Quick Service Restaurants Struggle amid Revenue, Margin Pressures: Report – Indian Retailer

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The surge in food delivery platforms such as Zomato and Swiggy has posed significant challenges for quick service restaurant (QSR) operators, leading to considerable strain on their revenue and margins.

According to a report by French brokerage BNP Paribas, the recovery path for these operators is proving to be longer than initially anticipated.

The report highlights that the growing preference for food aggregators has negatively impacted both dine-in sales and delivery revenue for QSRs, contributing to a fragmented delivery market.

Furthermore, as an increasing number of restaurants collaborate with food delivery platforms, consumers are presented with a broader array of choices, resulting in fragmented sales.

This fragmentation is believed to contribute to the decline in average daily sales within the quick service restaurant (QSR) industry, alongside a broader weakening of demand due to heightened inflation, as underscored in the report.

As a highly suitable option for delivery, pizza is encountering fierce competition amidst the proliferation of diverse cuisine choices accessible to consumers.

“While inflation may also be hurting demand, there are other factors at play, and we think the road to recovery could be longer than what the market estimates,” the report said.

According to the report, Zomato and Swiggy have experienced over a threefold increase in restaurant onboarding, rising from 278,000 in the fiscal year 2020-2021 to surpassing 700,000 in the fiscal year 2022-2023.

According to a report by French brokerage BNP Paribas, Zomato saw a significant increase in its average monthly active restaurant partners, rising from 61,000 in the fiscal year 2019 to 254,000 by the third quarter of fiscal year 2024.

Meanwhile, Swiggy had 272,000 active restaurants as of fiscal year 2023.

The report noted a substantial expansion in the scale of food delivery companies, which has notably enhanced customer outreach, particularly benefiting smaller restaurants.

Additionally, the growing preference for food aggregators has negatively impacted dine-in sales and led to a fragmentation of delivery sales.

Against this context, concerning quick service restaurants (QSRs), the report highlighted that while a potential recovery was anticipated in the third quarter of the current fiscal year, the actual top-line growth fell considerably short of consensus expectations.

In the third quarter of the current fiscal year, industry revenue growth decreased to 7 percent year-on-year from 20 percent in the third quarter of FY23.

Despite a 15 percent increase in store count compared to the previous year, average daily sales declined.

Although gross margins improved due to lower raw material prices, operating margins decreased for most quick service restaurant (QSR) firms due to increased costs related to employees and stores, as outlined in the report.

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