"Adapting for Survival: How QSRs Can Navigate Rising Competition, Operational Costs, and Changing Consumer Demands"

 

Factors Contributing to the Slowdown in the QSR Industry: The current slowdown in the QSR industry is driven by several factors. Rising inflation has reduced disposable income, leading to decreased consumer spending. Additionally, there has been a noticeable shift post pandemic - the growth of cloud kitchens and online delivery platforms has intensified competition, giving consumers more dining options beyond traditional QSRs.

Many of the popular QSR brands are facing a three pronged pressure-

1) Lower end - regional chains with lower overheads are able to offer ultra cheap fast food options and are lapping up the student crowd and lower income segment

2) Upper end - several specialized QSR and restaurant chains have come up especially post pandemic, offering incredible variety to the gourmet option seeking consumers, who are increasingly discerning against the traditional QSR players. Many such higher end players offer healthy alternatives too.

3) Problem of plenty - even in comparable price range, the post pandemic boom in online-only cloud kitchens has led to consumers being spoilt for choice, further shrinking the market share of incumbent QSR brands.

Supply chain disruptions, including labor shortages and transportation delays, have also increased operational costs. The QSR industry has historically worked on wafer thin margins and many are yet to break even. Thus, the workforce in QSR in many cases aren’t even paid their statutory dues or allowed their legal quota of leaves, leading to perpetually high attrition, in the range of 10-40% per month.

The present brick and mortal oriented, high fixed cost model of QSR industry needs a major overhaul for the industry to thrive in the future.

Recommendations for QSR Brands: Trying to be everything to everybody is not sustainable. Some of the struggling QSR brands need to consider getting their target audience and product positioning right. From offering healthier, diverse menu options, premium gourmet selection or competitively priced items etc to meet evolving consumer preferences, the right product market fitment needs to be arrived at. Investing in digital transformation, such as digital ordering platforms/mobile apps, strategic partnerships with delivery aggregators and personalized loyalty programs, can enhance customer engagement and convenience. Streamlining operations through automation and optimizing supply chains can help reduce costs. Brick and mortar outlets serve a specific purpose when they’re located by the highway, in airport/railway stations, at food courts in malls and other high density areas around colleges etc. Outlets in all other areas need to be rethought of; as these outlets are effectively reduced to being just cloud kitchens today. They hardly get any walk-in customers and mostly cater to online orders. What if they are fully converted to cloud kitchens? The overheads will reduce considerably without impacting business much. The increased focus and efficiency could actually drive up profits.

Full formalization of the workforce and investing in employee development programs can greatly enhance both productivity and customer experience making for better branding, increased customer loyalty, and long term profitability of QSRs. Today, because of the largely transactional relationship that many QSRs have with their employees, especially the ones working in the outlets, QSRs are seen as little more than stopover points and not as viable career options.

 

By- Balasubramanian A, Senior VP and Business Head, TeamLease Services