Domino’s to Wow! Momo roll out in-store offers as deliveries gobble up footfalls

Growth is led by delivery, while dine-in sales are under pressure and the trend is likely to continue, according to a 29 August report by BNP Paribas. Aggregators are connecting consumers with more restaurants and cuisines, the report said citing numbers to highlight the contrast: Zomato has 2,76,000 restaurant partners versus only 5,000 total stores of branded quick service restaurants.

“The rising scale of aggregators could continue to tilt the bargaining power in their favour," it said.

For India’s nearly ₹58,000-crore quick service restaurant industry, the challenge form restaurant aggregators isn’t new. But the post-pandemic revenge dining boom has petered out, while Covid-driven surge in home deliveries continues. Consumers cutting back on spending to counter inflation has made it worse.

In the first quarter of FY25, aggregate sales of listed quick service restaurant chains rose 8% year-on-year, but lagged the growth in the number of outlets, according to the report. While QSR chains rapidly expanded their store count after a strong recovery post the pandemic, the subsequent demand slowdown resulted in a 400-600 basis-point erosion in post-rent Ebitda margin. (Ebitda is earnings before interest, tax, depreciation and amortization; 100 basis points make up one percentage point).

“The last two quarters saw several cricketing events (IPL and T20 World Cup) and extreme summers and rains—as a result, dine-in has been severely impacted," said Sagar Daryani, chief executive officer and co-founder, Wow! Momo Foods. “Also, we have not seen a major Bollywood blockbuster movie come in—and that's why there are no big footfalls that typically help draw consumers to malls and food courts. Bollywood could hold the key."

Tempting offers

Sluggish footfalls prompted Wow Momo to offer breakfast in stores as well as run offers. It is also revamping more outlets--clubbing its portfolio of restaurants under one roof to create an experiential environment for diners.

“The entire industry is taking several steps to get people back," said Daryani.

Domino’s pizza chain operator in India, Jubilant Foodworks, launched the ₹99 lunch feast for in-store consumers last quarter to lure diners back. Domino’s India reported like-for-like sales growth of 3.0% during the period, driven by delivery growth.

Also read: Fast-food chains fast track growth

In early June, Westlife Development, which runs McDonald's outlets in south and west India, launched its ‘McSavers 1 plus 1’ and an entry-level chicken burger.

For Restaurant Brands Asia (RBA), which operates Burger King in India, the leading dine-in marketing offer in the June quarter was ‘2 Crispy Veg at ₹79’ and ‘2 Crispy Chicken Burgers at ₹99’.

What’s making the task difficult for QSR chains is that discounts on deliveries stay high, enticing value-seeking consumers to order in.

Chaayos founder Nitin Saluja is optimistic. "We've already crossed 3-4 difficult quarters. It will be at least a couple of quarters till things become better and this should just be a matter of time," said Saluja, who is also a managing committee member at the National Restaurant Association of India. “The long-term view on the sector will look alright."

Growth for QSRs

The NRAI expects quick service restaurants to grow faster than casual dining outlets. The QSR segment’s contribution to the economy is expected to rise from ₹57,500 crore in FY23 to about ₹1.29 trillion by FY28, growing 123%, according to the NRAI’s ‘India Food Services Report 2024’. Casual dining revenue is estimated to grow 56% during the period, from around ₹1.11 trillion to nearly ₹1.74 trillion.

Also read: Food quality top of the mind for urban Indians while ordering from fast-food chains: Survey

Yet, a lot of QSRs that don't have the ability to bring in dine-in customers will find it challenging, according to Saluja. “Since after the pandemic, the customer is now well acquainted with deliveries and is much more comfortable having the food delivered rather than to go to the outlet. The more the deliveries are, the more the margins shrink."

Inflation has also hurt eating out. Middle-income consumers, a core target for QSR chains, have slowed down discretionary spending amid rising costs.

"QSR restaurant pricing isn't moving up in line with inflation; it is a value-based economy, and there's intense competition. The delivery companies have ensured that it is an absolute golden age for the consumer and effectively destroyed margins for many operators," said Jasper Reid, managing director of Dolomite Restaurants, the operator of Jamie's Pizzeria and other chains where 88% of the business is dine-in.

“Unless we see strong growth in consumer sentiment or better quality, the situation is going to continue and QSRs will be in a death spiral," he said. “Many are cutting back on food quantity and quality to recover their margins."

But it’s not all doom and gloom, said Reid, referring to the growth in premium dining. “The mid-and-upper market, where there is margin, remains largely wide open and we see investment returns here." 

Also read: Fast-food chains push more value meals as in-store footfall remains weak

 

(The promoters of HT Media Ltd, which publishes Mint, and Jubilant Foodworks are closely related. There are, however, no promoter cross-holdings.)