Sniffing an opportunity as India’s small towns get a taste of the big city experience

Sniffing an opportunity as India’s small towns get a taste of the big city experience

For dining out, ordering in, and incorporating packaged and ready-to-eat foods in their diets translates into a vastly larger demographic willing to pay a premium as consumers in tier 2 cities and beyond embrace a new lifestyle.

“The lack of vast community spaces such as parks in India has revolutionized eating out as a more common way to socialize. As a result, people in smaller cities may have a larger social need to come out and have a meal together,” Dipanjan Basu, co-founder of Bengaluru-based Fireside Ventures, said in an interview. 

Basu credited wide access to the internet for disseminating information on various products, services and amenities and bridging the gap in consumption patterns between metro and lower-tier cities. 

Also read | From beverages, processed food to medicines: How India’s spending patterns stack up

“As they show an increasing preference for convenience and healthy eating options, the availability of such products is likely where the next wave of investments will happen,” Basu said.

Fireside has invested in various food, nutrition, and health-focused startups including artisanal bakery chain The Baker’s Dozen; healthy packaged food companies Yoga Bar and Slurrp Farm; Goodbug, which focuses on improving gut health; ayurvedic nutrition startup Kapiva; and Wellbeing Nutrition.

India’s market for eating out and ordering in is expected to nearly double by the end of this decade to touch 9 trillion, according to a joint study published by IPO-bound food-delivery platform Swiggy and Bain & Co. in July. 

Much of this growth is expected to come from tier 2 cities and beyond, as well as from expanding customer base and a jump in the number of eateries.

The study detailed that the addressable customer base for the Indian food services market is expected to widen from 320–340 million now to 430-450 million over the next 6 years. This surge will be supported by macroeconomic tailwinds, including rapid urbanization and a rise in affluence.

Also read | North-East food creators get candid on cuisine

Healthy, international, premium

These shifts in the food category mirror larger changes in consumption across sectors such as personal care and fashion, Basu said. “Several micro consumption trends are beginning to emerge even within like-minded age groups, and this widens the opportunity for brands to disrupt and cater to these distinct target markets.”

For instance, consumers in urban areas are eating more frequently throughout the day but in controlled portions, and opting for cooking aids such as ready-to-eat and ready-to-cook products, as per a joint study conducted by Fireside and Thinking Forks Consulting.

The report added that consumers are becoming health-conscious and seeking products with cleaner formulations and functional benefits, willing to pay a premium for products that add significant value. 

Also read | Can alternative proteins be the food of the future?

Even in lower-tier cities, over 60% of the survey respondents said they ate healthy snacks. On a larger scale, consumers are willing to pay up to a 15% premium for healthy snacks irrespective of age or city tier.

The survey was based on 1,000 respondents across metro, tier 1 and tier 2 cities.

More than half of the respondents said they consumed some form of food not prepared at home from scratch 1-3 times a week. Tier 2 consumers (about 79%) showed the highest preference for eating out.

Consumers are also acquiring a taste for international flavours such as Japanese sushi, Korean barbecue and Mexican tacos, the survey found. 

“The taste palate of the 15-30 age group is significantly westernized compared to the rest. These are early signs of a changing taste pattern, which is encouraging several brands to incorporate more such flavours into their offerings,” Basu said, adding that these shifts enable the creation of new types of products.

Also read | The wild foods of Maharashtra

Big eat small

Broadly, even as some smaller brands that target a niche taste palette can become a platform of their own, there is immense scope for consolidation in the food space, Basu said. “While the incumbents will do their level best to add product lines of their own, they also have an acquisitive tendency in the pursuit of adding more brands within their larger umbrella.”

For instance, consumer giant company ITC Ltd acquired a 100% stake in healthy snack startup Yoga Bar while Wipro Consumer Care Ltd acquired Brahmins, a Kerala-based brand of ready-to-cook food and spice mixes, last year. 

Other examples include Marico Ltd’s majority stake in direct-to-consumer nutrition brand Plix and healthy snacking brand True Elements. 

Fireside Ventures raised $225 million for its third fund in 2022 and has invested in over 20 startups since then. It plans to back another 10-15 startups before it raises its next fund.

Also read | Fireside, Accel have a new mandate for D2C brands: beyond online

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