Fast food chains set to expand as consumer spends revive

The Rs 3,000-crore fast food restaurant industry in India is likely to see an addition of 70-100 new outlets in 2010, compared with an addition of 30-50 outlets in the current year, as a revival in consumer spending boosts sales.

The Yum! brand of KFC would be at the forefront of this expansion. “We opened 27 new restaurants in 2009 and are looking to open around 45 next year,” said Unnat Varma, KFC’s marketing director. KFC currently has 72 restaurants in India and also plans to introduce new restaurant formats.

Pizza Hut, another Yum! brand, will also increase its store count. “We may expand the base by 10 per cent in 2010. We opened about 12 new outlets in 2009,” said Anup Jain, marketing director, Pizza Hut. Pizza Hut currently has 117 restaurants in India.

The thrust on expansion in 2010 is in the light of analyst reports which show that same-store sales of the fast food restaurant industry, which is mainly franchisee-driven, have seen a growth rate of 7-20 per cent in the last one year on the back of reasonable price points and value meals. For chains like McDonald’s, KFC and Pizza Hut, India has been among the leading emerging markets, even as sales remained flat globally.

Dominos, on its part, plans to open 65-70 stores in this financial year. Of these, 33 had already been set up by August, taking their total number of stores to 274, according to Ajay Kaul, CEO, Jubilant FoodWorks, the master franchisee for Dominos in India.

REAL ESTATE LINKAGES
The expansion plans of some fast-food-chains, like McDonald’s India, have been hit by the slowdown in the real estate sector.

“We could open (just) 9-10 restaurants in 2009 due to the slowdown in real estate development. In 2010, we may be able to realize just about 50 percent of our initial investment plans,” said Vikram Bakshi, managing director and joint-venture partner, McDonald’s India – North and East.

McDonald’s has 174 restaurants in India of which 91 are in North and East India and 83 in West and South India. It has set a target to open 22 new stores in 2010, but may be able to open only 12 to 15 if the real estate sector does not improve.

PRICE PRESSURES
Meanwhile, fast food chains may be hiking prices in 2010, as food inflation bites at their doors. “We are under pressure to increase the prices across our system, but even with a 5-10 per cent price increase, we will take a hit on profitability,” said Bakshi.

Dominos has already increased prices. “We have taken a marginal price increase. Most of the food inflation seen in the recent times has been absorbed by us,” said Ajay Kaul.

Pizza Hut and KFC are, however, holding on to prices as of now, but may increase these in the near future if food prices continue on the upswing.