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Global brand fast-food franchise owners in India have suffered plunging profits as hundreds of millions of the country’s middle-class and low-income consumers struggle to cope with rising living costs.
Even as India boasts of having the fastest-growing major economy in the world, sustained inflation since the coronavirus pandemic has forced many people to cut back on eating out or to turn to cheaper local alternatives.
Domino’s and Popeyes operator Jubilant FoodWorks on Wednesday capped a difficult financial year for international fast-food brands in India by reporting a 46 per cent year-on-year fall in profit from its operations in the country in the quarter through March.
Hari Bhartia, Jubilant co-chair, acknowledged the “challenging demand environment” in India.
Earlier in May, Devyani International, a KFC and Pizza Hut franchisee, registered an 89 per cent fall in quarterly profit before an exceptional expense. The company’s billionaire owner Ravi Jaipuria told analysts it had been a “tough consumption year” due in part to “weak disposable income” among customers.
Westlife Foodworld, which manages almost 400 McDonald’s across west and south India, posted a 96 per cent drop in quarterly net income, while Sapphire Foods, another Pizza Hut and KFC operator, reported a similar dive — its biggest fall in three-month profit since listing in late 2021.
The trend echoes those in the US, where some of the world’s biggest food and beverage groups have indicated that low-earning Americans have been unable to absorb rising prices.
With India in the midst of a weeks-long national election, opposition parties have sought to attack Prime Minister Narendra Modi’s economic record by highlighting the escalating cost of food.
Though India’s headline consumer inflation eased slightly to 4.8 per cent year on year in April, food prices were up 8.7 per cent and remain “a concern”, according to HSBC economists.
In a country where per capita income is estimated at $2,700, consumers are highly price sensitive. Goldman Sachs has highlighted that only about 60mn Indians earn above $10,000 annually.
Though many quick-service chains offer budget deals, such as McDonald’s McSaver meals costing about Rs100 ($1.20), Indians are “still hurting from price hikes they have seen since the pandemic” and down-trading to cheaper options such as street food, said one investment banker in Mumbai.
For more than a decade, food majors have expanded at a rapid clip across India. Once confined to the country’s richest urban centres, hundreds of new outlets have opened in the past year alone, many across India’s smaller cities.
Fast-food indulgence has gone from being aspirational to “more mass market, so they’ve also felt some impact in the slowdown”, said Teresa John, lead economist at Mumbai brokerage Nirmal Bang. “Wage growth has not really kept up with inflation.”
Chain operators hope those pressures will bottom out once the election ends in early June and as more Indians start spending when the country begins its months-long festival season around September.
Saurabh Kalra, managing director at Westlife Foodworld, said in an earnings briefing this month that despite a “challenging year for the entire industry”, the company’s expansion plans remain unchanged.
Westlife Foodworld will open up to 50 more McDonald’s in India this financial year after adding a record 41 during the previous 12 months.
“We remain highly optimistic about the long-term structural opportunity,” Kalra said.