Rise of the Restaurant Industry in India

Executive Summary

While India has always been a food-loving country with each region having its own special cuisine, Indians have never been very big on eating out. But all that is changing now. The restaurant industry in India has been growing at a rapid pace over the last decade or so and the growth story is set to continue for the next foreseeable future.

There were nearly 22 lakh hotel and restaurant establishments in India in 2002. The food service or restaurant industry was worth a whopping Rs. 43,000 crores in 2010 and growing at a healthy rate of 15-20 percent annually.

The growth of the restaurant industry coincided with the growth of the great Indian middle class, which was the byproduct of liberalization. Rapid urbanization, growing awareness of Western lifestyles, more women joining the workforce, and higher disposable income were some of the factors that contributed to the growth of the restaurant industry.

But the real game changer was the entry of American fast food chain McDonalds into India in the year 1996. Indians, who had limited exposure to American food until then, lapped it up and gave rise to a huge upsurge in the quick service restaurant (QSR) industry. The following years saw the establishment of many international fast food chains such as Dominos, Pizza Hut, KFC, etc.

But the real game changer was the entry of American fast food chain McDonalds into India in the year 1996. Indians, who had limited exposure to American food until then, lapped it up and gave rise to a huge upsurge in the quick service restaurant (QSR) industry. The following years saw the establishment of many international fast food chains such as Dominos, Pizza Hut, KFC, etc.

And while the QSR industry was thriving, Indians discovered fine dining, too. The joy of experiential eating was new to the Indian consumer, who was hitherto reluctant to spend copious amounts of money on dining out. But greater awareness of global cuisines & gourmet food as well as the search for a heightened dining experience led them to high-end restaurants. Today, the chain fine dine market in India has around 50 players with 150-200 outlets spread across various cities and is worth Rs. 500 crores.

Another interesting development for the restaurant industry was the rise of niche restaurants serving specific cuisines and specialties. Niche restaurants like Oh! Calcutta, Pind Baluchi, and Zambar made inroads into the Indian market.

As India went through another invasion – that of the mall culture – Indians were treated to a whole new concept of eating. Food courts made their foray into India and thanks to their quick service, value for money pricing, and casual atmosphere, had soon captured the imagination of the Indian consumer.

The restaurant industry went through a technological revolution of sorts in the last few years with the emergence of the online food ordering service. The trend gave rise to many entrepreneurs who began food ordering startups like TastyKhana, TinyOwl, and Food Panda. Ordering good food was now possible with the press of a button and the Indian consumer couldn’t be happier.

While the restaurant industry in India faces many challenges like high taxes and food cost inflation, it remains a major engine of growth for the country’s economy contributing significantly to its GDP, paying crores of rupees in taxes, and providing employment to millions of people. The future looks promising for the Indian food service industry.

1. History of restaurant business in India

Food is a big part of the Indian culture. Whether it’s an everyday meal prepared lovingly for the family or special celebratory culinary treats made during festivals – food has always been something that Indians have bonded over. If there’s one thing to know about the food culture of India, it’s the fact that it is an elaborate, expansive fare. Even a regular meal at home consists of various staples like rice, chapati, daal, and curry along with accompaniments such as pickles, chutneys,papadams, salad, and raita in a large number of households. Not only does a typical Indian meal take long to prepare, but it is also savored over an extended period of time.

Indians have traditionally prided themselves for eating home-cooked meals prepared by maharajsor cooks in affluent families and women in middle and lower-class ones, so the restaurant culture took a while to find a place in the country.

While modern restaurants are believed to be a byproduct of the French revolution, food services per se date back to ancient times.

Public eateries and street vendors were not an uncommon sight in ancient Rome, whereas travelers during medieval times often ate at monasteries, taverns, inns, and hostelries. But it was the French revolution that gave birth to restaurants as we know them today by abolishing the monopolistic cooks' guilds. The enterprising French chefs took advantage of the opportunity to serve a primarily middle class customer base dishes that were prepared to order.

In India, the earliest reference of restaurants dates back to early 250 BC when taverns or inns provided food to hungry travelers. Street vendors and small stall owners also sold food in local markets and most Indian towns and villages.

But the modern day restaurants probably started mushrooming with the spread of colonialism, especially with the growth of the Indian Railways and Civil Services. As people started to travel far and wide across the country, there was a spurt in eateries that could serve them freshly cooked food.

However, eating out for leisure remained a fairly rare phenomenon for majority of the Indian families until the rise of the great Indian middle class post liberalization. As Western influences percolated down, lifestyles and food habits of Indians began to change.

More and more young folk began to leave home to work in other cities and towns and for them takeaways and dining out became necessary. This was accompanied by an increase in disposable income and a general willingness to spend on the experience of dining out.

The resulting growth of the restaurant industry was spectacular to say the least. The industry was worth a whopping Rs. 43,000 crores in 2010 and has been registering a healthy 15-20 percent growth annually, according to the National Restaurant Association of India (NRAI).

A study conducted by the Federation of Hotels & Restaurant Association of India (FH&RA) estimated that there were approximately 2.2 million or 22 lakh hotel and restaurant establishments in India in 2002 and the hungry Indian wants more.

2. Food varieties & state wise specialties

One of the most interesting things about Indian food is that it is as varied as the country’s culture, geography, and demography. The cooking style varies a great deal as you travel from the North to South or the East to West.

While most restaurants box Indian cuisine into region-specific categories like Gujarati, South Indian, Punjabi, Bengali, etc., it’s worth noting that each Indian state has its own local specialty.

Here’s a list of some of state-wise specialties:

Bihar: Known for sattu (baked chickpea flour), Bihar’s cuisine is simple yet wholesome. LittiChokha (wheat flour cake filled with sattu) and meat saalan (mutton or goat curry with cubed potatoes) are two of its local specialties along with sweetmeats like balushahi and thekua.

Delhi: The capital of India is also the birthplace of the hugely popular Mughlai cuisine. This is the style of cooking prevalent during the Mughal era and is defined by the use of whole and ground spices. Some of the signature Mughlai dishes include kebabs, koftas, pilafs, and biryani. Delhi is also famous of its street food which includes parathas, chaats, and kulfi.

Andhra Pradesh: Spicy and tangy are two words that describe the cuisine of this Southern Indian state. The use of tamarind and red chillies in both vegetarian and non-vegetarian preparations is widespread. Rice is the staple food of Andhra eaten with lentil preparations like daalor sambhar as well as curries. Pickles and chutneys are also essential part of Andhra cuisine. Seafood is pretty common in the coastal part of the state.

Goa: The food in Goa is deeply influenced by its Hindu culture. But centuries of Portuguese rule and the burgeoning international tourism also influence the state’s cuisine. Because it’s coastal, seafood forms the mainstay of Goan food, but other meats like pork are also hugely popular in the state. The use of coconut milk and strong, pungent spices is common to Goan cooking.

Gujarat: This is one of the few primarily vegetarian states in India. The cuisine of this state has been made popular by the famous Gujarati thali that consists of dishes like daal, kadhi, subzi, papad, and chaas (buttermilk) served with rice and roti. What differentiates Gujarati dishes from others is the simultaneous use of sweet, salty, and spicy flavors.

Jammu & Kashmir: Jammu & Kashmir has a cuisine that is distinct from the rest of the country. It draws its influence from the ancient Hindu culture of Kashmir as well as Central Asia, Persia, and North Indian plains. Mutton is the mainstay of Kashmiri cooking and there’s a lot of use of yogurt and spices like cumin, fennel, red chilli powder, and ginger.

In addition to the state-specific specialties, India is also home to a number of fusion cuisines that have taken birth as a result of globalization. As more Indians travel abroad and foreigners travel to India, a cooking style that is a blend of both Indian and foreign cuisines has emerged.

Thanks to the growth of restaurants, now people don’t have to wait to visit a particular state to taste its local cuisine. Most tier 1 and 2 cities in India have specialty restaurants serving up authentic local dishes of different Indian states to people who are missing home food or those keen to taste cuisines from different parts of the country.

3. International players enter India and the rise of the quick service restaurants

If there was one year that changed the restaurant landscape of India it was 1996 when the American fast food chain McDonalds entered the country. With its colorful mascot, cheap burgers, and consistent looking and tasting French fries, McDonalds soon had the middle class Indian eating out of its hand.

Until then, the fast moving foods in India were mostly restricted to udupi style dosa-idli-wada fare or local chains like Delhi-based Nirula’s serving fast foods such as pizzas and burgers. But McDonalds changed all that and set the stage for the entry of many other fast food chains like Dominos, Pizza Hut, and KFC.

In fact, the last two years have seen the entry of various niche fast food chains like Burger King, Dunkin Donuts, Taco Bell, and Krispy Kreme. Even cafes like Starbucks and Costa Coffee have set up shop in several Indian cities.

The restaurant industry in India is mainly driven by the youth aged between 15-44 years. With a population of 1.2 billion and the largest number of youth on the planet, opportunities for the quick service restaurant industry is huge in India and it’s this potential that foreign fast food chains have taken advantage of.

According to the NRAI, the Indian fast food market is worth $13 billion, less than one-fifth that of China – the second largest fast food consuming market after the U.S. But while China is witnessing a decline in fast food sales, the Indian market is expected to grow.

In fact, the fast food industry in India is growing at 19 percent annually, 4 percent faster than the Chinese fast food market, which is growing at 15 percent annually.

It’s not just that these QSR chains have set up shop in India, but they are also tweaking their menus and making them more suitable for the Indian palate. So, you have a McDonalds on one hand opening up 100 percent vegetarian outlets in some parts of the country and a Pizza Hut on the other adding Indian flavors and ingredients to their pizzas.

What has worked for the quick service restaurants and international fast food chains in India is the shift in the eating out patterns. Because of the increase in disposable income, dining out is no longer reserved for celebrating special occasions. People go out to eat more and try international fast food joints as against the older generations that were less experimental in their tastes and not very trusting of the food quality and hygiene level maintained in restaurants.

Also, with an increasing number of young adults embracing the American style fast food meals, India’s QSR story is still being written.

4. Fine Dining comes of age in India

The changing lifestyle, rise of the nuclear family, more women stepping out of their traditional roles to go out and work, rapid urbanization are some of the factors responsible for the growth of the restaurant industry in India. Added to that is the increased exposure to international lifestyles and cuisines. More and more Indians are demonstrating a growing appetite for a variety of cuisines ranging from Chinese and Italian to Mexican and Middle Eastern.

Greater awareness of global cuisines combined with a larger disposable income is leading many Indian consumers to seek experiential eating or fine dining. Fine dining is not just about going out and eating. Fine dining is about elevating the dining experience of consumers through ambience, décor, presentation of the food, quality of service,use of gourmet ingredients, etc.

High-end or fine dining is slowly coming of age in India. While restaurants are placing a lot of emphasis on delivering high quality food and excellent dining experience, Indian consumers known to be quite cost conscious are willing to spend more and more on experiential eating.

New cooking techniques like sous vide are being experimented with in the Indian restaurant kitchen and many of them are inviting foreign chefs to give the Indian consumer a taste of authentic global cuisine.

According to a 2013 NRAI report on food services in India as published in hospitalitybizindia.com, the fine dining segment is growing at a healthy rate of 15 percent and depends largely on the affluent consumer. The report states further that the chain fine dine market in India, which has around 50 players with 150-200 outlets spread across various cities, is currently worth Rs. 500 crores and estimated to reach Rs. 1,010 crores by 2018.

Taking advantage of this growing trend, many celebrity chefs have set up their own signature restaurants in the country. Sanjeev Kapoor of KhanaKhazana fame owns the hugely popular Yellow Chilli restaurant chain. The restaurant serving contemporary Indian food is doing extremely well in many cities across the country.

Jiggs Kalra, another well-known name in the culinary circles in India, founded the Punjab Grill chain of restaurant offering delectable North Indian cuisine before selling his stake in early 2012. But Kalra along with his son Zorawar are back in the business with the high end Masala Library restaurant in Mumbai and Delhi.

Masala Library is just one of the restaurants set up by the father-son duo as part of their JV with Mumbai-based Mirah Hospitality called Massive Restaurants. They have another chain of restaurants called Made in Punjab, but that’s more casual than Masala Library.

In addition to this, the Kalras have added another restaurant to their repertoire called Pa PaYa. Pa PaYa is a modern Asian bistro and tapas bar bringing a hitherto lesser known cooking technique called molecular gastronomy to the Indian food table.

Many Indian chefs based overseas are also returning to India to seize the opportunity. They are taking the international dining experience to a whole new level with their global menus adapted to traditional Indian flavors. One of them is the London-based Michelin star chef Vineet Bhatia, who has opened two contemporary Indian restaurants called Azok and Ziya in Mumbai.

It’s not just Indian, but also international chefs who recognize the huge untapped market and have set up high end restaurants in the country. Ian Kittichai, the famous New York chef, opened a Thai restaurant in Mumbai called Koh in August 2010. Since he imports all his ingredients, he is able to serve his diners authentic Thai fare with a modern twist.

An interesting trend has begun and due to an increased interest in India as an investment destination, many international fine-dining chains are waiting in the wings to set up shop in India. The Indian consumer has a lot to look forward to in terms of experiential cuisine in the coming years.

5. Niche restaurants make their presence felt

Another interesting development in the restaurant industry is the rise of niche restaurants serving specific cuisines and specialties. No longer is the restaurant business divided into North Indian and South Indian. There are many more categories of specialty restaurants serving delicacies from Kashmir to Kerala.

It’s simple – people want to taste good food. They want to taste different food. The state or cuisine specific restaurants are simply meeting the demand of the new Indian consumer who doesn’t shy away from experimenting with food that he or she is not entirely familiar with.

Some of the popular niche restaurants in India include Oh! Calcutta, which started out as Only Fish, and served authentic Bengali fare; Pind Baluchi offering dishes from the Baluchistan region spanning across Pakistan, Iran, and Afghanistan; Gajalee chain of restaurants serving Malvani-style seafood; and Zambar serving Chettinad, Kuttanad, Malabar, Coorgi, Mangalorean, and Madras curries and vegetables.

Even lesser known cuisines of Odisha and Nagaland are finding many takers with Delhi’s Naga Kitchen and Bangalore’s Dalma doing roaring business.

And it isn’t just traditional and local Indian flavors that are finding favor with diners, but also international cuisines. Up until a few years ago, the only international cuisine that worked for the Indian palate was perhaps Chinese. Since then, the Indian palate has grown to accommodate global cuisines.

So, we have popular London-based Hakassan restaurant serving Cantonese-style cuisine, Las Vegas’ Le Cirque serving up authentic French and Italian dishes; South African casual dining chain Nando’s famous for its peri-peri chicken; and American fast food chain Taco Bell serving Mexican inspired dishes setting up shop in India.

Besides these international chains, there are many restaurants started by Indian entrepreneurs serving global cuisines like Thai, Japanese, Lebanese, European, and popular American food. If it’s authentic traditional and international flavors that the Indian consumer is after, these restaurants ensure they get what their desire.

6. The upsurge of food courts

The National Restaurant Association of India (NRAI) in its report has predicted an exponential growth in kiosks and food courts in India. The factors responsible for this rapid growth, according to the NRAI, include lower rentals as compared to restaurant space, higher return on investment, brand penetration, and new location opportunities.

While they made their debut in the West in the 1980s and have now become an essential part of airports, shopping malls, and evening business centers and educational institutions abroad, food courts are still evolving in India (though growing in popularity rapidly).

The Indian food court story is mainly being driven by the growing mall culture in the country. In fact, food courts and malls have a symbiotic relationship wherein food courts help the mall increase footfall and revenue by drawing customers, while depending heavily on a steady stream of shoppers that the mall attracts to its retail outlets.

Since many Indians with higher disposable incomes are looking to combine their shopping experience with a quick bite, food courts are drawing consumers in large numbers. All food courts usually have more or less the same floor plan – a common dining area mainly indoors and on the top floor of a mall/commercial center with kiosks and stalls by multiple F&B vendors surrounding it.

It’s not hard to understand why these food courts are gaining such widespread popularity. One, people can enjoy a vast variety of cuisines under one roof unlike a restaurant that typically serves a specific cuisine. Two, the prices for food items are generally lower than what you would pay at a restaurant, so people find value for money in them. And finally, the self-service, fast-paced, and casual atmosphere of food courts is a big draw for people who want to make a quick eating stop and don’t want the fuss involved in going to a restaurant.

In addition to the serious shopper, food courts provide an economical hangout for youngsters and a convenient getaway for office goers who want to escape for a quick bite, a hot cup of coffee, or a sugary delight in the middle of the working day.

Global consultancy Cushman & Wakefield, in a 2014 report on India retail, projected the total mall supply by the end of the year in the top eight cities of the country to reach approximately 14 million square feet (msf), which is nearly 200 percent more than the supply received in 2013.

Since food courts are an essential part of a mall and their most important tenant, the food court growth story is set to continue. However, the industry does need to overcome certain challenges such as heavy reliance on international brands, cafes, and established QSR chains. What this means is that you are likely to see more of brands like McDonalds, Pizza Hut, and Starbucks rather than smaller and lesser-known fast food chains in the malls. Proper seating arrangement and vendor combination to ease competition are other two big hurdles that Indian food courts have to cross to be able to achieve long-term success.

7. Food moves from the street to online space

Rapid urbanization, higher disposable income, and all the other factors that led to the growing culture of eating out in India are also responsible for the emergence of a new crop of diners – the ordering-in or take-away diner. While previously there were many caveats to ordering-in such as minimum order value, small delivery radius, and misunderstood and misplaced orders; the growth of food delivery aggregators like FoodPanda and Zomato has changed all that.

These aggregators, also available as apps on smartphones, have made it easier than ever for the Indian diner to order food from his/her favorite restaurant without worrying about whether the restaurant delivers to their location and if the person at the other end has heard their order and/or address right.

What’s more, there are added benefits to ordering online such as consumers can take their time reviewing and choosing their dishes without someone breathing down their neck, they can double-check their orders before making payment, and they have a variety of payment options available to them ranging from the standard cash on delivery and credit/debit card payment to online wallets like Paytm and Mobikwik.

According to an article appearing in iamwire.com (Rise of Online Food Ordering Startups in India: Opportunities, Challenges and Innovations), there has been an exponential growth in food ordering startups in India over the past one year.

TastyKhana and Just Eat, which have been bought over by their biggest competitor FoodPanda, raised $5 million and $89.1 million respectively from investors. FoodPanda itself has raised a whopping $147.3 million, whereas new entrant TinyOwl has managed to raise $20 million of investor money.

Meanwhile, businesses from other areas have also started to enter this lucrative market, according to the iamwire article. JustDial, which was until now a purely local search service, has spread its wings into the online food delivery business and cab aggregator Ola has also entered this segment by piloting its food delivery service called Ola Café in Mumbai, Delhi, Hyderabad, and Bengaluru in March this year.

The Ola Café service claims to deliver food in less than 20 minutes. Users can place orders from 12 pm to 11pm and make payment using cash or Ola Money.

Besides these food delivery aggregators, many quick service restaurants like Domino’s, McDonalds, and Faasos have also launched their own online ordering platforms.

8. Industry drivers, key statistics, & trends

Even though there’s a growing eating out trend in India, Indians still lag far behind the West and even some Asian countries when it comes to dining at restaurants. According to the National Restaurant Association of India (NRAI), Chinese eat out 60 times a month; Thai people eat out 45 times a month; and Indonesians eat out 15 times in a month. Indians, on the other hand, eat out about 2-4 times in a month on an average.

Indians also spend far less money on dining at restaurants as compared to some of their Asian counterparts. For example, people in Japan spend an average of $213 on eating out, while those in Singapore and Hong Kong spend $212 and $195 respectively. The average monthly expenditure on eating out is only $20 in India.

Clearly, Indians have a lot of catching up to do with other countries in Asia and the West so far as eating out is concerned. But the restaurant industry has nothing to worry about as there are many drivers of growth for this business in India. These growth engines are both consumer as well as enterprise driven. Some of thekey engines of growth, as listed by NRAI in its report, include:

Changing demographics: There’s a vast pool of working population in India, which includes women. There’s an upwardly mobile middle class, which is liberal and progressive. In addition to that, there’s a rapid increase in nuclear families and all of these factors contribute to the growth of the restaurant industry.

Greater spending power: India’s per capita income has been increasing steadily and this has led to an increase in the disposable income of Indians. Added to that is the concept of double-income households which is the result of more women joining the workforce. All this has led to an increase in the purchasing power of Indians, which is driving the growth of the food service industry.

Increased exposure: More and more Indians are traveling abroad, which has increased their awareness about global cuisines. Popular food and cooking shows on television such as MasterChef have also led to greater exposure to gourmet food.

India as a travel destination: With India projecting itself as a major tourist destination to the world abroad, restaurants in the country have all the incentive to expand their repertoire and up the level of their services to cater to a growing international market.

Infrastructure and IT development: For the customers, this has meant an enhanced dining experience due to factors like lower waiting time and improved ordering, which keeps them coming back for more and drives the growth of the industry. For restaurants, infrastructure and IT development helps them control costs, minimize waste, maintain quality, etc. and helps them improve their bottom-line. IT-driven business intelligence and data analysis helps them streamline their business and improve results.

According to NRAI’s 2013 India Food Services Report as published in hospitalitybizindia.com, the food service industry in India is worth an estimated Rs. 247,680 crore ($48 billion) and projected to grow to Rs. 408,040 crore ($78 billion) by 2018 at a CAGR of 11 percent.

The unorganized sector, which includes the dhabas and roadside vendors, comprises 70 percent of the market and is worth Rs. 1,72,685 crore . The organized sector consisting of fine & casual dining restaurants, bars & lounges, quick service restaurants or QSRs, food courts, cafes, and kiosks, holds the remaining 30 percent share of the market. However, the organized food service industry is projected to grow rapidly at a CAGR of 16 percent and its market value is expected to reach Rs. 145,770 crore ($28 billion) compared to the current Rs. 67,995 crore by 2018.

The restaurant industry is a major contributor the country’s economy. According to the NRAI’s 2013 report, the food service industry contributes approximately 2.3 percent of the total GDP and is set to become a much larger contributor when compared to other service industries over the next few years.

Besides, the industry is a significant tax contributor and employer. According to NRAI data, the food services industry was providing direct employment to nearly 5 million people in 2010, which is five times more than the IT sector and 10 times more than the hotel business. It was also contributing a whopping Rs. 1,000 crores annually in Value Added Tax (VAT).

The future looks promising for the restaurant industry albeit some challenges such as high food inflation, over licensing, high taxation, introduction of new taxes, and increased competition to name a few.

But a fast maturing market that is becoming increasingly experimental with its food, the growing ease and convenience of ordering in, the introduction of new and interesting menus like breakfast and high tea, the widening reach of social media, and international chains scrambling to set up shop in the country – all point to a healthy growth for India’s food service sector over the next few years.

About AIMS Institutes:

The restaurant industry in India has witnessed an unprecedented transformation with the entry of a variety of national and international players. This has, in turn, given birth to a huge demand for qualified professionals in the sector and all related industries. Thanks to the technological revolution, Indian restaurant setups have now gone online to gain more customers and serve them better.

But the demand-and-supply graph isn’t quite the way it should be. With a noticeable shortage of skilled professionals, the restaurant industry presents a whole gamut of opportunities waiting to be grabbed. Enter culinary arts institutes. Traditional cooking schools and hotel management colleges have now expanded the range of education they offer in order to satisfy industry demands. Foreign universities are investing time and money to train Indian students to make them able and employable.

In this mishmash of culinary arts schools, AIMS Institutes stand out as the frontrunners. Their Department of Hotel Management has been consistently ranked third in Karnataka, fourth in South India and Twelfth in India. Moreover, the institute’s association with ALMA, Italy, which is the world’s leading international educational and training centre for Italian Cuisine, has made it one of the most sought-after colleges in India with the following courses on offer:

  • Bachelor of Hotel Management (BHM)
  • Bachelor Degree in Hospitality Administration and Event Management
  • AIMS – ALMA Dual Degree (BHM + ALMA)
  • Diploma in Culinary Arts of Italian Cuisine
  • AIMS – ALMA Certificate Programme in Culinary Arts of Italian Cuisine
  • Master of Tourism Administration (MTA)

Recognized as one of the top three Hospitality Education institutes in Bangalore, the students of AIMS Institutes have access to the best industry tools and technologies, opportunities to meet and interact with industry professionals, star up-to-date with the latest trends and land great job opportunities.

Learn more about the dual degree at AIMS Institutes.