The Indian restaurant market is booming. Foreign restaurant companies like Domino's and McDonald's are taking part in a $48 billion market explosion. This enormous market expansion has been ignited by a variety of factors.
The Indian population has grown to 1.2 billion and has shifted from a more rural demographic to an increasingly dense urban concentration.
The newly urbanized Indian consumer is a younger double-income-earner with less time, traveling internationally and exposed to a wide variety of Indian and international concepts and cuisines.
34% of the Indian urban population eats out more than once a week, with 12% eating out daily.
Restaurant company management hears the same cry in every boardroom around the world. "Let's go! We don't want to be left behind. India is another China. We must be part of this boom. What are you waiting for?"
CAUTION! DANGEROUS CURVES AHEAD!
This is not the West. This is India. What will the Rupee buy tomorrow? Will the courts enforce my franchise agreement? Can I get fresh fruits and vegetables for my menu? Will the courts enforce my franchise agreement? How can I ensure my building plans will comply with local regulations? Maybe...yes. Maybe...no. Maybe...maybe. Welcome to the Indian sub-continent.
There are many curves in the road. A foreign business plan must be converted into an Indian business plan to navigate these curves. Only an Indian insider who has been down a curvy Indian road can foresee the curves ahead.
1. A scarcity of talent. The attrition rate in the Indian restaurant industry approaches 25%. This has a dramatic impact on employee efficiency by eroding consumer loyalty and creating a vacuum in middle management. With more employees required to do the same job, the cost of wages soars.
When the economic growth rate exceeds 5%, new industries raid employee pools by offering easier jobs for more pay. The shortage of trained employees is staggering and not likely to improve in the near term as the economy expands at such a rapid rate.
2. Inconsistent availability and fluctuating costs of raw materials. The availability of standardized products required by food chains is lacking. Commodities, fruits and vegetables are only available locally and seasonally. Import duties drive commodity prices even higher. They vary from 0% to 150% with an average duty rate of 11.9%. Traditional menu planning and pricing is impossible for foreign companies without a restaurant consultant in India who understands the hidden costs behind importing food ingredients.
3. Limited outsourcing. In India, the supply chain is poorly integrated, posing challenges at each step. Critical linkages like reefer transport and on farm infrastructure are almost non-existent. Despite the obvious need for improvement and new government initiatives to stimulate growth, private investment is in short supply.
Until shipping and handling catches up with processing, reliability of product for menu creation will remain problematic.
4. Expensive real estate. The urban population in India has grown from 79 million in 1961 to 350 million in 2010 and is estimated to exceed 590 million by 2030. This is perhaps the most dramatic mass migration within a single country the world has ever seen. Housing and commercial construction struggles to keep pace. Restaurant rents on High Street or in a mall in Mumbai, for example, are $2,004 for 300 square feet. A 2,500 sq. ft. restaurant property would command $10,000/month plus $2,200 for utilities. Although these statistics approximate other major cities in the developed West, they do not tell the whole story. Many neighborhoods are in the process of renewal and present a mixed message to potential customers. Value in Indian real estate can be highly questionable. The real estate factor requires an expert to assess value in this fluid market.
5. Unclear and non-transparent licensing issues. Another unforeseen curve in the road for western restaurant companies is obtaining all the relevant permits to open a restaurant. Unscheduled and unforeseen costs for required licenses from the local municipal corporations have gone up by 100%. A typical restaurant license serving alcohol should not cost more than 3.5 lacs or $5,600. But today, with additional unscheduled expenses, it costs approximately $33,600. A seasoned hospitality consultant can negotiate such fees and work diligently through his network to minimize their impact.
6. Insufficient franchising guidelines and laws to protect the franchisor and franchisee.
Here's a curve I know you didn't see coming. There are no Indian laws governing franchising. The franchising contract is made from excerpts of various laws such as competition laws, intellectual property laws, consumer protection laws and labor laws. For this final curve, a restaurant consultant from India, expert in franchising, will be an indispensable guide.
"Caution! Check your map."
The Indian market is estimated to become one of the biggest economies in the world in the next decade. The food and beverage sector is growing at 30% year on year and is still in its nascent stages. This is definitely the right time to come to India. However, this immense opportunity comes with challenges unique to India. A feasibility study and analysis by a hotel and restaurant consultant in India can provide an indispensable road map that will navigate the twisting turns of the Indian culture.