Recently, Indians have preferred dining out instead of relying on food delivery services. This trend is proving to be detrimental to quick-service restaurants (QSRs) and food delivery apps alike. Swiggy, one of India’s largest food delivery apps, has noted this trend and announced that it will integrate its dine-out offerings onto its platform across 24 cities. This will allow users to access discounts as they book through the app.
While QSRs have been aggressively expanding in the last two years, with many new store openings, few have been concentrating on providing dine-in experiences. Only one chain, McDonald’s, run by Westlife Foodworld in India, has been successful in this regard by focusing on an omnichannel strategy. McDonald’s reported a 20% year-on-year same-store sales growth, driven by higher guest count and average order value, due to its meals and omnichannel strategy.
The pizza category, where the product is designed for delivery, has suffered the most due to this trend. The franchises that run Pizza Hut saw a sequential fall in same-store sales growth by 4% and 6%, respectively. Jubilant, which runs Domino’s, showed almost flat same-store sales growth sequentially. BNP Paribas reports that the demand for pizza has softened due to its larger delivery salience, relatively higher penetration, and elevated competitive intensity.
KFC witnessed a decline in its average daily sales per store both sequentially and year-on-year due to weak consumer spending and incremental store additions in non-metro cities that typically have lower sales. While 35% of sales for Domino’s comes from on-premises, for McDonald’s, that percentage stands at 52%; for Pizza Hut, it’s 41%; and for KFC, it’s 54%.
Additionally, almost all QSRs have been expanding their store numbers but reducing store sizes to make them delivery-friendly. Even Pizza Hut, which started as a dine-in brand, changed its strategy to focus on delivery in the last few years to catch up with its closest competitor, Domino’s.
Apart from changing preferences, Indians also seem to be rethinking their discretionary spending, which is eating into the QSR business. Rising inflationary pressures, a cut in household expenses, and consumers’ down-trading behavior are all contributing factors. This has led to a slowdown in discretionary consumption, especially post-Diwali, dampening the strong demand sentiment that QSR players witnessed in the past few quarters.
Moreover, the growth that most consumer companies have foreseen might be a mirage. The growth rate for food delivery has slowed down versus projections, which has led to Swiggy laying off 380 employees in January. Zomato has also exited 225 small cities to control falling revenues where performance was not very encouraging.
Franchises running these brands are looking to double their store count in the next four to five years, adding as many as 820-920 such restaurants annually. However, store expansion targets might need to be toned down if ‌the growth remains weak. Rising wheat and cheese prices have been biting into their margins, and muted sales have given them little room for price hikes, which could further pressure sales and margins. With tightening competition, QSRs are chasing a shrinking pie that could get smaller as consumers watch how much they spend.
The trend of Indians preferring to dine out rather than relying on delivery services is impacting QSRs and food delivery apps. The pandemic has accelerated this trend, and it is unclear when it will reverse. In the meantime, QSRs and food delivery apps will need to adapt to this new normal and find innovative ways to attract customers.
