Fast-food franchisees eye weak Q4 earnings despite new outlets, affordable options

Food chain industry: Leading fast-food franchisees in India are anticipated to report a decline in quarterly earnings as consumers, grappling with financial constraints, continued to reduce spending on dining out and food delivery. Analysts noted that despite the launch of numerous new restaurants in 2023, cash-strapped customers showed reluctance in embracing these options.

Throughout 2023, pizza franchisees such as Jubilant Foodworks, Devyani International, and Sapphire Foods India encountered challenges amidst intensified competition. Additionally, burger chains faced similar struggles later in the year, exacerbated by inflationary pressures.

Despite efforts to attract customers with new affordable menu offerings, such as Burger King's 99-rupee combo meal introduced last year, consumer response remained lukewarm as India's monthly inflation rate persisted above the target rate.

Kranthi Bathini, equity strategist at WealthMills Securities, highlighted the shift in consumer behavior, stating, "Earlier, you might be visiting fast-food chains three or four times monthly. Now, everyone is restricting to once or twice."

Analysts surveyed by LSEG anticipate a significant decline in net income for Devyani, Sapphire, and Westlife Foodworld in the March quarter, with projected slumps ranging between 54 per cent and 97 per cent. Furthermore, they expect Restaurant Brands Asia, the operator of Burger King, to report a widening net loss, marking its 12th consecutive quarterly loss.

Analysts predict a decline in same-store sales across the board, with Pizza Hut stores expected to witness a decline of over 10 per cent.

Despite the earnings downturn, franchisees like Sapphire and Devyani, which also operate KFC stores, continue to expand their footprint nationwide, opening new outlets from Kalimpong hill town in West Bengal to Shoolagiri village in Tamil Nadu.

While aggressive store expansion plans are anticipated to drive long-term growth, immediate earnings growth has been constrained by fierce competition from local players. Regional pizzerias such as La Pino'z and local burger chains like Jumboking and Biggies Burger are exerting pressure on international counterparts.

Westlife is slated to kick off restaurant earnings on May 8 in India, with other major players expected to report in the following days.

Similar to consumer goods analysts, restaurant experts foresee a rebound in demand in the second half of the financial year, approximately from October onwards, driven by expectations of easing cost-of-living pressures.

(With Reuters inputs.)