Q1FY24 Review: India Retail: Weak trends continue

21 Aug 2023 , 10:01 AM

In Q1, revenue growth for QSR players (up 15% YoY) continued to be driven by store growth (up 22% YoY), as ADS across formats declined in the range of 6-14% YoY. Pizza QSRs were the worst-impacted, posting negative SSSG/sharp decline in ADS; although Dominos performed better than Pizza Hut. This weighed on profitability as well, with EBITDA margin contracting for three consecutive quarters for most players. Jubilant Foodworks and Barbeque were the worst performers with margin declining by 400 basis points and 813 basis points YoY. Burger QSRs are better-placed with Westlife leading Burger King, posting 5% ADS/7% SSSG versus 2% ADS/3.6% SSSG for BK India. Moreover, EBITDA margin also expanded for Burger QSRs.

Store opening

• In Q1FY24, on an aggregate basis, average store growth across the QSR sector remained healthy at 22% YoY; moderating slightly from 24% YoY in Q4FY23. However, 4-year store CAGR for the industry was steady.
• Devyani, Sapphire and Burger King (BK) continue to lead the pack, with the highest store 4-year CAGR of 22%, 18% and 18% respectively.
• Westlife’s store 4-year CAGR at 5% remains the lowest, with Jubilant and Barbeque at 10% each.
• On an absolute net-additions basis, Devyani and Sapphire opened the highest number of stores in the quarter at 47 and 35 respectively, ahead of 28 additions by Jubilant.
• In Q1FY24, Pizza Hut (PH) additions were higher than Dominos openings. Devyani and Sapphire combined, added 31 PH stores; higher than 23 gross additions of Dominos.
• Barbeque closed 8 stores in the quarter, resulting in net reduction of total stores by 4; it was the laggard among peers in terms of network expansion.

Revenue performance

• Similar to store growth, revenue growth across industry decelerated to 15% YoY from 17% in Q4FY23, but 4-year CAGR remained steady.
• At 22%, 4-year revenue CAGR was the highest for Devyani, followed by 19% for Burger King and 18% for Sapphire.
• On the other hand, Jubilant’s 4-year revenue CAGR was the lowest at 9%, followed by 13% for Westlife and 11% for Barbeque.
• Revenue growth YoY was the lowest for Jubilant at 6% and for Barbeque at 3%. The others clocked growth in the range of 14-25%.

ADS performance

• The trend of 4-year revenue CAGR being driven predominantly by store growth continued, as 4-year ADS CAGR stood at 1% each for Devyani and Sapphire and 3% for BK India.
• Jubilant’s 4-year ADS CAGR stood at -1% — the lowest among peers and Westlife’s +7% was the highest.
• Pizza format remains the most-impacted QSR, with Pizza Hut for both Devyani and Sapphire posting -2% 4-year ADS growth lower than -1% for Dominos.
• On a YoY basis, ADS continued to decline for all players. Among Pizza QSRs, Sapphire PH was the worst-impacted, posting 14% YoY ADS decline versus 8%/7% decline by PH Devyani/Dominos.
• KFC ADS performance also remained weak, declining by 8% and 6% for Devyani and Sapphire respectively.
• Burger QSRs outperformed, with Westlife posting 5% YoY ADS growth, followed by 2% for BK India.

Margin performance

• Due to negative operating leverage, EBITDA margin contracted for all players. Jubilant and Barbeque posted 400 basis points and 813 basis points YoY declines respectively.
• Sapphire’s EBITDA margin fall of 142 basis points YoY was lower than the 296 basis points decrease by Devyani.
• Due to this, store economics also remained weak, as EBITDA per store declined the most for Barbeque by 63%, followed by 29%, 25% and 16% for Jubilant, Devyani and Sapphire. However, WLDL posted 10% growth in EBITDA per store.
• Burger QSRs continue to post margin expansion with Westlife reporting 64 basis points and BK India 132 basis points expansion YoY.