Mint Explainer: Why are KFC and Pizza Hut franchisees Devyani and Sapphire coming together?
As KFC and Pizza Hut struggle with slowing sales and thinning margins, franchisees Devyani International and Sapphire Foods are merging. What’s driving the deal, how will they benefit, and what does it mean for India’s QSR market?
While the rest of India was nursing a New Year’s hangover, two of the country’s biggest fast-food titans were cooking up a massive deal.
Late on 1 January 2026, Devyani International and Sapphire Foods—the two primary gatekeepers of the Yum! Brands empire in India—announced they were merging into a single quick service restaurant (QSR) superpower. Between them, these two giants manage KFC, Pizza Hut, and Taco Bell across India and neighbouring territories.
Why are Devyani and Sapphire merging, and what does this deal mean for the broader QSR market in India? Mint explains.
How is the merger structured?
Both Devyani International, part of the RJ Corp group, and Sapphire Foods are listed companies. Under the merger, Sapphire Foods shareholders will receive Devyani International shares in a swap arrangement.
For every 100 shares of Sapphire Foods, shareholders will be issued 177 shares of Devyani International. Post-merger, only Devyani International will remain listed. The process is expected to take 15-18 months to complete.
Once concluded, the deal will create a single operator for all Yum! Brands in India. Devyani also operates Costa Coffee in India and runs several home-grown and acquired brands, including South Indian food chain Vaango and delivery-only biryani brand Biryani By Kilo, which it acquired in April 2025.
In an exchange filing, Devyani told shareholders it expects annual benefits of ₹210-225 crore from the second year of operations after the merger is completed.
What’s going wrong with India’s fast-food market?
The Devyani–Sapphire merger comes amid a prolonged slowdown in India’s QSR sector, marked by weaker demand, lower footfalls and mounting pressure on profitability.
Across listed players, sales growth has slowed and same-store sales growth (SSSG)—a key measure of demand at existing outlets—has slipped into negative territory. McDonald’s franchisee Westlife Foodworld reported just 5.2% sales growth in the first half of FY26, alongside a 1.3% decline in SSSG. United Foodbrands, which operates Barbeque Nation and other casual dining brands, saw marginal sales decline over the same period, with SSSG falling 3.4% in the June 2025 quarter and 2.2% in the September 2025 quarter.
The pressure intensified in the September quarter, which proved especially difficult for listed fast-food chains.
“Ebitda margins for most brands contracted because of lower productivity and product mix changes as most continued to report soft SSSG," brokerage firm Nuvama Institutional Equities said in a November 2025 note. “Q2 was marked by continued softness in discretionary spend and eating-out frequency, compounded by seasonality—such as Shravan and Navaratri falling in the same quarter—impacting non-vegetarian sales."
The slowdown has hit most large operators, including KFC and Pizza Hut, and even relatively resilient brands such as McDonald’s have struggled with thin margins. The notable outlier has been Jubilant FoodWorks, which operates Domino’s Pizza in India.
How badly have Devyani and Sapphire been hit?
The numbers highlight the pressure they're under. In the first half of FY26, SSSG for Devyani’s KFC outlets declined 2.4% year-on-year, after a 7.1% fall in the first half of FY25. Its Pizza Hut stores fared worse, with SSSG declining 4.1% between April and September 2025, following a 7.1% drop in the same period the previous year.
Sapphire Foods has seen a similar trend. SSSG for its KFC stores fell 2% in the first half of FY25, after declining 7% in the same period a year earlier. Its Pizza Hut network saw an 8% fall in SSSG in the first half of this fiscal year, following a 5% decline in the comparable period last year.
Despite these trends, both companies managed to grow revenue. Devyani’s consolidated revenue rose 39% in FY25, while Sapphire’s consolidated revenue increased 11%.
Why does Pizza Hut matter so much to this deal?
A key driver of the deal is Pizza Hut’s worldwide struggle. In November, Yum! Brands announced a “strategic review" of Pizza Hut, hinting at the possibility of selling the brand.
“The Pizza Hut team has been working hard to address business and category challenges; however, Pizza Hut’s performance indicates the need to take additional action to help the brand realize its full value, which may be better executed outside of Yum! Brands," said Chris Turner, CEO of Yum! Brands.
The challenges are evident in India, where pizza faces intense competition and changing consumer behaviour, with more customers ordering in rather than dining out.
Globally, Pizza Hut has been struggling. In the first nine months of 2025, Yum! Brands' Pizza Hut division reported global sales of $710 million, a marginal decline of about $5 million year on year. In 2024, this division's sales fell 1% year on year while same store sales growth declined 4%.
For Devyani, Pizza Hut sales in the first half of FY26 were up 1.8% year on year, even though the company opened 28 more outlets. For Sapphire, Pizza Hut sales fell 6% year on year in the same time period, while it opened 4 new outlets.
How will the merger help the two companies?
Both companies stand to gain scale, cost synergies and strategic flexibility.
In research notes issued in October and November 2025, JP Morgan said Pizza Hut’s performance continues to weaken amid rising competition and a shift towards at-home consumption. However, the brokerage noted that Devyani could benefit from a recovery in KFC, which remains the leader in fried chicken.
A combined entity will allow the companies to focus expansion efforts on stronger formats such as KFC, while Devyani’s non-Yum! brands will provide diversification and a hedge against continued stress in pizza.
How did the stock market react?
The market reacted swiftly to the announcement. Devyani International’s shares opened 8% higher on 2 January, while Sapphire Foods’ stock fell 3% in early trade.
Analysts tend to favour Devyani, citing its larger scale, bigger international presence, and broader brand portfolio. That said, both companies continue to grapple with weak margins.
Even so, about two-thirds of analysts tracking the stocks still give them a ‘buy’ rating, according to Bloomberg data.
Other QSR operators eyeing a public listing will keep a close eye on how this merger plays out. In October 2025, Sebi cleared the ₹800-crore IPO of Curefoods, which operates brands such as EatFit and Frozen Bottle and holds the Krispy Kreme franchise in India.
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