Indian restaurant industry growing steadily, aided by GST

02 July 2018 5 min. read
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A new report published by professional services firm Grant Thornton has revealed that the Indian restaurant industry is on a rapid growth trajectory, with nearly 50% of the restaurants in India’s key urban centres looking to expand into markets across the country.  The newly implemented Goods and Services Tax is a major contributor to this positive sentiment.

Rapid economic growth is inevitably accompanied by a growth in the consumer market, as levels of disposable income register an increase. India’s economy is currently developing at a rapid rate, and some key characteristics of this growth have included gravitation towards urban centres and a growing middle class.

Alongside an increase in retail activity, a growing consumer market also entails growth in the food & banquet sector, which includes the entire restaurant industry. At a set of events held in Mumbai and Bengaluru by the National Restaurant Association of India (NRAI), global accounting and advisory firm Grant Thornton obtained responses from various stakeholders in the industry to gain insights into the trends and plans for this economically charged environment.

The survey revealed that most restaurant owners in the two financial centres have aggressive growth strategies in the near future, although with differing priorities. In Mumbai, for instance, 43% of owners said that they have strategies in place for expansion at a global scale, compared to just 17% in Bengaluru, where respondents were slightly less ambitious.

Expansion strategies in Mumbai and Bengaluru

When asked about Pan-India growth strategies, both cities displayed a similarly high degree of ambition, with 46% of the respondents in Mumbai having such plans in place and 45% in Bengaluru with the same. 29% of the respondents in Mumbai have plans to expand within their region, and an identical number are considering diversifying their cuisine. These figures stand at 24% and 14% respectively for Bengaluru.

Nevertheless, perhaps a diversification of cuisine would be a prudent strategy going forth, given the shifting consumer preferences that were visible in the consulting firm’s findings. 34% of the consumers in Mumbai expressed a preference for multi-cuisine restaurants, while 24% in Bengaluru said the same.

34% of the respondents in Mumbai also indicated a preference for global cuisines, compared to 31% in Bengaluru. The most significant consumer trend, however, is a gravitation towards healthy and organic foods, particularly in Mumbai, where 54% now prefer the former and 40% extend this preference to organic foods. In Bengaluru, 52% prefer to eat healthy, although only 17% care if it is organic.

Priorities in selecting a restaurant

When asked about the factors affecting the selection of a restaurant, most respondents naturally considered the quality of food to be the most important determinant, at 77% and 69% for Mumbai and Bengaluru respectively. The location of a restaurant was the second most important factor, emerging as a slightly higher priority in Bengaluru (59%) than for Mumbai (57%).

The pricing of a restaurant is a more substantial determinant in Mumbai, at 60% of the respondents, compared to 52% who prioritise pricing in Bengaluru. Other factors that ranked high up on the list include the ambience of a restaurant, its menu and cuisine, the offers available (higher in Bengaluru) and whether or not alcohol is served.

The GST effect

Aimed at simplifying the business environment in India, the Goods and Services Tax (GST) came into effect this year, bringing the wide range of central, state, and administrative taxes in the country under one umbrella taxation system. Since its implementation, businesses in India have been scrambling to readjust their administrative structures to make them more streamlined.

The GST effect

Most restaurant owners (70%) feel that the GST is a positive development overall, particularly as it goes a long way in preventing tax evasion. The grounding of the tax in technology has also led many to laud the ease of complying, while a large portion of restaurant owners feel that it will help reduce litigations.

Biren Vyas, Partner at Grant Thornton India, summed up the GST effect by saying, “GST introduction and implementation in India throws short term challenges. Over a period of time, it will certainly yield positive results, especially for the restaurant industry, which is largely dominated by unorganised market players not registered under any law. These players will be forced to regularise for sustainability and growth. Further, simplified tax structure and transparent approach would also help in gaining trust and confidence of such unorganised players.”