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India QSR sector struggles for growth

News, 24 April 2015
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NEW DELHI: International restaurant brands that have expanded into India are struggling to maintain their initial momentum and some are turning to discounts to attract customers.

For example, Yum! Brands, which owns the Pizza Hut, KFC and Taco Bells brands, reported an 11% year-on year decline in like-for-like sales in the first quarter of 2015.

It attributed this to "continued softness in the overall macro environment and consumer sentiment", although this view stands at odds with the findings of the Nielsen Consumer Confidence Index, which has charted a growing optimism, to the point where online urban India consumers were by the end of 2014 the most confident in the world.

The Economic Times noted similar slowdowns at other large chains, including Domino's Pizza and Dunkin' Donuts, both owned by Jubilant FoodWorks, and McDonald's.

Whatever the current situation, Yum! Brands remained positive on the future, as it plans to open more than 100 new restaurants in 2015.

Getting people through the doors, however, is likely to require significant promotional activity. Both Domino's and Pizza Hut, for example, are already running "buy one, get one free" offers on different days of the week, while McDonald's has a cash back offer which can be used on a mobile recharge site.

Coffee chains seeking a similar demographic are also coming up with promotional offers – Starbucks is offering 40% discount vouchers to people buying at certain times – and that, according to one industry figure, is part of the problem for the eating-out sector.

"The QSR and cafe industry is getting into a circular firing-squad formation, trying to kill each other to grab market share, as if this is the only way to grow in an early stage growth market," said Jaspal Singh Sabharwal, partner at Everstone Capital, local master franchisee for Burger King.

He suggested that one factor that had slowed the market was that millennials were spending their money on online deals for fashion and phone products, so leaving less for eating out.

Data sourced from Economic Times, Nielsen; additional content by Warc staff

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