Jubilant Foodworks Ltd
NSE:JUBLFOOD
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Jubilant Foodworks Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Jubilant FoodWorks Q1 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, sir.
Thank you. Thank you, and welcome to Jubilant FoodWorks Q1 FY '20 Earnings Call for analysts and investors. Today, we are joined by Mr. Hari Bhartia, Co-Chairman of Jubilant FoodWorks; Mr. Pratik Pota, CEO; and Mr. Prakash Bisht, CFO. We propose to commence with perspectives from Mr. Bhartia. Thereafter, we'll have Mr. Pota sharing his views on the progress that JFL has made operationally, strategic imperatives that lie ahead and the outlook. After the opening remarks from the management, the forum will be opened for question-and-answer session.A cautionary note, certain statements that may be made on today's call could be forward-looking in nature and the actual results may vary significantly from these statements. A detailed statement in this regard is available in the Jubilant FoodWorks' Q1 FY '20 results release and earnings presentation, which are both available on the company's website under the Investors section.I would now like to invite Mr. Bhartia to share his perspectives with you. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and welcome to the quarter 1 FY '20 earnings. We are pleased to have started the year on a strong note, registering a healthy system sales growth and same-store growth for the quarter. During the quarter, we scaled up our focus towards investment in brand building and innovation by participating in cricket season with our latest range of cricket-themed pizzas offered under World Pizza League. Throughout the quarter, we received positive feedback from our customers.We continue to invest in our digital platform to improve our customer experience and efficiency. Our OLO sales is now accounting for 81% of our delivery sales. Use of technology, automation, digitalization to improve efficiency, customer experience and agility continues to be a strong focus across all functions at Jubilant FoodWorks.As you are aware, a substantial part of our sales come from dine-in and carry-out customers. The new store design, which we introduced last quarter, has received tremendous customers response. We have begun to roll out this new Domino's store design in the quarter 1 FY '20. And out of our 26 new stores for Domino's this quarter are based on -- sorry, the 9 out of 26 stores for Domino's this quarter are based on this warm and contemporary design. We have also introduced digital kiosks to improve customer experience in ordering. We encourage all of you to visit our new design stores. We stayed on course to focus on providing value to our customers, but towards the end of the last quarter, we undertook some price increase to offset the inflationary pressures in some of our cost lines. And this has happened almost after 3 years since we took the last price increase.For Hong's Kitchen and Domino's in Bangladesh, we continue to receive encouraging response from customers and believe this is a great start. On new stores, we remain on track to achieve our store opening guidance for FY '20.To conclude, we have the right strategy for growth, we are excited with our prospects in this market. With that, I'd like to call upon our CEO, Mr. Pratik Pota, to cover the operational highlights during the quarter.
Thank you, Mr. Bhartia and a very warm welcome to all of you in the call. I will share with you the key financial and operational highlights for Q1 FY '20. So before I start, let me state that the current quarter's numbers are as per Ind AS 116. Consequently, operating lease expenses have changed from rent/other expenses to depreciation and amortization expenses and finance costs. The company has adopted the modified retrospective approach for transition to Ind AS 116 with effect from 1st April 2019. This approach, as you know, does not require restatement of comparative information and the same is, therefore, not comparable. We have provided the impact of Ind AS 116 on current quarter in Note #1 to the results. In the investor presentation, we have also provided key numbers without Ind AS impact for Q1 FY '20 on a memorandum basis for the purpose of easy comparison. Moving on, the quarter key financial numbers were as follows. Operating revenues during Q1 were INR 9,401 million, an increase of 9.9% over last year. This was driven by same-store sales growth of 4.1% in Domino's Pizza, on a strong base of 25.9% last year. Our like-for-like sales growth, which is a new metric, which provides data on sales growth from stores that were not split in the period 1st April 2018 to 30th June 2019 came in at 5.8%. EBITDA during the quarter was INR 2,191 million, at 23.3% of revenue. Q1 saw a significantly increased advertising and promotional expense and continued investments in technology.Profit after tax in Q1 came at INR 748 million, at 8% of revenue. I will now share some operational highlights of the quarter. We opened 26 new Domino's restaurants in India and closed 4, thus taking our restaurant count to 1,249 stores across 276 cities.During the quarter, we entered 3 new markets, Neemrana, Motihaari and Bilimora. We kicked off the quarter with a launch of an exciting range of 10 pizzas, 5 veg, 5 non-veg, under the brand of World Pizza League. Towards the end of the quarter, we took a small price increase. This increase was made necessary on account of inflationary pressures in raw material costs, especially dairy. Our everyday value headline price remains unchanged at INR 99, INR 199 and we continue to offer superlative value for money to our customers.Our online sales in Q1 FY '20 improved further and now stand at 81% of total delivery sales. Our app [Technical Difficulty] number of downloads of 3.8 million during the quarter, partly on account of a conservative campaign to have a dine-in customer download the app. In online, we saw healthy growth coming from our own assets as also from our aggregator partners. We continue to work closely with aggregators in growing the pizza category and in bringing in new customers.In Dunkin' Donuts, we closed 1 store, taking the total store count to 30 restaurants across 10 cities. Hong's Kitchen has got off to a good start, and we are excited with the overall opportunity in this segment. As stated earlier, we plan to open 10 stores by the end of this fiscal year.Domino's Pizza Bangladesh continues to do very well and ahead of our expectations. We are seeing tremendous opportunity in this vibrant and young nation, and we remain on track to open at least 5 stores by the end of this financial year.Let me conclude by reaffirming our confidence and belief that the Indian foodservice industry is poised for a period of sustained growth, and in this growing category JFL has the right strategy and the right levers that will help us drive growth and build sustainable competitive advantage; a strong brand, delivery expertise, deep innovation capabilities, our strong national supply chain network and growing strength in technology. With this, I would like to request the moderator to open the forum for questions, please.
[Operator Instructions] First question is from the line of Aditya Soman from Goldman Sachs.
Two questions from me. Firstly, we're seeing that -- and all these food aggregators are now stepping up their intensity in smaller towns. So historically, Domino's was the only foodservice player in small towns. So are you seeing any sort of increased competition from the aggregators? Or on the other side, are you seeing a significant benefit from aggregators pushing in some of these smaller towns?
Right. No. Thank you, Aditya for the question. As I mentioned in my opening remarks, I think aggregators are playing a very useful role in helping drive consumption, helping build a habit and helping build, in general, home delivery. And by doing that, they're helping grow the market significantly. We are in close partnerships with the aggregators. As India's largest QSR brand, we believe we have a lot to offer them by way of helping grow the pizza category. We're also working with them to help us drive new customer acquisitions.At the same time, Aditya, as you're aware, we're investing in strengthening our own digital assets, our own delivery experience and continue to invest in improving the dine-in revenue stream. We're also investing, as you saw, in last quarter, in strengthening our own brand, in brand building and its innovation. So I would say that aggregators are helping us grow the market and helping us get new customers. We work with them, at the same time, we work in strengthening our own assets and improving dine-in.
Understand. And in this regard, I mean, we saw that for some part of the quarter, you were offering a discount and we've not seen this over the past couple of years. Is this just because of more price competition from some of these aggregators? Or this was a concerted effort given that you'll increase pricing?
So Aditya, as you would have seen, our primary strategic lever of providing sustained value is everyday value for regular pizzas and medium pizzas. We do offer for specific customer cohorts using our CRM program discounts that are outside of everyday value, but those are more tactical and more transactional. The sustained discounting logic we use is everyday value. Within that, yes, we do experiments, we do try out new things, but even in last quarter as was the case in the preceding quarters, our primary and the bulk of our discounting was through everyday value.
Understand. And in this price increase that you've taken, so should we expect the flow-through to go through -- to see that in -- from 2Q onwards? Or do you think part of that would get offset by discounting, or everyday value, or a shift to everyday value?
So it's early days, obviously, to see how the impact of price increase will play out. We took the increase only towards the end of quarter 1. So I would say that it's still early days, but we certainly expect that a part of that price increase will flow into the P&L.
All right. Very clear. And just one last follow-up. In terms of new -- this new store design, is the CapEx meaningfully different from the traditional stores?
Aditya, in the new store design, apart from having significantly improved interiors and a better ambience, the one additional investment we are making is in putting in technology in the store, whether it is self-ordering kiosks or whether it is digital screens. So other than that, the CapEx is on parity. There is a small delta cost, which comes on account of the tech investments in store, but other than that, the CapEx is on parity.
So it was INR 10 million earlier, would that be a sort of 10%, 15% increase or not as much?
It would be about a 10% delta on -- tentatively on the earlier CapEx on account of these tech investments.
The next question is from the line of [ Pradeepthi ] from Edelweiss.
Yes. Sir, this is Abneesh here. My question is on Hong's Kitchen. You have mentioned on track to open 10 stores in this financial year and you also said good response. So my question is, in terms of losses, how much should we build -- it's small number of stores, but are you spending on the ATL, so could that lead to higher losses?
So Abneesh, we are clear that in Hong's Kitchen, we have to get unit profitability before we scale up meaningfully, number one. Number two, intent to remain focused on the Delhi NCR market and not go beyond that in Phase 1. So marketing expenses, if any, would be hyper-local in nature and would not be substantial in terms of quantum.
And sir, in terms of timing, Hong's Kitchen is coming at a time when SSG is slowing down, sentiments in the country are weak, overall gloom and doom everywhere. So from that perspective, don't you think this is a wrong time to scale up?
This is Hari Bhartia. Chinese is the second largest cuisine in India. And you really see there is -- there are very few organized players in this segment. Actually, we see a very good opportunity for somebody who brings in high-quality product at affordable prices and enacts great ambience. I don't know if you got a chance to visit the store, you will see that. It's very fresh, high-quality and affordable.
Sir, my second and last question is on SSG. After 4, 5 quarters of double-digit very good performance, last 2 quarters has been quite slow. So what is the leading to this, is this largely the split store or is it the cloud kitchen impact? Because this quarter also had the beneficial impact from World Cup, but still any which way you see the number, 4% number or 5.8% excess split, it's a very weak number, right? Suddenly, what has happened?
So Abneesh, I think the same-store number that we saw of 4.1% is a result of 2 or 3 factors. The first one is that, as you're aware, we have very deliberately and very planfully embraced a strategy of fortressing our key markets by splitting stores, getting to tighter trade areas, to improve the service levels to the customers. That obviously is impacting growth, same-store growth and the impact of that as you called out is 1.7%, which is a like-for-like growth of 5.8%. So that's one clear factor. The other factor is that, if you would recall, same time last year, we had launched Everyday Value INR 99 which led to a very high revenue momentum and very high same-store growth, and we're lapping that high gains this year, which has optically reduced the same-store growth, but it is off of a base of 25.9% same-store growth. That's a second reason. The third reason is, what we are seeing is some pressure in our dine-in business, and that is not just us, it is a larger category issue, but that is getting mitigated by us doing specific micro marketing activities and the [ issue ] drive delivery even higher. So those are 2 or 3 things that is the reasons why we believe our total SSG has been little lower than trend line. But I think a lot of it is, I think, for reasons, which are more optical in nature.
And I'll -- this is Hari Bhartia. I'd also like to add if you really look at it, for 3 years effectively, we have not taken any price increase. And why would we do that? Because A, we want to build pizza as a very value category. And so we continue to attract large number of customers, both in dine-in and delivery, so to really expand the market. And when we are expanding the market, we are also fortressing it because we are starting to see in some of our stores the volumes are not serviceable. Now we don't want bad service, so we are trying to fortress the areas. So what it helps us is, continue to build growth in terms of at system-level, open more stores. So to some extent, it is, I would say, not increasing the price also impacts the same-store growth revenue.
Sir, just 2 follow-ups here. So, one is, are you able to quantify is this significant impact from a cloud kitchen and the World Cup? And second, you said, you are not able to service because of a very high utilization, but -- so are you looking at pure cloud kitchen in your -- some of the key cities also? Or you would a want store everywhere?
So Abneesh, I didn't understand the first part of the question to be honest, or the reference to the cloud kitchen, I didn't get that.
Swiggy and Zomato have also launched their own either exclusive or their own pizza brand.
Yes. No, so in response to that part of the question, Abneesh, as I called out as well both in my opening remarks and in my earlier answers, we have -- actually aggregator partnerships have been a source of growth for us. So I don't think there has been a reason why we've lagged. To answer your second question about our willingness to look at alternate models, of course, we keep looking at different models, store models, as we look at gearing up including cloud kitchens. However, our experience has shown, I mentioned in last time as well, that having a delivery carry-out store, or a delco store, which is more compact, more engineered for doing delivery but yet having some minimal dine-in and carry-out capabilities, that works much better from both a growth point of view as also a profitability point of view. So that model works better for us given a sheer brand equity, but we remain open to looking all models.
And World Cup, no benefit, right?
Okay. So let me answer that. Again going back to my earlier point about -- store -- the SSG being a little lower optically, if you look at the absolute numbers during the quarter, on a trend line basis, they were very robust, so absolute order counts, absolute revenues per store, those numbers held up, those numbers are very robust. So yes, we did see the impact of the 2 sporting events play out, but it cannot be reflecting entirely in terms of growth numbers. Part of it was moderate and in account of dine-in, like I said earlier, being a little soft, but the optic -- the numbers don't reflect the overall momentum that we saw in the business.
And dine-in slow down started this quarter, and that's because of sentiment or competition, what is the reason? Or Swiggy...
Dine-in quarter -- so every dine-in quarter, as we called it out, last quarter as well as a headwind. I think on for the last 5 or 6 months now, there are 2 reasons for that as we see it. There is an overall sentiment challenge and a footfalls issue. So that's certainly one larger macro issue that we are seeing, which is impacting not just eating out, for other categories as well. In fact, it's, obviously, as you can imagine a little bit more pronounced in discretionary categories rather than staple. So that's one part. The second part is that as delivery gets a lot more focus and aggregators as discounting is being driven in delivery, we are seeing behavior change happen of customers moving away from dine-in and becoming delivery habituated. Those are the 2 reasons why dine-in is under pressure. And Abneesh, just to finish of that response, anything that helps drive delivery, helps drive habit at home, in home consumption, obviously, pleased to us and turns to our advantage.
[Operator Instructions] The next question is from the line of Amit Sinha from Macquarie.
My first question is on your store expansion guidance in Domino's and you have guided for around 100 stores in this year. The question is, is this number of -- I mean, can this number change if the slowdown persist? Or this is the kind of a fixed number which you will do it any which ways?
Yes. So Amit, as you remember that we had given the target of -- a guidance of 100 stores being opened in Domino's this year. We are seeing -- all the data that we have seen as of now, there is no reason for us to revisit that number, and we remain on track for delivering that 100 number. But this is a dynamic business, it varies every month. As we'd be open to looking at revised numbers both upside and downside. So I mean, it's not a number that we are married to, but the data that we are seeing right now, all the numbers tells us that, that number is absolutely doable.
Sure, sir.
Remember one thing, Amit, one of the largest drivers of us to open new stores is to improve the service levels in existing store areas where we are seeing the need for us to cut down -- at the right time cut down trade areas. So -- and we are seeing that a payback of new store remains well under 3 years. Even stores that we opened last quarter or the quarter before that, the payback hasn't split. So our profitability matrices in new store have remained robust and therefore, there is no reason for us to revisit the store opening number.
Okay. I mean basically, the kind of growth which you expected maybe at the start of the year and probably that is how it is panning out, right? I mean broadly. Okay, my second question is on your cost, I mean both on the employee cost and also you mentioned that the A&P cost have seen a significant increase. So just wanted to understand, firstly, on employee cost that has increased meaningfully during the quarter. And if you can help us give a broad kind of indicative number of how much was the increase in the A&P cost? That's it from my side. Yes.
Sure. So I'll respond to that. Let me start with the personnel cost first and then respond to A&P thereafter. With respect to personnel cost, the increase that you see vis-à-vis same time last year is on account of 3 or 4 things. The first one is on account of the volume impact that we've delivered -- the incremental volume that we've had over same time last year. There is a significant portion also on account of minimum wage inflation that's playing out across states. The full year impact or the full quarter impact of [ B&C ] stores that opened through the year last year or the new store opened last year basically. Of course, annual increments impact that was given in quarter 2 of last year and that you are seeing the impact of this year. Also, as we have called out several times, the investments we are making in strengthening our technology teams in digital, I mean, customer experience areas, in data and analytics that has led to a very [ planful ] increase in G&A. And that is why you see a increase in personnel costs. Mind you, we've also had a very significant work stream going on in driving productivity in our stores and that has been productivity driven in our stores. So the net impact, the pressure on account of volume and inflation versus productivity is where you see the numbers having ended up. Now vis-à-vis your A&P question, while we don't give numbers, I can tell you that the increase in manufacturing and other expenses that you see are largely on account of A&P being scaled up. What is quarter 4 last year, there was a significant scale up because there was more events last year vis-à-vis Q1 of last year that we had IPL even compared to that, there was a step up in A&P. We've also -- investment that we made in the digital marketing, in television, in the Royal Challengers Bangalore partnership this year, so that's obviously a delta versus quarter 4 of last year.
The next question is from the line of Avi Mehta from IIFL.
Sir, just on the SSS growth, you -- I'm sorry, I joined a little late, so sorry if I'm repeating. But you highlighted there was a 1.7% impact due to splitting. How do you see the pace of store splitting? Is it going to moderate as we go forward? Or is this a pace that we should kind of assume as we go forward, this kind of impact?
So Avi, since you came in late, let me touch upon 2 answers that I've already given, one on SSG, one on same-store -- the store growth. On the same-store growth, we talked about 3 reasons why the numbers are at 4.1%. Yes, so the like-for-like sales growth, same-store was actually 5.8% that we called out. So you should be aware of the fact that we split store by design and by intent in last quarter. That was one. The second one was the reason that we had a very high base sitting last year of 25.9% same-store growth, and that obviously, has pulled down the numbers optically in quarter 1 of this year, which is a great impact. The third reason was, and we called it out as a hotspot, was a slowdown that we are seeing in dine-in, part of the reason is because of the overall sentiment being what it is, plus the behavior change moving away from dine-in to delivery. So that was the SSG point and the question that you asked. In response to your question about store opening, we opened 26 stores last quarter, our guidance is to open 100 stores this year. All the numbers that we have seen of same -- of new store profitability, the new store payback delta, that 100 store guidance, there is no need to revisit that and that remains unchanged.
Sir, sorry. My question was not regarding the store additions. I understood the concept about -- that 6% seems to be the underlying SSS growth adjusted for the split. I just wanted to understand this 2% pull down for S3 (sic) [ SSS ] which is happening on the headline reported number, is that the pace that I can -- I should kind of factor in as we go forward as well because we will continue to do the splitting in order to improve the customer experience given that that's...
Avi, I'm sorry -- yes. No, no. I'm sorry. I understood the question. The answer to this part of the question is, yes. This is a very clear strategy that we've articulated beginning of the year, which is to ensure that we fortress our existing markets to improve customer service levels and therefore, you can expect the store splits to continue with a similar kind of trajectory in the rest of the year as well. I don't know what the impact of that on a like-for-like, but yes, we will be splitting stores in the rest of the year as well.
Okay, sir. The second bit, sir, was on the gross margin. I just wanted to understand if you have touched this, but what drove the moderation in gross margins? Was it mix, promotions, input costs? And how do we look at it in the context of the price increase that you've taken in June?
So Avi, the gross margin in this quarter -- so I will answer you in 2 context. First, in context of the price increase. The price increase came only towards the end of the quarter. So therefore, the impact of the price increase on the gross margin is negligible. In terms of raw material cost, of course, this quarter, the raw material costs are higher. And the reason for that is the commodity items, especially, particularly, milk and mozzarella, the cost have gone up.
Okay. So essentially, it's a mix -- input cost that drove the moderation, sir?
Yes. So just to add to that Avi, the primary driver of gross margin moderation is on account of dairy prices. There is a seasonal increase that we've had vis-à-vis quarter 4 last year. So that's playing out in terms of gross margin moderation. However, as you know, vis-à-vis same time last year, our gross margin has -- in fact, expanded a little bit.
I was essentially trying to understand and will you correct me if I'm wrong. The price increase that you have taken should kind of help us offset some of these impacts in addition to also probably aiding us. This is to assume that the volume impact has not been so severe?
Yes, yes, Avi. That was the reason why we took the price increase. And Mr. Bhartia called out earlier, we've been very, very circumspect about taking pricing, we haven't taken pricing for the last 3 years almost, meaningful pricing. So yes, this was in response to the inflationary pressure that we saw primarily on account of dairy, and that should help us mitigate some impact of these inflationary pressures.
And lastly, any comment on the competitive intensity? Has it risen especially from the aggregators/other peers? That's all from me.
Yes. Avi, I mean I think the fact that there's an increased level of activity both on media and in terms of promotions and discounting by aggregators, I think that's -- everyone has seen that, that's self-evident. However, rather than seeing that as a competitive headwind, the way we work with aggregators is to use their aggression to our advantage and helping us drive new customer acquisition, helping us drive the growth of the pizza category overall. So while yes, there has been a lot more competitive intensity from a point of view of more media spends by aggregators, more discounting, we see aggregators being our partners and alliance to drive growth and drive new customer acquisition.
The next question is from the line of Vivek Maheshwari from CLSA.
First question is on price hike, so can you quantify the level of price hike? And the other part is, in the context of aggregators giving so much discounts and offering -- and aggressive promotion, is it a good strategy to take up prices at this point of time while I understand you haven't done it for 3 years? But isn't timing-wise, it's an incorrect one?
So Vivek, the price increase was very moderate, and like I said earlier, was made necessary on account of the commodity inflation that we are seeing. It's important to remember that even post price increase, our pizzas post tax are at the same price or in effect lower than the prices that we had in December 2015. So from the customer point of view, we are still offering great value for money. And we don't think that this is a headwind in this area that you called out that aggregators are becoming more aggressive because there is a menu price, and then there is a way we continue to offer everyday value. As you know, our EDV price points of INR 99, INR 199 has not been disturbed, have not been changed. So I don't think there is an either/or. I think there was a very clear cost pressure. We responded to that by taking a very small and very calibrated price increase. We remain invested in driving growth by looking at both strategic discounting which is everyday value and practical discounting which is occasional which helps us drive customer acquisition, helps us drive growth, both can coexist peacefully.
Yes. And can you quantify the price hike proportion -- percentage?
Vivek, it was very small. I would not like to give a specific number. We haven't done that in the past as you're aware, but it was low-single digits, very low-single digits.
Okay. Sure. My second question is ex of -- or -- ex -- I mean the like-for-like as you have defined 5.8% SSG. I mean your base is also high until the third quarter of last year. I mean 5.8% SSG for -- on a like-for-like basis, isn't also a very impressive number. So I mean with inflation debt being higher and can -- what is your expectation on a full year basis? Can margins come down further because this is the first quarter after long that like-for-like margins have actually come down? So how do we look at this for rest of the year?
So Vivek, our margin pressure that we spoke about was on account of 2 things, and you saw it in Q1, was in the previous quarter, commodity inflation and a very sharp step-up in advertising and promotion expenses. The commodity inflation we spoke about earlier, we have -- we responded to that by taking a small price increase. Our advertising and promotion expenses were stepped up because of the events and activity that we had in quarter 1. We don't expect this high level of A&P to continue in the balance of the year.We also had significant work streams going on driving productivity, driving efficiencies in response to ongoing inflationary pressures that we see in the business, ongoing competitive issue we that we see in the business. So we don't expect the margin challenges to be significant. That said, as you're aware, we don't give a margin guidance, but we are not seeing because the 2 bigger headwinds on margin we have responded to that. One will go away, the A&P pressure, or certainly get reduced significantly, and interest rate which we have responded to.
Just a follow-up to that, 5.8% like-for-like, is that good enough for you?
Vivek, again, it's important to unpeel this growth. I talked about 3 reasons why the growth is optically lower. One is of course, that 1.7% delta, which kept us through the like-for-like of 5.8%. The other one is the significantly high base of same-store growth from same quarter last year and that also adds a significant delta. So -- and again if I look at my absolute numbers not just the optical growth numbers, the numbers that we are seeing in quarter 1 are robust, they are healthy in the right direction.
The next question is from the line of Manoj Gori from Equirus Securities.
Sir, first question would be on, if you look at couple of quarters back, we had highlighted like delivery would be approximately 50% of our total sales. So how has this proportion moved? And are we able to cover up the lost sales of dine-in because of the higher demand for your delivery sales?
So Manoj, you're right. We had called out delivery dine-in being roughly 50-50 couple of quarters back. Our delivery growth over the last few 2 quarters has been higher than dine-in. So the mix has moved more in favor of delivery. And in answer to your question, I think it's important to recognize that we drive both dine-in and delivery, it's not either/or. We are investing in dine-in as you're aware, whether it is to -- through improved store ambience and store interior and store design, whether it is through driving Pizza Mania, which is our entry level products in the dine-in category, whether it is through improved store network by having more proximity of store. So dine-in continues to be an area of focus for us, it's an area where we get a lot of new customer acquisition as well. So that will remain in focus. We also drive delivery in tandem, fortressing existing markets, getting to better, tighter drive time, tighter trade areas is one way of driving delivery. Using technology and investing in online ordering and improving customer experience is another way of driving delivery. Aggregator partnerships I spoke about is one way of driving delivery. So both of these channels remain important asset for us, and we keep investing behind both significantly.
Sir, for now, when we look at our base is no more favorable. So obviously, this was one of the reason you highlighted for the lower SSG number. So going forward, if you look at now our base is like -- it's pretty healthy base. So if we look at World Cup being in the quarter, so can there be a possibility like there could be lower growth in terms of absolute numbers? And if you look at the quarter, like from April to June, if you go by the months, has the situation or the sentiments deteriorated like on month-over-month basis and how is like the sentiments in July? That's all.
So Manoj, let me answer the second question first. We are not seeing the sentiments deteriorate over the quarter. If anything we have seen it strengthen and seen it get a little better. So there is no trend that we've seen where April was not better than June, so we haven't seen that sustained headwind, number one. Number two, going forward, while even tailwinds may not be there, for example, you talked about the World Cup, we are confident that we've got a very strong set of plans in driving growth. Online sales, our assets being strengthened using conversion improvement, using digital marketing, SEO, to both drive traffic and drive conversion on our own assets, number one. Number 2, working with aggregator partners, we have a very good and strong CRM program we're investing behind, which will help us drive both customer frequency and of course, drive retention. We're also looking at aggressive innovation, you saw WPL that we did last quarter. Innovations will remain a significant area of focus and investment for us going forward as well. And we have many more innovations in the pipeline. I talked about dining in, the fact that dine-in is of strategic importance to us. So you will see us take specific measures to drive dine-in growth as well. And lastly, the price increase that we took in June which didn't really impact us in quarter 1, will play out in quarter 2. The quantum of that remains to be seen, but that's certainly going to be a tailwind as we go forward.
Sir, one small question. If you look, you definitely highlighted like there are new additions to your customer base, but how are you looking at the -- like how are you actually figuring out the frequency patterns because if you look at over the last 4 years whatever initiatives you have taken has definitely increased the frequency of your older customer. So how is that frequency panning out because of the food aggregators, so that would be very helpful.
Yes. Manoj, I said -- like I said earlier, our investments in many of these growth drivers whether it is technology, whether it is CRM, whether it is customer experience in dine-in was driven towards 2 objectives. Number 1, increasing the pace of customer acquisition. Number 2, increasing the frequency of existing customers. And we feel happy, we feel good about how frequency of existing customers has held up. We use -- we know that a lot of -- most of our high-frequency customers have downloaded our own app and our habitual customers are on our own app. We are typically more -- with a higher ordering frequency, higher ticket size and therefore, a greater value to us. So both from a customer acquisition point of view and the frequency point of view, we believe we have the right drivers to influence and impact both profitably.
The next question is from the line of Nillai Shah from Morgan Stanley.
My first question is on Ind AS, there is a drawdown, if I can call it that, on the profit after tax and the profit before tax on account of Ind AS. Could you spend some time explaining what has really happened out there? And there is also an absolute finance cost charge which is there on the numbers on a comparable basis, what is the reason for that?
Okay. So Nilesh (sic) [ Nillai ], thank you for asking these questions. So since you have asked 2 basic questions, so I'll take a little time to explain you the change that has happened because of Ind AS. So in Ind AS 116, all the leases which were there have been taken into the balance sheet and an equivalent liability has been created. Now how that is done is, we paid the entire period of the lease and considered the lease payments during the period, those lease payments you discount in the present value. So that is your asset value as well as your liability. Now the asset which is -- which becomes the right-to-use asset, you depreciate over the period of lease, whereas the liability, you unwind charge interest at which you had discounted it. So as a result, this charging of interest, the liability will increase and the rent payments you would set off against this liability. So at the end of the lease period, the asset will become 0 because you would have charged depreciation on it. And at the end of the lease period, again the liability will become 0. So it's a matter of only timing. So Ind AS, the way it is designed in the initial years because of the discounting, the charge will be higher, but in the later years, the profits will go up. But over a period of time, the total profits would remain the same. So therefore, at this period what has happened is the rent expense which used to be there got converted into depreciation and finance costs. So finance cost is coming because of the interest and winding that we are doing on the lease liability. Now your question was that why it has impacted PBT? So in the initial years, the PBT is higher, but in the later years, it will become -- the PBT will become higher. So over a period of time, the profit would remain same. Does that answer your question?
Yes. Absolutely. But what is this period of time approximately? Is it like 2 to 3 years? Or is it like the full period of the asset which could be about 9 years?
I said over the period of the lease, it would become same. In our case, if we were to give you -- because again the period-after-period numbers are also affected by the number of stores that you would add. So there can be no clear-cut answer to that what would be the impact in the coming period. But if you were to theoretically assume, the number of stores remain the same, so the impact that you see in this year should almost become half next year, almost negligible in the third year and then you should see the positive.
Oh, understood. Very clear. And also on the finance cost, the absolutely small number of INR 26 lakh, what's that on account of in the comparable numbers?
That's some MSME interest that we have paid.
Okay, okay. And moving on to the second part, Pratik, you mentioned that the ad spend, although you didn't quantify, you did say that the jump in the other expenditure which is there, which should be about INR 30 crores either Q-on-Q or Y-o-Y is largely on account of the higher ad spend. So is that the number roughly INR 30 crore, is it as high as that? Or is there something else to it?
A substantial part of that delta Nillai is on account of the advertising and promotional costs. There is also some inflation sitting out there as you imagine and some volume impact on account of higher sales, so whether it's packaging, power and fuel, freight, et cetera. So volume impact, the inflation impact, a significant increase in advertising and promotion and a one-off.
Sorry, the one-off is?
The one-off towards on account of contribution that we made, political contribution in quarter 1.
Which contribution, sorry?
Political contribution, sorry.
Political contribution, okay. For our understanding Pratik, although you don't want to do this on a quarterly basis I understand, just for this quarter, would you be at liberty to kind of disclose this number just to help us understand the underlying business?
We've declared -- disclosing this as per the requirements, Nillai, in our annual report. So yes, you will get to know the numbers then.
Ad spends, ad spends too?
Oh, the ad spends. No, Nillai. I would not like to make an exception and disclose the numbers, but I think you'll hear us say that the most significant part of that delta was increase in advertising and promotion spends.
The next question is from the line of Naveen Trivedi from HDFC Securities.
Pratik, you mentioned about that your growth was also moderated because of the high base of last year. So if you can like give us some understanding about how was the industry growth in -- during the first quarter? And also help us understand considering in the second half when your base will also be normalized, so can we expect again that the bounce back of, let's say, high-single digits to low-double digit kind of SSG?
So Naveen, let me respond to your first question to begin with about the impact how this is playing out for the industry. While we don't have access to obviously numbers from the other leading industry players, I think the larger theme that's playing out is that there is the pressure that everybody is experiencing on dine-in. For those 2 reasons -- the same reasons that I called out, one is that overall damping of customer sentiment, lower spending on recessionary categories, that's one. And the second one is the growth of delivery. So that's clearly one democratic trend that's being experienced by all restaurants brands across. There is also the growth in delivery that is being driven largely by aggregators and that's also helping mitigate some of the dine-in downside. So those are the 2 common trends that the industry is experiencing as well. On the likelihood of quarter 2 and subsequent same-store growth, you're aware, Naveen, that we don't give guidance. But I did call out those 3 reasons behind our quarter 1 same-store growth; the impact of like-for-like and splitting stores and fortressing existing markets. The impact on account of making sure that our -- the base impact was high very. So that was the second reason. And the third, of course, was the dine-in softness. So those 3 reasons will play out differentially over the next few quarters, and that's the lead score, and then our own initiatives that we'll be rolling out to drive growth. Where the sigma of that will land up, I don't know, but we feel good about the growth drivers that we have for the balance of the year.
And considering you have higher proportion of delivery, and you also mentioned that the delivery part has done well for the industry. So can we expect your number is basically -- and if you compare to any other QSR players both in the listed and unlisted space, you have outperformed significantly?
It's hard to tell, Naveen, and I wouldn't hazard a guess. But I can tell you one thing, we are investing significantly in improving our delivery experience, from the ordering experience to the last-mile delivery experience, and fortressing of our existing markets is a step in that direction. Tighter trade areas, smaller drive times, faster delivery, better visibility of orders through GPS tracking, much better quality of ordering experience, our app does really well, our app store rating is very good on par with any other competitor, any other aggregator as well. So we are investing in driving delivery, and we feel good about the growth drivers that we have invested behind delivery.
My second question is on you started a 20-minute delivery on a few stores. So could you please share your initial response? And what we have also found that globally also many -- even in Domino's Australia also we have found that they also reduced the delivery time. So how was their experience? And how -- maybe if you can share some like the thought process behind this cutting down the delivery time?
Yes, Naveen. And I think you have -- you're talking about the pilot we are doing in many stores across the country of 20-minute delivery. Our experience has been very positive, it's early days yet, but we are seeing 20-minute delivery translate into much better customer satisfaction score. And that's evident in the feedback we get both on our own assets and on social media. So that clearly is visible. The experience from Australia suggests that having faster delivery, while it may depress same-store growth in the short-term, in the medium- to long-term, it aids and helps drive much greater customer stickiness and much higher customer frequency. Our own modeling in India also suggests that, that could repeat and that would replicate in India as well. So it is the optics of same-store growth getting depressed in the short term as we split store, being compensated in the medium- to long-term by much higher customer satisfaction, translating in greater stickiness and higher frequency.
So when we reduce the -- our delivery time to 20-minute, do we need to spend a lot on the -- on our infrastructure because that's a pilot we're running it. So if you have to rollout for around 1,200 stores, do we need to spend a lot on like maybe on the cooking time and maybe the delivery processes which we have to set up?
Naveen, no. The answer is, no. The investment that's need to make is not proportionate. Essentially, the way it works is actually, there is a net add value change from the ordering to the fulfillment or the confirmation of the order, there is a lot of small things that we do, which are more driving profit efficiencies and speed of execution without necessarily to commensurate investment or higher cost. Our splitting of stores and having tighter drive times, tighter trade areas, of course, is one step in that direction, helps us get to faster delivery. But there are lot of small things that we do enabled by technology as well, which allow us to cut drive times, cut delivery times without necessarily adding cost. It's more about profit efficiencies, more about data and analytics and using AI and ML, using technology to cut the entire value chain time without necessarily adding cost. It's not about cost, it's more about analytics, about technology, about profit efficiency.
And my last question is on the menu side. What we observed is that in the Domino's case, the beverage is something which we missed out. So -- and while we observe that in the case of Dunkin' and in the case of Hong's, we have a very good menu in terms of beverage and dessert side. So can we expect that those things will also be part of our Domino's menu?
So Naveen, on the beverage side, as you're aware, the first step we took was we changed our beverage partner last year. That helped us drive both higher incidence and growth and higher profitability, number 1. Number 2, in -- progressively, we have in most of our large stores fountain machines being installed. So all our dine-in will, therefore, largely move to fountain machines and fountain solutions, allowing this for selling many more combos, allowing -- also we're doing CSD-based innovations. And now coming to your specific question, yes, you will see us step change innovation in beverages as well as we go forward. Getting fountains in the stores is an enabler and the step in that direction, but we have a lot more happening on beverage innovation. It will not all happen in the next quarter or so, I'm talking of a longer term strategy of driving incidence, both in dine-in and in delivery. So beverage will be a big innovation focus for us as we go ahead.
That was the last question. I now hand the conference over to the management for their closing comments.
Thank you, everyone, for joining us today on the call. This call was a little later than what we had -- what we're having traditionally, we appreciate your -- flexing your schedule to be on the call. We hope we were able to address all your queries. And needless to say, should you need any more clarification, please feel free to reach out to us or the CDR possibly will reach out to you. Before I sign off, let me just once again reiterate and end by saying that we are satisfied with our Q1 performance and are excited by the opportunities that lie ahead of us. Thank you once again for your time. Good evening to you folks.
Thank you. Ladies and gentlemen, on behalf of Jubilant FoodWorks that concludes this conference call today. Thank you for joining us, and you may now disconnect your lines.