Quick service restaurants: Quick service restaurants’ revenue, margin under severe stress; recovery seems distant: report

With the exponential growth of food delivery apps like Zomato and Swiggy, quick service restaurant operators are finding the going tough with both their revenue and margin coming under severe stress while road to recovery is longer than estimated, says a report. The report by French brokerage BNP Paribas stated that the rising popularity of food aggregators has hurt dine-in sales of quick service restaurants (QSR) and has also fragmented delivery sales.

Also, with more restaurants partnering with food delivery platforms, consumers now have more options, leading to fragmented sales which are likely playing a part in the weakness in average daily sales of the QSR industry besides the general weakness in demand due to elevated inflation, the report highlighted.

Pizza, the most delivery-friendly option, is facing intense competition as more cuisine options have become available 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.

The report mentioned that Zomato and Swiggy have grown more than three times in terms of on-boarding restaurants from 2.78 lakh in FY2020-21 to over 7 lakh in FY2022-23.

Zomato’s average monthly active restaurant partners jumped from 61,000 in FY19 to 2,54,000 as of third quarter FY24, while Swiggy had 2,72,000 active restaurants as of FY23, French brokerage BNP Paribas said in a report.

Overall, the scale of food delivery companies has expanded significantly, which helped improve customer reach, especially for smaller restaurants, the report said, adding that the rising popularity of food aggregators has hurt dine-in sales and has also fragmented delivery sales. Given this backdrop, when it comes to QSRs, as against a likely recovery in the third quarter of the current fiscal, the top line growth was significantly weaker than consensus, the report said.

Industry revenue growth slid to 7 per cent year-on-year in the third quarter of the current fiscal from 20 per cent in the third quarter of FY23. This is despite their store count rising 15 per cent on-year, but average daily sales declined. Though gross margins expanded on the back of cooling raw material prices, operating margins declined for most QSR firms due to higher employee and store-related cost, says the report.

With the exponential growth of food delivery apps like Zomato and Swiggy, quick service restaurant operators are finding the going tough with both their revenue and margin coming under severe stress while road to recovery is longer than estimated, says a report. The report by French brokerage BNP Paribas stated that the rising popularity of food aggregators has hurt dine-in sales of quick service restaurants (QSR) and has also fragmented delivery sales.

Also, with more restaurants partnering with food delivery platforms, consumers now have more options, leading to fragmented sales which are likely playing a part in the weakness in average daily sales of the QSR industry besides the general weakness in demand due to elevated inflation, the report highlighted.

Pizza, the most delivery-friendly option, is facing intense competition as more cuisine options have become available 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.

The report mentioned that Zomato and Swiggy have grown more than three times in terms of on-boarding restaurants from 2.78 lakh in FY2020-21 to over 7 lakh in FY2022-23.

Zomato’s average monthly active restaurant partners jumped from 61,000 in FY19 to 2,54,000 as of third quarter FY24, while Swiggy had 2,72,000 active restaurants as of FY23, French brokerage BNP Paribas said in a report.

Overall, the scale of food delivery companies has expanded significantly, which helped improve customer reach, especially for smaller restaurants, the report said, adding that the rising popularity of food aggregators has hurt dine-in sales and has also fragmented delivery sales. Given this backdrop, when it comes to QSRs, as against a likely recovery in the third quarter of the current fiscal, the top line growth was significantly weaker than consensus, the report said.

Industry revenue growth slid to 7 per cent year-on-year in the third quarter of the current fiscal from 20 per cent in the third quarter of FY23. This is despite their store count rising 15 per cent on-year, but average daily sales declined. Though gross margins expanded on the back of cooling raw material prices, operating margins declined for most QSR firms due to higher employee and store-related cost, says the report.