As pizzas sizzle under inflation, burgers & sandwiches step in for the rescue
While inflation can have varied repercussions on the country’s economy, there’s one food item that is definitely feeling the heat: After driving the growth of India’s fast food industry for several years, high inflation seems to have finally cooled down the pizza mania in India.
Going by a report prepared by ShareKhan after talking to the management of Devyani International – which runs chains such as Pizza Hut, KFC and Costa Coffee in India – pizza consumption has taken a knock in recent weeks in India.
However, the broker added that their interaction with the management “restored their confidence” in the long-term growth prospects of pizza-based quick service restaurants. Quick Service Restaurants or QSR refers to chains that sell standardized food items such as Domino’s, KFC, McDonald’s and Pizza Hut.
“The current slowdown is the temporary blip affected by an inflationary environment impacting the same-store sales for the past few quarters as the consumers shifted to value-for-money options such as burgers/sandwiches compared to Pizza or lower value product in the category itself affecting the overall ticket price,” the broker said in a note to clients after the interaction.
To reinforce the point, the analysts pointed out that there has been no drop in the number of customers and transactions, even though the total spending on pizzas has fallen.
Devyani International is one of the leading Quick Service Restaurant (QSR) franchisees in India with popular brands such as KFC, Pizza Hut etc.
With the QSR segment, pizza is the largest category and has been seeing continuous growth with an increase in consumption and new store additions. However, the growth has moderated in the past few months as consumers have started looking for more affordable QSR options than Pizza.
However, the DIL expects this trend to be short-lived and pizza consumption to see a good pick up in the next quarters of the financial year with a receding inflationary environment and a fall in the prices of cheese, chicken and oil.
“Cheese prices have been stabilising in the past few months and are expected to remain steady in the near term. This should provide some boost to margins in the second half of the financial year.”, says the report by ShareKhan.
The QSR industry as a whole has been seeing a dip in growth due to rising inflations. It had registered a robust growth of 58% in the financial year 2023 after staying mostly dull during the pandemic infused the previous two years. The momentum has slowed down in the past few months of the financial year 2024, thereby causing a moderate growth in sales from existing stores.
Continued Optimism
The current slowdown notwithstanding, Devyani International’s management seemed confident of a comeback and long-term growth in the industry, Sharekhan said.
The company therefore plans to maintain its focus on adding new stores. It believes rapid urbanisation, improving infrastructure and rising acceptance among the millennials in India will provide good opportunities for domestic QSR players, the broker said.
“The company has multiple strategies in place, including aggressive store openings, focusing on the flagship stores with higher ADS for Pizza Hut, improving the penetration of KFC, and developing the Costa brand, which will aid in strong revenue growth in the medium to long term.”, noted the report.
Overall, the company plans to raise its total store count to 2,000 by 2026 from around 1300 at present.