INDIA- Sapphire Foods, which operates Pizza Hut and KFC chains in India, has reported a 68% decline in consolidated net profits in Q2 2024 to INR 85.2 million (US$1.02 million) year-on-year (YoY) compared to an expected profit of INR 173.9 million (US$2.07 million).
Operational revenue increased by 10% to INR 7.18 billion (US$85.75 million) in the reported quarter, also missing analyst prediction of INR 7.23 billion (US$86.33 million). The operator revealed prices of ingredients increased by 10%, increasing total expenses by 13% to INR 7.12 billion (US$85 million).
Quick-service chains in India have faced challenges induced primarily by rampant inflation. High inflation has caused a significant increase in production costs passed down to customers.
The prices of key inputs for the operator like ingredients, chicken, cheese and tomatoes have also significantly increased as a result of high inflation.
The other ripple effect of inflation is reducing customer’s disposable income, causing many customers to become weary of their spending. Cash-strapped customers have become more sensitive to price and value, which has reduced demand.
Although the latest report shows a slightly better performance compared to Q1 2024, analysts reiterate it is not a sign of improving market conditions.
In May, Sapphire Foods reported a 98% decline in consolidated net profit to INR 23.9 million (US$286,271.4) YoY in Q1 2024 against a predicted net profit of INR 44.5 million (US$531,400). During this quarter, expenses increased by 15% while costs of raw materials increased by 9.4%.
The operator responded to these inflation pressures by offering new product ranges at lower prices compared to competitors as well as value deals like Pizza Hut’s Melts, a cheesy pizza sandwich meal costing INR 259 (US$3). However, the prevailing market force proved too strong to sway customers.
McDonald’s India also reported a significant drop in consolidated net profits for Q2 2024. Burger King India, another competitor, reported narrower drop in consolidated net profits.
Market analysts predict a continuation of the current harsh market environment for QSR chains in India and beyond. Resolution of supply chain disruptions in the Red and Black Seas, caused by ongoing conflicts in Ukraine and Gaza, would be the prime indicator of improving market conditions.
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