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Feb, 05 2015

Fast returns in QSR industry

The foundations for Pizza were originally laid by the early Greeks who first baked large, round and flat breads which they topped with various items such as olive oils, spices, potatoes and other things.


McDonald’s has its own Hamburger University in Illinois, and the first batch graduated in 1961 and its first franchised restaurant opened at Illinois in 1955.


McDonald's was followed into India by other international brands such as Dominos, Subway, Pizza Hut and KFC. These brands typically operate through the franchise model, which helps them expand rapidly with minimal capital investments.

The entry of McDonald's in 1996 marked the beginning of the QSR concept in India. Many national and international brands have expanded in India since then either via franchise route or JVs or other business entry models. As per CRISIL, the QSR market will reach a turnover of Rs 70 billion by 2015-16, growing at an average annual rate of about 27 per cent. The QSR sector is a key component of the F&B industry. In the USA, it is a very significant part of the organised F&B space and over the next decade, India will witness the same. International brand, Johnny Rockets also sees the QSR market growing fast. The brand came to India in Feb 2014 and has launched three restaurants in India in less than one year. Scott Chorna, Sr. VP, International Development, Johnny Rockets Group, Inc. says: “You can see the opening of many new outlets and brands all over the country. This is spurred by the growth of modern shopping malls in many cities around the country.”

Dominos by Jubilant FoodWorks Ltd stood at a network of 806 Domino's Pizza restaurants across 170 cities (as of 30 October, 2014) and is fast growing pan-India with increasing demand. Subway entered India in 2001. It follows a 100 per cent franchise-based model of operation which gives local entrepreneurs hands-on opportunity to associate and grow with the brand. Associating with an established brand offers a prospective franchisee exposure to global standards and practices along with training and on-field support.  Subway plans to have 650 restaurants by the end of 2015 and 1000 restaurants by the end of 2017 in India.

Yum! Brands have KFC, Taco Bell and Pizza Hut under its umbrella. As per Yum! Brands Annual report 2013, the brand mentions that in India, we've made the strategic decision to invest ahead of the growth curve to best position KFC, Pizza Hut and Taco Bell to expand even more rapidly as the country develops.

Dheeraj Gupta, MD, Jumbo King opines: “Yes, this sector is growing and you will see that in the event of a slow down this sector gets effected last. QSR is essentially about affordable food options and thus is in a way, protected from slowdowns.”

Akhil Puri, CEO, Sbarro (Jyoti International Food Pvt. Ltd.) comments: “The QSR sector is one of the fastest growing amongst the F&B industry, especially due to the infrastructural development, increasing in disposable income and lack of options in the tier II and III towns has provided the brands an access into these cities and assisted the overall growth. However, this is relevant in terms of number of outlets opened by all the brands but the size of the overall industry size has still not grown proportionally and the brands have seen a significant drop in the same store sales growth over the last few years.” The latest entrant Burger King launched its first outlet in Mumbai on November 22, 2014 at Oberoi Mall, Goregaon and its flagship restaurant in Select Citywalk, Saket, New Delhi. The brand has plans to open eight-ten outlets between New Delhi and Mumbai.

Real estate- A challenge

Johnny Rockets is working hard with its master franchisees to evaluate all developments and possible areas to make sure that they are selecting the best locations for the brand. Scott of Johnny Rockets comments: “One of the challenges is that many of the malls are new developments and it is difficult to know how a new shopping mall will perform before it opens. So, you need strong partners on the ground who are getting as much information as possible on everything.” Sbarro is developing multiple business models to overcome the real estate challenges, wherein they open can open outlets scaling in the different sizes starting from 250 sq. ft kiosk to 2000 sq. ft Flagship Inline Outlet. E.g.  the brand has a 'Grab & Go' model that will be built as a kiosk and can be placed in mall atriums, universities, tech parks etc. The brand believes this will help in scalability and opening outlets in prominent locations.


To do list for franchisees-

Understand brand's core principles and executed them well.

Focus on acquiring good locations

Understand that all markets are different, and India has many local customs that one needs to be aware of and cater to in order to be successful.

Negotiate hard on the lowering the rentals, as it is the only fixed cost that you would have no control in the future.

Create a Performa P&L statement to understand the revenue and cost figures

Do pay close attention to competition, but international and domestic.  India is a developing market with great growth potential. Many companies will want to capitalize on the opportunity.

Not to do list for franchisees

Do not push new restaurant development too quickly. You need to make sure your model is set and can be successful and profitable before you open too many stores/restaurants too quickly.

Do not rush into the market unless you are sure you are ready

Do not open the outlet without undergoing the initial training provided by the franchisor/brand

Do not under estimate the investment figures given by the Franchisor

Don't assume that when you buy a franchisee that the success is granted. There are number of factors that are responsible for success & failure of a business.



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