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<ul><li>While QSRs have been growing aggressively in the last two years, few have been concentrating on dine-in experiences.</li><li>Only McDonald’s run by <keyword id="15483921" type="General" weightage="20" keywordseo="Westlife-Foodworld" source="Orion">Westlife Foodworld</keyword> in India has gained from the trend as it focussed on omnichannel strategy.</li><li>The pizza category – where the product is designed for delivery – suffered the most as dine-ins gained popularity.</li></ul>Indians are wanting to step out for their meals, and that’s hurting quick-service restaurants (QSRs) as well as delivery apps equally. So much so that Swiggy has recently announced that it’s integrating its dine-out offerings onto its platform across 24 cities, allowing users to access discounts as they book via the app. While QSRs have been growing aggressively in the last two years – with a large number of new store openings – few of them have been concentrating on dine-in experiences. And only one chain – McDonald’s run by Westlife Foodworld in India – has gained from the trend as it focussed on the post-pandemic retail trend of an omnichannel strategy. “McDonald’s (Westlife) reported a 20% y-o-y same-store sales growth (SSSG), largely driven by higher guest count and average order value, due to its meals and omnichannel strategy,” said a report by BNP Paribas on the company’s third quarter results. A Credit Suisse report had said last month that McDonald’s offers more meals – across breakfast, coffee and chicken apart from burgers and sides. A larger menu is best suited to bring in footfalls through the day. “Westlife/McDonald’s reiterated their preference for the larger-size, longer-lease store model, which they have successfully figured out; the rest of the listed universe has pivoted to a smaller -store format,” said Credit Suisse. Pizzas: Undelivered growth The pizza category – where the product is designed for delivery – suffered the most. The franchises that run Pizza Hut – Sapphire and <keyword id="142256" type="General" weightage="20" keywordseo="Devyani-International" source="Orion">Devyani International</keyword> – saw a sequential fall in SSSG by 4% and 6%, respectively. Jubilant that runs Domino’s showed almost flat SSSG growth sequentially. “Softer demand continued in the pizza category owing to larger delivery salience, relatively higher penetration and elevated competitive intensity. Pizza Hut posted a q-o-q (quarter-on-quarter) decline in sales, while Domino’s reported flat like-for-like growth of 0.3% y-o-y,” said BNP Paribas. Like-for-like or LFL growth is a metric that indicates revenues of stores with similar characteristics, omitting outliers. KFC witnessed a decline in its ADS (average daily sales per store) both sequentially and year-on-year (y-o-y) due to weak consumer spending and incremental store additions in non-metro cities that typically have lower ADS. While 35% of sales for Domino’s comes from on-premises, for McDonald’s that percentage stands at 52%, for Pizza Hut it’s 41% and for KFC it’s 54%. Moreover, almost all QSRs have been expanding their store numbers but reducing store sizes to make them delivery friendly. So much so, even Pizza Hut, which had started off as a dine-in brand, had changed its strategy to focus on delivery in the last few years to catch up with its closest competitor Domino’s. <div type="image" title="QSR report" msid="98201473" hostid="261" sizebytes="29596"></div> Then there is the slowdown… Apart from changing preferences, Indians also seem to be re-thinking their discretionary spends – which is also eating into <keyword id="6517640" type="General" weightage="20" keywordseo="QSR" source="Orion">QSR</keyword> business. “The slowdown in discretionary consumption, especially post Diwali, has dampened the strong demand sentiment that QSR players witnessed in the past few quarters. This is attributed to rising inflationary pressures, a cut in household expenses and consumers’ down-trading behaviour,” said a report by BNP Paribas. Moreover, the growth that a majority of consumer companies have foreseen might turn out to be a mirage. “The growth rate for food delivery has slowed down versus our projections (along with many peer companies globally). This meant that we needed to revisit our overall indirect costs to hit our profitability goals,” said Swiggy co-founder and CEO Sriharsha Majety on <a href="https://www.businessinsider.in/business/startups/news/swiggy-co-founder-says-over-hiring-a-mistake-as-he-fires-380-employees/articleshow/97171514.cms">firing 380 employees </a>in January. To control its falling revenues, Zomato too has exited 225 small cities,<a href="https://in.mashable.com/tech/47163/zomato-exits-225-cities-after-massive-loss-of-rs-346-crores#:~:text=Zomato%20has%20exited%20225%20cities,comes%20from%20its%20loyal%20users."> where performance was not very</a> encouraging according to its CFO, Akshant Goyal. According to a report by IIFL, as many as 820-920 such restaurants will be added every year as most franchises that run the aforementioned brands are looking to double their store count in the next four to five years. “We believe store expansion targets might need to be toned down if the growth remains weak. Owing to the demand and margin softness, street earnings estimates have come off in the last few weeks,” said BNP Paribas. Moreover, there are other challenges dogging them too – rising wheat and cheese prices have been biting into their margins. Muted sales also give them little room for price hikes, which could further pressure sales and margins. With tightening competition, QSRs are chasing a shrinking pie that could get smaller as <a href="https://www.businessinsider.in/business/corporates/news/india-incs-q3-earnings-largely-meet-analyst-expectations-but-consumption-slowdown-a-worry/articleshow/98154526.cms">consumers watch how much they spend</a>. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/personal-finance/news/presumptive-taxation-the-scheme-that-eases-burden-on-small-businesses/articleshow/98183636.cms">Presumptive taxation: The scheme that eases burden on small businesses</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/elephant-will-not-march-but-run-powered-by-private-consumption-union-amc/articleshow/98182584.cms">Elephant will not march but run, powered by private consumption: Union AMC</a>

Indians now want to eat out instead of delivery – a move that’s hitting pizza makers the most

<ul><li><keyword id="18680128" type="General" weightage="20" keywordseo="qsr-players" source="Orion">QSR players</keyword> that run <keyword id="18680129" type="General" weightage="20" keywordseo="international-restaurant-brands" source="Orion">international restaurant brands</keyword> like <keyword id="58553" type="General" weightage="20" keywordseo="pizza-hut" source="Orion">Pizza Hut</keyword>, <keyword id="6376241" type="General" weightage="20" keywordseo="KFC" source="Orion">KFC</keyword>, Domino’s saw a sharp rise in sales growth in FY22 and FY23.</li><li>Analysts call it the delivery delta where app-driven deliveries of fast food rose after partial opening of lockdowns.</li><li>But that has dipped in the last 2-3 quarters due to a lot of various factors including rising competition, inflation which has dipped consumer sentiment. </li></ul>Fast food helped Indians get over the pandemic blues — as pizzas, burgers and fried chicken helped them survive Zoom calls and kept kids away from trouble. The pandemic was a boom time for quick service restaurants (QSRs) that ran brand chains like Domino’s, Pizza Hut, McDonald’s, Burger King and more. After partial re-opening, the same store sales growth (SSSG) of most of their operators in India was in the range of 35-60% in FY22 – which extended to FY23 as well due to aggressive store openings as well as massive pick up in delivery orders. “Before the pandemic, the delivery orders were less than 15% (of total sales) for most QSRs with the exception of pizzas, which went up to 25-30% during the pandemic — that’s where delta growth came from,” Karan Taurani, research analyst at Elara Capital. <div type="image" title="annual growth data" msid="103448431" hostid="261" caption="&amp;lt;p&amp;gt;Source: Business Insider India &amp;lt;/p&amp;gt;"></div> The ‘new-normal habits’ never stuck — and in the last two quarters most operators like Devyani and Sapphire (KFC and Pizza Hut), Jubilant (Domino’s) saw their SSSG slip into the negative zone with the exception of Westlife (McDonalds) which continues to grow, albeit in lower single digits. The sales slipped further between 1-6% for all the players in Q1, with fried chicken and burgers doing slightly better than pizzas. The slowdown in pizza sales started two quarters ahead — in Q3 itself. “The demand trend in the pizza category has remained challenging as seen in the past few quarters – a combination of high base, relatively higher average order value in the pizza category versus other QSR segments,” says a report by J M Financial. <div type="image" title="qsr" msid="103451765" hostid="261" caption="&amp;lt;p&amp;gt;Source: Business Insider India &amp;lt;/p&amp;gt;"></div> The inflation of competition Apart from a general slowdown, there are structural issues too at play - similar to what <a href="https://www.businessinsider.in/business/corporates/news/small-regional-players-are-increasing-competition-says-hul-ceo/articleshow/102009466.cms">FMCG companies are facing</a>. A report by J M Financial says that both regional and national players are expanding aggressively – denting into their business. “A lot of unorganised competitors who had shut down during the pandemic are now back in business and that’s increasing competition,” says Taurani. With muted sales, only some of the players have been able to take only marginal price hikes in spite of heavy inflation of most of its ingredients in the last few quarters — like cheese and vegetables — leading them to go in for cost controls and better operational management to maintain margins. QSR players, however, believe that this dent in the sentiment is an effect of inflation and most of them expect a reversal in sentiment as well as raw material prices. “High inflation across industries and categories has led to a short-term impact on consumer sentiment and demand in the last few quarters,” said Ravi Jaipuria, the non-executive chairman of Devyani International in the first quarter earnings concall. The company expects demand to pick up from the third quarter onwards. The golden era that wasn’t Sanjay Purohit, group CEO of Sapphire Foods also echoed the same sentiments saying that as inflation stabilises, demand will start to come back. It’s with this confidence, few are moving to change their aggressive store addition plans. Jubilant, Sapphire and Devyani added anywhere between 35-47 new stores during the quarter while Westlife added four new stores. Taurani opines that the number of store additions have slowed down in Q1, and Q2 demand will provide a better picture on the view ahead. “I wouldn't say that the demand situation is very rosy. But in India, the curve is never linear. There will be good quarters, bad quarters, but overall, we are all committed to India's growth and we are all committed to our strategy,” said Saurabh Kalra, managing director of Westlife Foodworld. The QSR sector is a textbook case of the fading effects of the post-pandemic boom on the economy. Most of these companies have chosen to spread their wings in lieu of the fast growth they saw in the last two fiscal years – and it’s yet to be seen if the fast food craze will stand the test of time in an era of higher rentals. (This is the first article in the ‘Boom to Bust’ series which will discuss post-pandemic trends.)

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Indians now want to eat out instead of delivery – a move that’s hitting pizza makers the most

Bhakti Makwana

The Quick and the Dead: How fast food players lost their pandemic boom effect

Katya Naidu

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