Food Services Industry: organised growth reduced unorganised share

The Indian Food Services Industry recovered unevenly after Covid: organised operators grew 10.5% in FY23, against 2.9% for unorganised operators. The National Restaurant Association of India estimated that unorganised operators held 58% of FY23 industry value, down from 65% in FY19, while remaining the larger segment.

How did organised restaurants take share after Covid?

Organised restaurants took share because their FY23 growth rate of 10.5% was 7.6 percentage points above the 2.9% rate reported for the unorganised sector. The National Restaurant Association of India, or NRAI, estimated that unorganised operators represented 58% of Food Services Industry value in FY23, compared with 65% in FY19. On the remaining-share basis, organised operators' share rose from 35% to 42% over the same period.

The shift followed lockdown disruption rather than a uniform recovery. NRAI's Covid Impact Report 2021 found that around 25% of restaurants reported closures during the pandemic. The report says many unorganised operators closed because they lacked access to funding, while consumer preference moved towards brands associated with hygiene and quality standards. Those conditions gave operators with established brands and operating capacity a different starting point when restrictions eased.

The 58% unorganised share means local restaurants and food stalls continued to account for most Food Services Industry value in FY23. The reported change is therefore a shift in market mix, not a reversal of the sector's fragmentation. Further organised-share gains would depend on the FY23 growth gap continuing, rather than reflecting only the immediate post-pandemic reopening period.

How far had the Food Services Industry recovered by FY24?

The Food Services Industry reached an estimated Rs 5.308 lakh crore in FY23, growing 5.7% in that year, and reached Rs 5.69487 lakh crore in FY24. NRAI had projected FY23 value of Rs 5.99784 lakh crore at a 9.1% compound annual growth rate, or CAGR, before the pandemic. Its 2021 Covid Impact Report revised the FY23 expectation to Rs 4.89624 lakh crore and a 3.7% CAGR.

FY23 value was therefore below the pre-Covid projection but above the revised pandemic-era estimate. NRAI describes a severe FY20 contraction, when the industry reached Rs 2.00762 lakh crore against a projection of Rs 4.95993 lakh crore. The report says demand began reversing the decline by early FY21 and retained moderate growth in FY22, although it does not provide an FY24 split between organised and unorganised growth.

NRAI links the wider recovery to more frequent dining out after lockdown restrictions and pandemic fears eased. It also identifies demand growth in cafes, quick service restaurants and cloud kitchens. A quick service restaurant, or QSR, is a format focused on fast service, while a cloud kitchen is a delivery-oriented food-preparation operation without a conventional dine-in format. These formats were positioned to serve both restaurant and delivery demand.

Why did restaurant operators recover at different rates?

Restaurant operators recovered at different rates because delivery readiness, access to funding and format exposure were uneven. NRAI says restrictions on public gatherings and safety concerns pushed operators towards delivery services during the pandemic. QSRs and cloud kitchens gained popularity, while full-service restaurants adapted their home-delivery models.

The report estimates 6.6 crore food-delivery-platform users among India's urban population and says this base grew at a mid-double-digit rate during the preceding two years. Most users were in India's top nine cities, although demand extended across more than 300 cities. Operators seeking delivery revenue had to manage packaging, menus that travel well, order fulfilment and, in some cases, changes to restaurant layouts.

NRAI's estimated post-pandemic format ranges show the variation. Cloud kitchens were estimated to grow 30% to 40%, the highest range cited. Cafes, QSRs, and desserts, ice creams and bakeries were each estimated at 15% to 20%; fine dining was estimated at 10% to 15%; casual dining at 5% to 10%; and pubs, bars and lounges at 0% to 5%.

The format ranges are not a forecast for organised operators as a whole, but they identify why broad segment averages can conceal different outcomes. Restaurant operators cited post-pandemic growth estimates ranging from 7% to 8% to as high as 30%, while NRAI described a roughly 10% to 15% medium-term rate for 2019 to 2024. The variation was linked to formats and geographies, including expansion outside major metropolitan areas.

What must hold for organised growth to remain faster?

Organised growth can remain faster only if operators maintain delivery, brand and operating capabilities while managing costs identified by NRAI. The report says restaurants are investing in digital menus, mobile apps, online reputation management and consistent branding across digital and physical customer touchpoints. These tools can support discovery, ordering, reservations and customer-data collection, but require expenditure on technology, packaging and operations.

Goods and Services Tax, or GST, is a material cost mechanism in the report. In November 2017, the GST Council reduced restaurant tax liability from 18% to 5%, while generally removing eligibility for input tax credit, or ITC. ITC allows businesses to offset GST paid on inputs against their tax liability. The report identifies input GST of 18% to 28% on raw materials, rent, heating, ventilation and air-conditioning equipment, delivery-platform commissions and manpower services.

NRAI estimates that the absence of ITC increases aggregate operating expenditure and capital expenditure by 15% to 20% for affected operators. The stated exception applies to restaurants in hotels with room tariffs above Rs 7,500 a night, described in the report as essentially five-star hotels. The cost effect can influence margins, expansion decisions and the funds available for technology and delivery investment.

Delivery-platform concentration is another disclosed constraint. Restaurateurs cited by NRAI describe Zomato and Swiggy as a duopoly with high commissions. The Government of India's Open Network for Digital Commerce, or ONDC, is intended to establish common standards and protocols for e-commerce transactions; NRAI presents it as a potential lower-cost alternative, not as a measured reduction in commissions.

Conclusion

The Food Services Industry's FY23 recovery changed its market structure as organised operators grew 10.5%, compared with 2.9% for unorganised operators. That divergence coincided with a 7-percentage-point fall in the unorganised share between FY19 and FY23, even as unorganised businesses retained 58% of industry value and accounted for 75.9% of FY24 employment.

The next point to watch is whether later segment data retain the FY23 growth gap. NRAI reported industry value of Rs 5.69487 lakh crore in FY24 and estimated direct employment of about 85 lakh people that year, rising to 1.03 crore by FY28. The unresolved factors are whether GST-related input-tax costs, delivery commissions and operational investment needs permit organised operators to continue expanding faster.