Fast-food slowdown catches up with McDonald's India franchisee

Chennai: Shares in India's Westlife Foodworld fell as much as 7.7 per cemt on Friday, a day after the McDonald's operator reported a surprise drop in quarterly profit and indicated high inflation was squeezing consumer spending in the current festive quarter.

Prices of essentials in India have shot up in recent months, prompting companies like Coca-Cola to roll out smaller packs and restaurants to launch cheaper pizzas and burgers.

"All around you are seeing pressure on macro spending," Westlife Executive Director Akshay Jatia said, adding the informal eat out category as well as Western fast food are under pressure in terms of growth.

"Eating out frequency remains low," he said.

This slowdown is not restricted to India. Globally, fast-food chains, including McDonald's and KFC-parent Yum Brands, are contending with inflation-stung consumers preferring to dine at home.

To counter this, Westlife in June launched discounted meals at 179 rupees ($2.15).

However, this only led to a 1 per cent growth in same-store sales, slowing from a 7 cent rise in the first quarter and a 40 cent jump last year.

Westlife's shares are tracking their worst day in two years and seven months, trimming gains to around 5 cent so far this year.

Until the second quarter, the company had shrugged off the fast-food slowdown on higher demand for fried chicken, burgers and coffee, while pizza chains have been under more pronounced pressure for several quarters.

Earlier this week, Domino's Pizza franchisee Jubilant FoodWorks reported a decline in like-for-like sales - a key same-store sales metric - for the third straight quarter.

"Although Westlife has been relatively resilient in the past few quarters, the slowdown has started showing its impact finally," Prabhudas Lilladher analyst Amnish Aggarwal said after the company's second-quarter results.

Consumer spending typically picks up in the October-December quarter, dubbed the festive quarter, as it includes Christmas and the Hindu festival of Deepavali, when people engage in more discretionary spending.

However, another Westlife executive said the factors that pressured the franchisee's sales would not "dramatically" change in the third quarter. ($1 = 83.2380 Indian rupees)