Listed quick service restaurants (QSRs) Jubilant FoodWorks and Westlife Development are expected to report steady growth for the June quarter (Q1), despite moderation in consumption. However, with parent Domino’s Pizza indicating competitive pressure from online aggregators, same-store sales growth (SSG) of Indian QSRs could fall short of expectations.
This could hurt their stock performance, given SSG is a key performance measure for retailers and restaurants. While Jubilant runs stores of Domino’s Pizza in the country, Westlife-owned Hardcastle Restaurants runs McDonald’s outlets in West and South India.
The Indian Premier League (IPL) and Cricket World Cup were expected to give a fillip to the overall growth of QSRs over the last few months, with support from promotional offers to aid growth. This included, for instance, a 30 per cent discount on online orders of Domino’s pizzas. Therefore, despite a high base of 24-26 per cent in the June 2018 quarter (Q1FY19), analysts expect Jubilant and Westlife
to report 6-8 per cent same-store sales growth (SSG) in Q1FY20.
However, even online food aggregators such as Zomato
were aggressive on the marketing front during the cricket tournaments.
For example, the Zomato
Premier League during the IPL — to predict the winner and earn a huge discount if the prediction came true — was one such offering. Though Jubilant and Westlife
are also expected to have benefited from online aggregators, these portals have plenty of other options based on customers’ preferences and at relatively better pricing.
As a result, rising competitive intensity for listed QSRs is a negative. Vishal Gutka, AVP at Phillip Capital, said that customers get a variety of options based on their pricing and food preferences from online aggregators, which have relatively more promotional offers. This could disturb the business of QSRs to some extent.
However, price hikes, cost efficiency, a beverage contract with PepsiCo, and profit contribution from Dunkin’ Donuts, should all help on the profitability front as well as earnings of Jubilant, despite high input prices (wheat and cheese) and promotional spending.
Westlife, on other hand, is likely to have witnessed margin pressure.
Jubilant is expected to report close to 15 per cent year-on-year (YoY) growth in net profit in Q1. Net profit of Westlife, on the other hand, is expected to have declined by 41 per cent YoY, according to IIFL.
Overall, management commentary on competitive pressure and store expansion plans will be key for the stocks.