 "New flavours with its youngest chain, Taco Bell")
In the last couple of years, India's Rs 7,000-crore quick-service restaurant (QSR) or fast-food space has seen a lot of action. In 2014 alone, some of the leading global QSR chains such as Burger King, Wendy's, Fatburger, Carl's Jr and Johnny Rockets have either entered or announced their entry. These players have spent anywhere between 12 and 48 months researching the market to take on well-established players like Yum! Brands (Yum) and McDonald's.
The new competition will put pressure on a player like Yum, which straddles various QSR categories, with some of its brands being over 10-year old and one just spreading its wings. The gloom curbing discretionary spends is not helping it either. Nielsen says its Indian Consumer Confidence Index that has moved up a few notches in the last quarter of the calendar year, 2014, will take another two quarters to show in actual consumer spends.
Meanwhile, same-store sales (ie. in stores that have been operational for at least a year) in the same quarter (Oct-Dec, 2014) continued to trouble the US-based purveyor of Pizza Hut, KFC and Taco Bell.
Its same-store sales declined by 10 per cent in its Q4 of CY-14 (compared to 4 per cent the year before) and sales grew by 6 per cent year-on-year (prior to foreign currency translation). For the whole year, revenue grew at 14 per cent year-on-year and its same-store sales declined by 5 per cent.
Edelweiss Institutional Equities Research Associate Director Abneesh Roy says, "Yum was, in fact, closing in on the gap with Jubilant's same-store sales for the last few quarters as it was growing faster than the Domino's parent. It intensified its promotions on Pizza Hut with one-on-one offers and stepped up home-deliveries, directly competing with Domino's. But not this quarter. In burgers, McDonald's has done better after quite a few quarters."
However, Yum has led the charge in opening up new stores this quarter, indicating that its strategy includes aggressive retail expansion for both new and old brands.
It has opened 106 stores of the year's 156 store (across its brands) in the quarter ended December, 2014. In contrast, Jubilant opened 50 stores (across its two brands) in the quarter and Westlife's McDonald's business 11 stores. Its youngest brand, Taco Bell, has seven stores this year, up from one in Bengaluru where it was present since its launch in 2010.
Yum is also not letting up on marketing. Roy says that Yum's home-delivery efforts for Pizza Hut has the potential to threaten Jubilant's market share in the space, having seen a spurt of 40 per cent in home-service stores in the quarter, besides its in-store offers.
KFC, fresh off a campaign for a fiery brand of preparation, claims to have met with success with its menu innovations. Dhruv Kaul, chief marketing officer, KFC India, says, "There is a faster uptake of our menu innovations. In the past, our branded beverage Krushers and Fiery Grilled chicken have done well. Our legacy of consistent innovation is not a reaction to competition." Late in 2014, KFC added Flaming Crunch, fried chicken laced with the legendary ghost chilly or Bhut Jolokia from Assam.
Globally, players like McDonald's are racing the clock to find ways to address a fragmented market that is moving on from mass fast-food to more segmented brands among QSRs that are either more gourmet or esoteric in their offerings.
In India, new players such as Johnny Rockets and Carl's Jr. have said they would target the premium QSR diner with burgers, for example, priced upwards of Rs 300. However, Kaul of KFC, which has rice-based items on the menu too, says, "Since burgers are hardly 2 per cent of the QSR market, we do not see any incremental gains in micro-targeting (or segmented pricing)."
Yum's worldwide sales grew 3 per cent and operating profit increased 1 per cent in 2014, with the US continuing to be a flat market, relative to China. Its Mexican-food brand, Taco Bell, helped maintain some of its momentum in the US with new menu items like the Doritos Locos Taco.
Taco Bell's Indian strategy has now been firmed up on the back of its expansion. Yum tweaked Taco Bell's initial positioning on 'food heritage' within a year of its launch to 'food adventure'.
Says Unnat Varma, general manager, Taco Bell, "Today the consumers are more discerning and so we give them flexibility to experience our brand at a price-point suitable to them." Taco Bell sells a taco for as low as Rs 25.
Present in Mumbai and Bengaluru, in the next two years, Yum will take it to three to four other cities. For now, it will focus on driving sampling through promotions such as Taco Bell's Rush Hour scheme, which offers 50 per cent discount on some of its items.
Even then, Yum will have many fronts to defend. New QSR chains, for example, are intent on connecting with customers in their stores' immediate localities, not engaging in a direct mass media competition with the existing players who have scale, but looking at bulk corporate orders to build one, instead. For example, Pita Pit, a pita sandwich chain, is gunning for corporate discounts and tie-ups with other commercial establishments to target their patrons.
