Quick service restaurants feel slowdown pangs for second straight quarter

Two of the country’s quick service restaurants (QSRs) — Jubilant FoodWorks and Westlife Development — have reported single-digit same-store sales growth (SSG) for the June quarter (Q1). This is the second straight quarter they are seeing a decline in sales when compared with the year-ago period. 

It was in Q4 that the two listed players, who run Domino's and McDonald’s stores in India, respectively, first saw single-digit SSG in the 5-6 per cent range after five quarters of double-digit growth. SSG is sales growth of stores one year and above, and is a crucial metric tracked by analysts as it gives a clearer picture of top line growth.

In Q1, Jubilant's SSG stood at 4.1 per cent, its lowest in seven quarters, while Westlife's SSG stood at 6.7 per cent. In Q4, Westlife’s SSG was 5.6 per cent, while Jubilant’s was 6 per cent. 

“Against a compounding base, it will be difficult to have double-digit SSG every quarter," said Amit Jatia, vice-chairman, Westlife. “In the year-ago period, the SSG base was high (at 24.1 per cent). So, the SSG number now (Q1) will be lower when compared to the corresponding period last year. Sequentially, we are slightly better than the 5.6 per cent SSG number reported in Q4. In an environment where consumer sentiment is down, I see this as a good performance.”

In Jubilant’s case, too, the high-base effect has kicked in during the period under review. In Q1 FY19, Jubilant's SSG was 25.9 per cent, impacting the SSG number for the period under review, executives said. "Apart from a high base, Jubilant also faced pressure in the dine-in segment. This is a consequence of the discounting by food aggregators. Plus, a pullback in terms of discretionary spends by consumers is resulting in eating-out as a trend taking a hit," said Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss.

But the firms had good news too. Online deliveries as a percentage of overall delivery sales was in the 80-81 per cent range in Q1, higher than the 60-65 per cent number the players reported a year ago. “Online sales continue to be strong and our mobile app saw record downloads in Q1,” Pratik Pota, chief executive and whole-time director, Jubilant, said. 

Westlife, too, has been investing in digital initiatives, said Jatia. “QSRs will have to go where consumers are. We ran multiple value campaigns on our McDonald’s app during the quarter to increase downloads and this effort will continue.”

Both players also continue to focus on launching new stores. Jubilant launched 22 Domino’s stores in Q1, while Westlife launched four McDonald’s stores during the quarter. For FY20, Westlife hopes to launch around 25-30 stores, while Jubilant is targeting around 90 Domino’s stores. Jubilant is also looking to launch a total of 10 Hong’s Kitchen outlets for FY20 after first foraying into the space (Chinese cuisine) in Q4.