Despite declining profits, global fast food chains continue to grow in India
Expansion plans for fast food chains in India remain on track even as they sell fewer pizzas and burgers due to rising costs.
This week, Indian fast food operators (QSR) reported a net profit squeeze in the March quarter. Companies like Devyani International, Sapphire Foods and Jubilant FoodWorks are suffering from rising raw material costs. While Westlife Foodworld’s net profit rose, it missed earnings expectations.
Devyani’s net profit fell 21% to $7.4 million due to higher expenses and lower sales. Jubilant FoodWorks’ net worth 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 United States and operates Popeyes and Dunkin’ Donuts fried chicken stores. Westlife owns the McDonald’s brand in the country.
All are now pinning their hopes on a recovery in demand.
“As we enter the new fiscal year, we take confidence in the strength of our brands, our operational prowess, the quality of innovation and the commitment of our people to navigating the business well in the current environment,” said Sameer Khetarpal, CEO of Jubilant FoodWorks. , said on a post-earnings call.
The problem is the cost
Over the past year, inflation has soared around the world due to supply chain disruptions caused by covid-19 and the war in Ukraine. Prices for key ingredients like cheese and flour have soared 20-40%. Edible oil, for which India depends on Argentina and Brazil, has also become very expensive.
Jubilant raw material costs (pdf) increased 14% to $35 million in the March quarter. While KFC passes some of that on to consumers, pizza places have very little wiggle room for it.
QSR’s local and regional channels are now expanding into non-metropolitan cities in hopes of a pick-up in demand.
“We’re not seeing a slowdown in the quick service restaurant space,” Radhika Vivek, senior partner at Transearch International, told The Economic Times. “Last year we worked with three major QSR chains and all are in the process of hiring and expanding.”
Experts believe that for demand to recover quickly, prices must remain affordable. India’s QSR industry is expected to grow 20-25% this fiscal year due to rapid store expansion, ratings agency ICRA said in April.
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