Burger King India vs McDonald's: A new appetite for stock markets

A stock market debut sets up a clash between US rivals as listed peers in India

On Monday, Burger King India listed on the bourses at nearly double its issue price, bringing into focus a fast-food chain that has been in the country just six years. The stock has rallied for two consecutive days and shows no signs of abating.

The buzz around the company’s Rs 810-crore initial public offering (IPO), launched earlier this month, prompted investors to subscribe the issue over 156 times. This puts the firm’s IPO in the top three league of most-subscribed IPOs this calendar year, coming at a time when fears of catching the coronavirus has led people to ditch unhealthy eating habits. So what makes Burger King so attractive? And why are consumers lapping up a quick-service restaurant (QSR) in a pandemic?

The answers lie in the organised burger market in India, which up until now was dominated by one player: McDonald’s. Domestic investors were familiar with the McD name through its master franchisee in the west and south of India, Westlife Development, a listed player.

The only other listed QSR player in India that competed with Westlife was Jubilant FoodWorks, the master franchisee of Domino’s Pizza. Yum Brands, another prominent operator of QSR brands such as KFC and Pizza Hut, remains unlisted in India.

In other words, investors have had just two listed food service operators in a market that is expanding.

One of the early entrants in the space, Westlife Development has been around for two-and-a-half decades, pushing American fast food into the consumer mind space using a combination of tactics from value meals to quick deliveries, innovative advertising and marketing. The company has 315 McDonald’s restaurants across 42 cities in the west and south of India, with plans to take the number to 500 outlets by calendar year 2022.

Burger King India, on the other hand, opened its first restaurant in 2014 and has since launched 268 outlets across India. Plans are in place to take the number to 700 stores by the end of 2026 for which the company is counting on some IPO proceeds.

But analysts believe that comparisons between McDonald’s and Burger King, traditional foes in their home market of America, will now be made as the stock market debut of Burger King India, a joint venture between private equity firm Everstone and Burger King Corporation, sets the stage for a big fight between the two players.

In a conversation with Business Standard, Rajeev Varman, chief executive officer, Burger King India, said he wasn’t afraid of competition. The fast-food brand, he said, could capitalise on multiple opportunities within the domestic market, allowing for both rivals to co-exist.

“The Burger King brand is positioned around youngsters, those between 15 and 35 years. The largest such population is in India. Apart from this, there are dual-income families in India. This not only puts more disposable income in the hands of people, but it also constricts their time. People will also increasingly seek more sanitary and hygienic environments when consuming food, thanks to the pandemic. Organised players such as us will gain,” he said.

The total food services market in India, according to industry estimates, is pegged at Rs 4 trillion, growing at 10-11 per cent a year. The unorganised segment remains larger, at Rs 2.5 trillion, while the organised segment is pegged at Rs 1.5 trillion in terms of size.

Consultancy firm Technopak, which tracks the market closely, said the picture could change in the next few years as the pandemic increases hygiene consciousness among consumers. Industry estimates suggest that the overall food services market will expand to around Rs 6.6 trillion in size by calendar year 2025, with the organised and unorganised segments evenly split at Rs 3.3 trillion each.

Of this, the chained segment within the organised market, which includes QSRs, will see the fastest rate of growth, jumping two-and-a-half times to Rs 87,300 crore in the next five years from Rs 35,000 crore now.

Arvind Singhal, chairman, Technopak said organised players will seize opportunities, locking properties when rentals are low, taking advantage of the digital dividend that the pandemic has created and enticing consumers with newer menu options.

Amit Jatia, vice-chairman, Westlife Development, said trust in western QSRs remains high, owing to proven best practices that many of them have in place. “They will be the first to recover, since trust codes in western QSR brands tends to be high,” he said in a conversation with Business Standard earlier.

Fast-food chains are already nearing pre-Covid sales levels, sector experts said, led by growth in convenience channels including online and kerb-side deliveries as well as sales via drive-through restaurants. At the same time, the dine-in segment is showing signs of an uptick as QSRs put stringent safety measures in place including mandatory distance between tables, digital menu cards and payment systems, and time-to-time sanitisation of kitchen and dining areas.

Growth prospects of outlets located near highways, metro rail stations and expressways remains higher as life limps back to normalcy. Varman said every major city today in India has a metro development programme, leading to retail and real estate potential around these locations.

“Future growth will be skewed towards these places since the density of traffic will grow as the threat of the virus reduces. While there will be 10-15 mall locations that we will target in the future, potential for growth exists outside of malls,” he added.