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Small cities to drive fast-food market to Rs7k cr by FY16: Crisil

MUMBAI: The domestic fast food market is estimated to double from the current Rs 3,400 crore in the next three years, largely driven by demand from smaller cities, says a report by Crisil.

The quick service restaurant (QSR) sector is one of the sectors that has managed to grow even during the economic slowdown, the report said. 

QSR market will more than double to around Rs 7,000 crore by 2015-16 from Rs 3,400 in 2012-13, driven largely by new store additions," the report said, adding most of the new stores will come up in the tier smaller cities. 

"Over the next three years, new store additions will increase by 16-18 per cent annually, propelled by the rapid expansion of global players into smaller cities," 
CrisilBSE -0.03 % said. 

"Currently, smaller cities account for just about 25 per cent of total stores, in the next three years, however, nearly 40-45 per cent of store additions will take place in these cities," it added. 

It observed that global brands currently constitute 63 per cent of the total QSR market and will continue to grow on the back of expansion into smaller cities. 

"In value terms, pizzas, burgers and sandwiches still account for 83 per cent of the QSR market. Players have found it relatively difficult to adapt local food into an assembly line production model. On the other hand, foreign cuisine can be served quickly, and is more amenable to cold storage formats and a centralised kitchen. 

"McDonalds and 
Domino's Pizza have shown over the years that consumers are comfortable with Western fast food," Crisil director for industry research Ajay D'souza said in the report. 

The report also finds that the amount spent by 
the middle income households on QSR is likely to be higher in smaller cities compared to the metropolitan cities. 

"In large cities, we expect the annual QSR spend per middle class household to rise by over 1.5 times to around Rs 6,000 by 2015-16 from about Rs 3,700 in 2012-13, while in smaller cities, this is less than half at around Rs 1,500 in smaller cities. 

"But, growth is expected to be much higher in smaller cities, at about 2.5 times to Rs 3,700 by 2015-16," Crisil senior director for industry and customised research Prasad Koparkar said. 

However, despite the projected increase in market size, the report said the like-to-like store sales is likely to decline due to the economic slowdown and due to increased competition among QSR operators in big cities. 

"Same-store-sales growth is expected to decline considerably due to intensifying competition in tier I cities, coupled with the economic slowdown," it concluded.