Jubilant Foodworks Ltd
NSE:JUBLFOOD
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Jubilant Foodworks Ltd
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Ladies and gentlemen, good day and welcome to Jubilant FoodWorks Limited Q1 FY '22 Earnings Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you and over to you, sir.
Thank you, and welcome to Jubilant FoodWorks' Quarter 1 FY '22 Earnings Conference Call for Investors and Analysts. We are joined today by senior members of the management team, including Mr. Shyam Bhartia, Chairman of Jubilant FoodWorks; Mr. Hari Bhartia, Co-Chairman of Jubilant FoodWorks; Mr. Pratik Pota, CEO of Jubilant FoodWorks; and Mr. Ashish Goenka, CFO of Jubilant FoodWorks. We will commence with key thoughts from My Bhartia. Mr. Pota will follow him with perspectives on JFL's progress and strategic imperatives. After opening remarks from the management, the forum will be open for question and answers. A cautionary note. Some of the statements made on today's call could be forward looking in nature, and the actual results could vary from these statements. A detailed statement in this regard is available in Jubilant FoodWorks' quarter 1 FY '22 results release and earnings presentation, both of which are available on the company's website under the Investor Relations section. I would now like to invite Mr. Hari Bhartia to share his views with you. Thank you and over to you, sir.
Thank you. Good evening, everyone, and welcome to our quarter 1 earnings call. The recovery momentum that had commenced in the second half of financial year '21, as you know, was interrupted by the second wave of the pandemic, mostly in April and May of this year. The second wave has taken a grievous fall both in terms of lives and livelihood. During a quarter where every day bought new challenge, we have been gratified by the resilience and adaptability with which our team members not only delivered on business continuity but also rose to the occasion and lent their support to one another in time of this unprecedented health crisis. We swiftly responded to this crisis and offered all possible assistance to our employees and their families. As the COVID caseloads increased, we were faced with multiple restrictions. Dining operations were largely shut across the country. Mobility restrictions severely impacted our takeaway channel. State-specific delivery restriction enhanced the on-ground challenges further. However, despite the reduction in operating hours, reduction in operational stores and the impact of restrictions on dining, our sales recovery in Domino's was led by strong growth in our delivery channel. In this challenging environment, we are happy with our performance in quarter 1. When compared to respective period in FY '20, our revenues for Domino's had almost fully recovered by June '21, resulting in sales recovery for quarter 1 at almost 94%. With easing of restrictions, our restaurant operating hours will increase further, which will result in sequential improvement in operating performance. We opened 29 stores in India, which included 20 new stores of Domino's, 3 stores each for Hong's Kitchen, Ekdum! and Dunkin' Donuts. The lockdown and allied restrictions due to the pandemic presented a lot of on-ground challenges, and it interrupted our store expansion momentum, leading to a lower number of new stores compared to the last quarters. Going forward, we expect to see some significant structural changes in the category which will play to our strengths. The pandemic has accelerated the push towards digitalization, and the early movers which continue to invest in their digital capabilities will benefit in the long term. A fair share of portion of delivery growth will be incremental as Tier 2 and Tier 3 cities had adapted well to the delivery in an accelerated manner during the pandemic. Dine-in with a different consumer cohort will mostly add to and not cannibalize the overall growth. Consumers will increasingly look to trusted brands and those with proven quality and hygiene credentials. Restaurants will increasingly look to build their own digital channels and gain control and insights on their customers' data and grow in a sustained and profitable manner. As these trends play out, JFL is well placed to lead and participate in the growth of foodservice industry with our fundamental strengths in delivery, growing digital capabilities, varied product offerings and deep understanding of consumers. As we look ahead, we are excited at the growth potential that lies ahead. Towards that, we will be making 2 significant investments in our supply chain network. That is, increasing our capacity in Bangalore and Mumbai. We also intend to accelerate our new store openings and plan to open at least 150 to 175 stores this year. Before I conclude, I'm happy to share with you that we are progressing well on our vaccination drive. Our endeavor is to vaccinate all our employees and their families to ensure theirs as well as our customers' safety. This is quite simply the single, most important priority for us. With that, I would now request our CEO, Mr. Pratik Pota, to continue the discussion by sharing his perspectives.
Thank you, Mr. Bhartia. Good evening and welcome to our Q1 FY '22 earnings call. I trust that you and everyone around you are safe and well. I'm glad to share our performance for Q1 delivered in the face of significant difficulties on account of the COVID second wave. Revenue from operations was at INR 8,790 million, a growth of 131.1% over last year. Domino's witnessed 131.4% sales growth during the quarter with a growth in delivery of 123.7% and takeaway growth of 116.7%. Dine-in growth on the low base of last year was 475.5%. Against the corresponding days of FY '20, it will be for a more meaningful comparison, Q1 FY '22 saw a recovery of 94% driven by delivery recovery of 149.1% and takeaway recovery of 99.9%. Dine-in remained challenged with a recovery of just 12.3%. EBITDA came in at INR 2,115 million, and EBITDA margin stood at 24.1%. Profit after tax, at INR 626 million, translated to a profit margin of 7.1%. I will now share some of the highlights of last quarter. Growth picked up post the easing of the curbs on operations in the second wave, and the momentum in June was markedly stronger with almost complete revenue recovery. We opened 29 new stores during the quarter, including 20 new Domino's stores, and -- which marked our entry into 5 new cities. We also opened 9 stores for the new brands, 3 each for Hong's Kitchen, Ekdum! and Dunkin' Donuts. While the store opening was lower than the earlier quarters on account of the pandemic-related challenges, we intend to accelerate our store opening momentum, as Mr. Bhartia said, and with a target of opening between 150 to 175 stores this year, on-ground conditions permitting. Continuing our focus on driving our own digital assets, our app installs during the quarter were 6.8 million. We continue to build upon our digital capabilities and made some changes on our app and our PWA with a focus on enhancing user experience. Our dominant and growing share of our delivery orders continue to come to us from our own assets. We also reintroduced the Hello, Domino's toll-free number to allow customers to call and use voice to place orders. While the dominant majority of our ordering will remain online, there is a small cohort of customers who are much more comfortable with telephone ordering, and this functionality will help address that need. On the international front, Sri Lanka and Bangladesh registered a sales growth of 55.4% and 111.2% over FY '21, respectively. We opened 4 new Domino's stores in international markets, 2 each in Sri Lanka and Bangladesh. Both these markets delivered strong EBITDA margins last quarter. Our performance in the new brands, especially in Hong's Kitchen, was encouraging and improved sequentially to the quarter. We now have a total of 11 Hong's Kitchen stores in Delhi/NCR. Looking ahead, we are tremendously excited by the possibilities that lie ahead. The foodservice market has come upon an inflection point, and we believe that the next few years will see a period of market making and strong growth. We are excited about our own future and are confident that we have the right strategy to drive hyper-growth for JFL. Domino's will continue to power ahead, and we see a clear potential of 3,000 stores in India in the medium to the long term for the brand. We will invest in expanding our portfolio of brands through Hong's Kitchen, Popeyes, Ekdum!, Dunkin' Donuts, et cetera, and aim to own a much larger share of occasions. We'll also grow our business profitably in the international markets. Bangladesh and Sri Lanka have exciting potential, and we will use our knowledge and our best practices to rapidly scale up in these markets. Our growing strengths in technology and our digital transformation will help us improve the customer experience and improve the employee experience and also drive efficiencies. To summarize, we believe that we have the right strategy for driving profitable growth in this exciting category and to transform into a multi-brand, multi-country, food tech powerhouse. With that, I would like to call upon the operator to initiate the Q&A session.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on store expansion. You mentioned 150 to 175 in FY '22. So I wanted to understand for the non-Domino's if you could give us a breakup. Also, you mentioned Hong's Kitchen performance has been more encouraging. So what is working better in Hong's Kitchen vis-a-vis Ekdum!? If you could elaborate.
Thank you, Abneesh. Thank you for your questions, and I hope you are well. On your first question of our estimate for -- store opening estimate for the new brands, we don't have a number to share with you yet. We are looking to expand the network. And as you've seen, we have opened stores both in the last quarter and the quarter before. So we'll be gradually scaling up our network to begin it across Delhi/NCR and then in the other towns. So that's on your first question. On Hong's Kitchen and Ekdum!, I think we are very pleased with the performance in both the brands, but Hong's Kitchen, with the benefit of a longer runway of experience and of learning that they've had, has done better for us. We have seen a strong revenue recovery. Revenues are back to pre-COVID levels. We are seeing an encouraging trend for the volume growth both in new customer acquisition as also in getting repeat customers. Our customer satisfaction levels, our NPS scores, are also trending up -- strong and trending up. And our plan, like I said, is to still do that in a calibrated way and do that for both Hong and for Ekdum!.
Two follow-ups on this. One is Dunkin' Donuts' 3 new openings, and after a few quarters, there is no closure. So if you could discuss on the profitability, how things are right now. And second, Bhartia, sir, mentioned Bombay and Bangalore, there'll be scale-up in terms of the overall system. So again, if you could elaborate. Is it in preparation for Hong's and Ekdum! into these markets?
Abneesh, on your first question on Dunkin' Donuts, as you're aware, Dunkin' has traditionally been a model that's been more centered on dine-in. In the last 15 months, in the face of the COVID headwinds, we had to do a pivot and had the business driven a lot more on delivery. We've done well to recover a large part of our pre-COVID revenues. Once dine-in restrictions are eased, we will see our dine-in revenues will come back. We will see a greater mix of beverages and of food come back. Our profitability on Dunkin' is under control. And you'll recall the general profitability of Dunkin', where they -- we were earlier and they've been transformed to in the recent past. So our resolve of growing Dunkin' profitably remains, and we're confident that as dine-in restrictions are revoked and as we are able to drive a lot more of dine-in revenues and beverage revenues and coffee revenues, we will see strong growth and profitable growth on Dunkin'. On Bombay and Bangalore, these are investments we are making in expanding our commissaries and growing their capacity. As of now, we will obviously service the large network of stores of Domino's. Prospectively, however, we are creating headroom in these commissaries to allow to service other stores and other brands as and when we enter these markets.
Sure. My second and last question is on small restaurants bypassing the Swiggy and Zomato and starting their own app and through third-party delivery. So what would be your thought process? Do you see this becoming the mainstream or this will be managed? And second is on your own endeavor or toll-free number at this juncture. What is driving that?
So Abneesh, on the first question, I think it is understandable that restaurants seek to bring greater access to their own customers and get a lot more control on their business to get a lot more access to customer data and therefore on customer [ intent ]. And we believe that this trend will grow. Restaurants will look to invest in building own digital channels even as they partner with aggregators. So this will not be an either-or decision for restaurants. You will see restaurants play in both spaces, partnering with aggregators while, at the same time, investing in building their own digital channels to be able to get customer data to be to have much more control on their business and also to help improve their margin profile. I think it is a high-cost channel for most restaurants. This will also help them mitigate that headwind. I see this as a very clear, ongoing trend that will continue. On the toll-free number, I think I made the point in my remarks as well. I think this is just in response to customer feedback from a small but loyal band of customers who believe that they would like to have the voice ordering experience back. They are not -- Some of them are not comfortable with older customers -- some of them are not comfortable with using smartphones to order, and we responded to that request, and that's why we got the toll-free number back.
The next question is from the line of Vivek Maheshwari from Jefferies.
Two questions. First, given your store guidance of 150 to 175 for F '22, that is despite 20 store additions in first quarter, so that essentially means about, let's say, 45 to 50 stores every quarter. Do you think that is -- in the current context that is something -- is that achievable, one? And second is, is the rush also because you are getting attractive deals from the landlords and which is why there is a rush to build those stores?
Vivek, thank you for the questions. I think our store opening [indiscernible] of 150 to 175 stores, despite the fact that we opened 20 stores, is a reflection of our confidence in our ability to be able to execute and to open these many stores. If you look at the 50 in 2 quarters before just this one, we have, as you know, opened 50 stores of Domino's each. So we have the capability, we have the bandwidth, we have the ability to be able to go and open that many stores. We don't expect, therefore, to be a challenge. Of course, short of something completely unforeseen happening, we think this is well within Jubilant's code, and we will get to 150 to 175 stores in this financial year. Is it in response to -- opportunistically to better rental deal? No, not so much. I think we've always talked about the fact, and we talked about it a couple of quarters ago as well, that are confident that this is a category and/or is a business that is poised for hyper growth. And we see a lot of opportunity for opening Domino's stores in existing towns. We see opportunity for opening stores in our new, untapped markets. And our accelerated ambition is in response to that demand and that opportunity, not something that is more short term or more sort of temporary.
And a quick follow-up, Pratik. Will it also lead to cannibalization and -- because of the store splitting? And is that something that we should bear in mind while forecasting?
So Vivek, we are still -- are performing in the last few quarters where we've opened aggressively new stores. And we have called out separately the impact of some of these stores, and we have now introduced a measure of like-for-like growth as well. So while there may be some cannibalization if you split stores and open stores in existing major markets between the stores that we open and the old store, there is significant incrementality in terms of revenue, in terms of profitability and in terms of customer experience.
Got it. Got it, Pratik. And the second question is with the Yum!'s 2 franchises looking to list and looking at aggressive growth, how do you think about competition? Because you are by far the market leader. But do you think there could be some customer fatigue from a Domino's standpoint? And does that change in some ways the market share equation? How do you think about this market share bit as the 2 franchises of Yum! get aggressive?
So I think whether it is competition from a traditional competitor in the QSR space or whether it be investment being made by the platforms in the food tech marketplaces, I do believe strongly that any investment we make in the category and in driving category growth is good for the category. The discussion we should be having, Vivek, is not a market share discussion, it's a market size and a market growth discussion. In a country like India, the penetration of the foodservice category is still low. Frequency is very low. Any investment made in the category in driving behavior, in driving -- in creating more excitement, in driving innovation, creating incremental supply, all of this will play to this growth category. We -- given our strengths, our power and strength in delivery and a strong presence on the ground across the country, as the category grows, it will give us incremental growth opportunities. Far from fatigue, we are actually excited about the opportunity that lies ahead. Our customers do not feel any fatigue. They are looking for more and looking for more and more innovation from us. So I think as investments go in this category, it will be good for the entire ecosystem as we help grow the category. And Vivek, you will recall that only until 2019 -- 2018 and 2019, we went through as a category and as JFL a period of intense competitive activity with aggregators resorting to aggressive discounting to grow their size and to grow orders. Despite that aggressive competitive context, over those 2 years, JFL actually entered -- emerged from it stronger with a higher market share for Domino's. So we've been through this stage, and we aren't deterred by it. We believe that any investment like this, we help grow the category.
Got it. Got it. And last one question. Pratik, you mentioned inflection point in your opening comments. That is essentially because of what? Is it because of the trusted brand factor? Or is it because customers are more used to ordering and, therefore, as world normalizes, they will be ordering more? I mean because the inflection point to me looks like a very strong word, so there has to be a strong reason why you believe so.
So several reasons, Vivek. The first one is that in a category like ours, which is -- has been predominantly unorganized in nature, we believe that COVID will prove to drive a much faster movement from unorganized to the organized sector. That's the first point. The second point is within the organized sector, consumers will navigate and seek trusted brands, brands whose quality and hygiene standards they can take almost for granted, confident and believe in. And that will, again, drive the share upwards of big, credible, trusted brands, number two. Number three, customers have got used to omnichannel behavior and have embraced delivery and embraced takeaway in the last 15 months. That behavior change is for the larger part is beyond, which means that we will see over time incremental locations and a lot more omnichannel behavior. Fourth point, digital. Customers have got used to and have embraced digital means of ordering and digital means of sort of figuring the category. And again, this is the -- that there'll be a fundamentally new kind of customer more comfortable with trusted brands, more comfortable with delivery, more comfortable with digital. All of these trends point to a fundamental inflection point. And that will, of course, as you know, I think play to our strengths.
The next question is from the line of Manoj Menon from ICICI Securities.
Pratik and team, I just have only one small observation, which actually turned into a question as I was going through the current quarter presentation as well as the previous one. I'm actually referring to the last slide, which talks about the key focus areas of what you have presented this time versus the previous one. There seems to be 2 subtle changes. I'm sorry if it is even relevant, actually. So one important thing, what I find, is you are now talking about the journey to a food tech powerhouse, which was really not there earlier, so which means that there is something you're incrementally trying to convey. Second, there is one pillar which was really not there previously. And since I'm just comparing at this peak, is it about build digital strengths earlier? Currently, it's all about digital and data strength. Now so 2 -- just 2 things here. One, what exactly is this change about digital and data currently versus digital? Or is it too subtle to just ignore? And if yes, from a decision tree purposes point of view, the second question, is that -- what's your take on differential pricing as a strategy? Is it feasible in India currently given your data strengths which you have?
Thank you, Manoj. Let me respond to your first question. Yes, so on what we've seen as the slide that we've called out and the changes being made, I think the fact that we've called out food tech specifically in our ambition, it refers to what's the intent of making digital and making technology at the heart of everything that we do. So we intend to use digital and more generally technology to transform -- completely transform and revamp our customer experience, our internal employee experience and to drive operational efficiencies and business efficiencies. And towards that, as you know, we are building a strong digital team. We have built a large team, and we are investing in it even further, both in product and user experience and in technology and engineering.We also are building a strong digital data science team, and that speaks to your second point about how we've nuanced the pillar as digital and data strength because we are investing in building much stronger data science capabilities. We also intend to invest in growing our ML and AI capabilities. So all of these are the reasons why we believe that -- we called out specifically the fact that our ambition is to transform into a food tech powerhouse, yes? So that's your first question. On your differential pricing question, I mean, I just want -- I wanted to just clarify, how do you mean differential pricing? Do you mean by channel? You mean by daypart? Do you mean by geography? How do you mean that?
So just to give you an example, honestly, what I had in my mind, looking at your, let's say, the last quarter number of, let's say, 5.7 crores or 57 million downloads, and so you know exactly, let's say, as a consumer XYZ's behavior, whether an XYZ actually clicks on the Discount button or doesn't or what he or she actually orders, et cetera. So based on the actual data availability, what you have about the customer -- or the consumer, rather, in your case, is there an opportunity to actually do differential pricing directly to me if I'm a consumer?
So Manoj, if I may sort of build on the larger theme and talk about that. The fact that we have access to a vast reservoir here of customer data, their ordering behavior in the past, the way they've responded to new products, the way they've responded to promotions and discounts allows us to personalize their experience a lot more. So the broader theme of personalization is a critical work stream that we are sort of working on. Within that, prospectively, we can separate customers in different cohorts by their purchase propensity and the discount affinity. So if a customer is more discount driven versus a customer who is less discount driven, we can prospectively serve up different offerings to them. So to that extent, we will be able to target discounts a lot more efficiently to customers where we can be fairly certain that there will be incrementality of their discounting spend.
I'm sorry. Understood, Pratik, actually. So it is feasible. But my question here is, this is more from a volume driving point, if I understood correctly, that you're really able to, let's say, push messages to me if I'm not using, et cetera. I understood part of the volume side. But from a value maximization point of view, just simply on a price -- basically just to put it simply, is it even feasible to think about actually using this as a lever to, let's say, even reduce discounts? And also, if yes, the question there is from a strategic point of view, is it -- is there a consumer dissonance angle which needs to be kept in mind? And that's the last question.
Yes. Now, Manoj, look, I think before we get to differential pricing by customers, I think there are opportunities available in looking at differential pricing by geography, by channel, by daypart. And those are areas that we can certainly evaluate. I think before we get to pricing for each customer or customer segment very sharply, I think there are these opportunities that lie before us. So certainly, we'll be evaluating these opportunities before we get to anything that could create, like you said, consumer dissonance .
The next question is from the line of Percy Panthaki from India Infoline.
My first question is since we are now sort of having the aspiration of sort of becoming a food tech company -- not becoming, but, I mean, going in that actually even more strongly, I would really request if you could share metrics which are relevant to food tech companies. So if you look at companies like Zomato, Swiggy, et cetera, the kind of data that we would also expect from you is something like what are the monthly active users, how many are the monthly transacting users, what is the average ticket size. I mean if you could share any of this data either on an annual basis, quarterly basis, to whatever extent you can, that really helps us to analyze, and it also helps -- sort of brings you in line with the industry in terms of data sharing. So in this call, is there anything on these aspects that you would be willing to share?
Well, Percy, thank you for your feedback. It's something we will discuss and evaluate internally. That said, you can be sure that these are metrics that we look at very closely internally. We look at the monthly active users, we look at the monthly transacting users, we you look at the active days. And we have, of course, very close -- look at the conversion funnel. So these are data points that we track very closely. And we usually discuss internally and evaluate with them whether we will share them with a larger investor group or not. So we will come back to you on this. Thank you for your feedback.
Yes. Sure. That will be useful. Secondly, I just wanted to understand from the portfolio point of view. Now you have a portfolio of several brands. What I see missing here is burger. Now you can say that you are playing burger through Dunkin' Donuts. You might be able to play it partially through Popeyes. But this is rather a tangential sort of play to this big industry of burger. So just wanted your thoughts on this. Would you be opening to entering this via a separate format organically or even inorganically if any opportunity exists? Or do you think that, no, you would just play burger through your existing formats?
So Percy, we have, as we speak, an exciting portfolio of brands, all with tremendous potential, whether it's, of course, Domino's or Dunkin', Hong's, Ekdum!, Popeyes. We have mapped a large number of business and large number of locations with these brands. Like you rightly said on burger specifically, through brand play, Dunkin' and Popeyes, we play as well. And beyond these brands and beyond this, we have no plans of hopping in the burger market.
Right, sir. And my third and last question would be on your variabilization of costs, especially employee costs. Does this work just because we are in a pandemic and employees do not have too many options outside? I mean what happens once everything is normal? And in normal sense, there's a variability in your SSG. Like, let's say, without any pandemic, without any one-off, just a normal variability, your SSG for a year goes into a minus 1%, minus 2% kind of level. In that case, does this initiative really help you to sort of protect you from the operating leverage sort of hit that you would normally have got -- you have earlier gotten years -- 4, 5 years ago? Does that really help? Or this is just a pandemic kind of measure? And how does this even work? Because your employees are not gig employees. They are -- they have committed their entire time to you. So if there aren't orders and you're paying them lesser to that extent, does that really create a problem for them?
So Percy, conceptually, what manpower variabilization does is it allows us to match the supply -- the manpower deployment very close to the demand cycle and the demand curve. If we have fixed manpower, then there is a huge amount of wastage and [indiscernible]. And sometimes, we end up servicing the peak suboptimally. So the moment you variabilize your manpower, as you can imagine, we're able to match them a lot more closely and, therefore, drive a better customer experience in the peaks and much better efficiency in the troughs. This is a conceptual point that is unrelated to the pandemic. I think the pandemic, the peaks and troughs were sharper and more aggravated, the troughs especially. But the conceptual point remains valid even in a period that will be post COVID or unconstrained by COVID.
So is this done by getting more gig employees or sort of contract labor versus your permanent roles?
See, every employee or every person who comes and delivers to a customer's house has been screened by Domino's, has been trained by Domino's and is on our roles. I think the way this works is that we have a large pool of manpower, and we roster them for differential times depending on the need.
Okay. Okay. I'll probably take this offline. I really wanted to understand this a little better.
Thank you, Percy. Thank you.
The next question is from the line of Jaykumar Doshi from Kotak.
Yes. My question is on -- what is the format of stores that you will open? So 150 to 175 Domino's stores this year. In terms of size and revenue potential, will it be comparable to the size of store...[ Audio Gap ]number of [ Delco ] stores which will not have comparable revenue potential?
Well, thank you, Jaykumar. I think the -- as we've said in the last couple of calls, the stores that we open are a combination of stores that are foodservice stores and stores that are optimized for delivery and takeaway. The 150 stores-plus that we intend to open this year will similarly be an assortment of this kind of stores. However, given the context and given the fact that in our existing towns the growth will be led by delivery, the larger share of these stores will be smaller, more compact, more efficient stores, which are delivery/carryout focused. And the few foodservice stores that we open will typically be in the smaller towns. We do not expect these stores to have a lower revenue structure than existing stores. And we don't expect them to have any differential payback to what we have seen in the past.
That's very helpful. Now on -- in case of new brands, can you give us some color in terms of what is the size of -- average size of stores, what is the kind of CapEx that you incur for HK and Ekdum!? And how is the revenue potential for these stores, the ones that have matured as of now? How does it compare versus Domino's?
Yes. So Jaykumar, on Hong's and Ekdum! in terms of the store format, the Hong stores are a combination of full-service, stand-alone stores and combined with a delivery carryout store. That is a combination of Hong's plus Ekdum! plus Dunkin'. So some stores are shared stores with delivery, carryout focus. We also have some stand-alone stores. I think it would be unfair to compare Hong's Kitchen financials with that of a brand like Domino's, which has many years of experience behind it. But I think the intention of the objective is for Hong's to, with its own order volume, be profitable and be sustainable and therefore be scalable. And we feel good about where we are on Hong's, especially in the older stores where we have obviously been open for a longer time, in terms of the overall business health and overall store economics.
Understood. So I get it that your current arrangement with Dunkin' Donuts allows you to open a single store which also has Hong's and Ekdum! brands, a DELCO format. Is that right understanding?
That's right, Jaykumar.
Can you also include Domino's in that store at some point of time, so a single location with 4 brands, all DELCO format? Or...
If there's a market like that which requires delivery/carryout for Domino's, of course, we will be positioning that as well.
The next question is from the line of Ashit Desai from Emkay Global Financial Service.
My question is on your sales recovery. If you look at June recovery, it seems a little lower compared to what we heard from other consumer companies. So when we look at June versus May, the recovery seems a bit lower. If you could throw some more light on that in terms of what has been the impact maybe region-wise. We've seen different levels of lockdown. And you may also have a different level of stores being operational throughout these 3 months. So if you could put some color on that, that will be helpful.
Thank you for the question, Ashit. Actually, as -- I have a bit of a disagreement with the question, the premise of the question. I do not think the revenue recovery that we had in June was lower. I think you should just go back in time to what we went through in April and May in terms of the sudden onslaught and the severity of the second wave and the environment of fear and anxiety that has set in. I think pulling back, almost total recovery, I think, was a reasonably good performance. Especially given the fact that if you look at the dine-in recovery in the month of May and June, May then pretty much 0; and June, it was under 10% compared to the FY '20 numbers. So given just the onslaught of the second week of COVID and its impact on a large revenue stream of dine-in, I think a recovery of almost 100% was reasonably robust. Now of course, there was a pattern of distribution. There are some towns recovered stronger. The smaller towns at a slightly higher recovery than the metros. Of course, as you know, as we know, the channel-wide delivery, our own assets is better than the aggregators. There was a pattern of distribution, but I would say the overall recovery was very robust.
No. And I would add what, Pratik, you said, the operating hours available still in June was lower than a normal month.
Absolutely right, sir. And just to add to that, we had a significant reduction in operating margin throughout the 3 months, including the month of June, while there was some relaxation in restrictions in June. Nevertheless, I think this performance of 99.5% recovery was delivered in the face of a major obstruction and operating loss.
Okay. And was there a material change in the number of operational scores? Because if I look at your overall number of stores, these were higher by 10% versus Q1 FY '20.
Yes. I think in Q1 FY '20, that's because we did not have COVID restrictions; and in Q1 FY '22, the quarter just gone by, we had several restrictions in terms of stores in operational, in corporate parks, in education campuses and travel and transport locations. Thus, the agreement of operating hours in stores have been [ affecting ] operation as well, whether it was in terms of restrictions on the weekend or closure by 8 p.m. So effectively, the operating hours was far lower than what we had in FY '20. We take the stores being higher.
Got it. Got it. And my second question was on competition. Beyond the increased options to consumers, I mean you now have a lot of QSR players which have announced big expansion plans. So based on that, I wanted your thoughts and outlook on employee and rental inflation. What is the outlook on these 2 cost lines ahead?
So as far as the impact of growing competition or employee cost line, I think it's important to recognize that when we look at the talent pool outside of delivering manpower, our talent pool is not limited to restaurants and to QSR. We hire from companies across the board, FMCG companies, other consumer companies, technology companies increasingly. So therefore, as far as the non-store manpower is concerned, the fact that there is data competition in emerging from QSR, we are not having any material impact on employee costs. As far as the store manpower is concerned, we have been living in the last -- over the last 2 years in an environment that has seen a dramatic growth in delivery, not just in food service, but in e-commerce space in general across living spaces. So we have refined the playbook on how do we deal with employee costs when there is much more demand for delivery manpower. And you see that reflect in all our productivity measures. The fact that we moved from fixed manpower to flexible time -- flexible manpower, the fact that despite our revenue being so variable, we were able to pull back on employee costs in a very agile way and not impact margins and avoid operating deleverages, I think, pertaining to that. So clearly, I think as far as employee costs are concerned, we won't expect material impact.
And rentals?
I'm sorry, I'm sorry. On the rental part, Ashit, again, given the fact that there is a very clear market and a very clear kind of store that we are looking for, we do not expect to see any rental inflation. If anything, I think what has happened in the last 15 months is on account of COVID, there have been significant closures, not just of restaurants but of small businesses and retail businesses in general. And therefore, there are many more options open in the market in terms of real estate, both in larger towns and metros and the smaller towns. So we don't expect the fact that restaurants are expanding faster to have an impact -- material impact on rentals either.
Okay. Okay. One last quick check, if I may. Since you mentioned that some of the new stores are smaller in size and offer delivery carryout but you look at a similar revenue potential, given these are smaller and may have lower rentals and lower employees also, I mean do these operate at a materially different higher margin profile than versus your full-service restaurants? If you could give some sense on that based on stores that you have already opened in the last 1 year.
I think it's very difficult to answer, Ashit, because in the last 15 to 18 months especially, there has been a fair amount of noise, and therefore, it's hard to sort of clean up the noise and talk about what could be a long-term sustainable margin profile of these stores. I think the encouraging part is that despite the constraints and despite the headwinds on account of COVID, the stores that we are opening and that we opened in the last 3 months has delivered on target and delivered on plan.
The next question is from the line of Arnab Mitra from Credit Suisse.
Pratik, congratulations on the strong recovery in June. My first question was on the new brands and the -- you mentioned that some of the stores will be more delivery/takeout stores. Do these brands also have a potential to purely go into a large kitchen format, in which there is no franchise at all? And would that be a part of the expansion as we go ahead over the next 2 years in these new formats?
So Arnab, we talked earlier about the importance of building consumer trust in this new category. And that's especially true of our emerging brands and our new brands. We believe very strongly that one critical way of building that trust would be to have a pivotal presence of stores even if they are delivery/carryout-focused stores, for customers to come and experience the brand. And dark kitchens, while they may offer some economies, will not allow us to engender and build that trust. So the way we see our model going forward with the new brand is a combination of full-service stores, along with some delivery/carryout stores, which are smaller and more efficient. But we don't expect to see completely dark kitchens form a material part of the whole portfolio.
Sure. And one related question to that is with the -- today, the food aggregators being -- having increased the radius of delivery, the number of stores you actually need to, let's say, cover a geography like NCR, if it was, let's say, I don't know the number, but if it was like 100 stores in Domino's, is it possible today, physically cover like the total pin code of NCR with much less stores given the aggregator's larger radius of delivery?
I think the most important thing, Arnab, as we plan, the store footprint in any market is the customer experience. We know that time is the enemy of food. We have to ensure that we give our customers food that's hot and that's fresh and it allows them to have a great experience. And the more we expand the delivery radius, the less we're able to offer that. So we have to be efficient, and we also have to ensure that we provide the right customer experience.
And one last question from my side. From most of the food aggregators, what we have seen is that the monthly transacting users are still not back to pre-COVID levels, but the business is back to pre-COVID levels and above. I know you don't share MTU data exactly, but in general, is your customer set or the number of customers back to the pre-COVID levels? Or there is still a big gap between where you were before COVID and where it is now given that order values could be higher now?
So Arnab, let me answer the question in 2 parts. I think given a very conscious strategy of building our own assets and driving our own app installs and our own performance marketing strengths, in the last 1 year, we have seen a very strong recovery on our own assets. And we have seen significant delta growth compared to the rest of delivery channels on our own assets. And you see customers and orders recover and grow over the pre-COVID levels. More generally as a brand, given the fact that dine-in has been constrained, the recovery on orders is still below 100%.
The next question is from the line of Amit Sachdeva from HSBC.
Congratulations on a good set of numbers. So, Pratik, my question is on the new formats but more specific to say Popeyes. And the way -- how one should imagine the next 5 years, I know maybe it's still too early, but I just want to sort of see. Given the format is well set, given this is like -- market development work has already done in this category quite a lot for many years and given your already pan-India presence with Domino's and network rollout is already in place, you have deeper consumer insight, should we assume that Popeyes should -- once this initial phase is over, should get a trajectory of like 100-plus stores a year like Domino's? And in 5 years' time, picture could look very, very sizable presence in India, how one should think about Popeyes' vision for next 5 years? Would you -- can you please help us think through it?
Thank you for the question, Amit. And I must say that we are extremely excited by our partnership with Popeyes. And we believe that -- and we know that the chicken category is not the largest segment in the country and the one with very strong growth potential both on penetration and on frequency given that India is a largely [ non-wage ] market and largely poultry-driven market. We have the Popeyes team in place, and the team is hard at work trying to put together the launch mix and to get to the market before the end of this year. Given the fact that the chicken category is established and therefore, investments in building the category will not be required, even as we launch, we are fairly clear the projected year for Popeyes to scale up would be faster than what you see in some of the other brands that we have. This is the category that's growing and established but with a lot of runway for growth even now. So when we launch Popeyes, we believe that once we have our learning curve behind us, we will scale up faster on Popeyes. But for specific store opening numbers, I think certainly the runway would be faster.
Okay. No, that's very helpful, Pratik, for getting that understanding because this is something that probably -- because the market is already developed, so I think the opportunity could be captured sooner than probably other new formats like Biryani or, for example, maybe Hong's Kitchen, which may have larger element of dine-in, for example. But second very quick question is that I see that margin profile has changed in part because of delivery fee and given that delivery is doing so well. But at the same time, do we see that the value captured in this category is now giving you like 24%, 25% kind of margins EBITDA level and gross is 77%, 78%. Are we sort of in a zone where these margin structures are more permanent? Or are we looking at this is a onetime impact because of COVID and consumers are willing to pay for convenience, safety and trust and everything, and that's the reason these margins are sort of one-off? I'm not saying that whether you give us guidance for lower or higher margin, but is it just a new shift and you are happy to operate at that level of operating economics for the stores? It's a broader question. It may have -- delivery is more -- it is more profitable, dine-in is slightly less, costs are higher. It could be many moving parts there, but I'm just asking whether you are happy to operate at 78% or would you much rather have revenue throughput coming at the expense of margins as well? How will you think about this in the next 3 years as the COVID recedes?
So, Amit, I think the one thing that you've seen us do is that even if revenues have moderated on account of COVID, we have given a number of steps that allowed us to deliver strong EBITDA margins. And more recently, we've done that even in the face of increasing inflation and increasing cost. As we look ahead, there will be several pushes and pulls on our P&L. We see inflation playing out now but will moderate in the longer term. We are seeing some impact on account of fuel costs, et cetera. There will also be investments required to be made in digital, in technology, in driving innovations, improving customer experience. At the same time, of course, we will be driving efficiencies and ensuring that we are able to run a very tight operating ship. Now where this will land up in terms of operating margins, EBITDA margins, it's hard to forecast nor to tell. But the one thing, I think, it's fairly clear that this is not a "one-off" like you said. This are not one-off margins. I think we've come out of the pandemic, I think, more efficient, stronger as a business model and more derisked. We have been able to insure ourselves against a revenue reduction and have used channel mix changes significantly. So we feel good about where we are, and we don't think this is a "one-off" as you said.
Okay. That's very, very good to hear that. But my question was also purely from the gross margin point of view, at 78% odd, which is slightly but probably highest in QSR, if I may say. And would that be a good margin to sort of continue with? Or would you rather say, well, this is because of the situation, because delivery is high and we are able to charge deliver fee. But eventually, what you're comfortable with, one is cost efficiency at the EBITDA level. But at the gross level, are you okay to sort of drive purely from 78% kind of margins in -- largely coming from Domino's, I assume. But is it a comfortable margin structure for you at the gross level?
Let me pull back and answer the question a little differently, Amit. I think our objective and our singular focus as a brand has been and is remaining offering value for money for our customers. We have, as you know, have been very, very careful and very guarded about setting pricing despite having inflationary headwinds. Our NPS scores and value for money remain very strong, and we keep a very hawk's eye on the way customers value their value for money. So that's our primary objective. The good part is that we were able to deliver great value for money by having healthy gross margins. So that's the balance we strike as we go forward. There will not certainly be margins at the expense of value for money or vice versa.
[Operator Instructions] The next question is from the line of Latika Chopra from JPMorgan Chase.
Basically, my question is extension, I think, of the previous question. Wanted to check, what are the kinds of price changes that you initiated over the last month or so? And also, have you seen any specific changes on the promotional intensity dynamics with the markets reopening?
Thank you, Latika. Thank you for the questions. In response to your first question, we have taken a small pricing action recently towards the end of June, and that's a very small correction that we made in prices. And this was in response to some of the interest things that we spoke about earlier. And that's something that will only help us cover for inflation. We don't expect that to have any impact on margins materially.On your second question, on the promotion intensity, yes, there has been some increase in promotions and in discounts, but nothing that is out of the ordinary, nothing that we have not sort of been exposed to earlier and nothing that we've not responded to earlier. So of course, that is given, the unlock that has happened post [ me ], there is some new promotions and discounts, but I think we are well placed to handle that.
Sure. And my second question was, generally, we saw a lot of -- you keep coming out with new products from time to time. It seems much of them seem to be more on the value-added side. Is there any change or any kind of a measure in terms of salience or value-added or better margin products in your portfolio that you could talk about?
Sorry, Latika, can you say the question again, please? Meaning in terms of...
So we do keep seeing some of more value-added, higher-priced variants being launched from time to time in the Domino's portfolio mix. Is there a meaningful change in the salience of such products from a consumer acceptance perspective?
Yes, Latika. So I think as we've introduced some of our new value-added products, depending on the product, we have seen acceptance and greater acceptance of new products, and -- which have helped improve our mix over time. So very recently, we've introduced 2 new innovations in the last quarter. We introduced an extension of our lava cake, the red velvet lava cake on the platform of Lavalicious. We also introduced the stuffed garlic bread, 1 vegetarian version and 1 non-vegetarian version. And we -- both of these new launches have seen encouraging adoption. And both of them have led to an increase in the platform purchase. In other words, we have seen an increase in the stock value in the platform with the addition of the 2 new variants. And the lava cake variants together are now larger than what choco lava cake had earlier. So we do see increased adoption, and we see some of these innovations landing well with consumers.
The next question is from the line of Aditya Soman from Goldman Sachs.
So first question was on delivery fees. I noticed that there was some recent delivery fees. When was this increase taken on? Is there any sort of impact on 1Q numbers due to this?
Aditya, thank you for the question. We had a small correction in delivery charges as we did towards the end of June. This was in response to the growing -- increase in fuel prices. We round it off, our delivery charges, from INR 32 to INR 35. And because that had happened mostly towards the end of June, we don't see the impact of that into the Q1 P&L.
Another thing on this I noticed was that at the lower end, the delivery seems to scale rather more. And I remember in the previous call, you indicated that there was obviously an increase in volume growth at the lower end or at level price point. Is this something that you're trying to sort of address where you're seeing sort of the mix or lower end volumes go up, and then to offset that, you're seeing deliver fee go up disproportionately at the lower end?
Aditya, no, I think the fact that we have a structured and sort a of clear delivery charge is a reflection of the cost of delivery and what it takes to recover that cost. We believe that -- if you remember, until 1.5 years ago, we used to have a mean model value of INR 3 as a threshold to enter a brand and to enter a category. We've broken that and we've allowed customers to place orders of any value and we service that. And that has led to, like you said, increase in orders and increase in volumes. However, because of orders and those -- servicing those orders comes at a cost, our delivery charges, the pure, let's just recover that cost. And we've seen some order research in all our work that customers are not averse to paying high delivery charge because that's something that they want at that point of time. So if you're a single user going to order 1 pizza or just 1 side and a beverage, the fact that we are able to deliver it to her and you get a small delivery charge, I think the customer is comfortable with that. So all the things that we've made, have imposed, extensive customer validation.
No, I understand. Very clear. So the impact of this would be felt from 2Q onwards, right?
The impact of the slight increase in delivery charge will be felt from Q2 onwards. However, the pure delivery charges have been in operation since earlier.
I understand. And for my second question, just a quick one on Domino's Eurasia, we noticed that now you sort of include the associated income from there. Is this now profitable this year given the increase in SSG? Because if I look at the financials for the past 2 years, they were not profitable, but we clearly see an addition to the profit in this quarter.
Thank you for the question. I think as far as questions on DP Eurasia are concerned, we request you to refer to them. They are an independent listed company, and we will not be able to offer any comments on their financial performance. You may refer to their most recent release, which they put out last week for the revenues and for the performance of the last quarter.
Yes. And the reason I asked is because, I mean, that release that's just the sales review. They don't talk about profit, but I'll take it offline.
That's right. That's right. I mean they don't talk about -- they will talk about it when the time is right for them to do, and we can't comment on that ahead of time.
The next question is from the line of Tejash Shah from Spark Capital Advisors.
My first question pertains to, Pratik, the vision that you shared in your PPT and you spoke about it also on becoming a food tech company. And you explained the vision broadly on how you want to put a layer of tech in everything that you do. But that looks as internal vision or internal application of the vision as of now. And then perhaps the logical end of this vision will be to leverage our front-end digital assets, which is actually growing quarter-on-quarter and especially after pandemic, to leverage the digital asset for all the brands and perhaps on a super app that we briefly touched on the last 2 calls also. So first of all, is that part of our vision on the food tech company journey? Is that part of the vision time line? And if yes, then how far do we see that? It could be 3, 5 years, that's okay, but is it part of that time line or not?
So Tejash, our focus and our work around food tech, I spoke about earlier. With respect to your question on super app, I think our priority right now, as we spoke about in the earlier call as well, is to ensure that we build these different brands individually. We have a long runway to grow, to grow Hong's, to grow Ekdum!, to launch Popeyes in the country. And, of course, we scale up Domino's faster. So that's our #1 priority. And the super app is a question that we'll come to eventually. But I think we are a little premature talking about the super app. We don't rule it out, but that's not for now.
Sure. So that brings me to the second question, which is the kind of primary capital that is chasing the whole food service industry and QSR in particular. In that parlance, and you mentioned that Jubilant and Domino's as a format has survived much hyper competition in the past also. So that format is relatively safe. But looking at the competition and the capital which is coming, do you see the need to expand your new brands portfolio, be it Hong's Kitchen or Ekdum! very fast? And then what is the limiting factor there? Because we have capabilities to open 100 stores. We have shown it in the past also. We have cash flow. So what is the limiting factor there to expand it faster than what we are doing today?
So, Tejash, most certainly, our aspiration for hyper growth is not limited to Domino's, and we intend to scale up our new brands rapidly. There was a question asked earlier by Amit about Popeyes, and we spoke about the fact that we can have a much faster runway to grow Popeyes. And absolutely, similarly, we intend to grow Hong's, Ekdum! and Dunkin' as well. There is nothing that has come in the way we're going and we intend to make sure that we have the right scalable, profitable model. In the last 15 months, I mean, obviously, we've been curtailed, and we've had some challenges. But as we work around them, you can be sure that our ambition for growing our new brands rapidly remains. And as much as we grow Domino's, we grow these brands as well.
The next question is from the line of Sheela Rathi from Morgan Stanley.
My question is that you have talked about the tailwinds from the pandemic and thus, the confidence towards a growth opportunity. What I want to understand is of the 3, what are the -- what has changed the most for you, which is from a new customer acquisition point of view, frequency of purchase and average order value? So if all these 3 were ex -- pre-COVID, where are they now? And what is giving you the most confidence? If you could give us some insights on that.
So Sheela, actually, it's -- I'll have to nuance the answer a little bit, because the answer is a bit of yes to all 3. Let me tell you what I mean. Given the fact that with dine-in having been curtailed over the last 15 months, essentially over the quarters and the fact that, therefore, revenue has moved to the delivery channel, there is obviously an upward impact on the average bill value or the AOVs. They have moved up significantly. So that's certainly been one driver. Equally, we have seen a significant tailwind in our delivery growth and delivering order growth and, within that, delivering order growth on our own assets. While overall orders have yet to come back to pre-COVID levels on account of dine-in being curtailed, delivery orders have shown strong momentum, and that momentum has sustained even as dine-in has reopened in parts. And your third point about frequency, we see customer cohorts, that frequency has actually increased as much as we see customer cohorts and frequency had dropped because of dine-in channels being curtailed. So we see all of these and we see green shoots in each of these 3 indications. It gives us the confidence. And by the way, just to add to that, it is not just [indiscernible], there is also pop strata, the metro versus the smaller towns. We see a very strong recovery in the smaller towns, which was more dependent on dine-in. They've come back very strongly on delivery. So whichever way you look at, we see strong tailwinds, and we see strong green shoots which will help us grow much faster as a category and as a company once the COVID situation normalizes.
Okay. Any quantification here from x to where they are now?
No, actually. No quantification, please. We don't do that traditionally, as you know.
Ladies and gentlemen, we'll take the last question from the line of Avi Mehta from Macquarie Group.
I just had one clarification on the margin front. Now especially, I wanted to clarify the risks to margin not expanding because I can clearly see tailwinds from delivery price increase, to pass on the cost inflation,-- the fact that dine-in opening is not going to -- not has traditionally not hurt delivery. I'm failing to understand why would margins not expand. Is that not a rational explanation to take forward? Not the quantum but at least the direction should be expansion.
Avi -- sorry, come again?
From the 1Q level, sir. So what we saw in 1Q FY '22, from here on, it would be rational to expect margins to expand as reopening spurs dine-in to come back. What could kind of -- what are the negative -- what is the risk that I'm missing out? I want to just kind of understand that. Because all those investments are something that are ongoing. We have always been doing that. We've never used any pandemic to let go of investments. That's my understanding. So I would appreciate your response to this.
So I think it's important to recognize that, obviously, even as we attempt to improve our margins sequentially, there are these various cost pressures that could have come in play. There could be personnel cost pressures, there could be investments partly made in driving marketing. And I think we have discussed its strengthening earlier in the call and the increased competitive intensity. And the news stores have scaled up faster. So there could be investment that we called upon to be made to drive marketing investments, to drive data promotions, to drive greater digital assets and digital sort of downloads. So all of these will have a role to play even as we try and extract even more efficiency and even as we have the impact of pricing flows through. So where does that land us, we can't be sure, which is why the call that we made on the margin.
No, fair enough, sir. Sir, just one bit, if I may clarify or if I can delve honestly into employee a bit now. Clearly, there's been a lot of work that you've been doing from the start and not just pandemic, I think it just accelerated that. Does this variabilization of employee costs -- is this not structural in nature? Or what is the risk that you kind of -- which you're kind of guiding towards? Is this more a macro risk that you are alluding to? Or is this more that as you are opening stores, there would be a demand for more employees? Is that what you're guiding to? I'm not very clear on that part.
A bit of that, but also the need for us to invest in building new capabilities and investing in building new strengths that we want to go forward, which as indicated, particularly, in technology and data science. So we called upon [indiscernible]. But on the store front, yes, the variabilization is a structural change that we need.
Thank you very much. I now hand the conference over to management for closing comments.
Thank you. And very brief closing comments. Thank you for joining us on the call today and for taking time out. I hope that we've been able to answer your questions. In case you have any follow-up questions or need verification, please feel free to reach out to our Investor Relations team. Thank you, and have a great evening and stay safe.
Thank you very much. On behalf of Jubilant FoodWorks Limited, that concludes this conference. Thank you for joining us. You may now disconnect your line. Thank you.