The fast-food industry in India had a lot riding on the just-concluded festive season. For the last one year, the industry had been suffering from a double whammy of weak demand and rising prices for inputs such as dairy and vegetable oil. The festive season – which in India falls in October and November – was supposed to mark the beginning of a turnaround, at least as far as demand was concerned. In fact, such hopes gained further momentum sales started spiking in early October.
However, now that the festival quarter is well and truly over, the industry seems to be back at square one, with sales again falling back to their pre-festival lows.
“We observed softer demand particularly post Diwali and in December,” said Shyam S Bhartia, Chairman of Jubilant FoodWorks, India’s largest fast food operator and the operator of Domino’s pizza chain in the country. November, however, was strong, he added.
Disappointingly, Jubilant noted that even during peak festive season, sales were weak on days which were not special. “The performance was subdued on non-occasional days,” Bhartia said.
Rival Westlife Foodworld, which operates McDonald’s and McCafe inIndia, too said that it experienced a greater decline in sales than anticipated.
“Last Q3 in the entire retail environment has been a soft one,” said Akshay Jatia, executive director of Westlife Foodworld.
Another operator, Devyani International (DIL)– which runs KFC, Pizza Hut, Costa Coffee – also echoed similar concerns.
“Consumer sentiments remained subdued despite quarter 3 traditionally being a strong and festive quarter,” said Ravi Kant Jaipuria, Chairman of DIL.
This is hardly surprising, pointed out industry observers. Dhiraj Mistry, an analyst who tracks the quick service restaurant industry for Antique Stock Broking, said the industry continues to be hemmed in by two factors – a high base effect from 2022 and continued inflation that affects both demand and input prices.
“Last year, first time after the Covid, restaurants began opening up without any restrictions. In a way, there was a vengeance consumption. These companies are having a high base of last year, ” he said.
In addition to this, he also points at the inflationary environment that has led to people cutting down their discretionary spending.
“...the inflation has started impacting discretionary spending of consumers and because of that there is a cut in eating out frequency.”
However, it is not all bad news, as delivery continued to remain comparatively strong during the quarter.
“Delivery has become the most preferred channel driven by consumer preference for convenience,” said Akshay Jatia from Westlife.
He pointed out that even when people have been hesitant to step into McDonalds or McCafe, they continue to order from home. Through the various brands and chains operated by the company, the resilience shown by the delivery channel was consistent.
“The channel is significantly ahead of its pre covid performance and this plays to our advantage,” he added.
He also seemed confident that the industry is close to the bottom, and things will soon start looking up.
“We expect the issues to bottom out in a quarter or two…Our latest data and research suggest that demand trends have largely stabilized. Hence we do not expect incremental macro headwinds here onwards,” Jatia said.
He also added that there were also geopolitical issues that were beyond their control. The Israel- Gaza war had led some groups to call for a boycott of brands, such as McDonald’s and Pizza Hut during the quarter.
“In India demand is not every one quarter, that's how India grows. Some quarters are soft, some quarters we grow well.”
Dheeraj Mistry, of Antique Stock Broking, doesn’t see any immediate turnaround for the industry.
“Companies are being optimistic, but the demand scenario on ground has been very very soft…that will not change for at least one quarter or so..” he said.