How Quick Service restaurants (QSRs) are bracing for the next normal?
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How Quick Service restaurants (QSRs) are bracing for the next normal?
Given the growing preference for take-out food culture and fast-food options, often perceived as comfort foods by an estimated 120Mn urban millennials and young demographic profiles, QSR chains in India have relatively bucked the trend of economic reversal due to the pandemic and is estimated to grow at a steep CAGR of 23% between 2021-25. While store and non-delivery verticals were badly hit, organized QSR players with robust logistics infrastructure in place saw consumer demand shift towards a contactless delivery model during the lockdown.
Simpl’s alliance with leading QSR players
Simpl partners with leading QSRs to offer Buy-Now-Pay-Later options towards strengthening their bonds of trust with their exclusive consumers and tangibly grow their brand power. Simpl is a quick payment option at the time of checkout and enables customer transaction completion in a few seconds.
A Deloitte report opines that customers of QSRs are increasingly opting for digital experiences, convenience and touchless safety options – in the food, delivery and payment modes. According to a survey, 70% opted for digital order with off-premise delivery and 58% opting for digital ordering from a QSR.
QSRs: Churning growth
According to an Edelweiss report, fast -food chains still comprise 5% of the food services market in India, as against the global average of 20%. Organized QSR touched INR 348 Bn in FY20, capturing a sizeable share of India’s food services market(valued at INR 4236 Bn in 2020). QSR chains are expected to drive growth, moving from 54% of the share of QSR in FY20 to touch 64% in FY25.
Source: FinancialExpress
Statistics point to organized QSR being an outlier. In FY20-21, while food services plummeted by 82% y-o-y in H1FY21, QSR chains saw a decline of 45%, with a bounce back to 85% pre-COVID levels by Sept 2020.
The way to one’s heart is through one’s stomach
While large-sized QSR formats can leverage on economies of scale, QSR players, in general, would be able to achieve greater expansion through value-centric pricing, economy packs, higher penetration into tier2 and tier 3 cities, experimentation with regional recipes and variety of menus, eliminating supply chain bottlenecks and ensuring on-time delivery. On average a customer takes an estimated 109 seconds to decide on an item on the menu, with timelines being lower for QSRs. This is why many QSRs opt for standardized offerings with minor menu variations.
Time is of the essence
Source: Deloitte
The off-premise dining ecosystem has also accentuated the need to retain the food freshness for a longer time, accommodating the delivery time.
Another key factor that would contribute towards greater wallet share is providing the customer with a delightful experience – quality food options that cater to price-conscious, health-conscious and taste-conscious customers as well as a prompt payment experience. Simpl’s two-click payment option is an innovative mode, by which QSRs can deliver a seamless, speedy transaction experience to their customers.
Online delivery is the way forward
It is believed that the online food ordering trend is expected to outlast the pandemic with an increased number of QSRs partnering with delivery platforms to ensure prompt food delivery.
An EY study suggests that it would be prudent for QSRs to strengthen their online deliveries, store-pick up and contactless takeaway models. This is attributable to a cut in discretionary customer spends due to the pandemic-induced economic uncertainty, with 64% mentioning a curtailment in expense towards restaurants and movies.
| QSR | Pre COVID | Post-COVID |
| Revenues from online delivery (estimated) | 20-30% | 50-70% |
A recent Deloitte report highlights the proliferation in online ordering, predominated by millennials and Gen X being a dominant category that prefers delivery and takeout.
Mixed bag
The performance has been non-uniform across QSRs, with certain small and medium-sized QSRs being forced to shut business owing to heightened safety practices being demanded by customers and lockdown impositions, that made operations unprofitable. As a result, several QSRs focused on the takeaway model and ramped up their delivery systems.
A study indicates that for a single outlet level, break-even may be achieved in 3-6 months in case of efficient operations management. At a broad industry level, break-even may take up to 26 months.
Emerging business model
It is estimated that India’s takeaway segment would clock a CAGR of over 30% till 2024, with a frequent user base of over 300Mn customers. It is predicted that Zomato and Swiggy would benefit from this trend, already undertaking a combined 2.6Mn deliveries each day as of Aug 2020.
However, QSRs typically shell out 15-20% of their income on each order to delivery companies and food aggregators to avail their logistics infrastructure. Thus, many QSRs are contemplating setting up their own delivery apps to save on costs and get a direct pulse of the end-consumer expectations. An omnichannel delivery strategy would work to the advantage of QSR players.
Opportunities and challenges alike
Other challenges faced by QSRs include fixed costs of rental charges for unused physical restaurant space and staff costs in the wake of lower footfalls.
Other innovative approaches being adopted include the launch of kerbside restaurants with food parcels being sold to customers in their cars by the QSR staff. Drive-through outlets also have ample scope to keep customers segregated by lanes and engaged, offering food and entertainment options. A Deloitte report indicates a jump from 20% pre-COVID to 90% post-COVID in the drive-through model.
Ingredients of change
With the threat of a second COVID wave looming large, it is imperative for QSRs to emphasize timely and frequent communication regarding the adoption of best practices, adherence to hygiene standards, social distancing and safety protocols to reassure customers on the quality aspects.
Concluding thoughts
The QSR sector, though with promising growth prospects have its inherent set of challenges. Convincing customers to migrate from in-store to online, coupled with managing premise economics, changing menus, product innovation and launch of new cuisines suited to altered customer preferences and building a robust delivery mechanism would be the prominent focus areas.
