The restaurant business has been under a lot of pressure of late, but now the buzz is that the sector is seeing a revival, across formats to boot.
Back in summer, India's restaurant sector was still struggling against headwinds, such as the rollback of input tax credit, inflation, steep rentals, policy restrictions, the surging competition in the form of hyper-local delivery stores and focus on value pricing. For instance, Jubilant FoodWorks, the operator of US-based Domino's Pizza and Dunkin' Donuts stores in India, had been forced to shut down 40 per cent of its loss-making doughnut outlets. But now the buzz is that the sector is seeing a revival, across formats to boot.
"After battling the turbulence caused by policy changes with demonetisation, the highway liquor ban and denial of input tax credit, our industry's perseverance is paying off and we are seeing green shoots," Rahul Singh, president of the National Restaurant Association of India and founder of The Beer Cafe, told The Economic Times. The association represents over 5,000 restaurant brands. "The organised restaurant sector has witnessed double-digit growth in the just-concluded quarter, which is owing to consumer upsurge in eating out and ordering in," he added.
Last November, the government scrapped input tax credit, which accompanied the cut in GST to 5 per cent from 18 per cent. According to industry officials, this jacked up capital expenses and rentals by 15-18 per cent. But things are getting better now, after a two-year long slowdown.
Consider Yum India-owned KFC and Pizza Hut, which reported 25 per cent and 20 per cent year-on-year growth in system sales, respectively, for the quarter ending September. System sales imply growth of a franchised brand and represents total sales of all outlets that use a brand.
Similarly, Westlife Development, which operates McDonald's restaurants in West and South India, reported a more than six-fold jump in year-on-year net profit to Rs 7.9 crore for the quarter ended September 30 2018, and 32 per cent increase in revenues to Rs 350 crore from the corresponding year-ago quarter. It reported same-store sales growth of 25.7 per cent for the quarter.
Connaught Plaza Restaurants (CPRL) MD Vikram Bakshi, who continues to operate McDonald's in the North and East despite a prolonged boardroom battle with parent company McDonald's India, also said sales numbers have been robust in Q2. CPRL grew 25 per cent in same-store sales during the quarter. Jubilant FoodWorks, meanwhile, reported same-store growth of 20.5 per cent, and 60 per cent increase in net profit to Rs 77.7 crore.
"The rollback of input tax credit isn't an ideal situation but it pushed us to look for increased efficiencies across the board. That consumer sentiment has revived and people are eating out more across formats, from quick service to fine dining to delivery, is helping," KFC India's MD Samir Menon told the daily.
With consumer sentiment improving, companies say that they are hopeful of sustaining the growth momentum. Moreover, the changing profile of consumers splurging on dining out - they are not only getting younger but also hail from more diverse backgrounds - is helping restaurant toplines. According to restaurateurs, bottomlines, however, continue to be under pressure because of GST.
Moreover, several concerns continue to plague the sector. "Worries on cost push driven by rising fuel impact freight, delivery costs and competition for delivery manpower from food aggregators and e-commerce companies could keep the stock trading sideways," Rohit Chordia, a Kotak Securities analyst, told the daily.
Edited by Sushmita Choudhury Agarwal