Indian Fast-Foods Segment Will Touch $1.1b By 2016

India’s growing appetite for pizzas, burgers and French fries served with a side of rapid urbanization is set to swell the size of the country’s fast-food market to double its current size by 2016.

According to a report published by Crisil, the Indian unit of Standard & Poor’s rating agency published in 2013, the fast -food segment will be worth 70 billion rupees ($1.1 billion) in three years, largely driven by a surge in growth in the market share in smaller cities across the country.

Global fast-food giant McDonald’s set up its first store here in 1996 paving the way for many international chains, which have adapted their menus to local tastes.

For several years the chains were mostly confined to bigger cities and metros. However, with rising disposable income, changing lifestyles and eating patterns, Western-style fast-food chains are now penetrating at a faster pace into smaller cities, the report said.

Annual spending on fast-foods, such as burgers and pizzas, by middle-class households in these smaller cities is expected to surge by 150% to 3,750 rupees a family over the next three years, compared to 60% growth in metros and other big cities, the report said.

“This quantum jump in urban areas will be propelled by the increase in nuclear families and working women, steady growth in incomes, greater accessibility,” said Prasad Koparkar, senior director at Crisil, in the report.

In value terms, sales of pizzas, burgers and sandwiches account for about 80% of the domestic fast-food sales. Global brands currently have an aggregate market share of about 63% of the fast-food restaurants segment.

The move to localize the fast-food options – McDonald’s here does not serve beef or pork in line with religious customs in the country – has paid rich dividends to the global companies and helped them increase their customer base here.

Growth in sales of high-fat fast-foods has also expanded the population’s waistlines. India’s National Diabetes, Obesity & Cholesterol Foundation based in New Delhi says on its website that with the improved economic situation in the country, obesity rates are showing a marked upward trend in adults.

A study of school children conducted by the foundation in Delhi in 2011, found that between a quarter and a third of them were eating fast food, such as pizzas and burgers, more than two to three times a week.

With the U.S. fast-food market becoming increasingly crowded, many chains are looking to emerging economies for long-term expansion. Pizza company Dominos’ fastest-growing market is India, where it has several hundred outlets. The chain has one fifth of the market share in the Indian fast-food segment, while sandwich company Subway and McDonald’s have just over 10% each.

Over the next three years, new store additions by fast-food companies selling Western-style food will increase by 16%-18% annually — nearly half of those will be in smaller cities, the Crisil report said.

“Large players have already established a strong brand and are better-placed to take advantage of the lower lease rentals and limited competition that smaller cities offer,” the report said.

Currently these cities account for only a quarter of total stores.