After several months of repressed demand, Westlife Foodworld, the operator of McDonald's restaurants in West and South India, is expected to see a revival and improvement in its sales during the third quarter of FY 2024.
The fast food operator was hit by a slowdown in sales due to high inflation in the June quarter. However, it is on a path of sustained growth with the success of its new strategy of value meal, sustained traction in the chicken business in the South and the ability to provide an all-day menu across breakfast, snacks and meals, said analysts from Prabhudas Lilladher.
The broker also cut the company's estimates for the current and next financial year by 8% and lowered the stock to 'hold' rating from 'accumulate'. Despite this, the broking firm increased the target price to Rs 958 from Rs 932.
The broker also added that Westlife Foodworld is looking at the makeover of McCafe with more food options and accelerated innovations to drive sales in the ongoing quarter. This strategy will focus on its core segments of burgers, chicken and coffee, and this is expected to provide sustained traction in the festival season.
In June this year, McDonald’s introduced Rs 179 value meals which continues to bring in incremental footfalls led by the increase in order frequency for the same.
“However, WFL does not have any plans to dilute pricing in value meals,” noted Prabhudas Lilladher.
WFL is also looking at increased menu innovations in the burger and chicken category in the coming quarters.
“McCafe is exploring a new look, new price points and menu innovations to compete with other standalone café chains,” said the analysts.
Second quarter troubles
Meanwhile, the company is likely to report an underwhelming set of numbers for the second quarter due to a fall in demand , triggered by high inflation.
“Demand has come under stress in the second quarter due to inflationary pressure with QoQ dip in consumer frequency of eating out which is likely to impact SSG,” said analysts from Prabhudas Lilladher.
Inflation-weary customers pulled back their restaurant spending during the second quarter, just as they spent less than expected at fast-food chains.
Even as the fast-food chains appealed to the consumers with value means and discounts trying to draw in customers across the income spectrum, there is still a dip in consumer frequency.
Generally, the fast-food sector fares better than the rest of the hotel industry during times of economic uncertainty.
However, Westlife is observing an increase in competition from the unorganized sector first time post covid.
With inflation remaining at elevated levels consumers seem to be downtrading and moving towards lower-valued meals offered by the unorganized sector.
Westlife Foodworld reported a smaller-than-expected rise in first-quarter profit as higher expenses took the shine off increased sales.
The April-June quarter results for fiscal 2023-24 (Q1FY24) on July 27, reported a consolidated net profit of Rs 288.3 crore, compared to Rs 235.7 crore in the corresponding period last year.
Whether this quarter's results are an indication of faltering giants or simple hiccups, only time will tell.
India is reeling under rising prices of essentials including tomatoes and cheese, prompting restaurants to roll out new strategies to protect margins and increase sales amid high inflation.