Quick service restaurant chains, such as Domino’s and Pizza Hut, reported a fall in their same-store sales in Apr-Jun for the first time in years, but the pain is likely to get worse in the ongoing quarter, going by management commentary.
The quick service industry in India is struggling as consumer demand has decelerated further during the ongoing quarter, according to a report prepared by HDFC Securities after interacting with the management of Jubilant Foodworks. Jubilant Foodworks is the operator of India’s largest quick service restaurant chain - Domino’s - as well as smaller chains like Popeyes, and Dunkin’ Donuts.
“Signs of stress on demand are witnessed even in tier 2/3 cities with mall food courts wearing a deserted look,” said the report, based on feedback from the management of Jubilant Foodworks.
Jubilant Foodworks is not alone in facing the cold gusts of inflation that has dampened demand and increased production costs. Others, such as Devyani International, Sapphire Foods, and Westlife Foodworld, have also reported stress in recent days due to an overall environment of rising prices and falling discretionary spending.
“We interacted with Mr. Sameer Khetarpal, the CEO of Jubilant FoodWorks, to understand industry demand and company strategy. According to him, the QSR industry demand continues to decelerate and recent trends are tougher than witnessed during the last six months. The pressure is across markets, brands, and formats,” the HDFC Securities said.
The broker also noted that such chains have reported decelerating same-store sales growth over the past few quarters. In the Apr-Jun period of this year, that figure finally turned negative.
However, the bad news may not be over as yet, the analysts said. “Further signs of stress on demand are witnessed and we expect further weakness in growth metrics – same-store sales growth and average daily sales in Q2FY24,” it added.
One additional month of Sawan – the rainy month – is expected to further dampen sales in the current ongoing quarter.
Recovery Soon?
The analysts noted that the industry is hopeful for recovery in the third quarter (Oct-Dec), but said they did not share the optimism.
“We do not expect a quick bounce-back. We have generally noticed a slightly slower recovery for QSR historically as the consumer sentiment and frequency do not change immediately,” they said.
This is because the major factor contributing to the fall in demand and growth is the rising inflation in the country which has caused consumers to opt out of expensive food items and look for more affordable options.
With dairy costs on the rise, categories of fast food items like pizza have lost their popularity as people have started looking for more value-for-money options on the menu.
This is of huge concern to major pizza brands like Dominos which comes under the management of Jubilant Foods in India.
Other factors including seasonal factors such as festivities in the country have also contributed to the fall in demand for quick service restaurants.
Another major quick service player in India, the Devyani International Ltd, expects a quick bounce back and a comeback of the industry by the second quarter of the financial year, with a change in the inflationary environment and events such as festivals and the cricket World Cup coming up.
Coping Strategies
Jubilant Foodworks aims to implement several strategies to cope with the current downfall in demand. The company has decided not to give up on pizza as it remains one of the popular fast food categories among Indians. Instead, Jubilant Foodworks plans to introduce more affordable options in the pizza category like the Pizza Mania at Dominos which starts at Rs 49.
The company is set to work on regionalization of menus to enhance consumer experience across the country. It is also working on its combo offerings which has proven helpful in arresting ticket size decline in the last couple of quarters.
Coming to the store expansions, the company remains confident of its goal of opening 3,000 stores in the mid-long term. Recently Jubilant Foodworks has come up with specialized container stores near education campuses, which is gaining traction.
With Popeyes, the company has also been able to make an entrance into the fried chicken category which had remained dominated by major players like KFC. The franchisee remains confident of scaling up Popeyes as its use of bold Cajun spices could be suiting to the Indian palet.
Other major quick-service restaurant players in India like Devyani International, Sapphire Foods etc. have adopted strategies similar to that of Jubilant Fodworks to combat the ongoing scenario.