Rajat is a senior Principal with A.T. Kearney. He is focused on advising clients in the F&B space and has led multiple end-to-end transformation programs for leading food retailers and food service companies delivering large scale, multi-phase, transformation projects with significant impact. In his over 12 years of consulting and industry experience he has worked on a variety of topics ranging across business strategy, operations efficiency, cost transformation and supply chain.
Food consumers today are different from yesterday, and still evolving. Over the years, a wide range of choices have made consumers more nuanced and detail-oriented in their preferences. Especially when it comes to eating-out, these choices get more pronounced in terms of taste, value, speed and convenience.
Considering the above, the dynamics of the food business have changed manifold. No wonder, food service players are experiencing rapid changes in the external environment, be it changing consumer preferences, increasing rentals, or the emergence of new global and Indian entrants. In this fast-paced environment, those who fail to change, will most definitely be wiped out. To look at this positively, these changes can provide opportunities for food businesses to adapt to the new paradigms and carve out a meaningful share in India’s burgeoning food services market.
The food services market is the third largest industry in India, in terms of size. The organised segment (that we are talking about here) is currently worth approximately Rs 1.1 lakh crore and represents one-third of the overall market. We expect the organised segment to grow faster than the unorganised segment and account for nearly 40 percent of the total market over next three to four years. This growth is expected to be fueled by the large young population, increase in the eating out culture, higher disposable income and increasing number of women in the workforce.
In the last few years, multiple foreign brands have entered the sector – each with its own value proposition and a choice of cuisine. As the organised food service retailers vie for the Indian consumer, they are competing against each other, and with small single-store unorganised setups that customers now have access to, thanks to online food aggregators. Due to the increasing competition, the sector has also witnessed emergence of newer business models such as dark or cloud kitchens. On the flip side, multiple smaller chains have shut shops, and there are more are in waiting.
Given the interesting contrast of high growth, coupled with intense competition, the arena exists for those who will continue to adapt. It is eventually going to be survival of the fittest.
How to carve out a ‘meaningful share’ in this growing pie
For food retailers to stay relevant in an evolving industry, it is going to be important to focus on five key themes. These themes are applicable to most segments (single-chain or multichain restaurants, cafes, quick service restaurants, casual and fine-dining restaurants as well as pubs & bars) of the organised Indian food services market. Select themes may also be relevant for players in the food-delivery segment as well.
Technology is changing the way food services companies do business. It not only helps run operations smoothly but also helps deliver a better interactive customer experience.
The food service business (inherently) has huge variability in operations (resulting from the demand) in terms of time of the year, time of the week and even time of the day (lunch and dinner slots). The key is to reduce assets as well as “sweat them” by leveraging digital concepts. Companies have started uber-ising own assets such as delivery vehicles, auto-control of Air conditioners to sharing of manpower across stores.
For instance, online food pre-ordering is one of the latest trends for dine-in retailers, which helps increase table turnover but also reduces customer wait time. For others, online ordering can help build customer loyalty through personalised offers and up-selling through “real-time” suggestive selling. Add the real time order tracking on top and it helps reduce the number of calls and the associated infrastructure.
Over last few years, technology has become the key ingredient for success in the modern food services industry. Those who do not adapt to the new ways should be prepared to be left behind.
Sustaining footfalls in an existing catchment is always tricky. Many food retailers get buoyed by the initial euphoria before entering a stable phase – be it a new store or a renovated store.
Many food retailers have reinvented themselves to offer ‘all-day dining’/snacking throughout the day. National Restaurant Association’s research showed that 72 percent of adults want breakfast items offered throughout the day.
Some deploy strategies with the focus on retaining customers longer in stores through associated benefits such as charging pods, in-store WiFi, live games, and so on. Yet there are others who have ventured into increasing menu complexity through addition of hybrid foods, thus, focusing on culinary evolution (mixing and matching) and delivering new flavor profiles.
Overall, there are three key fundamental drivers for boosting footfalls in a retail store – catchment area, penetration and frequency. One needs to understand the influencers for each of the drivers at catchment level to give store geography specific recommendations for boosting footfalls.
In most cases, this requires primary research to understand the catchment characteristics/details. Leading companies periodically invest in undertaking such analytics-driven exercises to identify and solve local/catchment issues to get themselves an extra edge.
Focus on ‘fresh and Healthy’
Today’s customer values fresh and quality foods. Many food retailers, therefore, are upgrading the quality of ingredients they use, for instance, replacing soy with whole muscle meat. Some evolved customers are even inquisitive of the source of their food and how is it prepared. So many food service companies are investing in the back-end infrastructure to source directly from farm.
On the front-end, many players now adopt “transparent kitchens” to satisfy the highly quality conscious buyer. Yet there are other consumers who are inclined towards social causes such as animal welfare. There are umpteen examples of leading players embracing this trend. McDonalds began using cage-free eggs, Chipotle went GMO-free, Hardee’s and Carl’s Jr. started offering all-natural chicken and beef.
Fitness is another key trend that is influencing chains to revise their menus to introduce salads and health fast food (meals that are less than 500 calories).
Adopt ‘lean and simple’
Profitability is the fundamental differentiator between a leader vis-à-vis those who face the threat of extinction. So, what goes between sourcing the ingredients to serving the final dish on plate largely determines the success or failure of a food service retailer. Leading companies constantly track key metrics with a clear focus to ensure high profitability.
Lowering the overheads has forced retail chains to envision lean stores with leaner corporate – Minimising non-value-adding tasks through simplification of operations (e.g. manual & administrative repeat tasks).
Many retailers are now leveraging technology solutions and high levels of automation to combat these overheads. There are others who have variablised operations, for example pay-per-hour manpower models.
Leading retailers have learnt the term ‘operational simplicity’ the hard way. One instance is McDonald’s high-concept of “Create Your Taste” customisation platform that allowed guests to customise their burgers at high-tech kiosks. The idea was discontinued after it failed to take off and was replaced by a much simpler menu of signature crafted recipes.
Create differentiation for your brand through innovative marketing techniques In such a crowded market, it is essential for food retailers to focus on creating a unique brand proposition to increase brand relevance and affinity. The key is to keep the brand communication consistent and broad-based across marketing funnel – starting with consumer awareness to the final purchase of the product.
Food retailers need to clearly define their theme – variety, taste, nutrition, customer service, cost or any other. Next step is to stay relevant for the market by incorporating themes, trends, or even mentioning a specific cultural event that helps brands stay in touch with what their fans and consumers are most likely talking about, both online as well as offline. There are examples of a few brands having done this quite successfully. For instance, an US burger giant tied up with Sony Motion Pictures for home delivery by mascots dressed as angry birds. Interestingly in India, restaurants have also adopted innovative techniques like tying up with Mumbai dabbawalas to deliver meals to increase their points of presence.
On the path to success
The path to becoming a successful food service retailer is full of challenges, but leaders in food retail business have emerged that can make this journey possible in an economical and effective manner.
An adaptive organisation that is focused on customer demands, coupled with flexible, technology-backed processes at the back-end can drastically improve its chances of being a successful food retailer. Forward-thinking firms have already upped the ante by leveraging these golden tenets and are reaping benefits by increasing their market share in this growing Indian food pie.
Therefore, the most important thing to keep in mind is that not evolving is not an option anymore.
The author is a senior Principal with A.T. Kearney.