In today’s Finshots, we break down Sapphire Foods’ merger with Devyani International.

But here’s a quick side note before we begin.

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Now on to today’s story.

The Story

Imagine walking into a food court and seeing KFC and Pizza Hut right next to each other, both run by the same company. That’s about to become reality across India.

A few days ago, Sapphire Foods announced that it will merge into Devyani International. And from April, more than 3,000 KFC and Pizza Hut outlets will come under one roof. And just like that, India will get its largest Yum! Brands quick-service restaurant (QSR) platform.

Now, this isn’t a surprise. It had been whispered about for over a year (first rumoured in July 2025), and it’s finally happening. So let’s try to make sense of it.

But to do that, we first need to meet the characters in this story.

At the very top sits Yum! Brands. It’s a US-based fast-food giant behind KFC, Pizza Hut, Taco Bell, and Habit Burger Grill. Yum owns these brands outright. That means it decides everything from recipes and menus to store layouts, marketing, and operating rules. What it doesn’t do, for the most part, is run restaurants itself.

Instead, Yum franchises its brands. Over 98% of its 62,000+ outlets worldwide are operated by local partners. These partners put up the money for real estate, staff, and day-to-day operations. Yum, in return, takes a cut of sales as royalties and fees.

In India, Yum chose two large franchise partners for KFC and Pizza Hut: Devyani International and Sapphire Foods.

Devyani is the bigger of the two. It’s part of billionaire Ravi Jaipuria’s RJ Corp — the same group behind Varun Beverages, Pepsi’s biggest bottler in India. As of September 2025, Devyani ran 1,737 KFC and Pizza Hut outlets across India, Nepal, Nigeria, and Thailand. It also operates all Costa Coffee cafés in India.

Add to that its own brands like South Indian chain Vaango, Biryani By Kilo, Goila Butter Chicken, and its airport food court businesses, and Devyani already had around 2,184 outlets before the merger, spread across more than 280 cities.

Then there’s Sapphire Foods. It’s also a major Yum franchisee in India and runs Taco Bell in Sri Lanka. Backed mainly by private equity firm Samara Capital, Sapphire operates across India as well as Sri Lanka and the Maldives, where it’s one of the largest international QSR chains. It has a strong presence in 15 Indian states and runs 963 outlets across its markets.

So for over a decade, Yum! Brands has been running India with two parallel partners — both selling the same fried chicken and pizzas, often in the same neighbourhoods. And at this point, you’re probably thinking: why run two franchisees at all?

Well, you see, Devyani and Sapphire entered the Indian market at very different moments, and for very different reasons.

Devyani is the older of the two. It’s been around since 1991, when India’s organised fast-food scene was barely a thing. Sapphire, on the other hand, came in much later. In 2015, private equity investors bought about 270 existing KFC and Pizza Hut stores in India and Sri Lanka and bundled them into a new company called Sapphire Foods.

Back then, having two franchisees actually made a lot of sense. India’s QSR market was just taking off. Penetration was low, incomes were rising, and millions of people were moving to cities. There was space to grow everywhere.

Devyani used its early start to build scale quickly. Sapphire brought in fresh capital and expanded into regions that were still untapped. If one slowed down, the other kept opening stores. And a bit of competition between the two even helped testing prices, store formats, and expansion strategies.

This worked well in the early years, when fried chicken and pizzas were still a novelty. A new KFC or Pizza Hut opening nearby naturally pulled in crowds.

But over time, something predictable happened. The markets started overlapping.

Because when two different companies run the same brand, clashes are almost inevitable. Advertising strategies can diverge. Marketing spends get duplicated. And for customers, there’s no visible difference anyway. A KFC is a KFC, regardless of who runs it.

So both Devyani and Sapphire ended up crowding the same high-demand cities. In metros and Tier-1 hubs like Delhi, Mumbai, Bengaluru, Hyderabad, Chennai, and Pune, you’d often find KFCs and Pizza Huts run by both companies just streets apart.

That’s where the problem kicked in.

Instead of growing the pie, these stores started eating into each other’s sales. Rent-heavy locations, similar menus, and the same customer base meant that if there were two weak stores around each other, they’d be fighting for the same wallet. And that hurt unit economics for both.

In short, what once helped fuel growth eventually turned into inefficiency.

Then there was another problem quietly brewing in the background. People just weren’t eating out as much after the pandemic.

During lockdowns, many people learnt to cook. And even after things opened up, habits had changed. Eating at home felt easier. And when people did crave restaurant food, they preferred ordering in rather than stepping out.

That shift mattered a lot for restaurants.

Delivery sounds great, but it’s actually more expensive for the business. Food has to be packed, and you often need extra staff to manage online orders. This hit Pizza Hut harder than others because its business depends heavily on delivery as pizza is the kind of food people love to order in while watching TV or hosting friends.

Compare that with KFC, where eating inside the store still plays a big role. In fact, on-premise dining is where Devyani International really shines. About 54% of its revenue comes from customers eating at the restaurant.

On top of that, people weren’t ordering as frequently either. The cost of living was rising, rents were going up, and salary hikes weren’t exciting enough. Even if grocery bills didn’t feel dramatically higher, eating out or ordering in became something people cut back on.

All of this showed up in a metric called Same Store Sales Growth, or SSSG.

SSSG simply tells you how existing stores are performing compared to last year, without counting any new outlets. It answers one basic question: Are the stores you already have making more or less money than before?

To tell you why that matters, let’s give you an example. Suppose a company had 10 stores last year making ₹10 lakh in total. This year, it opens 5 new stores and total revenue rises to ₹15 lakh. That looks like growth. But what if the original 10 stores actually made less money, and the entire increase came from the new ones? That’s where SSSG cuts through the noise.

And for both Devyani International and Sapphire Foods, SSSG has been weak.

In H1 FY26, for instance, Devyani’s KFC stores saw SSSG of -2%, and Pizza Hut -4%. Similarly, Sapphire’s KFC stores were flat at 0%, while Pizza Hut fell -8%.

That’s also a big reason Sapphire paused new Pizza Hut stores expansion since it became clear that opening more stores, especially in tier-2 cities, wasn’t fixing the core issue.

Financially, it showed too. In H1 FY26, Devyani and Sapphire posted a net loss of ₹22 crore and ₹15 crore respectively.

Seen together, this likely pushed Yum! Brands towards a simpler solution — one strong, “master franchisee” with tighter control and sharper execution, much like how McDonald’s or Domino’s Pizza operate with single operators in India.

That would mean less overlap, fewer inefficiencies and a clearer path forward.

So how does this merger actually work, you ask?

At a basic level, Sapphire Foods will be folded into Devyani International. For every 100 shares Sapphire shareholders hold, they’ll receive 177 shares of Devyani.

On top of that, Yum! Brands is also sweetening the deal. It’s transferring 19 KFC outlets in Hyderabad (currently operated directly by Yum) to Devyani.

Put together, this gives Devyani immediate access to more stores, a larger footprint, and potentially tighter supply chains. Over time, that alone could lift profitability by about 2.5%.

So yeah, this isn’t a victory lap. Rather, it’s a survival merge.

Yum gets to fix its fractured India setup. Devyani gets the scale it needs to steady the ship and fight back in a tougher market. And Sapphire’s private equity backers get a clean exit. Ahead of the merger, group company Arctic International will buy about 18.5% of Sapphire from existing promoters, with the option to later sell the shares to a financial investor. That move simply tidies up Sapphire’s shareholding before it disappears into Devyani.

The real test, though, is whether Devyani can turn Pizza Hut around and prove that the promised synergies are strong enough to beat weak consumer demand and rising costs. In a year or two, we’ll know whether 3,000 combined stores start compounding profits, or just become more expensive to run.

Until then…

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