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Food for thought: Is India ready for Fast Casual dining?


Eating out is as old as time. The Neanderthals did it. The first homo sapiens did it and the modern man likes nothing more. For the early man, eating out involved all-day hunting, foraging and food came slow, fast or sometimes too fast (with sharp teeth).

Today, eating out is common and the food services sector complex. There’s QSR (Quick Serve Restaurants), Casual Dining, Fast Casual, Smart Casual and Fine Dining. Then there are formats: dine-in, drive-through, take-away, delivery, food court, kiosk, pop-up, store-in-store.

Homo sapiens still like hunting but are now armed with plastic and a smartphone.

The food services sector was born when the aristocrats started mass catering for gluttonous guests. In the 16th century, cafes appeared in Constantinople and the taverns in England. The first restaurants popped up in Paris in the 18th century. These were places of ‘restoration’ defined by their lists (or menus) of fine fare served at small tables.

In the early 20th century, restaurants multiplied offering urban commuters a home from home. With demand came diversity. In New York, Italian eateries catered to Mezzogiorno immigrants and then to all.

Until the 1950s, the restaurant sector was disorganised with many individual operators. Then came the chains.

In 1953, McDonald’s opened its first restaurant in Phoenix, Arizona. Two years later, Ray Kroc joined and by 1958 McDonald’s had sold a whopping 100 million hamburgers. Kroc reinvented restaurants using systematisation. Supply chains and processes were streamlined and rapid scale achieved with a capital-efficient franchise model. Kroc’s mantra was “quality, service, cleanliness and value”. Today McDonald’s has more than 36,000 restaurants in 119 countries.

For 30 years, QSR dominated restaurants. Then things changed.

This shift happened in the 1990s driven by customers wanting more. Kroc’s formula stood but customers’ calculation was new.

People had moved on. Money, education, the Internet and travel exposed folk to better things and changed the meaning of ‘value’. Where value meant price, it now meant something holistic and included the idea of ethos.

And so in America, the Fast Casual sector emerged with better food and stated values. Chipotle served Mexican but called it ‘food with integrity’. They tapped into the zeitgeist need to do good and attacked QSR for being cold and mechanistic. It worked and Chipotle and Shake Shack made out like bandits with bucket loads of investment and eye-watering valuations.

QSR brands scrambled to imitate Fast Casual. McDonald’s tried table service in Germany, cold beer in Korea and a delicatessen in Hong Kong. Wendy’s dusted off its founding story of quality with fresh produce and made-to-order food.

In India, the story is different. No country has so many Millennials and the middle class is as aspiration-filled as anywhere. But the market remains exceptionally price-sensitive.

Investors may want Fast Casual, but there aren’t yet enough customers to create scale. And scale is what matters to professional investors.

What’s emerging in India is a halfway house between QSR and Fast Casual. Food, design and service are better but prices are closer to QSR. The business challenge is giving quality at these low prices. US Fast Casual prices are double QSR, while in India the delta is around 10-15%.

Still there are too few customers. But this will change and meanwhile brands need to operate two businesses – one for the price-conscious and another for those who can pay. It’s like auto brands selling entry-level cars and luxury models in one showroom.

How will Fast Casual play out in India? It depends on: a) the rate of target customer growth; b) the rate which customers, particularly Millennials, turn away from QSR and c) the potential for lower operating costs.

The last of these is intriguing and while Indian demonetisation creates uncertainty, one outcome may be lower rents. If this happens, our Indian Fast Casual pioneers may find that higher margins buy the time needed for target customers to emerge en masse. Like so many things in business and in life, it’s all about timing.

Source: Economic Times

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