Battered by high raw material prices and spending cuts by customers, India’s fast food chains had been holding out one last hope in the form of a year-end boost to sales during the festive season. However, going by restaurant visits by Nirmal Bang analysts, those expectations too have been belied.
“Overall, we did not observe any major uptick in demand on account of the festive season. Sales during Navratri were down and while there was an increase pre-Diwali, there was no material uptick over the last year’s festive season demand as expected earlier,” noted analysts Krishnan Sambamoorthy and Sunny Bhadra from Nirmal Bang after their visits.
Among the chains visited by the duo were McDonald’s outlets operated by Westlife Foodworld, Domino’s restaurants operated by Jubilant Foodworks, and Burger King outlets operated by Restaurant Brands Asia.
These companies had seen a sharp decline in their sales growth – with some even seeing year-on-year declines – in the last several months due to an “increase in the number of vegetarian days” and rising inflation which had a duel impact on these businesses- one being the raw material price hike that led to an increase in product prices, and other being the lack of disposable income for consumers to spend on discretionary spending.
Hence, they were eagerly looking for revival in the final three months of 2023, banking on festive celebrations and high-profile sports events such as ICC World Cup to revive their fortunes.
“..the festive season should change the perception of consumers.. and allow us to have the right moment in the coming few weeks,” the management of Westlife Foodworld had said on a post-quarterly earnings call in October.
However, the reality has turned out to be very different, according to the analysts.
Meanwhile, ICC World Cup emerged as a little relief with an uptick in delivery sales for some stores on days when India played. Some companies like Westlife Foodworld and Jubilant Foodworks had also run match-specific offers like free sides, free pizza on minimum order value, combos, etc…
At the same time, noted the report, “a few ‘Dine-in only’ mall stores indicated that the ‘footfall-to-counter’ was lower”, thereby hinting at a not so favorable dine-in sales during the World Cup despite the offers.
Among the companies assessed by the broker, Westlife Foodworld turned out to be the least affected by the demand decline. The broker attributes this to “its stronger value proposition.”
“We continue to remain positive on Westlife Foodworld considering its strong product portfolio at various price points across day parts. Also, being an omni-channel brand, the company has outperformed its peers for the past several quarters and we expect the relative momentum to continue,” said the report.
On the other hand, Jubilant Foodworks and RBA impressed the analysts the least as they remain skeptical about the companies making any progress even if the inflation is to come down, considering “the continuing weak trends in their sales.”
Coming to sales recovery, though December is considered a good season for demand to pick up with Christmas and Newyear coming up, Nirmal Bang Securities feels that the current slowdown may take some time to recover.
“We expect things to only improve gradually from here on as the macro environment stabilizes, inflationary pressures wane off, and willingness to spend on discretionary consumption increases by middle-income consumers,” said the broker.