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Fast-food franchise owners in India's biggest global brands are suffering steep declines in profits as hundreds of millions of middle-class and lower-income Indian consumers struggle to cope with rising living costs.
Despite India boasting the world's fastest-growing major economy, sustained inflation since the coronavirus pandemic has led many people to refrain from eating out or to look for cheaper local alternatives. forced to rely on supplies.
Jubilant Foodworks, the operator of Domino's Pizza and Popeyes, on Wednesday reported a 46 percent drop in profits from its Indian operations in the quarter ended March from a year earlier, capping a tough financial year for international fast-food brands in India.
Jubilant co-chairman Hari Bhatia acknowledged a “challenging demand environment” in India.
In early May, Devyani International, the KFC and Pizza Hut franchisee, reported an 89% drop in quarterly profit before special charges. Its billionaire owner, Ravi Jaipuria, told analysts that it had been a “tough year of spending” due in part to “weak disposable income” from customers.
Westlife Foodworld, which operates about 400 McDonald's restaurants in western and southern India, announced a 96% drop in quarterly net profit. Meanwhile, Sapphire Foods, which operates Pizza Hut and KFC, reported a similar decline. This is the biggest three-month drop in profits since going public in late 2021.
The trend is similar in the United States, where some of the world's largest food and beverage groups say lower-income Americans are unable to absorb higher prices.
India has been holding a general election for weeks, but opposition parties are trying to attack Prime Minister Narendra Modi's economic record by highlighting soaring food prices.
India's headline consumer inflation eased slightly to 4.8 percent year-on-year in April, but food prices rose 8.7 percent, remaining a “concern,” according to economists at HSBC.
In a country where per capita income is estimated at $2,700, consumers are highly price sensitive. Goldman Sachs points out that only about 60 million Indians earn more than $10,000 a year.
Although many fast food chains are offering cheap menus, such as McDonald's MacSaver menu for about 100 rupees (about 120 yen), Indians are still struggling with price hikes since the pandemic. ”, are downtrading to cheaper options such as street food, said an investment banker in Mumbai.
For more than a decade, the food giant has been rapidly expanding its operations across India. Once confined to the country's wealthiest urban areas, hundreds of new stores have opened in the past year alone, many of them spread across India's small and medium-sized cities.
Taste for fast food “has also been affected by the economic slowdown as it has changed from aspirational to mass consumption,” said Teresa John, chief economist at Nirmal Bhan, a brokerage firm in Mumbai. “Wage growth has not kept up with inflation.”
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Chain operators hope the pressure will subside once elections are over in early June and more Indians start the months-long festival season around September.
Speaking on an results call this month, Westlife Foodworld managing director Saurabh Kalra said there was no change to the company's expansion plans despite a “challenging year for the whole industry”.
Westlife Foodworld plans to open a further 50 McDonald's restaurants in India this financial year, having added a record 41 outlets in the past 12 months.
“We remain very optimistic about the long-term structural opportunities,” Kalra said.
