Western-style quick service restaurants (QSRs) and coffee chains have shut down more than 80 stores over the past 12-18 months due to declining same-store sales growth, consumers scaling back spends, and increasing pressure on their profitability. Pizza Hut, Costa Coffee, KFC, Barista and McDonald’s have all downsized operations in recent months, industry insiders said.
“If rentals don’t justify footfalls, we have no choice but to shut down. This is true specially for high street stores, as frequency of footfalls is higher in malls,” said Virag Joshi, president at Devyani International that has franchisee rights of Yum Restaurants-owned Pizza Hut and KFC as well as British cafe chain Costa Coffee. The RJ Corp-promoted firm has shut down about 25 stores of Pizza Hut, KFC and Costa Coffee over the last one year.
On an average, a mid-format store in a tier 1 or 2 city costs Rs 70 lakh to Rs 2.2 crore just to set up, according to a real estate industry official. The rentals and operational costs, including salaries and maintenance, add up to around 32-36% of the total cost of a QSR outlet, industry insiders said. The country’s Rs 6,000-crore quick service restaurant business has been reporting low single-digit same store sales growth over the past six quarters because of a slowdown in consumer spends on eating out as well as increasing competition from new brands entering the market, hyperlocal food delivery startups and even food vans.
“There are too many variables at play — changing consumer preferences, productivity pressures, ecommerce disruption, and global and national brands outbidding each other in the top 40 clusters,” said private equity firm Everstone Capital’s partner Jaspal Sabharwal. Everstone had brought in American chain Burger King to India through a joint venture 18 months back. According to Sabharwal, there are only 43 potent demand clusters in the top six metros where toplines are protected and though rentals are high, brands still command basic resonance.
“These apart, we have 180-plus other clusters in metros and tier-1cities where store productivity is at best 35-40% of the top 40 clusters. Here rents are reasonable, but it is difficult to make money in these clusters because of the lack of necessary consumer traction,” he said. Burger King has shut down one store in New Delhi. Trade insiders said leading burger chain McDonald’s, too, has shut down some outlets.
Queries ET sent to the company did not elicit any response as of press time on Sunday. Private equity firm Samara Capital, which had last year bought out 300 Pizza Hut and KFC stores in India and Sri Lanka from diversified franchisees and consolidated them under Sapphire Foods, has downed shutters of about 30 stores post its acquisition, an official directly aware of the developments said.
Samara Capital officials were not available for comment. The Samara Capital led-consortium had bought out the south and west India franchise operation of Yum from eight diversified franchisee partners including Dubai’s Dodsal group as the American chain was looking to consolidate its franchisee operations to improve cost efficiencies and synergy in an intensely competitive market.
Source: Economic Times