QSR, lifestyle companies see slower sales in March quarter, April

New Delhi: Sales of large quick-service restaurants, lifestyle, apparel and discretionary products have slowed in the March quarter as well as in April, with companies reporting either flat, low single-digit or declining growth, as consumers downtraded to lower priced products amid higher inflation, moderation in pent-up demand and tighter financial conditions.
While retail sales grew in strong double digits consistently over the past year, it slowed to 6% in both March and April - the slowest sales expansion in over 14 months, according to Retailers Association of India (RAI).

"The slowdown was visible since February and it continued till April. However, from May, there is slight improvement as people started buying for the upcoming wedding season. We hope for it to improve further during the end of season sale," said Devarajan Iyer – Executive Director & CEO (Lifestyle). Iyer said markets in south India are relatively stable compared with the north, which is showing more signs of stress.


RAI data also showed that while pan-India growth rate was 6%, it was 7% in south India and 3% in north.

Large quick-service restaurant chains such as Domino's, KFC, Pizza Hut and Burger King have reported either declining or flat growth in March quarter, as consumers downtraded to lower ticket sizes and multiple lower-priced boutique brands such as Leo's, Tossin, GoPizza and Mojo Pizza started to take away share from the larger companies.

Cos Continuing with Store Expansion
While Domino's operator Jubilant FoodWorks' like-for-like sales declined 0.6% in the January-March quarter, Sapphire Foods, which operates KFC and Pizza Hut, reported near flat same-store sales for KFC at 2%, and decline of 4% for Pizza Hut.

Analysts attributed the decline to high prices from large players and competition from smaller brands.

"Same-store sales growth continues to be flat for Jubilant impacted by decline in average ticket sizes and consumers downtrading due to inflation. Both delivery and dine-in segments have been moderate, and overall revenue growth has underperformed retail expansion," ICICI Securities wrote in a report on Wednesday.

In an earnings statement, Shyam S Bhartia, chairman of Jubilant FoodWorks, said: "There are near-term concerns around historic high inflation and slowing market growth, but we are confident on our ecosystem's ability to tap on the potential that lies ahead of us and reorient the business to deliver sustained profitable growth."

Devyani International, which also operates KFC and Pizza Hut, said in a management commentary that while demand environment was improving led by receding inflation and falling raw material prices, dairy prices still remain elevated and that may drag down profitability.

The companies, however, said they are continuing with store expansion in expectation of demand improvement in the next few quarters.

"For us, markets in cities of Uttar Pradesh and Bihar are showing signs of stress; however in South and West, there isn't much impact," said Siddharath Bindra, managing director, BIBA Fashion Limited.

Companies, however, are still upbeat on the demand environment.

"March saw a softening and it continued into the first half of April. I think gold price volatility has usually kept many people on the fence," Titan Company CEO (jewellery) Ajoy Chawla said in an earnings call. "May and June promises to be good because of many good wedding dates. We are hopeful that we should be able to deliver to the plans we've laid out, volatility notwithstanding."

RAI said the growth was slow due to a base of 23% in April 2022 as compared to pre-pandemic period (April 2019) and 41% growth when compared to sales level in April 2021.

"Higher inflation in advanced global economies and tightening financial conditions in India have had some impact on demand, particularly in tier 2 and tier 3 cities," Venugopal G Nair, managing director and chief executive officer of Shoppers Stop, said during the firm's FY23 analyst call.

"Last year, during these times, we were witnessing pent-up demand in March and April and that has considerably moderated this year. This had impacted our sales in February and March. However, we have seen green shoots in April," he said.