QSR Strategy In India: On Fast Route To Smaller Towns
Published on 27 Aug, 2015
Quick Service Restaurants (QSR) have been in India since time immemorial. Apart from established QSR brands such as McDonalds, KFC and Pizza Hut, other international QSR brands such as Sbarro, Wendy’s, Dunkin Donuts, etc. are slowly gaining space in the palate of the urban consumer. Due to the overcrowding of QSR stores in tier I cities, many QSR brands are now moving to tier II and tier III cities due to low competition and increasing demand.
Annual consumer spending in tier I cities is comparatively higher at INR 6500, growth is pegged at around 35% between 2012 to 2014. Though a consumer is spending more at a QSR outlet in tier I cities like Mumbai, Delhi, and Bangalore, the growth in spending is more in tier II and tier III cities. Driven by increasing need of a varied appetite, convenience, a liking for international food, and exposure to global media and cuisine, the annual spending of each middle class household in India’s tier-II and III cities on QSR restaurants has increased by Rs 2500 to Rs 5200, a growth of 108% between 2012 to 2014.
Current QSR landscape of tier II and tier III cities is made up of largely local Indian outlets and foreign brands such as Subway, Dominoes and KFC are currently devising their rural India plans to expand into tier II and tier III Indian cities.
Another key imperative in targeting tier II and tier III cities is the low cost of real estate in these regions. Though land rates have increased in tier II and tier III cities, but rate of increase is lesser than metros and tier I cities. Rental rates are also almost 50% less than that in metros and tier I cities, for a similar sized property. As QSR outlets in India are largely franchisee driven and the stores are mostly on rent/lease for a period of 5 to 7 years, QSR brands could benefit from low cost real estate in these regions.
Low rental rates and lesser salary ranges for operational staff could bring down the operating costs for QSR companies, which might lead to increase in per store profitability. Increasing volumes (consumer demand/spending) would help in providing profitability an upswing. QSR companies can then be the real change agents by passing on a larger share of the savings and offer the product at price point which is affordable to the tier II and tier III customers.
Foreign consumer brands could focus on variable pricing of their food products, based on the profitability in that particular region. It would surely be interesting to see QSR companies of the likes of McDonalds, that offer a McVeggie burger for around INR 90 in Mumbai, would offer the same burger at a much lesser price in a tier III city like Sangli, which is 375 kilometers away.