Weak consumer spending, tightening competition threaten to sink YUM! India
It’s one of the few markets to post declines.
Though India continues to make leaps and bounds in GDP growth, consumer spending has remained constrained. This has left quick service restaurants (QSRs) hurting, with YUM! Brands taking the brunt of the blow.
According to a report by BMI Research, the company posted a double-digit drop in same-store sales during 2015 in its Indian operations its three brands—KFC, Taco Bell, and Pizza Hut. In January this year, YUM! consolidated India into the rest of its global categories under the three brands’ banners, and no longer reports the same granularity of data.
“However, in its quarterly results for the period ended March 2016, the company did note that its Indian operations continued to see declines, and we expect this will be a common theme throughout 2016,” adds BMI Research.
In 1Q16, YUM! saw a 6% slip in system sales—referring to stores owned by the company and franchises—for Pizza Hut India and a 1% dip for KFC. Pizza Hut and KFC account for the majority of YUM!’s India stores, as Taco Bell’s number were not released.
India stood out as one of the few markets in the world to register declines in KFC and Pizza Hut, as YUM!’s developed and emerging markets vastly posted positive growth. BMI Research posits, therefore, that the issue is “an Indian one, rather than a global one.”
BMI Research asserts that competition is likely playing a role in this decline, as a number of international brands like Burger King, Wendy's and Carl's Jr. further intensifying the burger segment for KFC.
More concerning for YUM!, though, is Jubilant FoodWorks’ performance. The brand holds the franchise for Domino's Pizza in India, Nepal, Sri Lanka and Bangladesh, and for Dunkin' Donuts in India. Further, Jubilant FoodWorks’ same-store sales have landed back in the black over 2015 from the negative territory over 2014 while YUM! skidded further into decline.
On top of limited budgets, the growth of technology and online ordering is also playing a significant role in the success of Domino’s. Smartphones’ penetration is growing in India, and Domino’s is taking advantage of this with its mobile app partnerships with food aggregators like Food Panda and Zomato.
Online sales are over a third of total deliveries, and this will continue to climb in the coming years. This bodes well for Jubilant FoodWorks, though it is worth noting that its same-store sales are also taking a hit as other online companies are taking their toll.
“India promises plenty of opportunities with its massive, increasingly urbanised population and expanding economy; however, the fast food market is becoming increasingly saturated by international brands, which may pressure margins in the coming years,” BMI Research asserts.
