By: Vivek Kaul, Head – Retail Services CBRE South Asia
Track2Realty: CBRE recently conducted a research study on more than 300 prominent global brands to identify trends on operational dynamics, expansion and extent of penetration across leading cities. The analysis reveals that while India has emerged as a prominent destination for leading retail groups as varied as food and beverage (F&B), fashion and apparel, and big box hypermarket chains, F&B retailing remains one of the most penetrated segments in terms of global retailer presence, while the hypermarket/big box retailing segment was found to be the least penetrated—largely due to legislative barriers imposed on the category.
According to the report, most F&B retailers have adopted either of the two entry strategies—franchisee or joint venture—creating strong linkages with domestic operators, and utilizing local market expertize in guiding their business operations in India. Apart from brands in the fast food/quick service restaurant (QSR) arena, global and domestic players have also established themselves across sub-segments such as specialty dining.
International brands are currently active across a number of key sectors in the Indian retail market, including fashion apparel, F&B, fashion accessories, and luxury retail. Most global retailers currently active in India, in fact, are present in the fashion apparel, and F&B categories for the most part.
A number of prominent F&B brands have already made inroads into India, and many others are in the process of doing so. Brand penetration remains non-uniform in India, however, with most global retailers continuing to remain frustrated by the rather slow transformation of the development fabric of our urban centers.
The F&B segment in India is considered relatively more straightforward for foreign firms to enter, compared to others such as hypermarkets, and cash-and-carry. A large number of global players in the segment had already established their presence in the country even before amendments to FDI regulations had been implemented.
The segment’s growth has been largely driven by encouraging demographic trends and strong consumption patterns across diverse income strata of India’s urban centers. Due to the popularity, and subsequent anticipated success of the segment, F&B brands continue to expand in India’s tier II and III towns and cities.
The top three countries of origin of most global retail brands present in India happen to be the US, Italy and UK, according to our research findings—with US brands accounting for the bulk of retailers covered in the CBRE study, comprising 30% of the total. The study showed that American brands had a dominant position in the mass market F&B category, which are currently in the process of expanding rapidly across India’s tier I and II cities.
Segment Trends
Over the past year, brands like McDonald’s and KFC have been focusing on expanding their existing retail footprint, while setting up fresh outlets across new market places. These brands also understand the potential that the large Indian retail market holds, and have been trying to localize their offerings to gain wider acceptance among Indian consumers. On the other hand, cafés such as Costa Coffee and Starbucks have generally preferred to occupy smaller spaces to maximize on per square footage revenue for themselves.
A comparative study between the global operations and the India footprint of select major F&B retailers revealed certain patterns in their store sizes and preferred city of entry. Most retailers, particularly QSRs, tend to have smaller store sizes and take-away counters due to particular consumer preferences. Typically, the average store size of global F&B brands in India ranges from 1,500–3,000 sq. ft. (carpet area), as against the average global store size of 750–2,000 sq. ft. (carpet area) for QSRs and cafés. The prominent city of entry for these brands has consistently been New Delhi; while their preferred retail format has been high streets as well as malls.
As far as the density of global F&B outlets across Indian cities is concerned, the category has a pronounced presence in tier III locations like Lucknow, Jaipur, Ludhiana, Surat, and Chandigarh, over tier I and II cities such as New Delhi, Mumbai, Bangalore, Chennai, Kolkata and Hyderabad—barring Noida and Gurgaon in the National Capital Region, which have attracted a host of prominent global F&B brands.
Preferred Entry Route
Prior to the approval of foreign direct investment (FDI) of upto 100% in single brand retail in January 2012, international retailers intending to operate in India were required to do so in conjunction with a local partner. Most brands, therefore, entered into joint venture agreements, distribution agreements or licensed franchises. Of the two entry routes, franchising has emerged as the preferred mode of entry for a large number of QSRs, since it requires lower capital investment and supports their rapid expansion strategy across multiple locations in the country.
Recent Entrants
International F&B outlets have continued to expand in 2014—both at the fast food/QSR and fine dining ends of the market. The Indian market being largely underpenetrated as far as global brands are concerned, it offers significant opportunity for growth. According to CBRE’s recent Retail Market View report, the first half of the year saw key malls in Delhi and Gurgaon continuing to garner attention from F&B operators such as American fast food chain Johnny Rockets commencing operations in the region by opening outlets at Select CityWalk, Saket and Ambience Mall, Gurgaon. Restaurant chain Chili’s commenced operations in DLF Saket and Yum Yum Tree leased space at Select CityWalk, Saket.
Even as QSR brands Domino’s Pizza and Pizza Express expanded across Mumbai, F&B brands Dunkin Donuts and Quiznos opened their outlets on Linking Road. F&B operators were the key retail occupiers of Mumbai’s mixed-use developments, with Busago and Pizza Express occupying space at First International Financial Center, Tea Trails at The Capital, and Tiffin Box at Naman Center in the Bandra Kurla Complex (BKC). Starbucks further expanded in the city by opening an outlet at Express Towers in Nariman Point.
