A rampant surge in online food delivery channels is eating into the sales of quick-service restaurants (QSRs) like KFC, Dominoes, Pizza Hut and McDonald’s, as customers clearly prefer convenience over experience while ordering home delivery of burgers and pizzas.
This is despite these companies revamping their menus and offering discount offers. Unwilling to concede online food aggregators have become a serious threat, retailers peg weak consumer sentiment a much bigger worry. “QSR is an impulse-driven category, whose sales depend heavily on the footfall in malls, which has been on the decline because of tepid consumer sentiment,” said Amit Jatia, vice-chairman of Westlife Development, the franchisee of McDonald’s in west and south India.
Despite ramping up special offers during the festive season and tying up with food aggregating apps, Dominoes’ like-to-like sales growth languished last quarter on the back of muted consumer sentiment, Ajay Kaul, CEO of Jubilant Foodworks, said. “Where the price point is lower, say less than R300, the model is shifting towards delivery from dine-in,” said Nirzar Jain, vice-president of Oberoi Mall in Mumbai. Jain observes that it’s also possible people choose to order in for food that costs less and eat out if they intend to spend more on a more rare gourmet meal.
At a time when discretionary spending is at a decade-low level, consumers are scrounging to spend on eating out.
Still, the impact of online food delivery channels, mainly aggregators, can hardly be exaggerated. According to a Bloomberg report, more than 400 food delivery apps cropped up in India in the past three years, raising approximately $120 billion. Among the more prominent ones are TinyOwl, Zomato, Food Panda and more recently, Swiggy. To be sure, many of these food aggregators are in massive financial distress themselves but that hardly undermines the convenience they offer. And when it comes to online orders, consumers are sold on the convenience factor. A report released at the Retail Leadership Summit said that 60% shoppers bought goods online because of convenience and 40% customers visited for discounts. A February Edelweiss report stated food tech companies are now becoming more mature and focusing to build more sustainable businesses by rationalizing their discount percentages.
Food aggregators allow customers to choose and order from detailed menus that are available online. One can also read reviews before making the selection. Further ease is provided with payment through PayUMoney, Paytm wallet and of course, cash on delivery, debit and credit cards and net banking. And most of all, the food is available within 40 minutes of ordering. Apart from the sheer number of options, there’s also a growing health consciousness, especially in Tier 1 cities, which naturally goes against burgers and pizzas,” said one analyst who did not wish to be named. It is possible that the volumes will now be driven by Tier II cities, this person added. Moreover, the main cities now have plethora of options and going to a quick service restaurant is no longer appealing, which may not be the case in Tier II cities.
The flux in the industry is evident in the earnings of its major players. Yum Brands, which operates Pizza Hut and KFC reported a 13% drop in same store sales growth in December. Jubilant Foodworks, which operates Dunkin Donuts and Dominoes, registered a 2% growth against a negative base. Mc Donald’s registered a 3% growth, also against a low base.
It’s not as if the quick service restaurants are not trying to adapt to the shopping patterns that are changing rapidly as customers become more connected online but so far their efforts have not meaningfully translated to corporate earnings, which is a concern for many analysts.
For instance, Dominoes pioneered the successful 30 minutes delivery and still has a 99% hit on this marketing strategy. Other brands like Pizza Hut etc are also investing substantially to build better delivery infrastructure. Some of these companies are even available on zomato, food panda etc.