Organized QSR players on a strong growth wicket despite margin concerns
Aggressive expansion plans laid out by all the organized QSR players in India indicates the QSR industry is poised for exponential growth trajectory driven by a structural increase in consumer preference for online food ordering. The superior experience that consumers realize from online ordering through apps and seamless websites to quick delivery are key drivers for the double-digit growth in the Food Service Industry. The overall industry is poised for a 15% CAGR with Organized QSR segment expected to grow at a robust 23% CAGR over FY20-FY25, which would make it one of the fastest growing industries in the current economic landscape. The COVID-19 pandemic seems to have added rigour to growth plans as companies have embarked on a 10-15% annual footprint expansion, updating product offerings as well as adding innovative menu offerings to stay competitive. The key drivers for exponential growth trajectory are - 1) large market opportunity with organized players to benefit from growing market size 2) increasing population inclined towards ordering fast food with focus on hygiene and safety 3) pandemic becoming a trigger for organized QSR companies as consumers developed trust in these companies 4) Clear visibility in top line growth with 10-15% footprint expansion and 5-7% SSSG 5) Product portfolio expansion and foray into new territories. We believe companies with superior operational capabilities, delightful experience with ordering and delivery of food and constant technology upgradation coupled with innovative product portfolio are set to gain further market share. While margins can be a concern in the near-term, we believe that the top brands have reasonable pricing power to pass it through to consumers to a large extent and still retain the relative value preposition. We prefer players like Jubilant Foodworks, Devyani International and Barbeque Nation.