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Aug, 2021     

Forget the IPO, India’s food services market is still underpenetrated and unorganized

With the right tailwinds, online penetration of food services is set to become 2x by 2025


Despite the hullabaloo around foodtech in the past few months, India’s food services still remain unorganized and underpenetrated when compared to markets like US and China.

But, the market is seeing a shift from unorganized to organized with increased access to the internet and awareness about enhanced lifestyles, consumer tastes and preferences are evolving. Concurrently, the online segment is also significantly growing as players are innovating on offerings, themes and business models to adjust to the evolving needs of the consumers. Here we have captured how the existing scenario is changing and what lies ahead.

1. India’s food services market is massively under-penetrated when compared to US and China

Yes, while foodtech services are doing IPOs and raising big bucks, the domestic market still lags behind in the food services market when compared to global counterparts which means there is a lot of scope. However, the market is continuously growing with a number of drivers like- India is expected to be the 3rd largest consumer market by 2030 which will be a major boost for overall consumer economy, increasing growth of online food delivery with more digital adoption, penetration in smaller cities, growth of the branded food services ecosystem, aggregation of standalone restaurants by the online platforms, changing lifestyle and increasing participation from younger generations.

2. The market is shifting from unorganized towards organized with online segment growing and increasing participation from Tier 2+ cities

Although the market largely remains unorganized the good news is that there is a shift towards the organized side and the growth of it is expected to be 14% by 2025 while on the other hand, the unorganized segment will see a mere growth of 5%. The organized segment is also seeing a higher growth as with increased access to the internet and awareness about enhanced lifestyles, consumer tastes and preferences are evolving. Concurrently, the online segment is also significantly growing as players are innovating on offerings, themes and business models to adjust to the evolving needs of the consumers.

3. Further, there is an increasing willingness to increase online food ordering, across consumer cohorts and city-tiers

Moreover as the online adoption is growing, consumers are now finding these services more reliable and a growing inclination to order from these platforms. Research shows that all the cohorts will grow significantly except family.

4. Restaurant Partners too are more optimistic about online orders, going forward

Note(s): 1. Weighted average of metro and non-metro restaurant orders

Further, even on the partner side there is a growing optimism about online orders as they are seeing a growing demand both in metro cities and non-metro cities. This will give a huge boost to all the platforms in the sector.

5. With the right tailwinds, online penetration of food services is set to become 2x by 2025

Note(s): 1. Include order volumes of all online food delivery players in India – aggregators and independent cloud kitchens and branded food services players

Although the market was hit by the pandemic, it has also accelerated the pace of online adoption. Similar to many other markets, this market is also seeing a rising online growth especially post Covid, and it is gaining prominence in the overall share of the market and is expected to grow 2x by 2025 which means it will likely clock a GMV of ~USD 13billion by 2025.