Franchisee Results Signal Downturn in India's Love for Pizzas and Burgers

The third-quarter results from local franchisees of Domino's and McDonald's revealed a decline in Indians' frequency of dining out for pizzas and burgers.

Analysts observed that intense competition and the impact of inflation suppressing demand are anticipated to exert pressure on their earnings in the short run.

Jubilant Foodworks, the operator of Domino's restaurants, experienced an unexpected decline in profits.

Meanwhile, Westlife Foodworld, responsible for operating McDonald's restaurants in the southern and western regions of India, reported a more significant profit drop than anticipated.

In an effort to boost demand, quick-service restaurant (QSR) operators in the country have employed various strategies, including introducing more affordable menu options, offering increased discounts, and reducing packaging expenses.

Despite these measures, they have been unsuccessful in encouraging Indians to dine out more frequently, primarily due to elevated inflation.

These companies, which include the same ones, enjoyed significant gains during the festive season last year, benefiting from an increase in Indians dining out more frequently following several years heavily affected by the pandemic.

The deceleration in demand after the high base of 2023 has not only impacted their earnings but has also led to a negative same-store-sales growth (SSSG), deviating from the typical 5 percent.

Although the weakness in demand "may be approaching its lowest point," achieving the previous same-store-sales growth (SSSG) levels is improbable, according to Karan Taurani, an analyst at Elara Capital.

Amnish Agarwal, an analyst at Prabhudas Lilladher, mentioned that the margins of the two companies are not expected to experience a "substantial rebound." Taurani also noted that the increasing competition from smaller players would continue to put pressure on margins.

Jubilant reported a profit of INR 657.1 million (USD 7.9 million), marking the fifth consecutive quarter of decline and significantly below analyst projections of INR 902.6 million. Additionally, its revenue growth decelerated for the seventh consecutive quarter.

Meanwhile, Westlife recorded its initial decline in revenue in three years, and its profit of INR 172.4 million fell considerably short of analyst expectations, which were pegged at 331.1 million rupees, according to LSEG data.