Industry leaders are now calling for policy interventions to ease financial pressures and drive sustainable growth, particularly in Tier 2 and Tier 3 cities.
New Delhi: The Quick Service Restaurant (QSR) industry in India is facing a crucial moment as it awaits the Union Budget 2025. The sector, which has witnessed rapid growth due to increasing urbanisation, evolving consumer preferences, and the rise of food delivery platforms, is grappling with challenges that affect its profitability and expansion, brand representatives told IndiaRetailing.
Rising operational costs, high Goods and Services Tax (GST) rates, expensive sustainable packaging, and regulatory hurdles are weighing down QSR businesses. Industry leaders are now calling for policy interventions to ease financial pressures and drive sustainable growth, particularly in Tier 2 and Tier 3 cities.
Rising costs squeeze margins.
One of the biggest concerns for QSR operators is the surging cost of raw materials and packaging. Inflation and fluctuating prices of vegetables, dairy, and grains have made it difficult to maintain profitability without passing the burden onto customers. The sharp increase in costs over the past year has been particularly challenging for smaller QSR brands that operate on thin margins.
“Inflation and volatile ingredient prices are some of our biggest challenges. Long-term contracts with suppliers could help stabilize prices, but financial support from the government in the form of tax breaks or subsidies on essential commodities would provide much-needed relief,” said George Kuriakose, Founder, Bites ’n Grill.
Additionally, high rental costs in prime urban locations have become a major financial burden. Many QSR brands rely on high-footfall areas such as malls, shopping complexes, and business districts to attract customers. However, steep rents and the imposition of GST on commercial leases are squeezing margins.
“Rent is one of the biggest fixed costs for QSR brands, and with the additional burden of GST on rent, our margins have taken a hit. A reduction in GST on rentals or financial incentives for QSR businesses to operate in high-footfall areas would be a major relief,” noted Biraja Rout, Founder of Biggies Burger.
GST reduction could help
The industry has been vocal about the need for a revised GST structure that eases cost pressures. Currently, QSRs operating under the composite scheme pay 5% GST without input tax credit (ITC), while others pay 18% GST with ITC. This imbalance, industry stakeholders argue, increases operational expenses and reduces competitiveness.
“A lower GST rate for QSRs could be a game-changer. Operating on thin margins, even a slight reduction can significantly boost profitability, attract more footfall, and encourage repeat business,” said Vibhanshu Mishra, CEO, Chalu Chinese.
A reduction in GST could also make QSRs more competitive in a price-sensitive market like India. Lower tax rates would allow businesses to reinvest in improving customer experience, expanding their menus, and adopting better technology solutions.
Another issue QSR operators face is the lack of input tax credits on several essential business expenses, including rent and packaging materials. “If input tax credit were extended to rent and packaging costs, it would provide substantial relief and allow businesses to reinvest in growth,” added Sahil Arya, Director, of Fat Tiger.
Challenges in expanding to tier 2, 3 cities
While metro cities continue to drive revenues, the real growth opportunity for QSR brands lies in Tier 2 and Tier 3 cities, where disposable incomes are rising and consumer spending on eating out is increasing. However, expanding into these markets comes with its own set of challenges, including high setup costs, regulatory complexities, and supply chain inefficiencies.
“Expanding into smaller cities isn’t just about opening outlets—it requires adapting to local economies. The government should provide subsidized loans, streamlined licensing processes, and tax incentives to make operations more feasible,” said Mishra.
In many smaller cities, access to skilled labour is a significant challenge. Most QSR brands struggle to find trained staff, leading to higher training costs and inconsistent service quality.
“To bridge the talent gap, the government should set up skill development centres that focus on training individuals for the food service industry. This will help create a steady pipeline of skilled workers, making it easier for QSRs to expand into new markets while also enhancing employability in these regions,” suggested Rout.
The high cost of logistics and supply chain inefficiencies further complicate expansion efforts. Many QSR brands rely on centralized supply chains, but transportation costs to smaller cities significantly increase expenses. Local sourcing initiatives and government incentives to promote regional suppliers could help reduce costs and make expansion more viable.
Balancing costs with eco-friendly practices
Sustainability has become a growing concern in the QSR industry, particularly in light of the government’s push to reduce plastic waste. While many brands are willing to switch to eco-friendly alternatives, the high cost of sustainable packaging remains a major hurdle.
“The plastic ban has posed significant challenges for QSRs. Current alternative options are costly, with prices doubling or even tripling compared to plastic. To promote sustainability and support the industry, it would be great if the government focused on developing affordable, eco-friendly alternatives,” said Vibhanshu.
Government incentives, such as tax breaks on sustainable materials and subsidies for adopting green packaging, could accelerate the shift toward eco-friendly practices without putting financial strain on businesses.
“High-quality packaging is crucial for maintaining brand reputation, but it comes at a significant cost. Reducing GST on packaging materials would help ease this burden,” added Kuriakose.
Sustainability efforts should also extend beyond packaging. Investments in energy-efficient equipment, water conservation technologies, and waste management programs could make QSR operations more environmentally friendly. If the government introduces subsidies or grants for businesses adopting these green initiatives, it could encourage widespread adoption across the industry.
Policy support
With the Union Budget approaching, the QSR industry is hopeful that policymakers will introduce measures to support business growth. Beyond tax reductions and sustainability incentives, financial assistance in the form of subsidized loans and government-backed funding programs could help QSR brands expand operations and invest in technology-driven innovations.
“Educational workshops and consultancy services are crucial in helping MSMEs navigate government schemes. By offering clear guidance and support, these initiatives empower businesses to fully utilize available benefits, driving growth in Tier 2 and 3 cities,” said Sahil Arya.
The rise of digital ordering, cloud kitchens, and AI-driven customer experiences has transformed the QSR landscape. Many brands are investing in AI-driven personalization, automated kitchen management, and delivery optimization to enhance efficiency. Government incentives for digital adoption could further encourage QSRs to embrace these technologies and improve overall productivity.
Another critical area that requires attention is regulatory simplification. The food service industry is subject to multiple licensing requirements, inspections, and compliance norms, which can be overwhelming for new and existing businesses. Streamlining these regulations and introducing a single-window clearance system could ease business operations and encourage more entrepreneurs to enter the sector.
Sustainable Growth
The QSR industry has become a key player in India’s food service sector, contributing significantly to employment generation and economic activity. However, sustaining this growth requires a balanced approach that supports profitability while encouraging sustainable practices and expansion into new markets.
By addressing concerns related to high GST rates, input tax credit issues, sustainability costs, and regulatory complexities, the government can create a more supportive environment for QSR businesses. The upcoming Union Budget presents an opportunity for policymakers to collaborate with industry stakeholders and introduce measures that ensure long-term growth and stability.
With the right policy interventions, India’s QSR sector can continue to thrive, offering consumers better dining experiences while creating more business and employment opportunities across the country.
