At a time when India's economy is experiencing a slowdown and many sectors are struggling to grow, one sector that has bucked the trend and is growing rapidly is organised fast food outlets, also called quick service restaurants (QSR). CRISIL Research, one of India’s largest independent and integrated research houses, estimates that the QSR market will double to around Rs 70 billion in 2015-16 from Rs 34 billion in 2012-13, driven largely by new store additions.

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 Tier-II and III cities. However, during this period, same-store-sales growth is expected to decline considerably due to intensifying competition in Tier-I cities, coupled with the economic slowdown.

Currently, Tier-II and III 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 are expected to take place in these cities.

“In Tier-I cities, we expect the annual QSR spend per middle class household to surge by over one-and-a-half times to around Rs 6,000 by 2015-16 from about Rs 3,700 in 2012-13,” Prasad Koparkar, senior director, industry and customised research, CRISIL Research, said.

“In Tier-II cities, the current QSR spend is around Rs 1,500, which is less than half that in Tier-I cities. However, the growth is expected to be much higher in the Tier-II cities, at about two-and-a-half times to Rs 3,700 by 2015-16,” he added.

“This quantum jump in QSR spend in urban areas will be propelled by the increase in nuclear families and working women, steady growth in incomes, changing lifestyle and eating patterns and, importantly, greater accessibility of QSR outlets,” Koparkar said.

“Global brands currently have an aggregate market share of 63 per cent of the domestic QSR market, and will continue to grow on the back of expansion into smaller cities,” he added.

These players have been successful in adapting their menu and products to local tastes. Indian players who serve domestic cuisine too will grow, but not as fast as global players.

Ajay D'souza, director, industry research, said “In value terms, pizzas, burgers and sandwiches still account for 83 per cent of the domestic QSR market.”

“On one hand, players have found it relatively difficult to adapt Indian food into an assembly line production model. On the other, foreign cuisine can be served quickly, and is more amenable to the cold storage format and a centralised kitchen. McDonald's and Domino’s Pizza have shown over the years that the Indian consumer is comfortable with western fast food,” he added.

To compete effectively with their global peers, Indian players such as Jumbo King, Kaati Zone and Faaso’s have already adopted the centralised kitchen model.

Investing in centralised cooking and supply chain facilities is critical to success in the QSR space, as it ensures quality and consistency across outlets, and helps players reap the benefits of bulk procurement. Some Indian players also serve global cuisine laced with Indian spices to satisfy the local taste.