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Quick service eateries shrug off recession

By Sapna Agarwal in Mumbai
March 31, 2009 12:41 IST
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Even as the economic downturn has caused most consumers to cut spending and use cheaper products, quick service restaurants like McDonald's, Domino's, Pizza Hut, KFC, Nirula's and Lite Bite Foods are charting growth strategies. The reason: the food retail industry's 30 per cent growth remains intact.

McDonald's, for instance, plans to invest Rs 120-150 crore (Rs 1.2-Rs 1.5 billion) for expansion in the current year. It will add 40 new outlets across India (it has 155) and open 40 kiosks, dessert and beverage service counters. Says Vikram Bakshi, managing director (north and east)" "We will maintain 30-35 per cent growth rate this year as well."

McDonald's also plans to introduce its sandwich chain, Pret a Manger, in India later in the year, say analysts.

Domino's has a planned capital expenditure of Rs 75-80 crore (Rs 750-800 million) for the current year and an investment outlay of Rs 250 crore (Rs 2.5 billion) for the next three years. The company plans to add 65-70 stores this year, taking its tally to 300.

The plan is to move beyond the top 15 cities to Tier II and Tier III cities like Surat, Nashik, Siliguri and Kochi, to name some. "We have been growing at a compounded annual growth rate of 45 per cent for the past four years and expect to maintain the momentum this year as well," says Ajay Kaul, chief executive officer.

Even local players like Jumboking Foods, which has a chain of 52 vada-pav stores in Mumbai, is planning to scale up its business with an investment of Rs 30 crore (Rs 300 million) in the coming financial year.

"We will have 300 stores in Mumbai in the next three years," says Dheeraj Gupta, its co-founder, and adds, "We expect to maintain our CAGR of 35 per cent for the last three years this year as well."

Value offerings at low price points appear to be working for these restaurants. "The number of consumers eating out has not come down," said Amit Burman, chairman of Lite Bite Foods and vice-chairman of Dabur, adding: "Quick service restaurants like McDonald's and Domino's have introduced value offerings at price points like Rs 20 and Rs 35, and this has got good consumer response." Burman, too, has planned a capex of Rs 200 crore (Rs 2 billion) for opening 200 restaurants in the country by 2012.

The Rs 20 price point for McDonald's accounts for close to a quarter of the company's revenues. Likewise, "Nano pizza at Rs 35 accounts for 12-14 per cent of our revenues and is part of at least 25 per cent of the daily orders placed," says Kaul of Domino's.

Lite Foods, which has different restaurants and cuisine formats like Punjab Grill, Asia Foods, Pino's Pizza and Pasta Eatery, has launched Street Foods of India -- restaurants that offer popular cuisines from across India at affordable prices.

"The retail food industry is still dominated by mom and pop stores and we see a huge potential in offering quality Indian street food at affordable price points like Rs 20," explains Burman.

Yum! Restaurants, which has brands like KFC and Pizza Hut, also plans to expand its retail footprint and is introducing a new Mexican eatery, Taco Bells, in India later this year.

"Taco Bells will be positioned as a value chain which will cater to popular price points," a company official told Business Standard.

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Sapna Agarwal in Mumbai
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