Expansions are on hold & value for money products are the in thing
Bon appétit in India? A year back, the answer to this question for global QSR brands would definitely be a yes. Thanks to the gastronomic Indian market, this sector has shown a whopping 35% growth till August 2008. From the beginning of 2007 till the first half of 2008, the sector has seen a mind boggling investment of Rs.1.6 billion (according to figures from Federation of Hotel & Restaurant Association of India, FHRAI). While growth rate of the pizza market in US is just 5%, India has shown a strong 20% growth.
However, all that seems to be a history now, as the prevailing economic turmoil has browbeaten the feasting dreams of the Rs.25 billion Indian QSR industry. The economic meltdown has impacted them in two ways; on one hand, there’s a stymie on real-estate development and on the other, there’s rising real estate cost. “Indeed, rising real estate cost is a deep concern,” avers Ajay Kaul, CEO, Domino’s Pizza India Ltd. No wonder then that Domino’s has slashed its growth plans from opening 65 stores in 2009 to 45.
And the same is echoed in expansion plans of other players, as the industry claims that 50% of promised projects for fiscal year 2008-09 haven’t been delivered yet. “Real estate is emerging as a big challenge...” affirms Vikram Bakshi, MD, McDonald’s India (North & West). However, Big Mac is more comfortable w.r.t. funds for expansion, as it has expanded cautiously, with just 155 stores in 27 cities while Yum! Brands (owner of Pizza Hut & KFC) has 200 outlets across 54 cities. But Yum! is now paying the price as paucity of funds & constant surge in commodity prices makes it worse.
The outcome is price hikes, which are also being adopted by domestic players like Nirula’s. During the last six months of 2008, there has been at least a 40% jump in prices of various products and consequent decline in footfalls by around 20% in the first two months of 2009 (a Technopak estimate). As pundits point out, only ‘value for money’ products are recession proof; no wonder that McDonald’s has been able to grow at 20%, irrespective of slowdown. Even Yum! Brands is planning to introduce its ‘easy on the pocket’ brand Taco-Bel in India. Domino’s has launched a Rs.35 pizza, which, as per Kaul, is doing phenomenally well for the company. Indeed, when input costs are going out of hand, companies have to use the concept of price discrimination to the fullest, wherein they maintain their portfolio of products for the premium audience, but take out more such special products to attract the value buyers. Therefore, this trend is expected to continue till market prospects improve.
Bon appétit in India? A year back, the answer to this question for global QSR brands would definitely be a yes. Thanks to the gastronomic Indian market, this sector has shown a whopping 35% growth till August 2008. From the beginning of 2007 till the first half of 2008, the sector has seen a mind boggling investment of Rs.1.6 billion (according to figures from Federation of Hotel & Restaurant Association of India, FHRAI). While growth rate of the pizza market in US is just 5%, India has shown a strong 20% growth.
However, all that seems to be a history now, as the prevailing economic turmoil has browbeaten the feasting dreams of the Rs.25 billion Indian QSR industry. The economic meltdown has impacted them in two ways; on one hand, there’s a stymie on real-estate development and on the other, there’s rising real estate cost. “Indeed, rising real estate cost is a deep concern,” avers Ajay Kaul, CEO, Domino’s Pizza India Ltd. No wonder then that Domino’s has slashed its growth plans from opening 65 stores in 2009 to 45.
And the same is echoed in expansion plans of other players, as the industry claims that 50% of promised projects for fiscal year 2008-09 haven’t been delivered yet. “Real estate is emerging as a big challenge...” affirms Vikram Bakshi, MD, McDonald’s India (North & West). However, Big Mac is more comfortable w.r.t. funds for expansion, as it has expanded cautiously, with just 155 stores in 27 cities while Yum! Brands (owner of Pizza Hut & KFC) has 200 outlets across 54 cities. But Yum! is now paying the price as paucity of funds & constant surge in commodity prices makes it worse.
The outcome is price hikes, which are also being adopted by domestic players like Nirula’s. During the last six months of 2008, there has been at least a 40% jump in prices of various products and consequent decline in footfalls by around 20% in the first two months of 2009 (a Technopak estimate). As pundits point out, only ‘value for money’ products are recession proof; no wonder that McDonald’s has been able to grow at 20%, irrespective of slowdown. Even Yum! Brands is planning to introduce its ‘easy on the pocket’ brand Taco-Bel in India. Domino’s has launched a Rs.35 pizza, which, as per Kaul, is doing phenomenally well for the company. Indeed, when input costs are going out of hand, companies have to use the concept of price discrimination to the fullest, wherein they maintain their portfolio of products for the premium audience, but take out more such special products to attract the value buyers. Therefore, this trend is expected to continue till market prospects improve.
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