More for less

The QSR and broader restaurant industry are currently facing a dichotomy – on the one hand global chains like McDonald’s are investing Rs 500 crore to expand their presence in southern and western regions of the country, along with Yum! Restaurants eyeing smaller towns for its growth plans, however, analysts tracking the sector highlight that outlets in an expanded network often report sluggish sales patterns and also fail to achieve targets.  

The reason – once again, sluggish consumer spending patterns, along with higher taxes and rising food input prices makes dining out a rather expensive option. For instance, in the recent Union budget, the Finance Minister had announced a service tax of 12.36 per cent on all air-conditioned restaurants, and it led to leading chains increasing their menu prices.

In addition, a recent report by NPD Group, which provides market information and advisory services, pointed out that restaurant visits by those under 26 years, a key consumer segment, had fallen by 16 per cent over the past four years.  The cumulative effect has been that sales in QSRs and broader restaurant industry has barely grown 5 per cent y-o-y in the first quarter of current fiscal, and it has forced these players to offer various promotions, in a bid to keep cash registers ringing.

Samir Kuckreja, President, NRAI, said, “Discretionary spending related to eating out is definitely under pressure.” Striking a similar note, Anjan Chatterjee, Founder and MD, Speciality Restaurants, said, “A cautious economic outlook has taken its toll on the restaurant industry.”

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Restauranters highlight that dining out is an integral part of our society and while people may reduce the frequency of their visits to these outlets, competition in this sector has also expanded with the entry of new players and the resulting toll on the broader industry.

To counter this slowdown, QSRs, cafes and full service restaurants are introducing lower priced offerings, as well as a range of promotional offers. Profit margins for the restaurant industry however, take a big hit.

McDonald’s, for instance, is promoting the National Breakfast Day and as part of this strategy, it is offering one thousand complimentary McMuffins to its patrons during breakfast hours at its store network in the country.

Smita Jatia, Managing Director, Hardcastle Restaurants, said, “Our strategy of Indianisation of menus has paid dividends for us. In addition, we also focus on eliminating  inefficiencies in our supply chain and it helps us to increase prices by barely 2-3 per cent each year, substantially lower than general inflation levels.”

They are not alone. Domino’s Pizza has the ‘Pehli Kamai’ campaign which emphasises the affordability of its product. Meanwhile, KFC has the ‘WOW’ menu and it offers 10 products/combos starting at Rs 25 and all are priced lower than Rs 100, while Pizza Hut Delivery (PHD) is focussing on its pan pizza offered for Rs 44.

Niren Chaudhary, President, Yum! Restaurants, said, “At our outlets, which include brands like KFC, Pizza Hut and Taco Bell, we are attempting to broaden our customer base with attractive price offerings.”

Apart from QSRs, Cafe Coffee Day (CCD) has also introduced its ‘magic priced’ F&B combo ranging between Rs 49 and Rs 119, and even full service restaurants are wooing consumes with pocket friendly prices.

 And, that’s largely because these restaurants are typically more expensive vis-à-vis fast food chains and they feel the ‘pinch’ even harder during a downward economic spiral. Narendra Malhotra, CEO, Oriental Cuisines, said, “We work with our vendors and suppliers, and it enables us to introduce dishes priced at affordable levels.”

Seasonal Factors

No doubt, consumer spending is currently tight, but seasonal factors like excess rainfall in several parts of the country, and flooding in northern region have also contributed to the current malaise in the restaurant industry.

Kuckreja of NRAI, said, “Extreme climatic conditions act as a deterrent to eating out.” Adds, Chatterjee of Speciality Restaurants, “Excessive rainfall in several parts of the country, has also adversely impacted footfalls at restaurants.”

Harry Balzer, Market Researcher, NPD Group, highlighted a distinct preference of consumers for QSRs, and full service restaurants will need to reinvent their business model, in a bid to ensure their long-term viability.