging Indian organized restaurants who had early mover advantage.

2. 2000-2010 – Demand and Acceptability grew and Tier 2 cities and below also started accepting the QSR concept.

3. After 2010 – Entry of Regional players in the space and the space gaining acceptance pan India and growth being registered with New Age consumers.

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Unit Store Economics

Store Economics for QSR Stores in India-
Revenue – 100%
COGS – 30%
Employee Cost – 22%
Rent Costs – 11%
Outlet Expenses – 15%
EBITDA for store – 22%

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