Quickservice chains see slower traffic in India

For households across the country, a slowing economic growth has led to a reduction in eating out expenses, significantly denting the growth of the quick service restaurant (QSR) industry. From double-digit, same-store sales growth, leading multinational food chains are now faced with declining growth levels, causing most of them to lower targets for this year.

While discretionary spending has visibly fallen, market players said the frequency of consumers opting to eat out has declined by nearly 50%, in a bid to increase savings. "There has been a slowdown, no doubt. There is an overall pressure on the purchasing power of people. The service tax implemented since April this year has further impacted sentiments," said Samir Kuckreja, president, National Restaurant Association of India (NRAI).

With slowing GDP growth making consumers circumspect, analysts said the fall in growth levels was expected. Even as industry leaders expected a comeback in consumer sentiments towards December last year, experts said the lull period for the industry has continued till March 2013.

For leading pizza player Domino's, same-store sales growth has fallen from 30% to merely 7.7% in the first quarter this year. The store sales reported a growth rate of 16% in the previous quarter. While the company expects growth levels to spring back this year, there is little hope to be at par with last year's results.

"The progressive fall in growth has been a cause of concern. There has been a definite sharp decline, which has primarily been driven by economic factors. We are not sure if growth will be back as same as last year," said Ajay Kaul, CEO, Domino's.

To ensure a rebound in consumer sentiments, companies are focusing on entry price-level products, even if it means cutting margins. "We have to ensure innovation in a way that it is affordable. It is better to hurt margins than losing business. In food industry, you just cannot afford to lose people," said Virag Joshi, CEO at Devyani International, which has the franchise rights for brands such as Pizza Hut, KFC, Costa Coffee and Swensen's.

The company, which has seen a slowdown in growth across all its brands, is focusing on low pricing to attract consumers. "KFC recently launched a product for Rs 25, and Pizza Hut Delivery at Rs 44. There is no confidence in the market anywhere so we have to play the value game," Joshi said.

For Global Franchise Architects, which has the rights for brands such as Pizza Corner, Coffee World and The Donut Baker, store sales growth have fallen from double digits last year to a mere 2% in first quarter of 2013. While price hike could be a possibility, companies plan to stall an increase to prevent further moderation in growth.