Fast-food chains miss the bus as retail recovers in Q2

Despite adding outlets, same-store sales growth for quick-service restaurants slows

Quick-service restaurants like Domino’s, Dunkin Donuts, McDonald’s and Pizza Hut might be ramping up their store counts aggressively to attract consumers, but sales growth at their outlets that are more than a year old continues to slide.

Same-store-sales growth (SSSG) rate for listed companies like Jubilant, the master franchisee of Domino’s and Dunkin Donuts in India, and Westlife Development, the franchisee for McDonald’s in West and South India, remains weak — at 6.6 per cent and minus 5.5 per cent, respectively, for the September quarter, compared with a year ago.

Compare this with the June quarter or the corresponding quarter of the previous year and the extent of malaise seems to become clearer. Jubilant’s SSSG had stood at 6.3 per cent in the June quarter and 19.8 per cent in the second quarter of 2012-13.

Westlife’s performance on this front has been even worse. Its SSSG stood at 0.5 per cent in the June quarter and 9.5 per cent in the September quarter last year. Clearly, the slide in same-store sales growth in the September quarter for Westlife has been dramatic. Its vice-chairman, Amit Jatia, attributed this to weak consumer sentiment.

Analysts tracking the company, however, say new store openings have also played their part in bringing SSSG down. “As the number of stores goes up, SSSG takes a hit,” said Abneesh Roy, associate director (research), Edelweiss.

Fast-food chains’ SSSG slide in the September quarter is in stark contrast with other retail formats like apparel chains, which have shown a marked improvement in the period. Nitin Mathur, retail & consumer analyst, Espirito Santo Securities, says eating out is something that can be avoided, but buying clothes cannot be. “The latter is something you must do; the former can be avoided. That is why fast-food chains’ SSSG is down,” he says.

Adding stores doesn’t help quick-service restaurants increase same-store sales. On the contrary, at least for now, the addition of outlets is leading to cannibalisation — something that Jubilant Foodworks CEO Ajay Kaul had also admitted after announcing his company’s quarterly result recently. “Yes, SSSG will take a hit,” he had said, “as your base of outlets goes up. But we will not stop adding stores because, in our view, the long-term consumption story remains intact”.

In the September quarter, Jubilant added 30 Domino’s outlets and five Dunkin Donut stores. Kaul said his company had increased its store addition guidance for the current financial year — from 125 stores to 135 for Domino’s and 20 stores from 18 for Dunkin Donuts.

The trend for Westlife is similar. Jatia said his company had opened nine restaurants in the September quarter. For the year, it proposed to add 38-50 outlets across West and South India.

The same goes in India for the unlisted Yum Brands, which proposes to add 250 stores in the current financial year as it eyes its next phase of growth in Tier-II and -III cities. The company recently opened its 500th store in Bangalore and said it would move to smaller cities and towns for growth. The company does not disclose numbers, but its US-headquartered parent said its SSSG for India business in the September quarter was near-flat.