India’s middle class cuts back on eating out

The shift points to a deeper strain on discretionary spending. While wealthier consumers continue to frequent fine-dining establishments, middle-class households are becoming more cautious with their money. As a result, many quick-service restaurants (QSRs) are rethinking their business models and leaning harder on delivery.

With the exception of Jubilant FoodWorks’ Domino’s, most large QSRs flagged slowing dine-in demand in the June quarter, even as delivery remained resilient.

Among QSR stocks, Jubilant was an outperformer thanks to its delivery moat, brokerage firm Motilal Oswal said in a June note. Nearly three-fourths of Domino’s orders are for home delivery, the company said in an investor presentation last month.

“In pizza, Domino’s reported strong near-double-digit same-store sales growth (SSSG),” brokerage firm Jefferies said in a note last month, adding that Pizza Hut slipped back into negative territory.

“Pizza Hut, which had positive SSSG in 4Q (up 1%), again turned negative and was weak with -4 to -8% SSS in the June quarter. Growth was led by transactions-orders for both brands as thefocus remained high on value offerings. Delivery continued to grow faster than the dine-in channel for both pizza brands. KFC witnessed improvement in performance sequentially,” Jefferies added.

Others are still struggling to draw customers.

Restaurant chain Barbecue Nation, which operates 236 restaurants, said it saw a softer dine-out cycle in the June quarter.

“In India, while negative SSSG [same store sales growth] continues to weigh on revenues, we have safeguarded profitability through tighter cost controls and continued investments in guest experience,” Kayum Dhanani, the company’s managing director said in an earnings call last month. “We are right sizing our new restaurant’s prototype to be 20% to 25% smaller, which will reduce capital expenditure and protect unit economics.”

Same-store sales growth refers to change in sales of a company’s existing stores that have operated for more than one year.Barbeque Nation India’s revenues declined 7% year-on-year this past quarter to ₹229 crore, with a 5.2% drop in SSSG.

Dine-in accounts for 85% of its revenues but is facing a “softer dine-out cycle,” Dhanani said, adding that delivery formats, including Barbeque Nation Delivery and Dum Safar Biryani, posted growth in same store sales.

Similarly, Lite Bite Foods Pvt. flagged weak demand in its QSR portfolio, which includes KFC, Burger King, and Subway, while its fine dining brands such as Punjab Grill, Zambar, and Asia Seven performed better.

“There is definitely a pushback on consumption of the value or fast food segment,” Rohit Aggarwal, co-founder and director of Lite Bite, said in an interview with Mint on Monday.“The top-end continues to eat out and spend more money.”

Devyani International, which operates more than 1,300 restaurants under brands including KFC and Pizza Hut, also reported negative SSSG in its KFC segment.

Fine-dining chains, by contrast, have held up better. Specialty Restaurants, which runs Mainland China and Oh! Calcutta, said dine-in sales rose 8.2% in the June quarter. Dine-in accounts for more than 75% of its revenues. Its delivery business grew slightly lower at 7% year-on-year.

Meanwhile, food delivery platforms Zomato and Swiggy continued to post double-digit growth of 16-19% in the June quarter, largely unchanged from March, despite muted consumption.

Consumer caution

Despite stronger GDP growth and easing inflation, Indian consumers remain cautious about discretionary spending such as eating out. In its latest consumer confidence survey, the Reserve Bank of India found that more than 60% of respondents had similar or lower expectations of splurging this year compared to a year ago; fewer than half expected to increase such spending in the year ahead.

In Mumbai 35-year-old Ankita Sehgal has reduced eating out during week days. Earlier the consulting professional would do take-aways but now prefers home-cooked food.

“Most of my outings are now limited to the weekend where we end up trying a new restaurant or go to bars. That also adds to a lot since eating out at restaurants in Mumbai is steep,” she said.

India’s eating out and ordering-in market is projected to nearly double by 2030 to ₹9 trillion, from ₹5.5 trillion currently, according to a report released last year by Swiggy and Bain & Company. Online food delivery is expected to grow faster, at 18% compound annual growth rate, and account for 20% of the overall food services market, up from 8% now.

QSR and casual dining chains are adjusting formats for weaker dine-in demand. Devyani International, for instance, has reduced KFC store sizes from 3,000 square feet to 1,400 square feet as delivery orders outpaced dine-in, chief financial officer Manish Dawar told investors in an August earnings call. KFC has reported negative SSSG for 8-9 quarters, but is seeing growth online, particularly through Zomato and Swiggy.

“Similarly, for Pizza Hut also, we have moved away from a dine-in-first brand to a delivery focused format,” Dawar said. “At the same time, we also need to be cognizant of thefact that there is a category of consumers who prefer a good dine-in experience.”

Karan Taurani, executive vice president at brokerage Elara Securities, said more consumers are ordering in while seeking deeper discounts and convenience. “There have been some shifts in the market such as more home-grown chains that have expanded, consumers have also turned more value-seeking and looking for deals online,” he said.

Fast food chains that depend on mall food courts are struggling with lower dine-in traffic as consumers show little enthusiasm for movies in cinemas, he added.

The GST Council’s meeting on 3–4 September, which will take up a revamp of the goods and services tax (GST) structure, could offer some relief. Brokerage firm JM Financial noted last month that QSR firms stand to benefit if the government cuts rates on food and other inputs, reducing raw material costs and lifting profitability.

On the Council’s table are proposals to exempt GST on health insurance premiums at a cost of about ₹10,000 crore a year; shifting close to 50 products in the 12% slab including condensed milk, cheese, dried fruits and preserved fish and vegetables to 5%; and moving close to 25 items including chocolates, ice cream, cakes and corn flakes in the 18% slab to 5%.