March 2021

QSR and Café Industry

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Key takeaways

● Organised chained QSR market to grow at a CAGR of 60-70% during fiscal ‘22; resurgence of Covid remains monitirable
■ Consumption impacted with mall closures and restrains on spending on the back of Covid-19 control measures in FY 21
■ Players shut down stores with unprofitable outlook, as retail footfalls expected to be muted in near term
■ Large metros lag smaller cities in terms of recovery; normalcy in revenues expected by Q4 FY 21 and FY 22

● Chained Café market to grow at a CAGR of 50-60% during fiscal ‘22

■ Revenue decline sharper for beverages segment in FY 21, as chains relied on ‘experience’ in the retail oriented business

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■ Players extending into packaged foods, online delivery to recoup lost revenues in the pandemic era
■ Tea focused players entering the café market will complement the cafe` chain growth

● > 70% of overhead for QSR industry- employee, consumables & rentals
■ Players negotiated lease rentals during the period business was weak (superior brands could save upwards of 50% on this vertical)

● Faster shift towards digital channel as retail footfalls reduce

■ Increase in order value witnessed during FY 21
■ Break-even volumes of QSR chains dependent on pricing and store size for retail business

● Economics of cloud kitchen model attracting major players

■ Savings on rentals , interiors and employees to the tune of 15-25% of revenues
■ But commissions for delivery impacts eats on these savings

● Zomato and Swiggy command major share in food delivery business

■ Diversifying into other business segments to arrest cash burn- groceries, logistics etc
■ Entry of Amazon Food could increase competition
 Indian restaurant industry is highly unorganised

RESTAURANTS

35%
65%
ORGANISED UNORGANISED

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Chain Segment Standalone

Coffee/Tea
QSR Bar/Lounges Dining
Chains

• Burgers/Sandwic • Casual Dining

hes

• Fine Dining
• Pizzas

• Others

Source: CRISIL Research

CRSIL Research coverage

 International players marked entry via franchisees

QSR CHAINS CAFÉ CHAINS

Jubilant Food Westlife Burman Rebel Foods Other Burger

works Ltd
Devyani
Private
Coffee Tea
International Ltd Development Hospitality Chains
Limited limited

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Westlife Sunshine
Development Teahouse Pvt
Limited Ltd

Mountain trail
Coffee day Ltd
foods Pvt Ltd

Tata coffee Ltd

Master Company
Business models- Joint venture owned
Franchise
Delivery channel & lower ticket to aid sharper recovery of QSR chains
Low base and demand impetus in fiscal 2022 Café` footfalls & pace of recovery to be lackadaisical in near term

Rs 58 billion

Rs 52 billion

Rs 32 billion

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FY 16 FY 20E FY 21P FY 22P FY 23P FY 16 FY 20E FY 21P FY 22P FY 23P
15% CAGR* 60-70% y-o-y** 50-60% y-o-y**
Note- ‘*” denotes the Revenue growth of listed set
‘**” denotes the Revenue growth between FY 21-22
Source: CRISIL Research

Urbanisation to increase to 35% Increasing disposable More women entering

a. Macro tailwinds by 2023
Younger demographic income workforce

Improving customer
b. Industry adaptation Innovation in menu Value for money
experience

c. External support Reduction in GST Delivery formats Social & digital media

Challenges of slow recovery of dine-ins, high attrition rate, pricing pressure still persist with Covid
resurgence remaining monitorable
 Commodity prices put pressure on margins in FY 20; focus on SSG
continues
6% 5% 4% 2% 0.7%
25% 250
221
23%
20% 200
Jubilant Food works

20% 17%  Revenue growth primarily from SSG

18% 150
16% 17% 15% 15% 150
13% 115  Store openings to remain muted in
17% 87
10% 10% 8310% 100 FY21, pick-up with optimal store
14%
sizes expected from FY 22

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6%
5% 50
4%
0%  Drivers for gross margins-
3% 3% 0% -
FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20  Commodity prices
-2%
Revenue growth (% SSG Store additions Ebitda margins
 Discounting on aggregator
platforms
10% 27 9% 30
9%
25% 9% 25
23%
24 25  Wastage management
8% 22
Westlife Development

7% 19 19 20  Delivery charges
18% 6% 8%
16% 5% 6% 15  Investments
12% 5% into marketing and
10% 4%
8% 5% promotions to continue as shift to
3% 10
3% 2% 5 online channels occurs
4% 4%
2% 1%
0% -
FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20
-6%
Store additions Ebitda margins
Revenue growth (% SSG

Food Note- Above financials are including the impact of IndAS 116
inflation Source: Company reports, CRISIL Research
 Online delivery quickened the pace of recovery post relaxation of lockdown
Jubilant Food works Westlife Development

85% 96% 100% 15-20% 40-45% 65-70% 78-85%

24% 56% 95%+
Sales recovery to last

April May June July Aug Sept Oct Nov Dec April May June July Aug Sept Oct Nov Dec
year

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14%
10% 12% 12% 12% 17%
4% -1%
0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3
Revenue growth

Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY 20 FY 21 FY 20 FY 21
-25%
-17% -45%

-75%

-60%
SSG

4% 5% 6% -3% -61% -20% -2% 6.7% 7% 9% -7% -54% -41% -24%

23% 24% 24% 19% 6% 27% 26% 9% 16% 12% 6% -61% -5% 10%
margin
Ebitda

 Compelled adoption to online channels, major presence in Covid afflicted

 Introduced new brands- Ekdum Biryani and product variants across different regions hinders recovery
formats
 Product expansion continues, focus on EOTF stores with Rs 25-30 mn/store
 Introduced delivery charges, with ~90%+ business via online channel capex
Tea & coffee chains look towards menu additions & packaged foods; retail
business adversely impacted by Covid
McCafe on an expansion mode while CCD weans Avg. sales/day of McCafe increased by ~9x owing to low base

-7% CAGR
8.7
1,682 1,722 1,752
1,607 6.6

1,192 4.2

2.3
31% CAGR 1.2
1.2 1.1

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1 1 1.1

149 190 223

75 110
FY 16 FY 17 FY 18 FY 19 FY 20
FY 16 FY 17 FY 18 FY 19 FY 20 CCD Mc Café
CCD Mc Café Base year
Note- McCafé stores considered are under the ambit of Westlife Development
Source: Company reports, CRISIL Research
Tea chains entered the market, with huge promotions
Coffee & Tea chains making losses at Ebitda level, retail business loss aggravated by Covid

Post vigorous expansion, CCD focused on cutting down losses

Stores op 67 outlets 170 outlets

Menu extension with non-beverage products coping mechanism as retail footfalls remain low

Rev gr FY17/20 CAGR 55% CAGR 48%

CCD held ~70% of the market of vending m/c with fresh milk- worst impacted by WFH
Pack Deliv
aged eries Deliveries, 21%
Revenue split food ,
McCafe additions at existing stores, premium chains like Strabucks too gaining foothold but tea chains s,… 25% BoxC, 38%
as of FY 20
disrupting the market
Dine-in, 38%
Dine-in, 70% Packaged foods, 3%

Business back to 65% of Started cloud kitchen &

pre-covid levels in Dec-20 instant chai during the
pandemic
> 70% of overhead for QSR industry- employee, consumables & rentals
Cost structure of QSR chains
Ads & promotions,
Power & fuel, 8% 5%

Others, 8%
Raw material,
37%
Manufacturing
Rental
expenses, 9%

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negotiations

Mechanisms to control cost

Employee costs, Supply chain Flexi time
18% Rent, 15% optimisation employment

Note: Companies considered are Goli vadapav, Devyani

International and Connaught Plaza Restaurants

Ebitda range bound as Cost rationalisation to control costs in FY 21, trickling into FY 22 Introduction
Renegotiation
of delivery
with suppliers
charges
18.8% 17-18% 18-20%

14.8%
12.9%
10.5%
8.5%

4.1%

FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21P FY 22P

Note- Companies considered for opera

 Returns & breakeven dependent on pricing and store size for retail business
For QSR formats For Cafe formats

500 800
Value tea
KFC 1.2-1.5 format
700
32.5
400
600

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McDonald’s
Breakeven Transaction/day (nos.)

Breakeven Transaction/day (nos.)

Burger King
22.5 25 500
300
400
Subway 17.5
4.5 Mid- priced tea Premium
200 300 Premium coffee format
Jumbo King Domino’s format
2.3 tea format
200 2.5-3
100 4-5
Goli vada pav 2.5-3
1.2 100

0 0
0 100 200 300 400 500 600 700 0 100 200 300 400 500
Average Transaction value (Rs) Average Transaction value (Rs)

Note: a) The above calculations are based on assumptions of store size and consumable cost for breakeven in the first year of operation with available data as of FY 20
b) The size of the bubble represents the capex requirement per store in Rs mn
Source- Industry, CRISIL Research
Sector thrives on PE investments; ~14 billion of investments in 2020
Nearly 2x increase in investments From sipping coffee to chai..

14.18 12.8
2.2 2.2 Investment into Tea
chains
In Rs billion

In Rs billion
9.36
1.5

6.13

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0.3
1.19 1.23

CY 15 CY 16 CY 17 CY 18 CY 19 CY 20 CY 15 CY 16 CY 17 CY 18 CY 19 CY 20
Café QSR Tea Coffee

Key deals in the sector primarily for expansion and sustenance

Company Deal amount (Rs bn) Company Deal amount (Rs bn)
Rebel foods 27.66 Chaayos 2.3
WoW! Momos 3.7
Chai Point 1.42
Sapphire Foods 2.3

Source: Crunchbase, Media articles, CRISIL Research

Cloud kitchen, a disruptive model attracting organized players
Ad &
Profit margins are greater for cloud kitchens Revenue promotion cost
growth of 81% up by 61% in
in FY 20 FY 20
14%
Cloud Kitchen Raw material
9% Lauches
Rentals Revenue ‘InstaFresh’-
7% 40% growth of 63% online grocery
36%
Employee costs in FY 19 ordering to
8%
20% Traditional QSR combat Covid
Energy costs

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Commissions Revenue Loss of Rs 30
30% declined by cr in FY20, cut
10% other expenses
3% 24% in FY 20 losses by 63%
(cut in employee &
5% Ebitda margin marketing expenses)
18%

 Typical set-up cost - Rs 1-1.1 million

Developments
 Break-even in 1st year – 750-800 orders/day [ Assumption of avg. order value of
Rs 300
 As core businesses get impacted, dine-ins switch to cloud kitchen

 Swiggy temporarily put its cloud kitchen venture on hold

Streamlined order process Limited presence/ visibility
 Rebel Foods partnered with Wendy’s for 250 cloud kitchen
High dependence on delivery
Lower capex & opex  Rebel Foods raises capital of ~Rs 3,750 mn from Coatue
formats Management
High competition due to low
Scalability
entry barriers
 Discounting & convenience led to dominance of Zomato & Swiggy;
entry of Amazon Food could pose challenges
Interest levels for food aggregators increased during festivals/ occasions

Zomato
Hyperpure, 3% Fingerlix
Dining out, 12%
Swiggy
Business Genie
verticals

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Instamart
Delivery ,
85% Supr Daily

$5.4 Source: Google Trends

$5 Uber Eats (India) has been acquired by Zomato in early 2020
Valuation* bn bn

Contributi
on margin Rs 27/order Still negative
Zomato to raise $1 billion via IPO later this year

Revenues (Rs cr) 3,486 2,955 GMV of Zomato increased by 108% in FY20

Loss (Rs cr) 2,378 3,920

Swiggy listed street vendors under PM SVANidhi in Tier 2,3 cities
Restaurants (nos.) 119 k 147 k
Order sizes have increased by 20%-30% of pre-covid levels
Delivery partners (nos.) ~2 lakh ~2.1 lakh

Restaurant listing (nos.) 270 k GMV has improved beyond pre-covid levels, players focused on
cost cutting to improve unit economics
Note- Revenue and loss is as of FY 20, * valuation by external agencies
Source: Zomato reports, media articles, equity reports,
 ANNEXURE

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 Product mix change and increasing consumption reflected in increasing
revenue/outlet pre covid
Pre covid, revenue per outlet was on an uptrend

47 48
41 Brand extensions and increasing average sales
37 35 36
28 28 per outlet were driving this trend
24 25
22 22

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8 8 9 10
6 7

FY 15 FY 16 FY 17 FY 18 FY 19 FY 20
Westlife Development Jubilant Foodworks CCD

STORES 1,373 1,192 320 136 260 317 541 52 220

Revenue / outlet 28 9.7 48.4 32.5 10 4.7 1.4 12.9 2.9

(Rs mn)

– For relatively old brands, higher revenues in relation to brands on expansion mode – For products with relatively premium pricing, higher revenue relative to number of stores

Source: Company reports, CRISIL Research

Returns & breakeven dependent on pricing and store size
For QSR formats For Cafe formats

Average transaction Breakeven Breakeven

Investment Investment Average order value
value transactions /day order/day*
Premium coffee format
McDonald’s Rs 350 - 400 100-120
Rs 550 - 600 300 - 330 (capex- ~ 4-5 mn)
(capex- ~25 mn)
Premium tea format
Rs 250 - 300 110-130
KFC (capex ~2.5- 3 mn)

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Rs 500 - 550 400 - 450
(capex- ~30-35 mn) Mid- priced tea format
Rs 150 ~200
(capex- ~2.5 -3 mn)
Burger King
Rs 500 - 550 300 - 340
(capex- ~20-25 mn) Value tea format
Rs 10 740-750
(capex- ~1.2-1.5 mn)
Domino’s
Rs 500 - 550 220 - 250
(capex- ~15-20 mn)
Note: The above calculations are based on assumptions of store size and breakeven in the
Subway first year of operation
Rs 250 - 300 170 - 210
(capex- ~4-5 mn)
Source- CRISIL Research

Jumbo King
Rs 150 - 200 130 - 175
(capex- ~2.3 mn)

Goli vada pav

Rs 100 - 150 100-145
(capex- ~1.2 mn)

Note: The above calculations are based on assumptions of store size and consumable cost for breakeven in the first year of operation

Source- Industry, CRISIL Research

Franchising as a business model

Brand owner / Master franchise

• Standards / specifications Royalty /

Regional or country
level / supply chain
• Training advertising
centers • Audits / quality control fund
• Branding / advertisement

Vendors / third party

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Franchise
suppliers

fee
Franchisee / sub-franchisee

• Own / lease the stores

Store level • Buy machinery / equipments
kitchens • Set up store interiors
• Operate stores as per franchisee Revenues
agreement

Customer
Source: CRISIL Research

 Mc Donald's and Dominos operate on a master franchisee model

 Subway operates on a franchisee model
 CCD operates on company owned model
 Methodology / Framework

List of QSRs in India Number of outlets

Justdial,Media articles,
sourcing, etc.
Average transaction Media articles,
size sourcing, etc.

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Media articles, Transactions per Current market
sourcing, etc. day size

Price increases + changes in

Increase in average menu (based on past trends)
transaction size
Same store sales
Existing stores
growth
Increase in
Sourcing transactions
Overall growth in
QSRs
Average transaction
size
Growth from new
New store additions
Media articles, outlets
sourcing, etc. Trans. assuming
Sourcing ramp up time

Source: CRISIL Research

 Thank you

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