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KFC gains as Domino’s sheds more than its pandemic gains:

Based on Q1 revenue, KFC has gained ~500bps share over Domino’s, while WLDL, BK India and PH have been able to completely recoup the lost share. Share gain for KFC has been led by a 400bps rise in storecount share, followed by better rev/store performance. Between PH and Domino’s, PH gained ~300bps revenue share in Q1, largely led by increase in its store-count share. After gaining 500bps revenue share during the pandemic in FY21, Domino’s has shed ~1,100bps share from its peak pandemic share. However, Domino’s continues to focus on increasing its SSG with a new loyalty program (cheesy rewards), faster deliveries (<20minutes) and new launches, while PH has improved its menu affordability and expanded the addressable market with its foray into the entry-level pizza segment (Rs79-149; Flavor-Fun pizzas).

Dine-in recovery and continued delivery traction helps WLDL recoup lost share:

WLDL and BK India completely recouped the revenue share lost during the pandemic. Despite the ~300bps drop in its store-count share due to slower store additions, WLDL regained its revenue share with industry-leading growth of ~31% in annualized rev/store vs. pre-Covid, followed by 14% growth for KFC, 11% for Burger King and 0-5% growth for PH/Domino’s. The stronger performance in WLDL/KFC formats was led by recovery in dine-in, continued delivery-sales and strong traction in gourmet burgers/fried chicken for WLDL. Focus for WLDL remains on accelerating its store-count growth with ~35 additions expected in FY23E and 200+ in the next 3-4 years.

Higher store additions vs. the past may result in higher rentals/employee attrition:

With quarterly addition of ~175 stores at present vs. annual additions of ~300 stores pre-Covid, the pace of store additions is now 2.5x vs. the past. Near-term store-addition outlook also remains robust for all QSR players. While such players have invested in building business development/project capabilities, we believe a shortage of good real-estate and of store-level employees can lead to higher rentals and employee attrition in the space. Rental & employee costs together form 20-25% of sales across QSR players and increased competitiveness remains a potential downside risk to our estimates.

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