McDonald’s India operator falls significantly short of profit estimates as competition, costs bite

Westlife Foodworld, a McDonald’s franchisee in India, missed quarterly profit estimates by a wide margin on Wednesday, as restaurant chains faced higher costs and stiff competition from local cafes and online kitchens.

Global fast-food giants, which once drove India’s burger and pizza boom, have struggled to boost sales over the past two years due to weak wage growth limiting urban spending and nimble local competitors gaining ground.

Westlife posted a 62% plunge in profit after tax to 12.3 million rupees ($142,303) for the first quarter ended June 30, missing estimates of 50.8 million rupees, according to data compiled by LSEG.

Rising ingredient and labour costs also weighed, as Westlife’s expenses climbed 7% during the quarter.

McDonald’s promoted K-pop-inspired burgers starting at 69 rupees (80 U.S. cents) to lure diners, helping Westlife post a 0.5% rise in same-store sales, although this was the slowest growth in the past three quarters.

However, Westlife expects better quarters ahead as the franchisee is “observing positive signals in the market”.

“Westlife anticipates a gradual improvement in dining-out trends as inflation moderates,” Chairperson Amit Jatia said in a statement.

With retail inflation in India cooling to a six-year low in June and expected to ease further in July, corporate India hopes consumer sentiment will improve. However, many analysts have warned that the sharp disinflation may also be a sign of weakening demand.

Earlier in the day, Sapphire Foods India, a KFC and Pizza Hut franchisee, reported a swing to a loss.