'Inflation Is Our Friend': Why McDonald's Thinks It Can Win When Prices Rise

When household budgets come under pressure, discretionary spending such as eating out can face scrutiny. Customers may look for lower-cost options, putting the focus on what restaurants offer for the price.

India's retail inflation rose to 5.54% in September from 4.83% in August, while food inflation increased to 7.74% from 5.97%, according to provisional government data.

Against this backdrop, Westlife Foodworld is relying on its value platform, which includes McDonald's Rs 99 meal, to attract customers while managing higher operating costs. The company operates McDonald's restaurants in western and southern India and says it can continue offering value without resorting to steep discounts or large price increases.

“Inflation in that sense is our friend because McDonald's is the one place where you get great value for money even when times are tough,” Akshay Jatia, president and chief executive officer, said during the company's earnings call on Friday. He was responding to a question about the effect of inflation on discretionary demand and whether Westlife might need to raise prices beyond its existing guidance.

Westlife's revenue rose 16% year on year to Rs 747 crore in the September quarter, while same-store sales grew 10.1%. Customer counts increased by double digits in each month. On-premise sales rose 17%, while off-premise sales grew 15%.

Building Value

Westlife began developing its value platform last year to bring more consumers into the category. The company tested its Rs 99 platform before launching it in the West and subsequently rolling it out in the South in March, Managing Director Saurabh Kalra said on the July earnings call.

Kalra said the company's double-digit growth in guest counts reflected the work it had started the previous year. In July, Jatia also said the company was attracting more consumers and driving repeat visits.

On the October call, Kalra said Westlife had strengthened its value platform without increasing discounts compared with previous quarters. He added that the company had reduced some discounting to help manage inflationary pressure.

Managing Costs

Westlife reported around 190 basis points of inflationary pressure across commodities, utilities and employee costs in the September quarter. Operating Ebitda rose 29% year on year, while the operating Ebitda margin expanded by 130 basis points to 13.1%.

Jatia said the company would maintain its guidance for annual price increases of 2–4%. He said pricing was intended to mitigate about half of inflationary pressure, with cost-saving initiatives also helping cushion the impact.

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