India's QSR Giants Adapt Amidst Local Competition

In the fast-paced and ever-changing landscape of India's food industry, a notable shift is underway. This transformation is being driven by a growing inclination among consumers towards lower-priced products and a preference for regional brands. Against this backdrop, the country's leading quick-service restaurant (QSR) chains are undertaking significant overhauls of their business strategies. These strategic adaptations have become essential as these QSR giants grapple with a persistent slowdown that has persisted for three consecutive quarters. The key elements of this strategic transformation encompass a multifaceted approach aimed at ensuring the QSRs' continued relevance and competitiveness in the evolving Indian market.

The Shifting Tides of Consumer Preference

Consumer discretionary spending in India, like in many countries, is facing headwinds. Gaurav Burman, director of Burman Hospitality and master franchise partner of Taco Bell, acknowledged the challenges, mentioned in a statement, “Branded QSR is not an everyday purchase." Taco Bell has taken extensive steps to adapt to this new environment, aiming to increase its appeal to cost-conscious consumers.

Localizing Menus: A Key Strategy

One notable strategy employed by QSR chains is menu localization. This approach involves tailoring offerings to cater to regional tastes while maintaining the global brand's identity. For example, Taco Bell has introduced three new products as part of its Indianized menu, featuring flavors and ingredients that resonate with the local palate. This approach not only attracts a wider customer base but also allows brands to stand out in a crowded market.

Rajiv Bakshi, a food industry analyst, comments on the significance of menu localization: "In India, where diversity in cuisine is celebrated, adapting menus to local tastes can be a game-changer for QSR chains. It's about striking a balance between global appeal and local flavors."

Price Sensitivity and Competitive Landscape

The quick-service restaurant (QSR) industry in India is currently witnessing a dynamic and competitive landscape, marked by several notable trends. One of the prominent developments is the rise of boutique brands such as Leo's, Tossin, GoPizza, and MojoPizza, which are making significant strides in the market. These local players have strategically positioned themselves by offering lower-priced alternatives to the more established QSR chains. This approach has proven successful in attracting a younger and increasingly price-conscious demographic of consumers.

On the flip side, the QSR landscape is also seeing the emergence of specialized brands like AvoBeet, Feta Burger, Nino Burgers, Louis Burger, and Speak Burgers. These brands have chosen to target the premium end of the burger market, aiming to cater to consumers seeking unique and indulgent dining experiences. By focusing on high-quality ingredients, gourmet preparation methods, and innovative flavor profiles, these specialized QSRs have carved out a niche for themselves among discerning consumers who are willing to pay a premium for exceptional food and dining experiences.

Local Competition: Hurting or Pushing Innovation?

Local competition is undeniably a significant factor in the evolving QSR landscape in India. Smaller, local brands have successfully tapped into the price-sensitive consumer segment, offering competitive prices and localized flavors. This has resulted in a noticeable shift of customer preferences towards these alternatives.

However, while local competition poses challenges, it is also a driving force behind innovation within the QSR space. Larger chains are compelled to diversify their menus, lower price points, and focus on product innovation to stay relevant and regain market share.
Motilal Oswal, a leading financial services company, shares insights into the challenges and opportunities facing the QSR industry in India. In a report in June, Motilal Oswal stated, "The benefits of strategic interventions such as store reimagination, aggressive new launches in the value segment, and 20-minute delivery to address the slowdown in dine-in business have been slower than expected due to discretionary slowdown."

The report highlights that the industry is facing persistently high prices of milk and milk-related products, along with recent increases in vegetable prices. These factors pose challenges to QSR chains' profitability and pricing strategies.

Price Point Focus

To address the challenge of declining footfalls and to remain competitive in a market increasingly characterized by lower-priced offerings, major chains like KFC India have unlocked new price points. KFC India's have unlocked a new price point of Rs 99 with two recent launches, in addition to rolling out consumer promotional offers.

Similarly, Burger King, under Restaurant Brands Asia (RBA) India, has prioritized strengthening its position in the value-for-money meal segment with prices starting at Rs 99. This strategic shift aims to gain price leadership and cater to consumers looking for affordable dining options without compromising on quality.

Maintaining a Long-Term View

Despite the current challenges, QSR chains remain optimistic about their long-term prospects in India. Taco Bell's Gaurav Burman emphasized that it's crucial to manage the business effectively to ride out these headwinds. With 130 stores and ambitious plans to reach 170 stores by year-end, Taco Bell is demonstrating its commitment to the Indian market.

Burman shares his perspective on the industry's resilience, stating, "Would I be happier if all our markets were growing and growing double digits? Of course. But the reality is, when you take a long-term view of managing a business, you'll have good times and hard times."

A Long Road Ahead

Analysts predict that the QSR industry may continue to experience subdued like-for-like growth for several more quarters. Factors such as rising raw material costs and unpredictable demand make the current environment challenging. However, industry executives remain committed to mid-term expansion targets, counting on factors like the growth potential in smaller towns, the introduction of more affordable products, and enhanced delivery options through aggregators.

In conclusion, India's QSR chains are adapting to changing consumer preferences by localizing menus, focusing on lower price points, and investing in product innovation. While local competition presents challenges, it is also driving innovation within the industry. As the industry navigates headwinds and local competition, it remains focused on long-term growth and evolving to meet the ever-changing needs of Indian consumers.