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's Q2 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Jajodia from Jubilant Foodworks India. Thank you, and over to you, sir.
Thank you, and welcome to Jubilant Foodworks Q2 FY '22 Earnings Conference Call for investors and analysts. We are joined today by senior members of the management team, including our Chairman, Mr. Shyam Bhartia; our Co-Chairman, Mr. Hari Bhartia; our Chief Mr. Pratik Pota; our CFO, Mr. Ashish Goenka; and our Group CFO, Mr. [ Arvind Chokhani ]. We will commence with key thoughts from Mr. Hari Bhartia, Mr. Pratik Pota will follow him with his perspective on JFL's progress on the quarter ended 30th September. After the opening remarks from the management, the forum will be open for the questions and answer. As you may be aware, on 30th September, we announced our intention to increase our shareholding in DP Eurasia through a reverse book bill process. Investors wishing to ask questions in relation to this should note that as the reverse book bill remains open to the shareholders of DP Eurasia, we are unable to comment further on this matter. We would request you to refer to our publicly available announcement in this regard. 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 the statements. A detailed statement in this regard is available in Jubilant FoodWorks Q2 FY '22 results release and earnings presentation, both of which are available on the company's website under the Investor Relations section. I would like to now invite Mr. Hari Bhartia to share his views with you. Thank you, and over to you, sir.
Thank you, Deepak. Good evening, everyone, and welcome to our quarter 2 earnings call. I hope all of you and your families have been keeping safe. It looks like COVID-19 is coming under good control in most parts of India. And of course, it is supported very well by the vaccination effort of the government. Indian economy has continued to make solid progress, and we also see food service industry being set for strong growth in the remaining quarters of this year. So we come to you with a renewed sense of optimism and I'm happy to present the company's record performance with the highest ever revenue, strong profitability and highest ever store expansion in a single quarter. After a difficult quarter 1 our operating performance improved further as mobility restrictions were being lifted. While the percentage of operational stores reached almost 95%. There was also a noticeable uptick in demand, which more than compensated for the lost operational hours on account of closed stores. The dine-in channel showed encouraging signs of recovery with orders and revenue coming back through the quarter, albeit still being below the pre-COVID levels. The delivery and takeaway channels continue to do well and help us drive our strong overall revenue recovery. Notwithstanding the challenges situation on inflation, which we have been facing in the food industry, we have delivered a strong EBITDA margin. Our store opening accelerated once again after the difficulties in quarter 1, and we opened 63 new stores last quarter, including 3 new stores in the Sri Lanka market. I'm pleased to share with you that India became the first Domino's market outside the U.S. across the milestone of opening 1,400-plus stores now with a total of 1,435 stores. Notably, this is our current assessment in the medium term, as we have said before, we continue to see a potential to open more than 3,000 stores in India. During the quarter, we announced some key strategic initiatives, which are in line with the company's stated goal of building a multi-brand and a multi-country food business powered by technology. With more than 25 years of experience in Domino's India, we hope to add value and learn from best practices in the key international markets. As we have announced. We have proposed to increase in the direct shareholding to 90% in Jubilant Golden Harvest Limited, which holds franchise of Domino's in Bangladesh. Also, we have launched reverse book build subject to the final result to increase indirect shareholding to 49.9% in DP Eurasia, which holds franchise for Turkey, Russia, Azerbaijan and Georgia. We, at Jubilant, continue to see strong potential for growth in all our international markets. Overall, we were happy with our all-round performance last quarter. Moving forward, we are excited about the future growth prospects and we'll continue to invest judiciously in what will become the future drivers of growth. With this, I would now like to invite our CEO, Pratik Pota, to continue this discussion by sharing his perspective and insights.
Thank you, Mr. Bhartia. Good evening, everyone, and thank you for joining us on the call today. I'm pleased to share our results for Q2 FY '22. We reported a very strong quarter. Revenue from operations was at INR 11,007 million, up 36.6% versus prior year and up 11.6% versus the pre-pandemic levels of Q2 FY '20. The revenue growth was driven by a recovery in the dine-in channel and continued momentum in the delivery and take away channels. When compared to Q2 FY '20, growth in delivery and takeaway channels stood at 36.8% and 72.2%, respectively. Dine-in recovery was muted at 46.9%. While we grew across all town classes, the growth was much stronger in the non-metros and in the smaller towns. EBITDA stood at INR 2,860 million up 33.2% versus Q2 FY '21 and EBITDA margin stood at 26%. This, we believe, was a strong performance in the face of continued inflationary pressures. Profit after tax even at INR 1,215 million, a growth of 58% over last year and a margin of 11%. We opened a record 55 new Domino's stores during the quarter, and entered 9 new cities, taking the tally to 1,435 stores in 307 cities. As committed, we remain on track to open between 150 to 175 Domino's stores in this financial year. Our continued focus on improving the customer experience, we did good results. Our delivery service KPIs improved significantly, both sequentially and year-on-year with an increased number of orders being delivered under 20 minutes. This led to an encouraging improvement in customer satisfaction levels as reflected in our NPS. Continuing our focus on driving the digital agenda. Our app installs increased in the quarter and was 7.2 million. Our own app sales grew significantly faster than aggregators and a dominant share of our revenues continues to come from our own assets. On our emerging brand portfolio, we opened 5 new stores. two each for Dunkin' and Hong's Kitchen and one for Ekdum!. In Dunkin', we are focusing the brand on a coffee first strategy that will help drive frequency and build greater stickiness. Hong's Kitchen showed and delivered a strong performance with an encouraging same-store growth and increase in order count. Our total store count for Hong's Kitchen stands at 13, all of which are in Delhi/NCR. We are also progressing well towards our target of launching Popeyes in India within this financial year. Turning to our international business. In Sri Lanka, we delivered a very strong quarter with record revenues and a growth of 88.4%, led by a delivery growth of 200.2%. Notwithstanding the inflationary and the currency pressures, we delivered a strong double-digit EBITDA margin in the country. Our OLO contribution in Sri Lanka increased significantly from 26.6% last year to 63.9% last quarter. We also opened 3 new stores during the quarter, taking the total network count in Sri Lanka up to 31. In Bangladesh, too, our performance was extremely encouraging. We delivered a growth of 33.3% on the back of delivery growth of 82.1%. During the third quarter, as you are aware, we initiated the process of increasing our shareholding in Jubilant Golden Harvest Limited to 90%. The Bangladesh market has low QSR penetration and tremendous promise, and we are confident that we are well placed to lead and participate in this category growth. Looking ahead, we believe that the food service category, driven by the growth of the organized sector, the growing preference for trusted brands and increased omnichannel adoption is entering an exciting period of innovation, market making and sustained growth. JFL is extremely well placed to lead in this exciting phase of growth with a broad-based strategy articulated earlier. And we are confident of growing into a strong multi-brand multi-country food business powered by technology and thereby creating value for all our stakeholders. With that, I would like to call upon the moderator to open the floor for the Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
Yes, sir, congrats. My first question is on the store expansion. It is fair to say that now the upper limit is more likely, even in the last 4 quarters, 3 quarters have been 50 to 55 stores opening, plus to have already seen 75 stores and with normalcy coming. Will it not be fair to say that 175 also can get [Technical Difficulty]
Mr. Abneesh Roy, we lost your audio. If you can repeat your question, please.
Sure. Is my voice clear?
Yes. Now we can hear you.
So my question is on the store openings. Will it be fair to say that now the upper limit of the guidance, say, at say 125 stores. That will be more likely given in the last 4 quarters, 3 quarters have been 50 to 55, and first half has already seen 75 stores and with normalcy now far more there in terms of opening and demand also being robust. Won't your the guidance be more at the upper limit rather than the lower limit?
Thank you for the question, Abneesh. And I think as you're aware Abneesh, in the last 2 quarters, it's been a tale of almost 2 cities. Quarter 1 was when we faced the sudden and the full, full fury of the second wave we slowed down the expansion. And then of course, in the last quarter, we saw a normalcy return, like you said, and they have all [indiscernible] 55 stores. Our intent would be to move ahead and try and sustain this momentum. And therefore, to be, like you said, towards the closer end of the band that we have guided on. But even as I speak, I'm keeping my fingers crossed because it's not to tell for sure how stores will play out in the next 2 quarters. So our intent will be to [ aswerably ] move ahead and open as many stores as we can. But there will be that external factor or that could be the recurrent factor beyond the control which might slow us down, but our intent would certainly be there to push closer to that limit.
Sure. That's helpful. One follow-up on this. So 9 new cities added in Q2 and 26 in the last 4 which is, I think, a very impressive number. So could you discuss what kind of cities and what kind of response you have seen? Any new hydro market you have entered? Or is it largely the suburb for the top 20, 30 cities only?
No, that's a very, very good question Abneesh. So I think that the cities that we are entering now, are the Tier 2, Tier 3 -- not Tier 2. Tier 3, Tier 4 cities, and we are seeing the consistent pattern across all of these store openings and all of these new entries is that we see a very, very encouraging response from customers. We see across all channels: delivery, dining and take away a very clear adoption and very clear acceptance of Domino's. And as you can imagine, in all of these markets, there is universal brand awareness and people are typically waiting for the brand to make an entry. So I'll give you an example of the kind of towns we are entering in, just to give you some color, we've entered a market in Telangana called Karimnagar, it's in that population town. We've entered a market again in Andhra Pradesh called Illuru again 2-3 [ NAV ] lakh population town. Jarna in Maharashtra, [indiscernible] in Punjab. So those are the kinds of markets we are entering, which are really markets which haven't seen any QSR -- any organized QSR. And we are the first organized QSR play in more than 150 towns actually we have niched that are only QSR driven. And these are the markets where we are the battering ram that prices open the market. So our experience has been very, very positive. There's a fair amount of pent-up demand that comes out and shows up when we launch in these markets. So experience has been fairly, fairly positive.
Sure. My second question is on the demand going ahead. Yesterday the two FMC companies said in some of their home consumption, for example, softwares, [ dams ], et cetera, there is a slowdown. You also gained in the last 1 year because of the trust factor, a lot of the local team focal stores are shut. So as the normalcy returns in India, whatever is shut will definitely come back, so how do you plan to still grow at a reasonable level because consumers clearly will have much more options. And we will also like to try new stuff because we are also bore of the same 2, 3 options that we have been trying in the last month.
Abneesh, from our perspective, the way we see the category, and this is a difference that we are to keep in mind, which will be versus any of the FMCG category. Our category has extremely low penetration level. We are at a very low frequency level. And therefore, this is a period that we believe there will be market expansion and market growth, both through increase in penetration as also increase in frequently. As COVID happened, we saw dine-in come under pressure, but we saw that, that slightly picked up by delivery. As dine-in comes back, and therefore, we are seeing more of normalcy and more of mobility come by, delivery corrects moderately but it holds up much, much more and much more elevated level compared to the pre-COVID level. So to answer your question, we do not expect to see any demand compression. Quite the contrary, actually, given the way COVID has played out. There is a much greater demand for brands, especially in food, which can be trusted or quality standards are known. So we are seeing actually a very, very encouraging trend of demand sustaining across all channels, across all tier towns. And as I mentioned in my opening remarks, even in the Tier 2, Tier 3 support town, the delivery was a much smaller part of the mix earlier, as dine-in has reopened we are seeing delivery sustained at higher levels. So we do not see a challenge as of this point of time on demand, not at all.
Sure. My last question and a small one on Bangladesh. So if I see OLO data, Bangladesh is standing out. In India, we are at 98%, Sri Lanka also OLO has gone up from 26% to 63%. In Bangladesh, in the last 1 year, it has fallen from 68% to 63% and which is well below India levels also. Why is the fall has happened in Bangladesh?
Look Abneesh that's a good question. I think one reason for the elevated level same time last year was the fact that on account of COVID, a lot of the call centers and the contact centers were closed. And there was almost a forced adoption of online ordering channel. And as that has reopened a lot of our traffic and the revenues actually have moved to the voice channel as well. That said, our attempt is to very clearly build our online channels aggressively and invest in growing our own assets. One nuance that I want to call out, which is different in Bangladesh from India, even in Bangladesh, we do not work with aggregators. So all of these revenues that you see and contributing from OLO are entirely from our own assets. And as a strategic goal -- a clear strategic goal is to make sure we grow our own assets and make sure these -- drive a much larger share of operating revenue through our OLO. Sorry, you had a question at agile, I didn't hear that.
Yes. Any particular reason for not working with aggregator in Bangladesh?
No, no it's just a phasing. We just need to make sure we agree on the right commercials, which are being build, which works for them and which works for us.
[Operator Instructions] The next question is from the line of Percy Panthaki from IIFL Securities.
Team, congrats on a good set of numbers. My first question is during COVID times, what you had mentioned earlier, is that the average bill value had increased but the number of bills cut per store had reduced. Now with COVID almost out of the picture. Where do we stand in terms of normalization? Are we back to pre-COVID levels in terms of average value per bill and number of bills cut per store? And where do you expect this to stabilize?
Thank you for the question, Percy. And I think in many ways, that's a really important data point for us to keep tracking regularly. And I'm pleased to report that we have seen a very encouraging recovery in order levels -- in our order count. And we are almost now close to our pre-COVID levels of orders at the system level. And we expect that trend to continue as dine-in becomes more normalized. And on the ticket size, yes, there is a moderation in the ticket size given the channel mix changing and given dine-in reopening. But the ticket release higher partly because of the fact that we have introduced living charges last year, which weren't there in the pre-COVID period. So that was one. And the other one was that even today, the mix that we have is more biased towards delivery compared to pre-COVID, which obviously influences the BPO and the ticket a little higher. The ticket is still higher compared to pre-COVID level. Orders are -- the recovery is close to pre-COVID levels now. And we expect that trend to continue. And we expect all account to bill further going forward as dine-in reopens.
So there'll be no lasting improvement in the average bill value. Once the COVID situation absolutely normalizes, the bill value will also return to pre-COVID levels, except for the increase in delivery charges and some price increase?
Well, there'll be on two counts on which the ticket will be higher than the pre-COVID level. One, of course, is delivery charges. The other one is the fact that our delivery mix has increased significantly compared to pre-COVID levels across different town classes. And even as dine-in becomes more normalized, we expect delivery to stay elevated. And therefore, there will be a shift in mix in favor of delivery. We already seen that happen. We believe that will sustain. And therefore, that will again flow through into the -- in form of a higher ticket. So those are two -- sort of temporal reasons. But if I look at more strategic ways of driving ticket, 2 or 3 things that we're working on. One is premiumization. And you've seen some innovations that we've done in the last quarter in that direction. You will see us do more of that going forward. The second theme that you will see us working on is personalization. So when a customer uses our app and our assets to transact, he will see a very personalized experience will again allow us to attach more items and drive higher ticket. So those are the themes that will play out in addition to the point that I made earlier.
Right. Another thing that I wanted to ask is, during COVID times, you have done very well in terms of sort of making your business model such that you did not face too much of damage from the operating deleverage because the costs were variabilized, et cetera, et cetera. Now assuming that COVID is behind us and we see a ramp-up in sales and same-store sales growth, which is now like close to 0 on a 2% CAGR, let's say, that ramps up to a 5%, 7% kind of number in the near future. Is there any way we can get operating leverage on our margins or now that the business model has changed, we should not expect operating leverage to come into the margins?
So Percy, certainly, as revenue growth comes back and as things normalize, there will be some impact of operating leverage. But we also need to keep in mind that we are seeing inflationary pressure. And they will play out over the next few quarters. While there is some moderation in this quarter, compared to the previous quarter. But it's hard to sort of have a prognosis on how inflation trends play out in the next few quarters. But there could be some headwinds there; number one. Number two, we'll clearly need to make investments in driving improved customer experience, in driving better product quality and service quality, and of course, we need to invest in driving our digital and technology experience. So between operating leverage coming our way and some of these investments stroke cost. It's hard to tell where margins spend will end up. But obviously, the attempt will be to make sure we deliver robust and sustainable EBITDA margin going forward.
The next question is from the line of Chirag Shah from CLSA.
My question was on the cumulative app download, right. In the last year...
Sir, sorry to interrupt if you can take the phone off speaker, please?
Yes, my phone is off the speaker. Am I audible? Is it better now?
Yes.
Okay. So the question was on the cumulative app downloads. In last year, we have seen very impressive app downloads to practically 27 million, 28 million additions to the cumulative downloads, practically a 65% growth. Just trying to understand this a little bit better. What is the consumer engagement strategy once the consumer app is downloaded? Are these gross or net downloads? And I'm not sure how many of these downloads are active and transacting users. Just the thoughts on the same. And at what state to which TAT data that it takes one for average download atleast?
I think I heard most of it. Okay let me respond. And if I miss anything out, please feel free to ask a follow-up question. So yes, we have seen a significant increase in the last one year on our app downloads and our app in stores. And that's because over the last 5 to 6 quarters, we are very deliberately and very consciously increased both the quantity and the quality of our performance marketing spend. We have driven a higher traffic, higher downloads. And that's one of the numbers that you talked about. What is very encouraging is that the app installs are leading to a very clear and a very encouraging increase in monthly active users and within that in the transacting users. So there is a very clear flow-through. The numbers that you see reported there to respond to your question, are gross numbers. There are some uninstalls, but very encouraging part is that we are seeing a month-on-month sustained increase in both the active and the transacting users. Our engagement with people who download an app is not pretty much on the first day through a welcome message and then we make sure that we walk them through a very clear life cycle to get to them to transact first. And having transacted first, we walked them through into building that frequency. So there is a very clear playbook defined by the marketing team on guiding the customers through their life cycle and through the life stage to make sure that we get as many customers as we can to be becoming high frequency customers with a high life time value.
Sure. Just one follow-up question that I had on the volume number that you mentioned, right? If I look at the system-wide sales today for this quarter, it is up 11% over Q2 FY '20 levels, right? Now still FY '20, we have had an introduction of delivery fees, some increase on the delivery fees that we did recently for the fuel cost pass-through which should be reflecting in this 11% growth number. So in that context, how should we think of volume growth during this period, right? You mentioned about higher tickets that we've had up in stores. But the 11% number, does that add up to that higher volume numbers?
No Chirag, it goes back to the question that was asked, I think by Percy earlier. I think the -- so our recovery has been driven during the COVID period, more by the strengthening of the ticket which compensated partially for the drop in the volume or the order account. However, over the last 2 quarters and especially in the last quarter, and even within the quarter, the second half of the quarter than the more recent period, we saw a very encouraging return of the orders. And as we exited the quarter, the order recovery was almost back to pre-COVID levels.So we almost had the same level of order count as we had pre-COVID levels, during the exit of the second quarter? So going forward, and this is obviously an important quarter. It is more normalcy, improved mobility and less restrictions, plus the festive period. We expect our account to come back strongly in this quarter and to start showing a positive growth over pre-COVID levels.
I think that's very helpful verifying this. Can you pick that question [indiscernible] so while on the revenue numbers, it seems like there's a good normalization that has happened. Could you -- would you say a volume number that is pre-COVID numbers have kind of stabilized to come back?
Sorry, Chirag, wasn't very clear. What did you say? What?
The volume numbers, while the revenue numbers have staged a very smart recovery, right, would you say that the volume numbers are back to the pre-COVID numbers?
Yes. I mean I just answered that question, Chirag. That as we looked at -- look at quarter 2 gone by, we saw a very, very strong and a very consistent and a very encouraging trend of order recovery. And as we exited the quarter, order count and order recovery was pretty much come back to pre-COVID level.
Sure, sure. And just one last question, if I may. We've been running this scheme about of improving the delivery time through 30 minutes to 20 minutes of 'Tees Se Bees!' scheme. And you I think touched upon a little bit on that, but if you just elaborate a bit around of where are we in terms of getting to the 20 minute delivery number?
Yes, Chirag. I think we have a very clear work stream aimed at improving our operations, KPIs and a delivery experience to our customers. And one big element, of course, of that is time taken to deliver the order. And we have seen a very consistent and a very strong improvement in our delivery time. Most of our orders now get delivered absolutely bang on time and under 30 minutes. We also have kicked off a plan to move to faster delivery, and we are seeing an encouraging trend, again, of a greater number of orders being delivered within 20 minutes. I must clarify the same breath that the faster delivery happens, as you're aware, not on account of either making food ahead or faster -- of speeding on the road. It happens on the back of having tighter geographies and tighter and more compact store areas. And therefore, reduced drive times, which allows us to deliver the same order faster. So we are seeing a significant improvement in orders being delivered on time. and that is reflecting, like I said earlier, in improved customer satisfaction levels.
The next question is from the line of Manoj Menon from ICICI Securities.
Just a couple of questions. One, when I look at the expansion to path process which you have, which is broadly about 10-odd percent on the base, and also observing that there are many other QSR brands who are also looking to expand at the same time. When I look at the history, this is probably the first time when almost every, I would say, entrance start up a known brand would be looking to expand at the same time. I also understand that there is a tailwind of the market opportunity, which is probably visible in many other foods and food services business. Just trying to understand from your point of view, how are you looking at it? This is not about FY '22. This is also about FY '23 and '24, just about the medium term. That -- I mean, how do you look at the expansion opportunity because it can also result in a situation of significant, let's say, let's say, what happened with our company itself 5 years back of maybe expanding a little more than required at a particular point in time.
Thank you, Manoj. If I'm able to sort of understand your question, you're referring to potentially competitive intensity increasing with all of the QSR also expanding faster. And if I can respond to that, I think we are at the stage of evolution in the category, Manoj, as you know. Where the more innovation that comes by and the consumer sees, the more will be the adoption, the trial and adoption of the category across towns. We have very low penetration as the QSR segment. We have a frequency of consumption of non-homemade food is very low compared to even neighboring markets and peer markets in Asia. So the headroom for growth is tremendous. And I think the more activity and the more innovation that consumers see, the better it will be in driving category creation and category building. So we do not expect to see any headwinds or any challenges on account of these consistently these activities and these entrants. As you're aware, Manoj, that we have an extremely well-developed playbook when it comes to dealing with competition. And you saw that on vivid display in FY '19 and FY '20, when there was possibly the most intense of competitive headwinds that we saw from aggregators. And in the midst of those competitive headwinds, Domino's was able to not only hold but also grow market share. So we believe that the category opportunity is what need to keep in mind. We need to be aware of what's happening in the competitive space, but our focus needs to be firmly on the consumer and on the changing consumer behavior and the changing consumer expectations. So many of the things that we're investing behind, for example, faster delivery, for example, digital, for example, premium products are exactly towards those changing consumer expectations and trends. So as long as we focus on the consumer and make sure that we are delighting her and delighting him at every moment of truth, I don't think you need to worry about the competitive segment. In any case, like I said, those are good for the category and good for category creation.
Because I was actually looking for this sort of confidence because I remember, again, 5 years back, the narrative of at least amongst majority of consensus about medium sell side, about [ subisometo ] being a disruptor versus -- this is actually a tailwind. I do remember that we were probably the minority at that time. So understood. So I'm just trying to understand that there's the same playbook I can apply even today. The second question, or rather the subquestion here actually is that if I look at the number of cities which you are presenting currently versus the number of cities, which the -- there's only two left now actually, which is [ subisometo ] odd-percent. I mean, while 9 new cities is a welcome number. Is it not underwhelming? I mean, you were clear 200-odd cities versus the 500-plus. I mean, I understand that your QSR and kind of they are maybe addressing a bit given market out there. But also even when I do look at [ subisometo ] very closely as an analyst, kind of say that, look, they also rely a lot on the hero restaurants, right? I mean so in that context, are you -- I mean, how do I think about your expansion kind of? Because it seems that you're still prioritizing expansion in the larger existing cities versus the entering new cities. What is the thought process here?
Manoj, let me rephrase the question a little bit. I think rather than look at the number of cities as an underwhelming number. So I would reframe it to say that in 55 stores that we've opened, 46 of them have been in cities where we already have a presence, which means from an opportunity point of view, we continue to see abundant opportunity in markets like Mumbai, markets like Bangalore, markets like Delhi and the other towns. And we also see opportunity in the towns that we aren't presented right now. So this is what we mean when we say that the category is going to see sustained tailwind and sustained growth over the next few years. So when it comes to prioritization and when it comes to choosing stores and choosing where to open our stores, I think we have possibly a problem of plenty rather than a scarcity of opportunity. And I think that's a good place to be. And going forward, you'll see a balancing -- you'll see a balancing the need for us to go deeper and closer to customers in existing markets and opening up new beachheads in towns where we aren't presented. There will always be a balancing act. In some quarters, we will hopefully delight you. In some quarters, we may underwhelm you, like you mentioned. But I think for me, the encouraging context that is underlying is that there is opportunity in all kinds of town.
Understood. Understood. Understood. So one second last question here is, when I look at the outset of Domino's, the activities or if I can call it as the diversification or extensions which you have done and maybe extensions is the right word actually. So I mean, how do we think about the template which you're following? Because there is Dunkin' or rather there was Dunkin' which was started earlier, then there is Hong's and there is Bangladesh opportunity, there is Sri Lanka, that is Eurasia. There is also a ChefBoss, which was tried out last year. At one level, I do truly appreciate the entrepreneurship because it's all about trying out multiple things and playing the probability game. But I mean, if you could just help us understand about the templates which you have internally of, let's say, the newer ventures which you are attempting. Also, it would be very helpful if you could talk about, let's say, how we have staffed the M&A teams and kind of, let's say, are there specialists who are looking at these aspects -- some of the qualitative HR comments also would be super helpful.
Thank you. So let me answer the question in a slightly broader level. You heard us articulate very clearly our strategy for growth, which involves, first of all, building a dominant Domino's business India and ensuring we get to our bull's eye target of 3,000 stores soon. We talked about building and creating a portfolio of brands. And of course, our portfolio of brands that we have currently which is at Hong's, Ekdum!, Dunkin' and ChefBoss is towards that. We talked about us now we want to grow our international business and international footprint and strengthen our presence there. We talked also about building and investing in our digital and data capabilities. And all of this towards a goal of becoming the multi-country, multi-brand food tech business. So the investment that we are making are very, very thought through very specific. And all of these investments are strategic in one of these 4 or 5 things that I spoke about. Our capital allocation strategy is very clear and based on what we expect to see a strategic return in the future. And of course, the Board has complete oversight on this. There's a lot of debate and discussion when we look at new opportunities. And we decide only those which we see to be clear strategic fits for us as a business. So -- and of course, you're aware that we've got a very strong balance sheet. And we've strong cash reserves. We don't have debt. And therefore, we're fairly confident Manoj at being able to invest behind the strategic road drivers as we be necessary. We have a team, a small team, a dedicated team that is focused on looking at these opportunities. Many, many come up for discussion. Many of them get passed over and only a few get to -- into the short list and getting to a point where we believe that there's merit in going ahead. So this is a continuous and ongoing process, and we're getting better as we go along.
The next question is from the line of Vivek Maheshwari from Jefferies India.
I hope I'm audible?
Yes.
So continuing from the earlier one, I also have a similar question because as I have attended obviously your conference calls over the years, and I'm seeing increasingly focused on multi-brand, multi-country. The multi-brand is still an experiment, it's a low investment you can experiment with a few stores, et cetera, et cetera. But multi-country, although you have answered in the earlier -- to the earlier response -- in your earlier response, but my simple question is, do you have a target, let's say, of the revenues or of the total capital employed, how much could be deployed overseas? Because that's one big concern that we keep hearing from a lot of investors and you should drop parallel to a lot of FMCG companies or even for that matter telecom company, et cetera, et cetera, the experience has been very, very -- has been very tough, either because of country risk political risk or currency risk and so on and so forth. Can you just give us any number in terms of target beyond which you will not take your overseas business to?
Vivek, rather than give a target, let me give you one sense of comfort and one commitment that nothing that we do will lead towards underinvesting in growing the Domino's business in India. We are very, very excited with the potential that Domino's has in the country. We are nowhere close to our 3,000 store target that we see very clearly in our line of sight. We see opportunity, as I mentioned earlier, both in existing towns where we want to get closer to our customers, deliver faster as also in markets where we don't have a business yet. There are tons of other towns in this company, which has more than 1 lakh population. We have presented in more than -- it's about 300 of them. So there is a huge run rate to grow the Domino's business in India, and we are completely cognizant of that. So even as we focus and even as we go out and build a multi-brand, multi-country portfolio, our priority will remain on ensuring that we invest and grow the Domino's business in India. That's something we will not dilute our focus on.
Sure, sure. I mean that completely, and we understand the only thing is if you can still guide something like what the overseas capital employed beyond a particular percentage you are not looking at or revenues. Anything that you have on that front will be really helpful? Maybe not today, but in future, if you can give some insights into that. I think investment world will particularly appreciate that bit because that is one key question we keep getting from investors that the fact that where the valuations of the stock are, it's for the India business premium, it's not for what you try to do overseas.
Vivek...
If I can, Pratik, I can just add here. Of course, we will give you a sense of that how much capital we will employ in the international business. But what probably what you have seen is our first expansion was in the Domino's brand in the adjacent market, which was in Sri Lanka and Bangladesh. And I think the results are quite encouraging for us. We see a -- as we stated earlier, we see a potential of about 150 stores immediately in the next 2 to 3 years. And our investment in Eurasia also was because it was a dominant brand in Domino's. Now what do we bring in? We bring in our learnings from India into these market. The investment that we are making in technology, in product development, in supply chain. Some of them can be quite well applied in these international markets also. So we are leveraging that. So our focus on international growth is more around our experience in Domino's. And let me tell you, Domino's, whichever country that it has operated in, it has created huge value for the investors as well as for the operators who are doing it. And because of its huge strength being good in food technology as well as leader in delivery. And I think these 2 things continue to be very important. So our international growth is, as you probably have seen, is purely around the strength in Domino's.
Got it. My second question is, Pratik, on two cost hedge. One is the material cost related gross margins and the second is employee cost. In both, is it fair to assume that the next couple of quarters will see reasonable inflation at least on the manpower side, that's what our checks are suggesting. So can you comment on both gross margins as well as employee cost?
No, sure. Sure Vivek. I'll answer the question and request Ashish, to add. So on gross margins, what you see reflected in the P&L is the impact of food inflation and commodity inflation mitigated by the pricing fees that we took earlier this year and productivity. We are seeing -- we saw inflation trend play out versus same time last year, on all commodities on dairy, on oil on packaging, et cetera, versus quarter 1 last year about quarter 1 of this year rather, I'm sorry, sequentially, we saw some moderation on dairy prices. Which helped mitigate the continued inflationary pressures in oil and packaging, et cetera. So going forward, again, it's a function of how inflation will play out, but we expect dairy to be moderate. And as you know, Vivek, in our business, dairy has a huge salience to cost. So we expect dairy to be mitigating the inflation that we are seeing in the other commodities. So that will be something that will help mitigate the impact. Ashish, do you want to comment on the gross margins here before I go to the personnel cost?
Pratik, you're right. And as we have been doing in the past, we will continue to drive productivity across lines and especially on feed cost will continue to drive our food wastage down, and that should also help us cushion the impact of any inflationary headwind that we are facing.
Got it.
So on your question, Vivek, on personnel costs. The personnel cost that you see there reflect in the P&L is the sum total of accumulation of a few broad team. The first one is that we brought in a very sharp focus on manpower productivity. And we saw an improvement, especially in delivery productivity over the last few quarters and in the last quarter in particular. The second theme that's showing up here is the increased deployment of business associates in our delivery fleet, delivery manpower, which is -- we have basically gig employees. And the cost of the gig employees get booked in the manufacturing of our expenses cost line, so they don't show up in the personnel cost line. And I'll talk about iterative impact in just a minute. There's also obviously impact versus last year of operating leverage. And there is some cost impact, as you can imagine, of the annual increases and increments. So what you see reflect there in the P&L is a sum total of all of these things. Now even if I look at the personnel costs, including gig and normal employees. There was a significant priority at the same time last year and versus quarter 1. We do not expect -- certainly, there will be some increase in the manpower requirement in Q3 given the festive period. But we do not expect to see a material headwind on personnel costs. Ashish, over to you.
So, I think you have covered it well Pratik. I totally agree with what you said. Let's see who would probably continue to see these levels because most of the inflationary impact, particularly on personnel cost have already been factored in this quarter, and we should see it sustain at the current levels.
Next question is from the line of Avi Mehta from Macquarie.
I actually had a different question from what the earlier participant Vivek asked. You called out that inflation is kind of coming off. You highlighted that employee costs are under control productivity, would that not mean that from a margin point of view, things should only kind of rise from current level? This probably the bottom. I'm not asking about quantum, but yes, I mean just a directional sense. I can't think headwind per se. That's why I'm just trying to understand. We were worse off in first quarter when you said they called it out. It's better now. So just any comments on what happens.
As I mentioned in my response to I think it was Percy, I think -- and Vivek of course. I think there will be some impact of operating leverage as revenues come back. There will also be however the need for us to ensure that we continue to invest in driving and improving the customer experience. There'll also be the need for us to ensure that these stay competitive in case there's an increase in comparison intensity. When we also need for us to ensure that we keep having a product measure up to customer expectations as we are evolving as we're growing. So they will be the pulls and the pushes on margin. And of course, attempt will be to make sure that the right margins and make sure that we hold up margins at least. But it's hard to say right now whether equation will balance out.
If I may just add to that, Avi. We continue to face the inflationary headwinds. As you are aware, crude itself has been hardening. We are seeing almost 40%-plus inflation over last year on both petrol and diesel, which is impacting our delivery cost. We are also seeing inflationary headwinds on packaging costs, other commodities other than cheese. So there are these inflationary headwinds, which we'll continue to counter. And as you rightly said, some of the actions that we have taken may cushion the impact of some of these inflationary headwinds.
So where I was -- I mean, I was just pushing back that you highlighted these theme points in the last quarter, and you actually delivered this quarter. I am not able to understand this just being conservative that you're doing. That's where I was coming from. That was the point because I can't see headwind maybe I'm missing it out because Pratik, the point that you've highlighted are something that you already do. It's not something new. So it's an additional headwinds on margins, how I would see it and leverage will clearly play out as recovery pans. So that was where I was coming from.
I appreciate that perspective.
The second point I just wanted to have on the demand side and there was just some near term sense. From an SSS growth in a 2 years' CAGR, this quarter is more or less flattish. Has this moved back closer to the 3Q, 4Q levels in September? And if you could kind of give us a sense on what will be the underlying demand trend as we exited the quarter or even in October?
Sure. So just to make sure I got your question right. You're asking about how this holds up versus compared versus the trend in Q3 of last year, right?
So I'm looking at the same-store sales growth. We did almost about [ 20% ]. If I look at minus 20% was the base that we were working with and we saw almost about 26% kind of number. Which means if I look from a FY '20 perspective, we are up close to about 1% or 0.5% on 2-year basis. If I look at the same number on the third quarter on the fourth quarter, when recovery was panning out, we were close to about that number was more like 2% or 4% on a CAGR basis -- 2% to 3%. So I was just trying to understand is September close to that 2% to 3% if I look at a 2-year basis because that I thought would be better to get away from this noise of Y-o-Y. Can you comment on this?
Yes. No, so you're right, Avi. I think we are seeing, I think strong momentum come back on a same-store basis also, especially in delivery and takeaway channel. And of course, as you can imagine dine-in should remain a bit of a drag. But if I look at the numbers trending out, even as dine-in becomes more normalized, we see even at the same-store level delivery and take away revenues and growth holding up. They come off a little bit of the elevated levels of the lockdown periods, but they hold up reasonably well even after full assumption of dine-in.
Is September is kind of reflected in this quarter? Did it have any impact of June, July? Or was this 0.5% more or less present across the 3 months? Or was there an increase in trend? Was there a volatile trend? Maybe that would kind of help answer the question.
Yes. No. I think we clearly saw improvement over the quarter play out in the dine-in channel mix and dine-in growth because in the month of June coming off the worst impact of the COVID second wave there was a little bit more of a reservation about going for dining consumption. But then that improved over the quarter. But overall, I would say the momentum was strong right through the quarter.
The next question is from the line of Jaykumar Doshi from Kotak.
My question is, in the markets where you see a full recovery in dine-in, where is delivery settling. It is 10%, 15% higher than the pre-COVID levels or much higher?
I think -- look, we haven't commented on the precise number, and I would refrain from doing so even now. But I think the encouraging part is that the delivery revenues hold up significantly higher than the pre-COVID levels, and it helps drive a much more balanced mix, especially in the smaller towns in the tier 2, 3, 4 towns, which were more -- which had a much higher dine-in bias pre-COVID. Even as things have gone back to normalcy in the dine-in front, we have seen delivery revenues and delivery mix -- the channel mix hold up. I don't want to sort of comment on precise numbers there. We haven't done so in the past. But the numbers -- higher numbers are reflective of very fundamental and a very significant behavior change in the smaller markets, which is what gives us so much encouragement.
Understood. Would you be able to give us some color on the road map or scale-up of Hong's Kitchen from here on? I think in the recent conversation you indicated that you're quite confident of the format and model. And, yes.
Yes. I think on Hong's Kitchen, we are -- I think we have seen, as I mentioned in my opening remarks as well, a very encouraging trend play out. And both our new stores of Hong's Kitchen and the earlier stores have done well and have shown strong recovery post-COVID. And therefore, based on these learnings, and become this experience. We intend to invest in two things. One is increasing brand awareness in Delhi/NCR and the revenue calibrated expansion of the network, both in Delhi/NCR and outside. And you'll see us doing that over the next few quarters. Hong's Kitchen, as we talked about in the past, has a very important role to play because it is in the middle of the market, the space between the unorganized street-side Chinese food market. And of course, the casual-dine or the fine-dine Chinese market. And that space is there's a large opportunity and a large vacuum there in Hong's plays there. And again, all the data that we are seeing on customer feedback, our own experience, our own owned revenues, we are seeing that this opportunity is going to be quite exciting in the future. So we will be scalling up the brand progressively all this in a calibrated way in the future.
The next question is from the line of Tejash Shah from Spark Capital.
First question pertains to the inflationary headwind that you spoke at length about. So any plan of making pricing interventions? And any read-through on consumer sentiments as of now to absorb price hikes; a, and would you be able to save or retain rental savings that we'd have got last year as the normalcy comes back. So first two questions on margins.
So Tejash, on your first question on the headroom for pricing, you would recollect that we took a small pricing earlier this year. And then has gone down and settled down. We, as a QSR brand, that is focused on a very value-conscious-consumer segment. We make sure that our proposition is one that is offering superlative value for money to our customers. We know that our goal is to grow the category, to recruit new customers, to grow frequency and build new occasions. So this is something that we are very, very conscious of. And therefore, we walk a very fine line in ensuring that there is great value for money at the same time while defending margins and making sure we have the right margin profile. Going forward, in increased inflationary pressures continue and we see the need to take a price increase. We certainly see elbow room for to do so, but that will be something we look at only as the last resort, given the importance of providing value for money to our customers.
Sure. And on rental?
Yes. So Tejash on the rental, I think during the course of last year, as you're aware, we went to our landlord partners and requested them to give some concessions given the nature of the headwinds that we were facing. And we were grateful that most of our landlord partners for the merit and agreed to some rental sessions. As those -- as the situation has become more normal, while concessions have become lesser as you can imagine. And going forward, even as we try to drive then productivity, the COVID-related concessions will probably not be there. But that doesn't mean that we don't drive productivity in rent. We'll continue to do so. But the COVID related savings will not come back. Ashish, do you want to add to this?
No, you're right, Pratik. Nothing to add.
And then last question Pratik. Historically, you have -- has a team also, you have got it very right on the expansion opportunity empirical evidence also suggests that you saw opportunity of 1,400 stores when we all have our doubts. And now when you actually guide for 3,000 stores and when we step back and look at the other retail formats and lifestyle part of the consumption basket, at current count, you are already the largest penetrated single brand retail network in the country. In fact, I would believe 50 stores more than Bata now. So you actually explained at length that there is an opportunity, how you are seeing opportunity even in sub 1 lakh or sub 3 lakh population towns also. But when we see the size of opportunity, some of those other categories have which is INR 30,000 crores, INR 40,000 crores category and still they are not able to make a case of more than 1,400, 1,500 stores. And when we see our category size, pizza in particular Domino's or the cuisine that it is catering to, somewhat the size of the market and the penetration that we are going for does not add up. So just wanted clear insights on the same.
So Tejash, I'm afraid I cannot presume to see for the other categories and other brands. I can certainly speak for what we see and we see...
Hello?
Yes. Sorry. No. So we see Tejash a profusion of opportunity, both in existing large towns and in markets that we don't have a presence or a footprint right now. And as I mentioned in one of my earlier responses, as we've entered these new towns we have been if anything surprised by the positive response that we have elicited. So we do not see any scarcity of opportunity in driving market penetration and driving the footprint in the smaller towns.
The next question is from the line of Nishit Rathi from CWC.
I'm sorry, who was the question from? I couldn't hear that.
Nishit Rathi.
Pratik, congrats on a great quarter. Just wanted to get your thoughts. I think if I heard it right, you said you feel confident on not only advertising for Hong's, but also taking Hong's outside Delhi/NCR. Did I get that right?
Nishit, yes, on Hong's having now built a reasonably strong footprint in Delhi/NCR. We would like to invest in building brand awareness and drive-in size. That's stage one. And in stage two, yes, we will be taking the brand in a calibrated way outside of Delhi/NCR into new markets.
So just a little bit more color out there, I think this is very happening to hear. Because the biggest challenge that we always face in Hong's was we always knew the market was there. And if you were looking to track a, the unit economics; b, the ability to replicate the taste and the offering across different things, right? Because it was a very manpower-intensive kind of a business and you wanted to get it extremely right before you cannot really do that. So is it fair to assume that you're broadly there. And now it's just a matter of just finding the right location and replicating it across?
Nishit, I would say, certainly, we made very encouraging progress on addressing the issues that we encountered early in the Hong's Kitchen journey with us in terms of ensuring food consistently, ensuring that we have as much of the skilling done in the store as possible ensuring that we have the right unit economics as you said. So we have made very, very encouraging progress. And that's what gives us the confidence to move ahead. I would still say there is room for us to get even better. But certainly, we had our share of learnings over the last year, year and a half.
Pratik, can I push my luck. Would you share any kind of number because this is an extremely exciting opportunity. Would you like to share any kind of numbers maybe not now maybe 3 years out, something that you will be disappointed not seeing Hong's doing..
No. Nishit. I'm not surprised you're putting your luck knowing you. But I'm sorry, we cannot share numbers.
Ladies and gentlemen, we will take one last question from the line of Aditya Gupta from Goldman Sachs.
Just back on the recovery part for dine-in and delivery. Just been on back of the envelope math from the numbers you've given on the slide deck. Is the delivery sales on a quarter-on-quarter basis, largely flattish on the improvement that we have seen on the top line mostly driven by dine-in sales? Or is there something I'm missing over here?
Look Aditya, I think, look, quarter-on-quarter trends in absolute revenues, they are sometimes not reflective of the entire story because of 2, 3 reasons. One is, of course, seasonality in our category. We what we have seen in the last few quarters in terms of the COVID impact. So it would be unfair and I think incorrect more appropriately to sort of call out the absolute numbers of delivering or any channel performance over the last few quarters. I think the underlying theme, which is what you're hearing us call out, I think that's -- it's important to acknowledge that, which is that we are seeing great momentum sustained. We are not seeing delivery let up, except for a minor correction even as dine-in resumes. We are seeing small towns embrace delivery much more strongly than what it was pre-COVID. We have seen behavior change happen. We have seen consumers embrace delivery takeaway even as dine-in comes back. We're seeing consumer embrace online methods of ordering including using our own app. So there is a very fundamental structural shift that we believe is happening in the category. And the numbers may or may not reflect that given the noise that I spoke about earlier. But I think we are seeing a behavior which is fundamentally different from what we had pre-COVID. There is certainly much greater adoption of delivery, absolutely clearly and unambiguously.
Got it. Helpful. And then the last bit on competitive intensity, I think you called out last quarter that there was some increase in competitive intensity. And then -- so how -- what are we looking at now and ahead of the festive season? Do you think the competitive intensity is rather benign? Or are you expecting a pickup in that ahead of the festive season?
So Aditya, I think the competitive intensity that we are seeing, we have nothing out of the ordinary, and nothing that we believe is cause for concern. This is the normal intensity that you see in any business. And like I said earlier, I think some competition is good. In fact, any competition is good to help us drive excitement in the category, stope demand and drive more and more trials and therefore, more and more category creation. So this is -- and given the fact that there is festive period, there will be more intensity and more activities from various QSR players. I think which is great news for the category, and we are not deterred by it.
Got it. And if I may squeeze in one more. I think on the delivery charge with the fuel costs going up significantly, is that a number you just plan to tinker around with? Or is that a fixed kind of a number on a per order value now on the way it has reached aggregator now? Or would that number keep changing as and when fuel cost change?
Aditya, as you're aware, we took a small increase in delivery charges earlier this year. And that was partly to compensate for the increase that you saw in fuel and overall cost inflation. I think we are comfortable with the charges are positioned right now. And we do not feel the need to make any changes at least in the near future.
I would now like to hand the conference over to the management for the closing comments.
I wanted to sort of call out and appreciate the fact that all of you taking time out joins on the call today. And I know that there are a variety of questions and I really hope that we're able to answer most of them. In case you have any follow-up questions or any clarifications that you think that you would need please free to reach out to Deepak or to our investor relations team and we'll be happy to respond. Thank you. Have a good day and week and team, advance wish you very happy Diwali.
Thank you. Ladies and gentlemen, on behalf of Jubilant FoodWorks Limited, that concludes this conference call. Thank you all for joining us, and you may now disconnect your lines.