Amit Jatia, vice chairman, Westlife Foodworld Ltd. (McDonald’s India West and South) speaks about what the fast-growing QSR industry needs from the Budget 2023 to help the industry achieve its potential
New Delhi: The Indian QSR industry is expected to grow at a compound annual growth rate (CAGR) of 23% by 2025, said an Edelweiss Securities report. According to the report, QSR chains will be the highest growing sub-segment within food services market between financial year (FY) 2020 and FY 2020, growing at a CAGR of 23%. Although the pandemic knocked the industry off its stride, a positive outcome was that it also helped nudge the QSR industry towards online and omni-channel, which opened new possibilities and revenue streams.
With the lifting of restrictions and people resuming socialising and eating out, the industry witnessed a revival.
“The last financial year saw the QSR industry benefiting from reviving economic growth and an increase in consumption,” said Amit Jatia, vice chairman, of Westlife Foodworld Ltd. (McDonald’s India West and South).
Yet, what the industry needs is a conducive policy environment to maintain the trajectory. And is looking forward to some key announcements in terms of sops or tax cuts in the upcoming Budget 2023.
The QSR industry expects the upcoming Union Budget to focus on policies that will keep the economic recovery on track and further strengthen the ease of doing business, said Jatia echoing industry sentiments.
To begin with, the industry anticipates some relief in the ITC (Input tax credit) to help boost the sector’s growth.
“The current GST rate on restaurants is 5%, with no input tax credit. This is a comparative disadvantage for the restaurant and food industry, as other sectors receive input credit back, leaving the restaurant and QSR chains as the only industry in India liable for GST input,” he explained adding that it poses a significant challenge for the industry today.
“Aside from that, import liberalization on some raw materials and the acceleration of the free trade agreement will further aid overall industry growth,” said Jatia sharing his expectations from the Budget 2023.
Jatia’s company Westlife Foodworld Ltd. formerly known as Westlife Development Ltd. has had a good run in 2022, with a net profit of Rs 31.54 crore in the quarter that ended September as against a net loss of Rs 4.42 crore in the same quarter of the last financial year.
The company runs McDonald’s restaurants in South and West India through its subsidiary Hardcastle Restaurants Pvt. Ltd.
(HRPL) has big plans for further catapulting McDonald’s in the regions for which it holds the master franchisee. In its Vision 2027, Westlife has identified five key areas of focus namely omnichannel, menu, network expansion, cost optimisation and capital efficiency.
Here’s a peek into the drivers of growth the brand has listed in its Vision 2027
- Omni-channel approach
Integrating various channels and touch points to a One McDonalds platform to provide consumers with a seamless experience
Penetrating 100% Experience of the Future (EOTF) stores by 2027 viz-a-viz 40% today
Creating a long-term competitive advantage by building drive-through destination stores across all city suburbs and national highways. As many as 30-35% of new stores are likely to be Drive-Thrus, said the company in a release.
Targeting 35-40% contribution from delivery over the medium to long term
2. Menu management
Achieving market leadership in core day parts through brand relevance led by menu innovation and marketing
Maintaining leadership in the Burger category through classic, indulgent and burger meals
Building a comprehensive chicken portfolio to help enhance product relevance in the South
Becoming category leaders in the Coffee market in our region by inducting new consumers
Improving margins by 100 – 150 bps through product mix
3. Faster network expansion
Penetrating unserved geographies and fortifying existing markets with renewed aggression
Accelerating growth in the Southern market with 60% of new stores likely to be in South India.
Opening 45-50% stores in the West and 50-55% in the South in the next five years
Opening 580-630 stores by 2027. The release added that work on the next 200 stores to be opened has already commenced.
4. Cost optimisation
- Managing inflation: Improving pricing effectiveness through menu architecture, policy and process support.
- Cluster-based distribution: Unlocking supply chain efficiencies and optimising existing distribution infrastructure and real estate.
- Governance across line items: Leveraging data analytics and ERP solutions to increase governance and improve predictability. In addition, improving margins by 80 – 100 bps through cost savings.
5. Capital efficiency
Improving margin by 300 – 350 bps through operating leverage
Targeting 18-20% operating EBITDA margin by 2027
Optimized investments to have better returns on incremental capital e.g. McCafe or EOTF.
Westlife FoodWorld’s subsidiary Hardcastle Restaurants Private Ltd. (HRPL) holds the rights to own and operate McDonald’s restaurants in India’s West and South markets since its inception in 1996.
HRPL serves over 200 million customers, annually, at its 337 (as of September 30, 2022) McDonald’s restaurants across 52 cities in the states of Telangana, Gujarat, Karnataka, Maharashtra, Tamil Nadu, Kerala, Chhattisgarh, Andhra Pradesh, Goa and parts of Madhya Pradesh and Union Territory of Puducherry and provides direct employment to close to 10,000 employees.
McDonald’s operates through various formats and brand extensions including standalone restaurants, drive-thrus, 24/7, McDelivery, McBreakfast and dessert kiosks. The menu features Burgers, Finger Foods, Wraps, and Hot and Cold Beverages besides a wide range of desserts. Several McDonald’s restaurants feature an in-house McCafé.