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MOSL: FOOD SERVICE INDUSTRY – THEMATIC: Bon Appétit; Strong tailwinds for organized FSI players

FOOD SERVICE INDUSTRY – THEMATIC: Bon Appétit; Strong tailwinds for organized FSI players

 

Huge opportunity in FSI with organized players growing faster

• The INR4.2t (USD58b) Indian Food Sevice Industry (FSI) is expected to grow by ~9% CAGR over FY20-25E. Its drivers include: a) rising income levels, urbanization, and nuclearization, b) innovative offerings that appeal to the youth, and c) the changing dynamics of the space, with the growth of online food delivery and food tech.
• Within FSI, organized players are growing faster than the industry, with the companies covered in this report growing even faster. Over FY20-25E, the organized industry is expected to deliver 15.4% CAGR, while the companies in this report are expected to deliver an aggregate sales CAGR of 18.5%.
• The contribution of organized FSI players has increased to 38% in FY20 from 29% in FY15 and is expected see its share increase to 50% by FY25E. 

Improved prospects post-COVID

• The organized Indian FSI is witnessing enhanced growth prospects post-COVID, led by: a) sustained high delivery levels compared to the past aided by increased technology adoption by consumers; b) incrementally strong gains from unorganized peers, led by closures of 30-40% the restaurants; c) evident move towards more trusted brands, with better hygiene standards; d) accelerated store expansion by organized players; e) favorable cost outlook (especially on fixed costs – lease rental and employee expenses) by variablizing them; and f) increased supply of real estate, due to closures of restaurants and other retail players, making it attractive for the survivors to expand their store networks.
• With the improved opportunity, several players like JUBI and WLDL have raised their potential number of stores and annual store addition targets.