The slowdown in discretionary consumption, especially post-Diwali, has dampened the strong demand sentiment that Quick Service Restaurant (QSR) players witnessed in the past few quarters. This is attributed to rising inflationary pressures, a cut in household expenses and consumers’ down-trading behaviour.

According to Kunal Vora, Head - India Equity Research, BNP Paribas India, across most brands, 3Q FY23 sales growth moderated, with negative to low-single digit Same-Store Sales Growth/Like For LIke (SSSG/LFL) growth. New store additions largely drove sales growth. Margins for most players have been adversely impacted by RM inflation (wheat and cheese) and negative operating leverage.”

Also read: Quick service restaurants look for a bigger slice of pizza market in small towns

Pizza Hut posted a QoQ decline in sales (Sapphire: -4 per cent SSSG vs -6 per cent for Devyani), while Domino’s reported flat LFL growth of +0.3 per cent YoY. KFC witnessed a decline in the ADS (average daily sales per store), both sequentially and YoY, owing to weak consumer spending and incremental store additions in non-metro cities (which typically have a lower ADS). Defying the trend, McDonald’s (Westlife) reported a 20 per cent YoY SSSG, largely driven by higher guest count and average order value, due to its meals and omni-channel strategy.

Also read: KFC reports sales growth of 49 per cent in 2022 in India

“Store expansion may need to be toned down if demand weakness persists. Despite demand uncertainties, companies have largely retained their aggressive store expansion plans. Most companies target mid- to high-single-digit SSSG/LFL growth, which we think will be challenging over the near term,” Vora said.

Companies face cost pressure from high wheat and cheese prices, the accelerated pace of store expansions and their hesitancy to hike prices due to further risk of a demand slowdown.

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