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Analysts: QSR Sector Facing Pressure from Decline in Dine-In Customers and Rise in Delivery Orders on Aggregators

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In Short:

Analysts state that the Quick-service restaurant (QSR) sector, which includes pizza and burger chains, faced pressure in the March quarter due to lower dine-in footfalls. Despite a decline in revenue growth and EBITDA margins, industry players are hopeful for a gradual recovery in FY25. QSR chains saw strong growth in FY22 and the first half of FY23, but have been experiencing weaker demand since Q3 FY23. Strategies for growth include combining loyalty programs with value-oriented offerings to increase order frequency and same store sales growth.


QSR Sector Faces Pressure in March Quarter

The quick-service restaurant (QSR) sector, which includes pizza and burger chains, has faced challenges in the March quarter due to lower dine-in footfalls amidst tepid demand trends, as per analysts. However, there is a glimmer of hope as industry players are looking forward to a gradual recovery in FY25.

Challenges in Revenue Growth

According to a report by BNP Paribas, the QSR revenue growth for listed companies saw a year-on-year (y-o-y) decline of 9% in Q4 FY24 compared to an 18% y-o-y growth in Q4 FY23. While gross margins increased y-o-y, EBITDA margins decreased for most QSR players due to costs related to store expansion and demand-stimulating initiatives like free delivery. The report also highlighted a strong 15% y-o-y growth in store openings during the March quarter.

Despite the challenging scenario, companies have refrained from implementing significant price hikes in the near term due to weak demand. They remain positive about a gradual recovery and have not revised their FY25 store guidance or capex plans. However, with increasing options for consumers, sales are getting divided, affecting the overall store-level economics for branded QSR companies.

SSSG in QSR Sector

QSR chains witnessed robust growth in FY22 and the first half of FY23 but have been facing weaker demand trends since Q3 FY23. Aggregate sales of listed QSR companies in Q4 FY24 grew by 9% y-o-y, primarily driven by new store openings.

A report by Elara Securities highlighted a global trend of decline in same-store sales growth (SSSG) in the QSR sector. Karan Taurani, Senior Vice-President at Elara Securities, suggested that Indian QSR chains could enhance customer loyalty by integrating loyalty programs with value-oriented offerings to boost order frequency and SSSG growth amidst challenges such as high demand from food aggregators, lower dine-in footfalls, and increased industry competition.

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