With the exponential surge of food delivery apps like Zomato and Swiggy, quick service restaurant operators are grappling with significant challenges, as outlined in a report by French brokerage BNP Paribas. The report emphasizes that both revenue and margins are under severe strain, with the journey to recovery proving longer than initially estimated. It points out that the increasing popularity of food aggregators has adversely impacted dine-in sales for quick service restaurants (QSRs) and has also fragmented delivery sales.
Additionally, as more restaurants collaborate with food delivery platforms, consumers now enjoy a broader array of options, resulting in fragmented sales. This factor is likely contributing to the decline in average daily sales within the quick service restaurant (QSR) industry, alongside the overall weakness in demand due to heightened inflation, as emphasized in the report.
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“While inflation may also be hurting demand, there are other factors at play, and we think the road to recovery could be longer than what the market estimates,” the report said.
The report noted that Zomato and Swiggy have experienced over a threefold increase in restaurant onboarding, soaring from 278,000 in FY2020-21 to surpassing 700,000 in FY2022-23.
Zomato’s average monthly active restaurant partners jumped from 61,000 in FY19 to 2,54,000 as of third quarter FY24, while Swiggy had 2,72,000 active restaurants as of FY23, French brokerage BNP Paribas said in a report.
The report highlighted that the overall scale of food delivery companies has undergone substantial growth, enhancing customer reach, particularly benefiting smaller restaurants. It further noted that the increasing popularity of food aggregators has adversely affected dine-in sales and led to the fragmentation of delivery sales.
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In light of this context, concerning Quick Service Restaurants (QSRs), the report stated that contrary to expectations of a potential recovery in the third quarter of the current fiscal year, the top-line growth was notably weaker than anticipated by consensus.
In the third quarter of the current fiscal year, industry revenue growth declined to 7 percent year-on-year, down from 20 percent in the third quarter of FY23. This drop occurred despite a 15 percent increase in store count year-on-year; however, average daily sales decreased. Although gross margins expanded due to lower raw material prices, operating margins decreased for most Quick Service Restaurant (QSR) firms due to increased employee and store-related costs, according to the report.
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