India's fast food chains laid low by inflation; Chicken items still in vogue

Higher prices of dairy items has hurt sales at international fast food chains in India, but a moderation in chicken prices has supported sales of fried chicken and chicken sandwiches and burgers
Amid the rise in dairy prices, sales of chicken items have remained resilient due to stable prices (Photo | KFC India)
Amid the rise in dairy prices, sales of chicken items have remained resilient due to stable prices (Photo | KFC India)

The fast food industry in India is seeing little growth amidst rising inflation, based on commentary from three of the major quick service restaurant chains at Kotak Institutional Equities' Consumer Forum 2023 held on Monday and Tuesday. 

The companies’ feedback suggested that the sector has been struggling or has remained largely stagnant for the past few months, although there has been progress in certain categories such as fried chicken, burgers and coffee. 

One area where fast food companies like Sapphire Foods and Devyani International Ltd agree is on the lack of growth in demand, which has remained stagnant during the ongoing quarter. Sapphire operates franchisees of Pizza Hut, KFC etc. while Devyani operates chains such as KFC, Vaango, Costa Coffee in India.

The companies attributed this to seasonal factors such as festivities and an increase in “vegetarian days”, noted the forum. More worryingly, demand is expected to fall further due to the inflationary environment in the country. 

The third major player in the fast food industry, Westlife Foodworld — which operates McDonalds, and McCafe in India — indicated that innovative measures such as focusing on meals surrounding chicken, burgers and coffee have helped to arrest some of the decline. It has also focussed on consumer convenience by prioritising both dine-in and delivery services. 

Chickening Out

Coming to the categories of food items, fried chicken category has shown some resilience, with KFC, Mc Spicy, MC McDonald etc. showing modest growth in the first and second quarter of the financial year. 

“...Chicken is now one of the key pillars of its menu (particularly crucial in the South) and it is adding new products like chicken wings to augment the portfolio,” said Kotak Institutional Equities, quoting the management of Westlife Foodworld.

The largest fast food franchisee in India, Devayani International Ltd, also pointed to KFC, and fried chicken in general, as its key growth drivers. 

KFC remains one of the top performers among fried chicken suppliers in India for the first and second quarters of the financial year. 

One of the main reasons for the progress made by KFC, noted by the management of Devyani International, is that it customizes the products and other factors to cater to consumers from different regions.

“KFC product range and price point offerings evolve with time and recipes differ by region as it becomes very important to customize the offerings based on the region they are operating.”

Another factor that makes KFC stand out is its fresh chicken offering as compared to the frozen format offerings by brands such as McDonald's, Popeyes etc. 

Consumers seem to prefer the taste of KFC chicken, which is marinated and processed in the store itself to most of the other brands that use pre-processed ready-made chicken.  

Chicken rolls are also gaining momentum and the fast food industry in India expects the category to grow in popularity with time, according to feedback from the managements. 

On the beverage side, a category that is making progress is coffee. “Coffee consumption is growing exponentially in India on a small base”, says the management of Westlife Foodworld which runs the McCafe, which operates alongside McDonalds. 

Costa Coffee, run by Devyani International, has breached the Rs 1 billion mark in the financial year 2023 and has made an increase of about 75% in gross margins.  

At the same time, participants at the event noted that pizza, which used to be India’s most favourite fast food category, is facing challenges with a persistent slowdown in growth and demand in the past few months. 

This is mainly due to inflation and consumers opting for more affordable options on the menu. 

Coping Strategies

Different players in the industry have adopted a variety of strategies to increase growth and business in the coming months — such as tweaking the menus and expansion strategies.

The fall in pizza consumption has affected brands like Pizza Hut and has led the franchisees to shift focus from such brands to others that offer more value-for-money options. 

An increase in the price of milk and cheese accompanied by stable chicken prices also caused people to choose the latter over pizza. 

The slowdown has also had an impact on the chains’ expansion strategies. Sapphire Foods, for example, has focused on store expansion along with setting targets for the same store sales growth. 

Devyani International is selecting the brands under its wing for store expansion according to the macro-economic situation and other trends. 

For example, considering the downfall in Pizza consumption, the company has decided to focus on allocating more stores for KFC as compared to Pizza Hut. 

Westlife Foodworld intends to focus on adding more drive-thru stores as it has seen commendable growth and better returns in the past months. The company also aims to open more stores in non-metro cities. 

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