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

• QSR players that run international restaurant brands like Pizza Hut, KFC, Domino’s saw a sharp rise in sales growth in FY22 and FY23.
• Analysts call it the delivery delta where app-driven deliveries of fast food rose after partial opening of lockdowns.
• 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.

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.



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.


The inflation of competition

Apart from a general slowdown, there are structural issues too at play - similar to what FMCG companies are facing. 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.)