Mumbai: Restaurants, bars, lounges and fast food chains across the country experienced a 30-35% dip in volumes in the September quarter, the sharpest in two years, as some consumers either fasted or abstained from eating out even as others continued to cut spends on the back of high inflation in a slowing economy.
The months of July, August and September saw the fifth month in a traditional Hindu lunar calendar and the 10-day Ganpati festival. During both, Hindus largely abstain from eating out, avoid non-vegetarian food or fast. The quarter also saw Muslims observe the month of Ramzan or Ramadan during which they fast for most of the day, eating early in the morning or late at night.
“The average fall in volumes has been 20-25% in the past few quarters, but this September quarter it was the steepest, at 30-35% drop in volumes year-on-year,” said Shashikant Shetty, general secretary of Indian Hotel and Restaurant Association. He added the steep fall was due to a combination of religious months and the tough macroeconomic environment.
The cutback was seen across the spectrum—from bars and lounges to fine dining and quick service restaurants, even to roadside eateries, said Shetty.
Among listed restaurant chains, both Speciality Restaurants Ltd—which operates Mainland China and Oh! Calcutta—and Jubilant FoodWorks Ltd, which operates Domino’s and Dunkin’ Donuts, reported a decline in sales growth in the September quarter.
Jubilant FoodWorks reported a same-store growth (SSG) of 20%, the lowest in 13 quarters. “Average SSG for FY2011 and FY2012 was 37% and 30%, respectively,” said Amrita Basu, analyst (institutional equities) at Kotak Securities Ltd. SSG measures growth of stores that have been in operation for over a year as against growth on account of new store openings. It is driven by a mix of pricing growth and increase in ordering.
And the 10% growth seen by Speciality Restaurants,which listed in May, may have come from “new store expansion” with same-store sales declining, Basu added.
It isn’t hard to understand this, said the chief executive officer (CEO) of the company.
“Unlike the West, where people drink more during difficult times, Indians come from a savings mindset and, during difficult times, cut spends and turn inwards,” said Anjan Chatterjee, CEO of Speciality Restaurants.
With consumers staying away, restaurant chains deferred price hikes and increased the number of promotions to lure them back even as high inflation and commodity prices cut into profitability.
Inflation remained range bound at close to 8% in the quarter. Prices of vegetables, dairy products, lentils, meat and poultry have increased on an average by 8.21% year-on-year during the September quarter, according to government data.
“We are doing everything we can to increase walk-ins and get consumers back. Even if this means that margins in the short term get impacted, it is fine,” said Chatterjee, who has not hiked prices in the past 12 months (it is normal in an inflationary environment for a restaurant chain to increase prices twice a year). Speciality Restaurant’s operating profit margin declined by close to four percentage points to 13.6% due to an increase in costs.
Jubilant FoodWorks increased prices by 10-11% in fiscal 2012, but will reduce the quantum this year.
“The total price hike for the financial year 2013 will be 6-6.5%,” said Ajay Kaul, CEO of Jubilant FoodWorks, in a conference call on Wednesday while discussing the company’s earnings.
Jubilant’s operating profit margin, a measure of a company’s operating efficiency, fell a percentage point year-on-year to 17.1% during the quarter and was the lowest since June 2011. “The fall is due to lower same-store growth which resulted in the lack of operating leverage as rents, employee costs and other overheads outpaced sales growth,” a 7 November Motilal Oswal Securities Ltd report said.
Coffee chains such as Barista Lavazza and Cafe Coffee Day are also exploring ways to increase footfalls through lower entry price points of food items and new strategic alliances.
“We are looking at all aspects to be relevant, innovative and unique with the use of loyalty programmes, celebration of events like friendship day, a makeover, and even strategic alliances that can be footfall drivers,” said Nilanjan Bhattacharya, chief operations officer of Fresh and Honest Café Ltd, which runs Barista Lavazza.
Still, despite slowing growth, restaurant chains are expanding. Jubilant FoodWorks has revised the number of Domino’s it plans to open by March 2013 from 100 to 110.
Speciality Restaurants added eight new Mainland China restaurants, of which two are franchises, in the first half of the current fiscal year.
The slowdown has also not deterred international restaurant and coffee chains from opening shop in India.
Dunkin’ Donuts (Jubilant again holds the master franchise for this in India) launched its first store in Delhi this May and will have 10 stores in India by March 2013. Tata Starbucks Ltd, a joint venture between Tata Global Beverages Ltd and Starbucks Corp., opened its first Starbucks cafe in October in Mumbai.
The promoters of HT Media Ltd, which publishes Mint, and Jubilant, are closely related. There are no promoter cross-holdings.