Adding more worries to the Quick Service Restaurant industry, Kerela Government has proposed a 14.5% a Fat Tax on burgers, pizza and doughnuts sold in upscale restaurants to curb obesity. The tax has singled out big multinational fast food chains, while the local eateries selling traditional savouries have been spared.
Impact of the Fat Tax on Quick Service Restaurants (QSR)
This move would hamper the already slow sales of the QSR sector, which has reported low same-store sales growth for the past quarter. Shares of Westlife Dev (McDonald’s West and South Operator) and Jubilant Food (Domino’s franchise) also fell by 2%.
Almost all major QSR’s have been reporting single digit same-store sales growth in the last couple of months. This slowdown has been accounted to the extreme competition in the fast food segment. As the customers are being spoiled for choice, new entries in the market are offering discounts as high as 50%, or the popular Buy One Get One offer on all orders.
As Kerela does not have a large market for fast food, the proposed ‘Fat Tax’ is not expected to do much harm. The main concern for the Quick Service Restaurant chains is that other states might follow Kerela and implement the ‘Fat Tax’.
The Quick Service Restaurant format is one of the most profitable restaurant formats. However, since it requires low investment and has a high demand in the market, there is also stiff competition. Several local QSR chains have come up in the recent years that are giving established chains such McDonald’s and Domino’s a run for their money. The proposed Fat Tax, however, would definitely have a negative impact on the small businesses.