Actually, the demand for fast food is still increasing in India, with the quick-service restaurant (QSR) market expected to grow at a compound annual growth rate of 23% between now and 2025 ¹. Large food chains like McDonald's, Burger King, and Domino's are expanding their reach to smaller cities and benefiting from a younger demographic. The QSR chain market is estimated to be the highest growing sub-segment in the food services market over the next five years. However, it's worth noting that fast-food chains still make up less than 5% of India's food services market, compared to the global average of 20% ¹.
Indians appear to be losing interest in international quick service restaurant (QSR) chains such as McDonald’s, Burger King, and Pizza Hut, prompting these companies to go aggressive on value offerings in the market.
Whether it's the emergence of modern food brands attracting venture capital (VC) investment for expansion or the rise of Zomato and Swiggy, which provide consumers with easy access to a wide range of food options via their smartphones, global QSR giants have been facing challenges in drawing customers to their locations.
Westlife Foodworld, which operates McDonald’s chain of outlets in West and South India, said at the company’s Q1 earnings call: “….there’s obviously been pressure in terms of customers entering our restaurants”.
[19/08, 18:07] Pu: “Pizza Hut has been working on product and value strategies that work towards making the brand relevant for a cross-section of consumers, especially Gen Z,” said a local company spokesperson.
Ravindra Yadav, partner at Technopak, said such offerings are “desperate measures” to get customers back. “It’s a flawed long-term strategy. If they focus on value, they will be impacting their profitability or compromising on the quality of the product,” said Yadav. Global brands have always been aspirational for local consumers and on many counts, they perhaps still are but in a market where young, experimental Gen Z and millennial consumers are dictating consumption patterns, companies need to have more than just a brand pull. They are not innovating enough, said analysts.
“The consumer today is spoilt for choice and can order different kinds of food because of food delivery aggregators. Customers are getting experimental. If they find the user experience to be good in any of the new age brands, there’s a consumption shift. The big QSRs have to innovate or offer a very different user experience,” said Karan Taurani, vice-president at Elara Capital. He added that margins for global brands have collapsed by 400-500bps (100 basis points = 1 percentage point) in the past few quarters because of discounting and promotions.
Any homegrown brand today can piggyback on Zomato and Swiggy to reach more customers and gain scale that offline stores alone may not suffice. Over the recent years, a plethora of new age brands like Good Flippin’ Burgers, La Pino’zPizza, Burger Singh, Wow! Chicken (by Wow! Momo) and Biggies Burger have swept the market. Brands like a Boba Bhai offer aloo tikki burgers at a starting price of Rs 59 and a chicken burger for Rs 149 while Burger Singh has a whole range of value burgers starting at Rs 39, prices lucrative enough to draw the school and college goers, a segment which players like McDonald’s and Burger King also target. Besides, premium restaurants have started delivering via the platforms, widening choice for consumers. “Apart from competition, companies like Zomato are bigger disruptors,”said Taurani.
