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Thursday Trivia ~ The Rise of Quick Service Restaurants, Burger King IPO and Cafe Coffee Day wind up!

When the malls first arrived in Mumbai, I distinctly remember sitting with my uncle and discussing the way small shop owners are going to be impacted due to it. He was too casual around the subject and mentioned that it’s just a matter of 5 years, Indians are price conscious and they won’t buy expensive things. On the contrary, he would go on to tell me how costly it is to build a mall and that too a profitable one. Well, fast forward 2 decades and you see a very different story. My uncle was partly right, say around 20% that malls aren’t really a profitable business for everyone. But the fact that he got wrong was about change in tastes and preferences of Indians, which is 80% of the story.

Taking cue from another industry that has impacted our life in the most significant way is the mobile phone industry. In 2001, the most expensive phone that I had seen was Nokia Communicator which used to cost some Rs. 45 thousand. The phone was highly advanced and ahead of its time. Buying a Nokia 3310 or Samsung R220 which used to cost less than Rs. 5,000 was a costly affair. Why? Because the phone calls were chargeable. Internet was practically a luxury only a few could afford. Reliance Communications changed the game for incoming calls by making them free and Jio recently has changed the way the entire telecom industry operates. Now, buying a phone worth Rs. 45,000 isn’t a luxury anymore. The game has changed completely. Nokia was late to understand that just like my uncle and due to their own short-sighted approach, both are out of their respective businesses.

Coming back to the mall culture, several years back when Crossroads, the first shopping mall came to Mumbai, it had McDonalds at the ground floor. For some of us it was a weekly ritual to go there, do some window shopping and have some French fries with coke. If at that time, had anyone said – that food service business in the form of quick service restaurants will be the next big thing then people would have simply laughed and never given it a single thought.

Back then, Sunday dinners meant going to a few fixed places where right from waiter to restaurant manager knew you really well. But this has changed. So has the spending habits. It’s the millennials that have given these quick service restaurants its due. Places such as McDonalds, CCD, Barista, Burger King, etc. are more than about food now. Millennials want to hang out, have long romantic conversations, share a business idea, business meetings of startups when an office isn’t feasible.

Crossroads mall in Haji Ali changed the way Indians perceived malls. The second blow to small shops was delivered by Big Bazaar which was opened in Phoenix Mills, Lower Parel. It was a gigantic success. Weekend rush was a terrible affair to deal with. This is one thing my uncle missed out on contemplating that people usually get tired after shopping for long hours. So they simply enter a quick service restaurant (QSR) like McDonalds, Dominos, Pizza Hut, etc. for their dinner. After a few times, it’s the McDonalds that become the center point due to a distinct taste in food and priced at a reasonable rate. Hence, it sort of becomes a combo offer! Add to it movie theatres such as PVR and Inox, combine them with Café Coffee Day and Starbucks. A perfect Sunday hang out plan is prepared!

Millennials don’t spend their weekends like baby boomers (predecessors). They spend more on experiences which result in instant gratification. With easy access to bank loans and credit, they are able to fulfil their goals much faster than baby boomers. They won’t wait for 10 years to buy a SUV or sedan. When the loan is a go, they will book it immediately. Now whether this is the right approach and what are its repercussions, is an entirely different subject which we will discuss some other time. 

This spending culture has definitely given a rise to the food services business in India. Let’s have a closer look at the numbers. 

The Indian food services market is classified into two segments – organized and unorganized. Total market has grown by 9% CAGR over the last 5 years. Organized market has grown fastest. Standalone organized outlets have grown at 13% and chain restaurants have grown at 18% The unorganized market constitutes 62% of the total market. However, this is on a declining trend. Right from 69% in Financial Year 2014 versus currently 62% in Financial Year 2019. 

Out of the organized market, quick service restaurants which we were talking about earlier holds 46% of the market which has grown fastest by 18% over the last 5 years. It’s close cousin casual dining restaurants, hold 34% of the market and has grown by 15%.

Let’s talk about Burger King! A company that has given Mumbai a VIDESHI Vada Pav!

Burger King was founded in 1954 in the United States and is owned by the Burger King Corporation, a subsidiary of restaurant brands international inc. Burger King has a global network of over 18,000 restaurants in more than 100 countries.

Burger King India has a master franchise and development agreement with Burger King Asia Pacific, which is an affiliate of Restaurant Brands International Inc. The master franchise agreement is valid until December 31,2039. The company operates in the QSR segment and was a late entrant in the Indian markets. It opened its first restaurant in November,2014. And now the company has 216 company owned and 8 sub franchised Burger King restaurants spread across 16 states and UTs and 47 cities across India.

You will be surprised to know that 60% of Indians eating out are millennials. Add to it increased internet and smartphone penetration, or we can say it’s the Jio effect. Plus, the menu of burger king is not heavy on the wallet too. For instance, the company has a lot of products which are under Rs 100 and runs promotions like 2 crispy veg burgers for Rs 69. The incremental pricing between products is also kept low – 10-20 Rs, this enables the customer to upgrade easily. 

The combination of tech and food is going well for Burger King right now. As it files for an IPO. This simply indicates the confidence of private investors in the food service business of India. It’s for the millennials, by the millennials and of the millennials.

Although all is not well in the food services business. Few months ago, we witnessed the tragic death of VG Siddhartha, the founder and CEO of Café Coffee Day. Apart from the fact that the company never made a profit and was buried in debt, people actually came out and refreshed their memories about the first time they had a coffee in a CCD outlet either with a friend or someone special. CCD certainly changed the way Indians consumed coffee.

CCD was the place which showed millennials the experience of drinking a coffee. Starbucks too is riding a similar wave. Different versions of coffee and its pricing is something baby boomers wouldn’t have thought about in 1990s or early 2000s. Spending Rs. 500 on a coffee is now an experience. Consider the most popular Starbucks at Fort which was the first store in India for the company, it has spent a fortune on its interiors. When you compare it blatantly with some South Indian restaurants that have filter coffee, you would look at me and say, come on – there is no comparison. The coffee is completely different, right from its brewing technique to the flavors, it’s a different world. But for baby boomers who were born in 1960s, a cup of filter coffee equals a latte or a mocha. That’s the gap!

Quick service restaurants are here to stay. There is no going back. Technology has changed the way we approach our food completely. Swiggy and Zomato are simply giving the QSRs the much required push that they are about. Millennials will spend their money. Weekends will be about fun with friends and not about staying at home and cooking dinner for family plus relatives. The World is much closer now due to internet where QSRs can market themselves and millennials can reach out to experience something new, something different. Money is not about saving anymore, it’s about YOLO – you only live once!

Please note: We don’t recommend any investment in Burger King and neither do we hold any position in Café Coffee Day or have recommended to anyone in the past. This blog is for information purpose only and not an investment advice. We only talk about the trends of these industries and what sort of impact it has on our lifestyle and personal finances.

– Jinay Savla