Fast-food chains’ expansion plans for India remain on track even though they are selling fewer pizzas and burgers due to rising costs.
This week, India’s quick service restaurant (QSR) operators reported a squeeze in net profit in the March quarter. Firms like Devyani International, Sapphire Foods, and Jubilant FoodWorks are hurt by a rise in the cost of raw materials. While Westlife Foodworld’s net profits rose, it missed profit expectations.
Devyani’s net profit slumped 21% to $7.4 million due to a jump in expenses and lower sales. Jubilant FoodWorks’ net more than halved to $3.49 million.
Devyani operates KFC and Pizza Hut in India; Jubilant is Domino’s Pizza’s largest franchisee outside the US and operates Popeyes fried chicken stores and Dunkin’ Donuts. Westlife owns the McDonald’s brand in the country.
They have all now pinned their hopes on a revival in demand.
“As we step into the new fiscal year, we derive confidence from the strength of our brands, operational prowess, quality of innovation, and commitment of our people to navigate the business well in the current environment,” Sameer Khetarpal, CEO of Jubilant FoodWorks, said during a post-earnings call.
The problem lies in the costing
In the past year, inflation has skyrocketed worldwide due to supply-chain disruptions caused by covid-19 and the Ukraine war. Prices of key ingredients like cheese and flour have soared 20-40%. Edible oil, for which India relies on Argentina and Brazil, has also turned significantly expensive.
Jubilant’s raw material costs (pdf) have risen 14% to $35 million in the March quarter. While KFC passes on some of this to consumers, pizza operators have very little elbow room for this.
Homegrown and regional QSR chains are now expanding in non-metro cities hoping for a revival in demand.
“We are not seeing a slowdown in the quick services restaurant space,” Radhika Vivek, senior partner at Transearch International, told The Economic Times. “In the last year, we have been working with three big QSR chains and all are on a hiring and expansion spree.”
Experts believe that for demand to recover quickly, prices must remain affordable. India’s QSR industry is projected to grow 20-25% in this financial year due to a rapid expansion of stores, credit rating agency ICRA said in April.