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Caffeine boost for Pizza Hut

After McDonald's, Yum!'s dining chain will be the second fast-food brand to open in-store cafes to improve sales

Viveat Susan Pinto  |  Mumbai 

Six months after fast-food giant McDonald's stepped into coffee retail with McCafe, rival Yum! Brands (Yum) is test-a similar concept at Pizza Hut restaurants in Kolkata and Chennai.

Called Hut Cafe, the concept looks promising, according to Niren Chaudhary, India president, Yum! Restaurants, a unit of the US-based Yum. "The concept visually disrupts, for the consumer, the perception of variety inside a Pizza Hut restaurant, and it also helps build an additional day-part for the brand," Chaudhary had said at a recent investor conference.

Yum is expected to scale-up the model after testing it in the next few months. The company, by the end of this calendar year (Yum follows a Jan-Dec accounting year), will launch about 10 more Hut Cafes at restaurants across the country, persons in the know say. A mail sent to Yum in India elicited no response till the time of going to press.

But analysts say the reason for this interest in beverages by fast-food majors is because of the absymal growth in same-store sales (SSS, ie. growth in stores operating for over a year) that most of them have seen in the last few quarters.

In the December-2013 quarter, for instance, Jubilant Foodworks, the franchisee of brands such as Domino's and Dunkin Donuts in India, saw SSS growth fall to -2.6 per cent, its worst quarterly performance so far. Yum, the owner of KFC and Taco Bell besides Pizza Hut, saw it drop to -4 per cent during the December quarter. Westlife Development, whose subsidiary Hardcastle Restaurants is the franchisee of McDonald's in the west and south, saw SSS gowth slip to -9.8 per cent in the December quarter from -5.5 per cent in the September quarter. This was the second consecutive quarter of negative SSS growth for Hardcastle, analysts say.

Clearly, adding more elements to the menu is becoming critical for most fast-food majors. During launch of McCafe in Mumbai last year, Hardcastle's vice-chairman Amit Jatia had said that the cafe would act as an extension to McDonald's core offering. "Consumers will now have the option to enjoy an assortment of food & beverages at a single outlet. Our plan is to have McCafes in 75 to 150 McDonald's stores in the next three to five years," Jatia had said.

Why coffee?
After fast-food, if there is one space that shows promise, it is coffee retail. While players such as Barista Lavazza and Costa Coffee have seen operations take a hit because of rising costs and slowing business, companies such as Starbucks have been aggressive in India setting up close to 45 stores in a year-and-a-half.

At Rs 1,500-crore, the coffee chain market in India is growing at a fast clip of about 15 per cent per year. According to Saloni Nangia, president at Gurgaon-based retail consultancy Technopak Advisors, the top 40 cities have about 1,700 outlets. "These cities can accommodate another 2,000 cafes in the next few years," she says.

This assumption is based on a simple math: India has been adding around 200 cafes per year for the last five years, says Nangia. "If this pace of growth is maintained then 2,000 more cafes will see the light of day," she says. And given that most players have plans to expand their operations, there is no reason why this number should not be achieved, she says.

The Bangalore-headquartered Cafe Coffee Day, which is the largest coffee chain player with over 1,500 outlets, proposes to add another 500 stores in the next one year, taking its total count to over 2,000. It is expected to double its reach to 400 cities from 200 now as a result of these new store additions.

One-stop shop and more
While coffee is a crucial element of the menu, fast-food majors are doing a lot more to shore up revenues. This includes the launch of more vegetarian and value meals as well as aggressive offers on different days of the week, apart from working on meals for different parts of the day (day-parts) such as breakfast- and lunch-time. Chaudhary had said at the investor conference, "In 2013, we strengthened our strategy on vegetarian and value. We are excited about our new range of crave-worthy vegetarian products across formats and price-points that we have recently developed. We've doubled our vegetarian users and it is going to be an important part of our calendar for next year. We've also had breakthrough with our value program called KFC WOW!, where we offer snacking options at affordable price-points, besides Rice Bowl, a portable rice meal." McDonald's and Jubilant, of course, have also significantly increased non-burger and non-pizza items on their respectives menus to improve sales.

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First Published: Tue, April 22 2014. 21:40 IST