CLSA Analyst Sees QSR Recovery, Premiumization Driving Growth in Consumer Durables and Alco-Bev Sectors

CLSA Senior Research Analyst Aditya Soman has indicated that the quick-service restaurant (QSR) sector is likely past its worst phase, following a period of weak performance. Several factors are expected to aid QSR chains, including Goods and Services Tax (GST) reductions on input costs, which could lead to better pricing strategies. Additionally, many QSR players have mended relationships with food aggregators, and some, like Jubilant FoodWorks, have enhanced their own delivery services.

However, CLSA maintains a cautious stance on the QSR space. Competition from aggregators remains intense, and profitability growth across the sector is subdued. Companies might need to accept lower gross margins temporarily to maintain growth momentum. Despite these challenges, Soman anticipates an improvement in same-store sales growth, especially with the festive season and GST-led cost benefits.

The consumer durables sector shows improving momentum, with demand picking up during the festive season. Asian Paints, for instance, has reported better financial results and provided positive commentary. CLSA's report projects a significant shift in household income profiles, with the affluent and middle-class segments expected to grow substantially over the next decade. This "premiumization" trend is identified as a major structural growth driver, benefiting categories like durables as consumers opt for upgrades.

The alco-beverage segment is also presented as a strong structural growth story. Companies like Radico Khaitan and Allied Blenders & Distillers are experiencing significant increases in revenue per case, particularly in the prestige and above categories. Although tax changes in Maharashtra caused temporary disruptions, underlying consumer demand is robust. The proposed India–UK free trade agreement could also benefit Diageo India and the wider alcobev sector by potentially improving gross margins. CLSA believes the industry is in the early stages of a multi-year premiumization cycle, supporting both market leaders and mid-sized players.

Impact:

This analysis provides investors with forward-looking insights into key consumption-oriented sectors, potentially guiding investment decisions. The outlook on QSR, consumer durables, and alcobev sectors, backed by macro trends like premiumization and income growth, offers valuable perspectives.

Rating: 7/10

Difficult Terms:

• Quick Service Restaurant (QSR): This refers to food outlets that serve fast food quickly, like McDonald's, Domino's, or Subway, where customers order and pay at a counter.
• GST: Goods and Services Tax is a single indirect tax levied on the supply of goods and services, replacing multiple indirect taxes in India. Reductions in GST on input costs can lower a company's expenses.
• Input Costs: These are the expenses a company incurs to produce its goods or services, such as raw materials, labor, and manufacturing overhead.
• Food Aggregators: These are online platforms or apps (like Zomato or Swiggy) that connect customers with restaurants for food ordering and delivery.
• Delivery Platforms: These are the systems or services a company uses to manage and execute the delivery of its products directly to customers.
• Gross Margins: This is the profit a company makes after deducting the costs associated with making and selling its products. It's calculated as (Revenue - Cost of Goods Sold) / Revenue.
• Same-Store Sales Growth: This metric measures the percentage increase in revenue from stores that have been open for at least a year. It indicates growth from existing operations, excluding new store openings.
• Consumer Durables: These are goods that are not consumed quickly and are intended to last for a relatively long time, such as appliances (refrigerators, TVs) and furniture.
• Premiumization: This is a trend where consumers are willing to pay more for higher-quality, branded, or premium versions of products or services.
• Alco-Beverage: This refers to alcoholic beverages, including spirits, wine, and beer.
• Revenue Per Case: This is a metric used in the beverage industry to measure the average revenue generated from selling one case (typically 12 bottles or cans) of a product.
• Free Trade Agreement (FTA): An international agreement between two or more countries to reduce or eliminate barriers to trade, such as tariffs and quotas.
• Secondary Sales: In a supply chain, primary sales are from manufacturer to distributor, and secondary sales are from distributor to retailer or end consumer.
• Multi-year Premiumization Cycle: This refers to a sustained period (several years) where consumers increasingly opt for higher-priced, premium versions of products.