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India's food service market is projected to reach USD 79.65 billion by 2028, according to the Food Service and Restaurant Business Report 2022-23, by Francorp and restaurantindia.in. Growing at an impressive CAGR of 11.19% from USD 41.1 billion in 2022, the industry is experiencing a robust recovery after facing significant setbacks during the COVID-19 pandemic. The report also highlights that despite the pandemic-driven loss of over 20 lakh jobs, the industry is expected to recover, aiming for employment figures of 1 crore by 2025.
Market Segmentation and Growth
The Indian food service market is split into two segments: the organised and unorganised sectors. The unorganised sector accounts for the major share of the market, though the organised sector has shown strong growth from 2014 to 2020. The report estimates that the market's growth trajectory will remain strong, driven by the increasing popularity of Quick Service Restaurants (QSRs) and the expansion of large food chains across Tier II and Tier III cities.
Quick Service Restaurants (QSR) Leading the Way
India's Quick Service Restaurant (QSR) market was valued at USD 690.21 million in 2022 and is expected to grow at a CAGR of 9.15%, reaching USD 1069.3 million by 2027. Major players like McDonald's, Burger King, and Domino’s are expected to deepen their presence in smaller cities, capitalizing on India's growing youth population and middle-class consumer base. The QSR sub-segment is projected to be the fastest-growing category in the food service market, with an anticipated CAGR of 23% over FY20-25.
Surge in Fast Food Spending in Tier II and Tier III Cities
The report revealed a notable increase in middle-class household spending on fast food in India’s smaller cities. Over the past two years, annual spending in these areas grew by 108%, from Rs 2,500 to Rs 5,400. This demonstrates a growing appetite for fast food as larger chains expand into new markets and more consumers adopt dining out habits.
Employment Trends and Recovery Post-COVID
The food service industry, which employed over 7.3 million people in 2021, experienced a major setback during the pandemic, losing over 20 lakh jobs at its peak. However, the industry is showing resilience and is expected to bounce back to employ 1 crore people by 2025. This recovery aligns with the market's overall growth and the expansion of food chains in smaller cities.
Challenges Facing the Food Service Sector
Despite the promising growth, challenges remain. Inflation has caused many consumers to dine out less frequently or to order fewer, lower-cost items. Additionally, supply chain issues, including delays and shortages of key food and beverage items, have impacted 96% of restaurant operators. These issues are expected to persist throughout 2022-23, further straining the sector.
Conclusion
India's food service market is on track for impressive growth, despite challenges posed by the pandemic and inflation. The quick service restaurant sector, in particular, is expected to see rapid expansion as major chains tap into the country's smaller cities. While supply chain disruptions and inflation remain concerns, the sector’s resilience is likely to drive it towards a promising future, with employment levels returning to pre-pandemic levels by 2025.
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