As per a Reuters report, there has been a decline in the frequency of Indians dining out for pizzas and burgers, as indicated by the third-quarter results of local franchisees of Domino’s and McDonald’s on Wednesday. Analysts have pointed out that intense competition and inflation suppressing demand are likely to exert pressure on their earnings in the short term.
Jubilant Foodworks, the operator of Domino’s restaurants, reported an unexpected fall in profits, while Westlife Foodworld, which manages McDonald’s restaurants in south and west India, posted a larger-than-anticipated decline in profits.
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Despite quick-service restaurant (QSR) operators in the country implementing various strategies such as introducing more affordable menu options, offering increased discounts, and reducing packaging costs, their efforts to boost demand and encourage more frequent dining out among Indians have proven unsuccessful amid high inflation.
These companies were among the major beneficiaries during the festive season last year, as Indians started to dine out more frequently following several pandemic-affected years.
The demand slowdown after 2023’s high base has not only dragged their earnings but has also resulted in negative same-store-sales growth (SSSG), deviating from the usual 5%.
Although the weakness in demand “may be approaching the bottom,” reaching the earlier levels of same-store-sales growth (SSSG) is unlikely for the industry, according to Karan Taurani, an analyst at Elara Capital.
Amnish Agarwal, an analyst at Prabhudas Lilladher, suggests that the margins of the two companies are not expected to experience a “significant recovery.” Taurani also adds that escalating competition from smaller players will continue to keep margins “strained.”
Jubilant reported a profit of 657.1 million rupees ($7.9 million), marking the fifth consecutive quarter of decline and significantly below analyst estimates of 902.6 million rupees. Additionally, its revenue growth decelerated for the seventh consecutive quarter.
Meanwhile, Westlife reported its first decline in revenue in three years. Its profit of 172.4 million rupees fell significantly short of analyst estimates, which projected 331.1 million rupees, according to LSEG data.
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