Weak demand hurts fast food chains in Q4, but outlook strong 

Fast food chains continue to feel the pinch of soft demand, with out-of-home food consumption remaining weak for at least four quarters now. But most players remain optimistic about the future, led by an improved macro-economic environment and concerns regarding food inflation receding following an above-normal monsoon forecast.

The March 2024 quarter, for instance, saw revenue growth for quick-service restaurants (QSRs) slide to 9% on an average, which is half of what it was in Q4FY23 (18%), according to analysts at BNP Paribas Securities. But companies have no plans to slow down store additions as most believe recovery will be gradual in the market.

“We are still operating in an uncertain demand environment. So  our focus is on volumetric growth, acquiring customers, gaining market share and adding new stores,” Sameer Khetarpal, CEO & MD, Jubilant FoodWorks, which runs Domino’s restaurants in the country, said during the company’s post-Q4 results earnings call last week.

“While out-of-home consumption remains stable in Q4 on a sequential basis, when compared on a year-on-year basis, eating out frequency continues to be lower,” Saurabh Kalra, MD, Westlife Foodworld, which runs McDonald’s restaurants in the west and south of India, said in an investor call this month.

Sector experts say the April-May 2024 period saw average daily sales (ADS) for QSR companies improve to levels of 3-4% from declines of 9-18% seen in Q4, thanks to eating out and ordering in during the holiday and IPL season being strong.

“The June quarter (Q1) is seasonally a stronger period than Q4,” says Kunal Vora, analyst at BNP Paribas Securities. “This should result in sequential improvement in performance for QSR companies. As such, players have not reduced their store opening guidance for FY25,” he said, adding that firms were focusing on the value meal segment with new launches and offers in the `99-179 price point to shore up sales growth.

Jubilant FoodWorks, according to Khetarpal, is looking to open 180 Domino’s stores, 50 Popeyes and 25 Hong’s Kitchen outlets in FY25. Capex is expected to remain high over the next two years, he said, as store additions would remain robust.

Westlife Foodworld, according to Kalra, would not change its store addition plan in FY25 despite the “challenging operating environment”. “We will add 45 to 50 restaurants in FY25, as we remain highly optimistic about the long-term structural opportunity of the market,” he told investors.

Devyani International, which runs Pizza Hut and KFC stores, said that it would add 275-300 stores in FY25 including 120-130 KFC stores, 70-80 Pizza Hut outlets and 60-70 Costa Coffee outlets. While Sapphire Foods, which also runs Pizza Hut and KFC restaurants in India, said it would stick to its plan to double its store count over three to four years on the base of December 2021 (when it had around 450-500 stores). 

Restaurant Brands Asia, which runs Burger King outlets in India, said it was on track to add 700 stores by December 2027. It would, in particular, add around 70-80 Burger King stores in FY25.