Store additions continue despite slowing spends

Fast-food chains and apparel firms are feeling the pressure of a discretionary slowdown but few are cutting down on store additions as many bank on a comeback in discretionary spending in the second half of FY24.

Barring Pantaloons, part of Aditya Birla Fashion and Retail (ABFRL), which has cut store guidance from 60-70 outlets to 40-50 stores in FY24, peers such as Trend and Shopper’s Stop remain bullish about expansion.

The same goes for quick-service restaurant (QSR) majors such as Jubilant FoodWorks, which runs Domino’s Pizza and fried chicken chain Popeyes in India; McDonald’s master franchisee Westlife FoodWorld; and Restaurant Brands Asia, which operates Burger King outlets in the country. None of these firms are slowing down their pace of expansion, despite posting weak Q4 results on the back of a cut in discretionary spends.

A report released in April by ratings agency Icra says that the top five QSR players in the country, including the three majors mentioned earlier here will add around 2,300 stores between FY24 and FY25 at an estimated capital expenditure of Rs 5,800 crore.

“The capex spree in the QSR industry is likely to be driven by favourable demographics, steady urbanisation in India, growing per-capita GDP and significant headroom available in terms of QSR penetration,” Suprio Banerjee, vice-president and sector head, corpoate ratings, Icra said.

The picture is no different with fashion retailers who have remained committed to future expansion despite mixed signals in Q4 of FY23.

“We see growing relevance for our offerings, resilience of our business model choices and attractiveness of our differentiated platform,” Noel Tata, chairman, Trent, said after the company’s Q4 results last month.

Tata added that the company was looking to expand reach of its store network as it sought to become ever-more proximate and convenient to customers. Industry sources say that Trent may add at least 10-12 Westside stores in FY24, while Zudio store additions could be in the range of around 130 in the fiscal ending March 2024.
“The Zudio store format, which is an affordable fashion concept, has been a success story for Trent,” brokerage firm ICICI Securities said in a note on the company. “While Trent’s gross margin contracted by 833 basis points year-on-year in Q4 to 40.8%, this can be attributed to the increased share of revenue from Zudio to Trent’s topline. It accounts for 35% of Trent’s total revenue based on our estimates,” ICICI Securities said.

In FY23, Trent added 14 Westside stores, taking the total store count to 214. Zudio store additions were rapid at 117 in FY23, taking the total store count to 352. It also has another 24 stores across other lifestyle concepts, Tata said.

In a recent earnings call, Shopper’s Stop chief executive officer Venu Nair said that the company would open around 24 new stores in FY24. This would include around 10-12 Shopper’s Stop departmental stores and a similar number of beauty stores in the year ending March 2024.

In FY23, the company had opened a total of 23 outlets across departmental and beauty stores, Nair said, with a focus on non-metros. The company closed FY23 with a total of 270 stores across 11 cities. This includes 3 metros, 2 tier-I cities and 6 tier-II & III cities each.

Several apparel and footwear chains, including Metro Brands and Arvind Fashions, which sells Calvin Klein in India, are also doubling down on smaller cities to tap the growing middle class, experts tracking the market said.

This comes despite consumers in small towns and cities feeling inflationary pressures in Q4 and curtailing spends on non-essential items.

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