9641

Fast food chains promote value for money to stem falling sales

As consumers cut back on eating out and ordering in, chains are scrambling to attract customers while trying to save overheads
Comment E-mail Print Share
First Published: Tue, Aug 27 2013. 11 37 PM IST
Pizza Hut has increased the size of its pizzas without raising costs. Photo: Priyanka Parashar/Mint
Pizza Hut has increased the size of its pizzas without raising costs. Photo: Priyanka Parashar/Mint
Updated: Wed, Aug 28 2013. 12 12 AM IST
New Delhi: Multinational fast food outlets that have mushroomed all over India to cater to a rising hunger for pizzas, burgers and other western-style convenience meals, have begun to offer greater value for money in a bid to stem falling sales attributed to a slowing economy.
As consumers cut back on eating out and ordering in, fast food chains are scrambling to attract new customers while trying to save overheads. Kentucky Fried Chicken (KFC), for instance, is aggressively promoting a value menu starting as low as Rs.25 and Pizza Hut has increased the size of its pizzas without raising costs.
“Value is key in the current economic scenario,” said Tarun Lal, general manager at KFC India and area countries, owned by Yum! Restaurants India with 230 outlets across the country.
As the economy grows at an anaemic pace—5% in the year ended 31 March—international fast food chains are reporting a moderate to steep decline in growth in their same-store sales in the last six months.
Same-store sales growth is a measure of increase in sales at stores open for at least a year and is a benchmark of a store’s performance in a given area. In an expansion mode, a slight dip in a company’s same-store growth is acceptable. However, a steep decline can see food chains offer value-for-money offers.
Same-store sales growth at the country’s largest pizza chain Domino’s fell significantly in the first quarter of the current financial year to 6.3% from 22.3% in the same corresponding quarter last year. Ajay Kaul, chief executive at Domino’s Pizza India Ltd, which has 600 outlets across the country, attributes the slowdown to larger economic factors. He said that frequency of consumption and rate of acquisition of new customers have suffered. “At the end of the day, we want people to increase their frequency of consumption. There, the growth is slackening...but it is not to say we are in the de-growth phase.”
Instead of increasing prices, companies are offering indirect discounts to sustain volumes. Domino’s has a “buy one get one free” offer on pizzas every Wednesday.
Earlier this month, rivals Pizza Hut, also owned by Yum! Restaurants India, increased the size of its pizza by 23% without increasing the price (Rs.99).
“Sluggish economy weighs on consumers at every level. We are leaving no stone unturned to cushion the effect of that on our consumers...,” Sandeep Kataria, brand general manager, Pizza Hut India and chief marketing officer, Yum! Restaurants India said in a press release.
“...We will continue to focus on value through these challenging times,” KFC’s Tarun Lal added.
Costa Coffee India, with 110 cafes in the country, is feeling the pinch too.
“Business has been fairly slow. It’s across the retail category,” said Santosh Unni, chief executive officer at the New Delhi-based coffee chain. Same-store sales growth have been much slower than they were the year before.
Donut chain Mad Over Donuts, with 50 stores in the country, has not been able to meet a 5% sales growth target this financial year, managing only 1% growth since the beginning of the financial year compared with the same period last year.
“Largely, the macroeconomic issues have kept the growth muted,” Unni of Costa Coffee said. Same-store sales growth for the last six months dipped from double digits to single digits this year. But organically, the company is growing in double digits, he added.
The slowdown has implications for vendors for fast food chains too. “This year has been a bit stretched for fast food chains....as growth is missing,” said Akshay Bector, owner of Mrs Bector Foods, which supplies ketchups, sauces and other condiments to large food chains such as Domino’s and Barista. While business for Mrs Bector’s has expanded on account of new food chains, growth from existing clients has not risen significantly.
Growth rates for food retailers are under pressure because the average ticket size of a consumer is not going up.
“It is not that people are not eating out. But their share of wallet on eating out is flat,” said Gaurav Marya, chairman at Franchise India Holdings Ltd, that helps entrepreneurs select franchise business opportunities. According to him, casual dining restaurants are finding it difficult to sustain growth. In fact, some fast food chains in India are still in the investment phase, scaling up businesses and penetrating more cities. “While they continue to grow organically, store level profitability is prone to sluggish growth on the back of escalating costs and muted consumer spends,” he said.
Manpreet Gulri, country head at Subway Systems India Pvt. Ltd that sells salads and sandwiches through its 400 outlets said that while managing costs is an ongoing process, “we have not taken any steps that would change the quality of our products or dilute our brand values”.
According to Saloni Nangia, president at retail consultancy Technopak Advisors Pvt. Ltd, the overall opportunity for the “eating out market” is very good even though the growth rates for quick service restaurants have slowed down. “Since most companies expanded their value offerings recently, margins have been under pressure,” she said.
In a report dated 12 July, India Ratings and Research, a unit of Fitch Ratings, maintained that growth in private final consumption expenditure (PFCE)—the indicator for household consumption of goods and services—was at an eight-year low for financial year 2013. The agency does not expect any significant improvement in PFCE for H213. Consumer price inflation is unlikely to reduce significantly in FY14. As a result, the agency expects the overall discretionary purchase to remain weak in FY14.
Kaul, at Domino’s, is however positive that things will improve, even though “in the short term, some level of slowdown is imminent. What is more important is the medium term or long term story is intact. We believe economics will come back, it is going to ride consumption and that GDP growth will climb back and so will our same-store sales growth.”
The promoters of HT Media Ltd, which publishes Hindustan Times and Mint, and Jubilant FoodWorks are closely related. There are no promoter crossholdings.
Comment E-mail Print Share
First Published: Tue, Aug 27 2013. 11 37 PM IST
blog comments powered by Disqus
  • Wed, Jul 30 2014. 05 04 PM
  • Wed, Jul 23 2014. 06 06 PM
ALSO READ close

Jubilant Foodworks’ Q4 profit falls 24% to Rs.25 crore

Subscribe |  Contact Us  |  mint Code  |  Privacy policy  |  Terms of Use  |  Advertising  |  Mint Apps  |  About HT Media  |  Jobs
Contact Us
Copyright © 2014 HT Media All Rights Reserved