FUNDAMENTAL ANALYSIS OF QUICK SERVICE

RESTAURANTS (QSR) SECTOR IN INDIA

Nikhil Garg1

ABSTRACT

The purpose of this study is to understand the risks, leverages along with issues and challenges that are being faced by the
industry. The same has been done with the help of Comparative Financial Analysis amongst the four prominent players of the
industry. The author has adopted CAPM analysis, Vertical and horizontal analysis of financial statements followed by ratio
analysis on financial statements of selected QSR. It is concluded that QSR industry as a whole has been in turmoil in the past
couple of years which is clearly evident in the performance of all the firms that are taken up for the purpose of though few
indicators have indicated towards the prosperous future of the industry. This paper analyses many factors that affect the QSR
industry from financial perspective and the suggestive measures to overcome the same.

Keywords: Quick Service Restaurants, QSR, Financial Analysis, Food Industry

INDUSTRY OVERVIEW

Table 1: GDP Contribution of Food Industry

FS Market
GDP Growth % Contribution
Year Size FS Growth
(CAGR %) to GDP
( '00 Crore)
2013 2479 - - 2.30%
2017 E 3350 8% 7% 2.30%
2022 P 5494 10% 8% 2.60%
Source: (Shukla, Reetesh; Yadav, Ravindra; Sharma, Vidul, 2014)

Quick Service Restaurants (QSR) is a subset of Food and eating out more than their forerunners, driving the
Beverages industry or Food service industry. The industry development of the Food Services market. Accessibility of
comprises of QSR chains, Casual Dining restaurant, cafes, organised retail space is helping in the steady development
Top notch restaurants, street vendors, take away restaurant, of Indian and International brands crosswise over various
fast food joints, highway dhabas, pubs, lounges and cultural formats. The QSR is a booming business in India due to
dining setup. The Food Services part is required to have increased customer demand for fast food. There are various
created coordinate direct employment for 5.5-6 million external and internal factors affecting the business of the QSRs
individuals in FY16, or, in other words, increment to 8.5-9 (Nero, 2018).
million by FY21. 1. Engine of Growth
Sustenance Services rise as a key section in the Indian The Indian F&B industry is set to develop as every one of the
economy. Indian Food Services showcase in India (sorted out indicators are calling attention towards that direction only,
and disorderly) is assessed at INR 3,37,500 crore in 2017 with the expansion in footfall the development will be there
and is anticipated to develop at a CAGR of 10% throughout in the wake of two difficult years for the business as an entirety.
the following 5 years to achieve INR 5,52,000 crore by 2022.
Two metros, Mumbai and Delhi NCR add to 22% of the The extent of the Indian Food Services market in India
general Food Services market (11% each) trailed by six small (organised and unorganised) is assessed at INR 3,37,500 crore
metros (Pune, Ahmedabad, Bengaluru, Chennai, Hyderabad, in 2017 and is anticipated to develop at a CAGR of 10% next
and Kolkata) containing 20% share in the Food Services 5 years to achieve INR 5,52,000 crore by 2022 (See Figure
market. High level of the youthful and working populace 1).
which is all around voyaged have twofold incomes and is The strength of unorganised will likewise tend to diminish
experimental alongside being technically knowledgeable, is with organised sector attempts to get, yet the gap will, in any
1
Associate Professor, Asian Business School, Department of Finance, E-mail : [email protected]

58 J-GIBS Volume 11, Number 1, January-December 2019

case, be large and both developing all the while (See Figure 2).

Figure 2: Market breakup of QSR Industry

Source: (Shukla, Reetesh; Yadav, Ravindra; Sharma, Vidul, 2014)

Table 2: Market share of organised and unorganised sector

Market Share Market Share Market Share CAGR CAGR

(2013) (2017) (2022) (2013-2017) (2017-2022)
Unorganized Sector 70% 66% 57% 6% 7%
Organized Sector 30% 34% 43% 11% 16%
Source: (Shukla, Reetesh; Yadav, Ravindra; Sharma, Vidul, 2014)

The unorganised share of market has reduced from 70% in 2. Large Share of young population
2013 to 66% in 2016 and is further estimated to reduce to
India is a country with 1.25 billion populations out of which
57% in 2022 as many unorganised sector players are planning
45% are below the age of 25 years, the country has the
to move towards organised sector (See Table 2). Along with
youngest mean out of the most of major global economies
growth, many failures have also been noticed in the industry.
making it perfect market to grow for the F&B industry to
Many are closing, some are struggling and a good number is
grow (See Figure 4). For long-term success, quick-service
trying to establish them. Apart from that, except few most of
restaurants must generate positive relationships with
them have not been able to grow at national level (Sinha,
consumers. More specifically, quick-service restaurants need
2012). Moreover, Quick-Service Industry is a cutthroat
to produce satisfied consumers that ultimately lead to loyalty
business where profits are slim and competition is high,
behaviours towards the restaurant (See Mason, Jones,
‘survival’ is a daily struggle (Krishna, 2014). Thus, staying
Benefield & Walton, 2016).
relevant in the QSR is an extremely tough task.

J-GIBS Volume 11, Number 1, January-December 2019 59

 Figure 4: Age distribution
Source: (KPMG, 2015-16)

Figure 5: Trend of urbanization

Source: (Shukla, Reetesh; Yadav, Ravindra; Sharma, Vidul, 2014)
With country that young it is bound to increase the market lifestyle increases dependency on food outlets for meeting
coverage of the industry. food requirement, availability of healthier food options,
3. Increasing disposable income levels growing internet penetrations, mouthwatering offers,
discounts and cash-backs all these compositely will result in
According to Economist Intelligence Unit (EIU) India’s an increase of sale in the food industry.
personal disposable income is expected to increase from
INR86.5 trillion to INR142.1 trillion by 2020, growing at a 5. The Trend of Urbanization.
CAGR of approximately 10.5% during 2015-2020, same goes As per Figure 5& 6, more population of India is moving
for country’s median household income which is also expected towards urbanization either due to influence of western culture
to grow at CAGR of 7.3% during the period 2015-2020 which or due to the spirit of becoming in par with global level, the
will allow the people to spend more on luxurious eating thus people are moving from rural areas to tier I, II with an
increasing sales of the industry. estimation that by 2020, 35% of Indian population will live
4. Changing consumer lifestyle in urban cities1 and will account for 70-75% of countries
population which provides a golden opportunity for the firms
With more people being attracted towards trying new culinary to grow at an exceptional rate.
experience, including both Indian and international, busier
1
Mega metro cities: Delhi-NCR and Mumbai Mini Metro cities: Ahmedabad, Pune, Chennai, Kolkata Bangalore, Hyderabad 21 Cities: Jaipur, Lucknow,
Surat, Nagpur, Indore, Patna, Chandigarh, Kochi, Coimbatore, Vadodara, Ludhiana, Nashik, Varanasi, Madurai, Vishakhapatnam, Bhopal, Amritsar, Rajkot,
Goa, Trivandrum

60 J-GIBS Volume 11, Number 1, January-December 2019

 Figure 6: Percentage of Urban Population (% of total population)
Source:(Shukla, Reetesh; Yadav, Ravindra; Sharma, Vidul, 2014)

LITERATURE REVIEW the consumers as well as the income affects the spending habits
of an individual.
Viswanadham (2006) in his study discussed whether India
Selvakumar (2013) in the study dimensions of Integrated
can become the biggest food supplier in the world or not. He
Marketing Communication (IMC) and the impact in Creating
supported the argument with the fact that India is a fertile and
Brand Equity in the Quick Service Restaurant (QSR) Industry
cultivable land that allows for production of all varieties of
in Coimbatore City analysed that Brand Equity plays a major
fruits and vegetables in all seasons. It’s the supply chain that
role in the highly competitive Quick Service Restaurants
needs to be improved, building and promoting cold chain
(QSR) industry in India. The findings suggest that marketers
infrastructure and food processing industry.
should focus on building a favourable opinion of the brand
Goyal & Singh (2007) studied the factors impacting the choice amongst customers and take care regarding the news publisher
of fast food outlets by young consumers of India. The research of the brand since it affects brand image. Moreover, it was
revealed some interesting facts like preference for youngsters also found out that making people aware of the brand and the
towards homemade food, value for taste and nutritional factor perceived quality of the brand play a major role in creating
along with hygiene and ambience. brand equity more than other factors.
Anand (2011) in the study of determinants impacting Krishna (2014) in his study analysing Competition in the
consumer’s food choice with reference to the fast food Quick Service Restaurant Industry that companies must
consumption in India studied the factors impacting the fast maintain their strong standardised organisational design to
food choice of consumers in India. The survey revealed the make a profit through high volume while realising and
factors like passion for eating out, socialize, ambience and accepting the fact that the QSR Industry is one of the fastest
taste for school and college goers and convenience affecting evolving industries in the world.
the food choice of consumers.
Kotni (2015) in his study on Attributes of Customer Patronage
Ali & Nath (2013) studied the factors influencing the toward Choosing a Fast Food Retail Outlet analysed the
preferences of consumers of eating out in a restaurant. attributes of customer patronage for choosing a particular fast
Majority of the respondents primarily dined with friends or food outlet for fast food consumption. The study also offers
family members on holidays or special occasions. The study recommendations to fast food retailers based on the most
revealed that dining out is more common among youngsters expected attributes by fast food consumers.
with age less than 30 belonging to high income group or having
Rao & Parekh (2016) in their study on the impact of Quick
more than on earning member.
Service Restaurants (QSR) such as McDonalds, KFC on
Kashyap, Kashyap & Sarda (2013) analyse the new marketing smaller Indian eatery joints such as Udipi highlighted that
practices adopted by QSR and its influence on consumer’s 35% of India’s population will be in urban centres by 2020
buying habits concerning Nagpur city. As per the study, it is totaling to 53 crores compared to the current urban population
analysed that consumers in today’s market are more fascinated of 32 crores. Consumer markets are being driven by the
with western culture and increase in the facilities offered by country’s youth population. Be it college goers or the young
fast food services driving the growth of the industry. The working class, exposure to the international environment and
frequency of visiting fast food outlets relates to the ages of culture has created a demand for world-class products at

J-GIBS Volume 11, Number 1, January-December 2019 61

affordable prices. This has led to the rise of Quick Service The companies considered in analysis are as follows:
Restaurants (QSRs) in India, the fastest growing segment in
S.R = Speciality Restaurants.
the eating out market.
W. D= Westlife Development.
Simi & Matusitz (2017) in their study Glocalisation of Subway
in India: How a US giant has adapted in the Asian subcontinent DIL= Devyani International Limited
analysed 4 important themes of glocalisation (1) adjustment
J. F= Jubilant FoodWorks
of restaurant ambience; (2) adoption of Jain values; (3)
adjustment of advertising practices; and (4) adjustment of the DATA ANALYSIS & INTERPRETATION
use of social media. An important conclusion is that, although
India is embracing modernity, Subway has honoured many Data analysis is performed as per the parameters defined in
religious and cultural views in that nation. research methodology.

Sudhagar (2017) in his study explored the food quality of Vertical Analysis of Profit and Loss Account
fast food outlets in India particularly in Chennai city. Fast Vertical analysis is done to find out the performance of various
Food outlets customers from KFC, McDonalds, Pizza Hut, components of the profit and loss account and tracking the
SUBWAY were used for data collection. The research changes on YoY basis (See Table 1).
indicated factors like hygiene, nutritional value, ambience,
pricing of menu and taste as primary reasons in selecting the 1. All companies maintain a healthy gross profit
food outlet. percentage which ranges from 58%-79% which is a
good sign.
Pradhan (2018) in the case McDonald’s India – plotting
winning strategy details the growth story of American fast 2. The cost of sales or cost of the product constitutes
food chain McDonalds in West and South India markets. around 21%-40% of the total selling price.
Westlife Development Limited (WDL) operates McDonald’s 3. The major chunk of expenses is operating expenses that
chain of quick service restaurants (QSR) in these markets. eat up most of the part of gross profit.
The increased competition from both the national and
international QSR brands and the new segment of competition 4. Depreciation and Amortization revolve around 6-10%.
from “techie” food aggregators challenges their prospects to 5. EBIT (Earnings before interest and tax) or operating
maintain a number one position in these markets. profit of some turned negative while the EBIT of
OBJECTIVES OF THE STUDY Devyani for all the years is negative.
6. Interest paid expenses in the industry revolves around
The primary objectives that seek to be achieved by this study
at 0%-1.6% with Jubilant FoodWorks having no debt
are as follows.
while on the contrary, Devyani International Limited
l To perform Comparative Financial Analysis of the interest expenses constitute around 4.5%-8.2% which
industry amongst the four prominent players of the is almost 4-8 times of its peers.
industry so that a basic outline for the industry can be
7. EBT (earnings before tax) is negative for Devyani
crafted out.
international for all years from 2014-2017 due to a
l To understand the risks, leverages along with issues heavy amount of interest they need to pay on the debt
and challenges that are being faced by the industry. they had taken.
RESEARCH METHODOLOGY 8. EAT (earnings after tax) of Jubilant FoodWorks,
Speciality restaurant remain positive while Westlife
Data ranging from 02/05/2013 to 30/04/2018 has been taken Development is positive on an alternative year basis
on daily basis for the listed companies and Sensex for (See Figure 7). EAT of Devyani international limited
calculating beta factor. For Coffee day data has been taken remain negative for all the years due to high interest
from 02/11/2015 as it was listed in that year only. payment cost and high depreciation cost that dried up
Horizontal analysis of financial statements is done for the majority of the profit and turned the company into
analysing and evaluating the trends either on the basis of year a loss-making entity.
over year or quarter over quarter. It has been done in 9. Jubilant FoodWorks outperformed every other company
percentage comparisons in the study, also known as base year in the industry as it succeeded to maintain profit in all
analysis. the years from 2014-2017 while on the other hand,
Vertical analysis of financial statements is done for analysing Devyani International is the worst performer in terms
and evaluating the financial statements by expressing all of profit making capacity as it continues to generate
amounts as a percentage, a total amount. losses.

62 J-GIBS Volume 11, Number 1, January-December 2019

 Figure 7: Earning after tax
Source: Self computed based on financial statements of respective companies’ data

Table 3: Vertical Analysis of P & L (Percentage Comparisons)

Vertical Analysis S.R S.R S.R S.R W.D W.D W.D W.D J.F J.F J.F J.F DIL DIL DIL DIL
(2017) (2016) (2015) (2014) (2017) (2016) (2015) (2014) (2017) (2016) (2015) (2014) (2017) (2016) (2015) (2014)

Gross Revenue (%) 100 100 100 100 100 100 100. 100 10 100 100 100 100% 100% 100% 100%

Cost of sales 31.7% 32.0% 30.% 27.% 38.1% 39.9% 40.9% 42.0% 21.% 20.% 21.% 22.% 30.5% 30.6% 31.3% 31.1%

Gross profit 68.2% 68.0% 69.% 72.% 61.4% 60.5% 59.3% 57.9% 78.% 79.% 78.% 77.% 69.4% 69.4% 68.6% 68.8%

Operating Expenses 67.1% 60.2% 57.% 56.% 54.4% 54.3% 55.2% 51.4% 68.% 68.% 65.% 63.% 66.6% 69.6% 69.2% 64.9%

EBITDA 1.06% 7.72% 11.% 16.% 7.04% 6.21% 4.05% 6.54% 9.8% 11.% 12.% 14.% 2.77% -0.28% -0.62% 3.90%

Depreciation and Amortization 10.5% 8.59% 8.2% 6.9% 6.70% 6.84% 6.46% 5.83% 5.9% 5.2% 4.8% 4.5% 7.35% 8.42% 8.22% 8.19%

EBIT/Operating Profit -9.48% -0.87% 3.7% 9% 0.34% -0.63% -2.41% 0.71% 3.8% 6.0% 7.6% 10.% -4.58% -8.70% -8.84% -4.29%

Interest Paid 0.01% 0.01% 0.0% 0.0% 1.62% 1.78% 1.31% 0.62% 0.0% 0.0% 0.0% 0.0% 8.07% 4.02% 4.00% 4.38%

EBT -9.49% -0.89% 3.7% 9.0% -1.27% -2.41% -3.72% 0.09% 3.8% 6.0% 7.6% 10.% -12.65% -12.72% -12.84% -8.67%

Exceptional Items 0.00% 0.00% 0.0% 0.0% 0.00% 2.78% 0.00% 0.00% 0.0% 0.0% 0.0% 0.0% 0.05% 0.00% 0.00% 0.00%

Tax -1.25% -0.97% 0.6% 2.1% 0.00% 0.03% 0.01% -0.04% 1.1% 2.0% 2.4% 3.5% 0.13% 0.06% 0.00% 0.01%

EAT -8.24% 0.08% 3.0% 6.9% -1.27% 0.34% -3.73% 0.13% 2.6% 3.9% 5.2% 6.7% -12.84% -12.78% -12.85% -8.68%

Source: Self computed based on financial statements of respective companies’ data

Table 4: Trend analysis

Trend S.R S.R S.R S.R W.D W.D W.D W.D J.F J.F J.F J.F DIL DIL DIL DIL
Analysis (2017) (2016) (2015) (2014) (2017) (2016) (2015) (2014) (2017) (2016) (2015) (2014) (2017) (2016) (2015) (2014)

Sales (Rs.) 3,201.21 3,296.45 3,070.91 2,736.83 9,508.14 8,431.34 7,808.01 7,460.07 25,981.31 24,495.47 21,002.85 17,457.04 10,545.91 10,145.32 7,939.64 6,978.21

Net Profit (Rs.) (263.78) 2.63 94.52 188.94 (121.20) 28.33 (291.10) 9.53 699.45 968.90 1,110.83 1,182.42 (1,353.7) (1,296.9) (1,019.8) (605.99)

Sales 116.97% 120.45% 112.21% 100.00% 127.45% 113.02% 104.66% 100.00% 148.83% 140.32% 120.31% 100.00% 151.13% 145.39% 113.78% 100.00%

Net Profit -139.61% 1.39% 50.03% 100.00% -1271.7% 297.27% -3054.6% 100.00% 59.15% 81.94% 93.95% 100.00% 223.40% 214.02% 168.30% 100.00%

Source: Self computed based on financial statements of respective companies’ data

S.R = Speciality Restaurants.

W. D= Westlife Development.
DIL= Devyani International Limited

J-GIBS Volume 11, Number 1, January-December 2019 63

J. F= Jubilant FoodWorks 4. Net Profit of all the companies in the industry has been
declining at a faster pace; the profit of every company
Each line item in income statement has been stated as a
is declining with some turning into losses.
percentage of gross sales, thus sales have been taken as base
value of 100. 5. Profits of Speciality restaurant declined at a greater pace
and ultimately turned into losses in the year 2017.
Trend Analysis on the Basis of Profit And Loss Account
6. Jubilant FoodWorks is the only company that ended
The trend analysis is done to analyse the changes in Sales
up in profits for the year 2017.
and Net Profit on year on year basis. Trend analysis is useful
in knowing the direction in which the company is going and 7. Devyani international limited was in losses from the
to compare it with the other players of the same industry. year 2014 which has increased at a greater pace by the
Here, Trend analysis has been performed by taking Sales and end of the year 2017.
Net Profit of 2014 as a base i.e. 100% (See Table 3).
8. It can be interpreted from the above table that the ability
Major conclusions of Trend analysis are as follows: to make profits in F&B industry has become a serious
challenge for the companies as majority of them are
1. Sales of almost all the companies are increasing at a
turning into losses and others losing a huge chunk of
positive rate for all years. Increase in sales is a positive
profit share they had earlier.
sign as it is a major source of revenue. It further signifies
that the demand for the F&B industry is increasing 9. The prominent reason for such a scenario is due to heavy
which is a good sign. competition from the local players, change in
governmental policies and change in preferences of the
2. Percentage wise major increase is noted in sales of
consumer from fast food joints to more healthy sources
Devyani International followed by Jubilant FoodWorks.
of energy.
3. In absolute terms, the highest increase in sales is of
10. Increase in rental cost is also a major reason for the
Jubilant FoodWorks where sales have increased from
decline in profit.
17.457(2014) to 25,981(2017) followed by Devyani
International Limited whose sale has increased from Horizontal Analysis of Profit And Loss Account
6978 (2014) to 10,545 (2017).
Horizontal Analysisis done using financial statements of two
or more years for gaining a comparative view (See Table 5).

Table 5: Horizontal Analysis of Profit And Loss Account

Horizontal S.R S.R S.R W.B W.B W.B J.B J.B J.B DIL DIL DIL
Analysis (2017) (2016) (2015) (2017) (2016) (2015) (2017) (2016) (2015) (2017) (2016) (2015)
Gross Revenue -2.89% 7.34% 12.21% 12.77% 7.98% 4.66% 6.07% 16.63% 20.31% 3.95% 27.78% 13.78%
Cost of sales -3.62% 12.14% 23.94% 9.95% 4.81% 1.25% 9.33% 11.02% 17.22% 3.80% 24.56% 14.52%
Gross profit -2.55% 5.23% 7.71% 14.61% 10.16% 7.14% 5.22% 18.17% 21.19% 4.01% 29.25% 13.44%
Operating 8.23% 12.78% 14.42% 13.09% 6.11% 12.53% 7.24% 20.70% 25.85% -0.54% 28.61% 21.34%
Expenses
EBITDA -86.72% -30.92% -15.91% 27.98% 65.44% -35.16% -7.04% 4.82% 1.40% -1115.63% -41.88% -118.18%
Depreciation 19.09% 12.28% 32.56% 10.53% 14.31% 15.94% 21.20% 26.83% 28.45% -9.22% 30.87% 14.16%
and
Amortization
EBIT/Operating 953.23% -124.83% -53.15% -161.18% -71.71% -455.66% -31.68% -8.96% -10.41% -45.23% 25.75% 134.22%
Profit
Interest Paid -60.87% -43.21% 9.46% 2.56% 46.68% 120.59% 0.00% 0.00% 0.00% 108.67% 28.31% 3.98%
EBT 937.30% -125.41% -53.33% -40.33% -30.02% -4537.92% -31.68% -8.96% -10.41% 3.40% 26.54% 68.46%
Exceptional - - - -100.00% - - 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Items
Tax 25.16% -254.01% -64.28% -100.00% 198.84% -128.76% -39.16% -0.55% -18.72% 109.44% 3357.8% -72.06%
EAT -10129.66% -97.22% -49.97% -527.82% -109.73% -3154.56% -27.81% -12.78% -6.05% 4.38% 27.16% 68.30%

Source: Self computed based on financial statements of respective companies’ data

64 J-GIBS Volume 11, Number 1, January-December 2019

The first year is taken as base year and changes from there on 4. Cost of sales for Westlife Development is increasing at
are noted to find out in which direction the firm is going. The an increasing rate which is not good for the firm as the
base year in this table is taken as 2014 and changes from expenses of the company will increase which will dry
thereon are mentioned in the table. out the profits of the company.
The Horizontal Analysis of companies can be concluded in 5. Operating expenses have been increasing at a
the following points: decreasing rate which signifies that companies have
been able to tackle the inflation, policy changes, and
1. There are many boxes coloured yellow which signifies
labour rates effectively and do not allow a sudden surge
exceptional increase/decrease percentage because both
in the operating expenses.
they were marginally positive in the previous year and
next year they turned negative & vice versa. 6. Interest paid or finance cost for most of the firms is
either decreasing at an increasing rate or increasing at
2. Gross revenue is increasing at a diminishing rate in most
a decreasing rate but on the contrary, for Devyani
of the companies except for Westlife Development in
International Limited, it is increasing at a robust rate
which it is increasing at an increasing rate. This signifies
due to increase in the amount of loan/debt availed by
that it has outperformed other players in terms of
the firm.
revenue generation.
7. EBT has either been decreasing at an increasing rate or
3. Cost of sales for most of the firms is increasing at a
increasing at a marginal rate signifying that past two-
decreasing rate which is a good sign as a reduction in
three years have been hard on the industry in terms of
cost will help the firms in making more profits. It also
earning profits.
showcases the cost cutting and cost controlling capacity
of the firms. BUSINESS RISK/ LEVERAGES

Based on Table 6, Operating and Financial Leverages of the

firm is concluded in the following points.

Table 6: Business Risk

Business Risk S.R S.R S.R W.B W.B W.B J.B J.B J.B DIL DIL DIL
(2017) (2016) (2015) (2017) (2016) (2015) (2017) (2016) (2015) (2017) (2016) (2015)
Sales -2.89% 7.34% 12.21% 12.77% 7.98% 4.66% 6.07% 16.63% 20.31% 3.95% 27.78% 13.78%
Operating Profit (EBIT) 953.23% -124.83% -53.15% -161.18% -71.71% -455.66% -31.68% -8.96% -10.41% -45.23% 25.75% 134.22%
Net Income -10129.66% -97.22% -49.97% -527.82% -109.73% -3154.56% -27.81% -12.78% -6.05% 4.38% 27.16% 68.30%
Total Leverage 3506.08 -13.24 -4.09 -41.33 -13.75 -676.36 -4.58 -0.77 -0.30 1.11 0.98 4.96
Operating Leverage -329.93 -17.00 -4.35 -12.62 -8.98 -97.70 -5.22 -0.54 -0.51 -11.46 0.93 9.74
Financial Leverage -10.63 0.78 0.94 3.27 1.53 6.92 0.88 1.43 0.58 -0.10 1.06 0.51

Source: Self computed based on financial statements of respective companies’ data

Figure8: Showing skilled manpower requirement

Source: (ICRA Management Consulting Services, NSDL, 2011)

J-GIBS Volume 11, Number 1, January-December 2019 65

1. Operating leverage, financial leverage and combine ISSUES & CHALLENGES
leverage has been calculated based on horizontal
analysis. There are various challenges and issues that are being faced
by the industry which are as follows:
2. Some of the figures are highly uneven or extraordinary
because that in the previous year it was marginally 1. The Requirement of Skilled Labour/worker/personnel
positive, by next year they turned into negative or in Direct employment in food and beverages industry is
the previous year they were marginally negative and in estimated at around 63,00,000 in 2017 which will increase to
the subsequent year, they turned into positive causing 93,00,000 by 2022 that means on an average 6,00,000 new
exceptional change in percentage on YoY basis. skilled workers are required every year by the industry on the
3. Percentage change for financial leverage is relative in contrary of that only about 50,000 graduates pass out from
control which lies between 3.3 to -10 which is a good government and private institute in hospitality sector every
sign. year. The gap is significant which will be filled by unskilled
workers causing underpaid employees and poor service in
4. Change in financial leverage of Devyani international return (See Figure 8 & Table 7).
limited is limited which signifies that they are
maintaining their debt and not increasing their financial On comparative analysis (Figure 8), it can be observed that
risk. But their debt is already higher so they also need the demand of skilled labour is forecasted to increase from
to reduce it. 66% to 78% over a period of 2013 to 2022 in Restaurant
Industry. It should be kept in that apart from the employment
5. Other than that, most the firms can maintain a decent generation for skilled/trained manpower arising out of new
change bracket for the operating leverage with some establishments, there would be additional employment
reducing it and some increasing it. generation for skilled/trained manpower from the conversion
Leverage only signifies the capability and tendency of the of the unorganised sector to organised sector. On the other
company to use their resources and the sources of fund they hand, the demand seems to be maintained at a constant or
use to finance those operations. decreasing rate in Hotel and Travel industry.

Table 7: Workforce breakdown

Function Percentage of employees

Food Service 20
Chefs 15 - 20
Housekeeping 15 - 20
Front Office 8
Management 8
Others 20 – 25
Total 100

Source: (Dabas & Lunawat, 2017)

Table 8: Number of licenses required for opening a restaurant in various countries

Country Number of license required

India 12-15
China 4
Turkey 2
Singapore 4
USA 7
Thailand 5
Source: (Dabas & Lunawat, 2017)

66 J-GIBS Volume 11, Number 1, January-December 2019

2. Licensing requirement FINDINGS, SUGGESTIONS AND
RECOMMENDATIONS
The number of licenses required to open and run a restaurant
or food stall is very high as compared to other growing QSR industry as a whole has been in a turmoil in the past
economies which restricts the increment in the number of couple of years which is evident in the performance of all the
outlets, the no. of license required is not only high, but it is firms that are taken up for. The reason for this downturn is a
complex too which restricts or demotivate the budding combination of events that caused a serious blow to the
newcomer in the industry. industry. Some of the prominent reason out of all is the increase
The numbers of license required in other countries are far in rental cost of the venues, high number of license that are
less than one required in India which makes it harder (See required to start a restaurant, introduction of GST,
Table 6). One window clearance and that too digital is the demonetization policy adopted by the Government of India,
need of the hour which should be done by the government to more health-conscious lifestyle that are being adopted by the
make this industry more attractive for the newcomers who young population in place of fast food restaurants, and easy
will only benefit in ease of doing business in food and availability of alternative sources of food.
beverages industry but will also help in the growth of economy. But not everything is going in the opposite direction for the
3. Number game is causing harm QSR industry as many positive signs are indicating towards a
prosperous future of the QSR industry. Some of the indicators
Organised part of industry specially the restaurant chains both that suggest so are, growth rate of economy that has touched
national and international, Café outlets, QSR chains and food mark of 7.1% in Q4 of 2017, increase in the urbanization
joints in order to capture the market before anyone else and culture that is making more people to go out and try western
in hope of growing at an exceptional rate started to open stores cuisine, influenced by western culture that is fueling more
in large number with a view that it will increase the sale as it customer to go and eat outside, increase number of young
will increase their market reach. population proportionate in India, appetite to taste different
But this plan backfired as the cost incurred in opening and flavours and types of food that is emerging in people.
running the store was far more than the amount of revenue Not only this, various reports like ‘Foodzania-2017’ report
they are generating as the cost of licensing, training, setting by Technopak for FICCI and KPMG’s ‘India’s foodservice
up of equipment, rent cost is very high in India dueseveral of industry: Growth Recipe’ report for FICCI suggest that Indian
reasons. Food and Beverages will be growing at an exceptional rate in
This force the restaurant’s chains to close loss-making outlet, the upcoming years and will be contributing 2.6% of GDP by
shifting to a relatively small area, laying off of employees the year 2022.
and focusing more on increasing SSG than going for the Based on the financial analysis it can be concluded that
number game as it was previously. Jubilant FoodWorks outperform the other players of the
4. Healthy lifestyle industry by maintaining the profit-making tag and increasing
their sales too. They are leading the Indian QSR industry when
People especially the younger generation is more aware and it comes to organise food chain sector.
dedicated to living a healthy lifestyle that includes eating
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68 J-GIBS Volume 11, Number 1, January-December 2019