Fast food companies make merry even during slowdown

January was our best month ever, same-store sales climbed 20 per cent over last year," is the emphatic statement from Vikram Bakshi, Managing Director, Connaught Plaza Restaurants, the franchise holder for American fastfood chain McDonald's in northern and eastern India. And his sentiment is shared by all the major players in this space-KFC and Pizza Hut, owned by Yum! Restaurants, and Domino's Pizza. This growing fascination with fast food is most evident in malls, where the retail outlets might be empty, but the food courts are jam-packed. What explains this?

"You have to understand that the concept of fast food in India is still quite new," explains Unnat Verma, Director Marketing, KFC. KFC, which has an average ticket size of around Rs 65-70, has seen not just more customers but also more spending by them on average.

"Every month the number climbs up a few rupees," says Verma, explaining that unlike developed markets, where fast food is seen as functional, in India, the idea of eating out is still aspirational. Bakshi agrees, "Look at the way we lay out our outlets in India vis-vis other markets: exclusive family seating and the average group is around three people. This is a family activity, going out for food is not seen as just grabbing a bite but as family entertainment."

Both KFC and McDonald's typify the "Quick Serve Restaurant" - McDonald's has a ticket size in the Rs 100 range. Both chains are expanding rapidly. In just over three years, KFC has ramped up to 46 stores in 11 cities. The chain is not looking at aggressively adding cities, Verma claims, but will start peppering outlets in metropolitan areas. "Our plans are to grow to 70 stores by the close of 2009 and over 120 outlets by 2010."

Bakshi says that McDonald's will also follow a similar saturation strategy. "Look at Delhi's Connaught Place (CP), we have four stores there, but I believe that we can support eight." But he acknowledges that McDonald's has been conservative. Between Bakshi and Amit Jatia, Managing Director, HardCastle Restaurants, the McDonald's franchise owner in western and southern India, McDonald's still has 132 outlets despite having opened operations in 1996.

"We are a fairly conservative operation," Bakshi laughs, "But the name of the game is not simple growth but profitable growth." For the record, McDonald's which entered China in 1990 has over 1,000 stores and is opening over 170 new outlets in 2009. And it isn't just people eating out. In 2008, Domino's Pizza crossed the '1 crore pizzas delivered' mark. In fact, Ajay Kaul, Managing Director, Domino's Pizza India is taking the chain to new towns, expanding to 65 stores in over 50 cities. "Take-away growth has been spectacular.

We saw numbers grow 25 per cent plus last year," he says. And he claims that Domino's with its "affordable" tag (the company launched a Rs 35 "nano" pizza last year in India) has achieved this because of a combination of two factors. "There is definitely the aspirational element, but there is also a growing number of people moving down the value chain. Our ticket size is around Rs 300 for a delivery and that has been steady. But people are going in for this instead of spending Rs 500 plus in a dine-in restaurant," Kaul says.

MCDONALD'S Same-store sales climbed 20% year-on-year in January KFC Average spending by customers has been going up every month and now stands at Rs 75 Domino's Pizza Takeaway numbers grew more than 25% last year and crossed the 1-Crore mark

In fact, Domino's has seen a slight de-growth in its dine-in business. Bakshi, who wears the cap of the President of the National Restaurant Association, concurs: "Definitely, what we classify as 'fine dining' restaurants are being impacted by the slowdown because people are looking for value, and they're getting that from fast food."

However, Pizza Hut is moving towards a dine-in model. Explains Anup Jain, Director Marketing, Pizza Hut: "There are a large number of people who don't want to visit the expensive restaurants, they want a classy dining out experience minus the price."

The chain has, therefore, begun to remodel the majority of its 120 outlets with updated interiors and new crockery. But it is also targeting new cities, moving into Jammu, Varanasi and Rajkot in 2008. "In many of these smaller cities, there is a massive latent market for something like us and the concept of dining out at a place like Pizza Hut is seen as something new and innovative."

In fact, every one of the four chains mentioned has been adding new cities, moving into some places that others would think peculiar. There is even talk of these chains moving into states like Bihar, a thought that would have seemed unthinkable a few years ago.

The only thing that is going against the fast food industry is the "eat healthy" lobby led by Union Minister for Health Ambumani Ramadoss who has in speeches clubbed the multinational fast food industry along with the alcohol and tobacco industries. However, Bakshi claims that the industry is cleaning up its act, something it has been forced to do by the changing consumption patterns in developed markets. "We are removing trans-fats from all our products gradually and should take them off the menu completely shortly. And we are offering our consumers healthier food choices as well," he argues.

McDonald's India recently launched a pilot for their "breakfast" menu at select outlets and Bakshi claims that this menu is an energy-rich albeit low-fat meal. "These changes are being driven by consumers," he says.

Fattening up in lean times Fad and affordability have increased fascination for fast foods. McDonald's: Conservative in expansion plans; has 132 stores but will be expanding in 2009-10. Same store sales up 20 per cent in January 2009 with meal ticket size crossing the Rs 100-mark. KFC: Plans to expand from 46 outlets in 11 cities to 120 outlets in metros mostly by the end of 2010; ticket sizes have steadily increased to Rs 75 at present. Pizza Hut: Repositioned the brand as 'Affordable casual dining' chain with new look, menu and cutlery. Currently operates 120 stores in 34 cities, and plans to expand to Tier I and Tier II towns. Domino's Pizza: Delivered one crore pizzas in 2008 and saw deliveries grow almost 30 per cent with low-price menu items. Plan to take the number of outlets to 65 by 2009 end from 52 in 43 cities at present.