As India’s fast-food craving grows, Burger King has whopper IPO

A dent in incomes and a fear of COVID-19 has made Indians switch to fast food restaurants, helping Burger King’s IPO soar.

Burger King India is benefitting from customers switching to cheap fast food in the wake of the pandemic [File: Dhiraj Singh/Bloomberg]

As the coronavirus slashes incomes and raises concerns over sanitation, a growing number of Indians are switching to fast-food chains, a trend that helped Burger King India’s shares surge on their market debut on Monday.

Shares of Burger King India, which runs the franchise of Restaurant Brands International Inc’s US chain Burger King, opened at 112.50 rupees ($1.53) each, almost double the company’s initial public offer (IPO) price of 60 rupees ($0.82) before climbing to 135 rupees ($1.83), indicating investor optimism for the country’s food services industry, analysts said.

With India’s share market trading at an all-time high after six straight weeks of gains, mom-and-pop investors are hungry for a piece of the action, something that likely explains the excitement surrounding the Burger King India IPO, Hemang Jani, head of equity strategy at Motilal Oswal Financial Services, told Al Jazeera.

The fast-food chain’s IPO also benefitted from several other factors. For one, it is a well-known brand globally and in India, Jani said. For another, the coronavirus pandemic – India has the second-highest number of cases at 9.8 million after the US – has discouraged people from dining out.

The pandemic has also devastated the economy – which contracted 7.5 percent in the three months through September from a year before – and led to a dip in incomes. As a result, Indians are looking not only for cheaper dining options but also switching to outlets that offer take-out and home delivery services, Jani said.

Riding on the coattails of McDonald’s

Burger King launched in India in 2015 and today has 268 restaurants across 57 cities. It has about 5 percent of the country’s so-called quick service restaurant (QSR) market which is expected to hit revenues of 348 billion rupees ($4.7bn) by 2025, according to Motilal Oswal estimates.

One reason for some of that growth is that fast-food chains are a well-established concept in India now thanks to the work done by early entrants such as McDonald’s and KFC, says Ankur Bisen, senior vice president of retail and consumer products at Technopak, a retail industry consultancy firm.

Burger King did not have to ‘sweat it out’ in India when it launched in 2015, unlike earlier entrants such as McDonald’s, an analyst says [File: Benoit Tessier/Reuters]

“Burger King is at an advantage because it didn’t have to sweat it out like McDonald’s which created the category in India,” Bisen told Al Jazeera.

When McDonald’s launched in India in the mid-1990s, it had to adjust its prices and menu to attract consumers in a very price-sensitive market.

Introducing vegetarian options, replacing beef  – something most Hindus would be enraged to see on a menu – with more popular chicken, creating supply chains for suitable varieties of potatoes, condiments and buns, were just some of the challenges early entrants had to face, says Bisen.

Another company that has grown with the sector is condiment supplier Mrs Bector’s Food, which is due to have its market debut on Tuesday.

“Today, it’s very easy to find those suppliers and plug and play today, and Burger King has benefited from that,” Bisen says.

Although Burger King is still not profitable and saw revenues drop 68 percent for the six months through September from the same period a year ago, financial services firm Motilal Oswal said that, given its “strong brand positioning, robust store expansion plans and the bright growth prospects of the QSR industry in India, we expect its financials to improve going ahead”.

Investors seem to agree.

Source: Al Jazeera