Jubilant Foodworks Ltd
NSE:JUBLFOOD
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Jubilant Foodworks Ltd
Earnings Call Analysis
Q2-2024 Analysis
Jubilant Foodworks Ltd
Jubilant FoodWorks, the parent company of Domino's India, has maintained a clear strategic direction focused on three key fronts. Their priority is on driving order-led growth while strengthening their value offerings to attract customers. Furthermore, the company is improving its systems and processes, preparing for an operational scale-up as they plan to increase their store count to more than 3,000. Investments are also being made for long-term growth, as evidenced by initiatives like the enrolment of over 19.5 million customers in the Domino's Cheesy Rewards loyalty program and the introduction of region-specific menu items, which reflect a commitment to both customer engagement and localization.
The company reported a top-line growth of 4.5%, albeit below their internal expectations. Notably, the decline in like-for-like sales growth was contained to -1.3%, with mature stores seeing a sequential increase in average daily sales of 1.4% over the second quarter. This indicates a resilience in core sales, with signs of recovery in some areas of the business.
The development of over 100 reimagined stores is on track, reflecting enhancements in store appearance and customer experience in line with the ACE 2.0 flagship store format. Additionally, the company has optimized its new store opening processes, incorporating data-driven strategies for location selection. This has yielded positive results in early sales for newly opened stores. With 73 new Domino's stores launched in the first half of the year, the company is aiming to open more than 200 by the year's end. Engagements in other brands like Popeyes and Dunkin' are also notable, with the former brand opening 9 new outlets and the latter revamping 11 of its stores into a coffee-first format.
As Domino's India approaches the goal of 3,000 stores, it has divided its operations into seven regions, up from four, to enhance management and execution. A dedicated app for store managers signifies a step toward further digitalization and reinforcement of its competitive operational prowess. Such technological advancements are integral to the company's vision of integrating data and technology throughout its operational hierarchy.
Mindful of the balance between short-term performance and long-term investment, Jubilant FoodWorks has chosen to allocate its improved operating margins to strategic areas. These investments span new regional developments, frontline team expansion, dining experience enhancements, and technology upgrades across consumer-facing and back-end processes. These decisions are aimed at continuous improvement and innovation, improving overall business stability, and leading to sustained, long-term growth while managing margins strategically, including offsetting high vegetable inflation without resorting to price hikes.
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Ladies and gentlemen, good day, and welcome to the Jubilant FoodWorks Limited Q2 FY '24 and H1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Deepak Jajodia. Thank you, and over to you, sir.
Thanks. Good evening, everyone. Welcome to Jubilant FoodWorks Q2 and H1 FY '24 Earnings Call for Investors and Analysts. We are joined today by senior members of the management team, including our Chairman, Mr. Shyam S. Bhartia; our Co-Chairman, Mr. Hari Bhartia; our CEO, Mr. Sameer Khetarpal; and our CFO, Mr. Ashish Goenka.
We will commence with key thoughts from Mr. Hari Bhartia. We will then turn to our CEO to share his perspective. After the prepared remarks from the management, the forum will be opened for the questions-and-answer session.
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' earning documents. We will share the replay of the call 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, Deepak. And good evening to all of you, and welcome to our earnings call. The strategic direction that we have taken in the current environment can be well summarized into three broad points: Firstly, we continue to pursue order-led growth and also have really bolstered our value offering.
Secondly, we continue to improve our system and processes to ensure that we emerge stronger in our operations as we grow our store numbers. Thirdly, we take a long-term view and continue to make investments for our future growth. We are happy to share that we are progressing well on all these three fronts.
In addition to the order-led growth for the past few quarters, we have also arrested the year-on-year decline in the average ticket size. The ticket size has started to grow sequentially for the last 2 quarters. The response to our loyalty program continues to delight us. 19.5 million customers have enrolled on Domino's Cheesy Rewards, and their order contribution in September was almost 50.1%.
As you may recall, we became the first QSR company in India to launch regional menu innovation last year, starting with a dedicated East range during the Durga Puja festival in Bengal. This year, again, Domino's introduced Kasundi mutton and prawns, thereby adopting to local preferences, and this was launched, again, during the Durga Puja festival.
We are continuously looking at improvement in the existing systems, processes and way of doing things. As a result, several structural interventions are being affected within Domino's. This will transform us into even more agile organization as we move ahead to realize our medium-term potential of more than 3,000 stores.
As shared with you earlier, we continue to make the required long-term investments. We have started the work on Mumbai commissary. However, after Greater Noida and Bangalore, this will be the third mega commissary, and our subsequent investment in commissaries will be of a much lower CapEx.
With that, I request Sameer to share the key performance highlights and progress on our initiatives.
Thank you, Mr. Bhartia. And good evening, everyone. A warm welcome to our investor call today. My greetings to you and your family for the lovely festival season ahead. I have organized my opening remarks to share with you five key messages from my end, where I will talk about revenue, channel update, network growth, investments to be future-ready and lastly, the margins.
Number one. By now, you would have analyzed our results, it was a soft quarter. However, given the current operating environment and when viewed in context with our strategic response, we see multiple green shoots. The top line grew at 4.5%, was softer than what we were planning internally.
But the encouraging part is that we were able to limit any further decline in like-for-like growth for Domino's, which came in at minus 1.3%. Notably, average daily sales for mature stores registered sequential growth for second quarter as it grew by 1.4% quarter-on-quarter.
We remain focused on executing our strategy on excelling on delivery. The channel -- this channel delivered positive like-for-like growth, providing convenience in dine-in channels, growing the app user base and investing in teams and culture.
We are on track to achieve the target to reimage 100-plus stores in this financial year. I'm happy to share with you that we've also launched a flagship store format called ACE 2.0, with the first inaugural store being in Sector 29 Gurgaon. Similarly, we'll continue to invent new formats, which increase our penetration presence and experiences like that we have in [ IT ] Mumbai.
Let me now turn towards network growth. We [ relooked ] at our new store opening processes and further fortify our new store opening process by embedding even more data streams to arrive at a new store location.
For instance, we have started utilizing out-of-delivery area [ pings ] from customers of our very large -- which log on to our app but are unable to identify a store nearby. This, along with a series of other improvements is leading to new store openings, a tighter new store opening process, leading to higher week 1 and month 1 sales, the new stores opened in the previous year or even a year ago.
We opened 73 new stores in Domino's -- for Domino's India in H1 and are on track to meet our guidance of 200-plus Domino's stores in this financial year.
In Popeyes, we opened 9 stores and have entered 4 new cities in H1. We are on track to open 30 new Popeyes in the current financial year. The customers are enjoying the bold Cajun flavors of Popeyes, and we continue to remain humbled and encouraged by the response that we are getting.
In Hong's Kitchen, all metrics continue to report an encouraging trend and are ahead of our internal targets. We have opened 6 new restaurants in H1 and now have a network of 18 stores across 3 cities. In Dunkin, 11 out of 21 new restaurants or 21 restaurants are now coffee-first format.
Point number three, Domino's is known for its strong execution and delivery experience. With nearly 1,900 stores in Domino's, the existing 4 regions in India were managing -- we were managing a very large portfolio of Domino's stores with ever-growing complexity, which came with network densification.
To meet our medium-term ambition of 3,000 Domino's stores and the runway beyond, we have made adjustments and investments in Domino's regional management structure for even sharper on-the-ground execution to become more agile as an organization. We have now invested behind 3 new regions, i.e., we have taken 4 regions to 7 region structure for Domino's.
This incremental investment in new structure will go a long way in further bolstering our key competitive advantage in best-in-class operational prowess. The launch of dedicated app for store manager to manage their stores, this is a big [ thrust ] towards digitizing the operations, which in turn will also lead with one of the 4 pillars of being data- and technology-forward organization.
This app empowers our operations team and helps everyone benefit from deeper penetration of data and technology across all layers within the Domino's world.
The second leg of investments, as you are aware, is on building large commissaries, which will help us -- help service ever-growing network in the future and drive long-term growth with industry-leading margins. We recently held the groundbreaking ceremony for a new state-of-the-art commissary in Mumbai.
Lastly, we are aware of our responsibility to manage the short term while not depriving the business from making timely investments for lasting long-term benefits. As we discussed, a number of efforts are underway to improve organic like-for-like growth. And in the near term, we will gain on margins from the operating leverage through project which we are deploying multiple levels to relocate our existing cost structure system and processes.
This paved way for continuous improvement and innovation while yielding benefits on margins. As you are aware, we got very good traction in our gross margins without affecting any price hike and were able to meet them offset the impact of high inflation and -- high inflation in vegetables.
We made conscious choice to invest incremental operating margins this quarter in a number of areas, which will improve the overall health of business in times to come. Investing in new regions, hiring more frontline team members, investing behind improving dining experience, continued investment in technology to improve not only consumer [ facing], but also back-of-the-house processes are some of the areas of investment which will help achieve sustained long-term growth while delivering [ investment-leading ] margins.
With that, let me turn on to the moderator to initiate the Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Nihal Mahesh Jham from Nuvama.
Yes. Sir, three questions from my side. First is on the gross margin that you did allude to. While it's a small improvement versus last quarter, where we are seeing a contraction? And it's not that any of the raw materials have seen any deflation. So what are these initiatives, which, in a way, have reversed the trend of gross margin despite the raw material inflation being elevated?
So no, I think interesting question. I did allude to Project Vijay. And while the inflationary trend continues to be elevated, we've looked at various internal efficiencies across all line items. To give a few examples, we are using data and technology to sharpen our discounts, therefore, leading to better realization for the same product.
Number two, again, we are using data and technology to sharp shoot our offers to improve penetration of combos, which has led to average -- led to increase in average ticket size, like Mr. Bhartia alluded, quarter-on-quarter for 2 quarters.
Number three, we have looked at all commodities, all materials and found ways to -- for better buying and also local sourcing. For example, on -- we are now sourcing locally, we were earlier importing. So without affecting any change in pricing or increase in pricing, we've looked at internal efficiencies and use of data and technology to improve ticket size and localize to improve gross margins.
Sure, [ this was ] helpful. Just any targets are you keeping to improve either of the gross or EBITDA margin by a certain percentage under this [ initiative ]?
So I think I had shared this in my last earnings call that we believe that right place is to be anywhere 150 to 200 basis points higher than our current levels of EBITDA. We've held on to EBITDA levels for last 2 -- this quarter versus last quarter. And last quarter, we improved by nearly 100 basis points.
I do see that this quarter, we did invest in the frontline teams, like we said, we got that money that we were chasing, but we chose to invest for Domino's for future, especially in the frontline teams. And also this quarter was affected by salary hikes, so -- which despite the salary hike, despite the investment, we've held on to the EBITDA margin, which I think is a very positive story.
That's helpful. The second question was that this is the second quarter where we are seeing a big divergence between dine-in and delivery sales. I know dine-in was impacted by a small proportion of stores which were renovated. But what is the read-through you all have of this divergence? Because it was significantly positive in Q2 when you are seeing a [ dine-in surge ]. But now since the last 2 quarters deliveries will be doing much better.
So Nihal, I think the -- firstly, I think wherever we are investing, we are seeing the results, let me just first assure you that. As you would recall, 3 quarters ago, we pushed on the pedal to get to 20-minute delivery, we are beginning to see results.
Our store [ densification ] strategy is leading to higher share of delivery. And we have done several initiatives behind delivery to get positive like-for-like growth in deliveries.
Dine-in is also an important area for us. India is still very young. And I keep on telling to my team that the story is even yet to begin in India. So improving dine-in experiences, having more presence in where customers congregate or go to, we need to -- we'll continue to improve on that presence.
So dine-in -- my own sense is we will continue to invest on [ both ] and dine-in as we open stores. And the store reimaging piece is [ on the ] track. We will reimage 100-plus stores this quarter -- this fiscal year. And wherever we are reimaging stores, we are seeing the benefit also.
Sir, just last question. We are 21 days into the World Cup. Have you seen any significant improvement in other ADS, which is different from trends that we see in [ October ]?
Yes, I think [ it'd be ] hard to tease out pure World Cup impact. Q3, generally, has a higher ADS versus Q2, and we see that on -- we see that during India matches, we see that during Dussehra, et cetera. So it's little early the few -- about 3 weeks of data in Q3 and which was also a headwind of Navratra. But yes, India matches, we definitely see an uptick.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
Just two questions in the beginning. We have been able to manage to [ arrest ] the decline in LFL decline. Now starting this month or if I look back 2 quarters, we started with the menu innovation, we started with Cheesy Rewards, and we started with analytics.
So does that mean the second half would be significantly better because second half last year was very weak? So is that the LFL is in our control saying that [ it will ] be in a positive territory for second half starting from Q3?
I think definitely, our endeavor is to have positive LFL, Shirish, and it is not -- I think I will not give a guidance over here.
I think the -- what I will, for sure, assure you with is that a lot of our -- many of our initiatives like zeroing on delivery, improving our delivery accuracy and convenience, investing behind store reimaging, Cheesy Rewards, always being ahead on the curve of technology versus the competition, those put us in good stead to be at least ahead both in terms of growth, same-store growth and the margins, so -- versus the competition.
I would still say, not everything is also [ ROI ] because the inflation level has not come down, the cheese and vegetable prices continue to be -- we were hit by vegetable prices in the last quarter. So hard to still declare victory, but we are -- I am more optimistic, to be very honest, in the second half.
Okay. My second question is on Slide 9, you have mentioned that you have reimaged 33 stores and you're on track to build the -- reimage 100 stores by FY '24. Why this is back ended in the second half? That's one question.
And to follow up, what is it that -- if you can qualitatively give us because you have mentioned that higher LFL and significantly improved customer experience. So in terms of quantitative, anything you can share with us?
Yes, I think it's a little bit of getting organized to do this. Firstly, reimaging the store is harder than opening a new store because you have to take an existing store, shut it down, break it and then build it from scratch, right? So it's a little more complicated than opening a new store, where you get a bare shell and you can just -- the [ field ] comes in and builds it up.
So having said that, Q2 is a season where we have very big days, right? In fact, starting August, we start getting into season. Therefore, Q4 is the best time to kind of do this from a loss of store [ days ] perspective. And since a little bit post-Diwali, that we get a little bit of a window before the new year and then in second half of January, February, we get a window. So we have chosen so that we took the loss of store [ days ], and the impact is minimal to the business. That's the only reason. We will plan it [ best ].
Okay. What is the difference in the ACE 2.0 stores versus ACE stores?
Yes, I think we are constantly innovating, Shirish, to make our experiences better. The big difference is -- or let me say [ first ] where there is no difference. There is no difference in the area, but there is a difference in the amount of furniture or the covers we've been able to put in the same area. So they are better ergonomically designed for dine-in.
Second is we've been able to optimize the back of the house to improve our processes. Say, for example, as much as possible, the delivery associates don't enter from the front, they leave from the back and they -- they enter from the back, they leave from the back. Similarly, we've made the point of sale or the counters more amenable, more colorful. We have a bit of a private seating like a booth seating also wherever we can.
So it is, I would say, an upgraded version of ACE design. The stores have slightly more comfortable furniture, more covered in the store. Back of the house is more designed to segregate delivery but have amount of delivery also, and yet the experience is very functional. I think they are both modern and [ concentrate ]. Every 4 or 5 years, the design or the pallet for design changes, and we are adopting to more vibrant, more colorful design without adding to CapEx on store sizes.
Okay. My last question on Popeyes. By when do you think you will be able to share some quantitative numbers on Popeyes in terms of store dynamics with ADS and other things? You have already now crossed [ 20 ]?
See, I think this brand is still at a rudimentary stage. It's still early days. I think we will allow it to mature to some level of critical mass before we're able to start sharing the numbers.
It just completed a year. I think it's [indiscernible].
'24.
Yes. And I think many of the stores have not even contributed a year, so -- but let me assure you from the opportunity of chicken and the product, the pallet, the taste and our ability to now go to even the smaller -- like not Tier 1 cities in South. So take, for example, Madurai, Manipal, [ Coimbatore ], these are all massive successes for us, and we remain bullish we have at least found the right products for Indian consumers and the format also.
The next question is from the line of Tejash Shah from Spark Capital.
A couple of questions on my side. Sameer, store opening has definitely improved on a Q-o-Q basis. But looking at the target of 200, 225, the ask rate from second half looks high. So just wanted to know, any insights you can share why we made it second half heavy this year? And what are the chances of you meeting the upper end of this target at 225 stores?
Yes, I think the band is -- [ I guess ], the band is like 200 or 225, is hard for me to be so precise whether we will end up at 200 or 225 or I would maybe want to open the stores in the right location and -- Tejash. So if you even see our historical performance, the Q1 is typically slower because you are -- we are more mapping our strategy, we are building the pipeline.
As I communicated in the last call that the number of [ '23 ] was an aberration because we were getting more organized. You see the pace from [ '23 ], we move to 50. I'm confident that we will be -- we will definitely be closer to 200 or more than 200 or closer to 225. In that ballpark, we will end up. More important thing, Tejash, over there is to open stores in the right location with high quality, and we are finding enough pipeline for Domino's to do that.
Sure, clear. Second, in Bangalore, it's been almost 2 quarters or more than 2 quarters since we rolled out Tees Se Bees!. So last quarter, you had highlighted how the SSG in Bangalore City is trending far higher than our company average. If you can share some similar numerical or qualitative insights on consumer experience or total promoter score, how everything is panning out in that city?
Yes, I think the -- not only that, we are also like improving or marching towards 20-minute [ setting ] in several other places also, which I had shared last time also. So whenever we get to a certain threshold of 65%, 70% of deliveries under 20 minutes, our like-for-like growth in those cities are positive.
In fact, Tier 1 cities, this quarter, was positive in terms of our like-for-like growth, purely on account of very superior delivery despite being in the rainy season that we were able to deliver up one of the best performance on delivery this quarter.
Okay. And last one, if I may. So we have opened 22 Popeyes stores over 6 cities. So just wanted to get some insight on why we are [ splitting ] the store count so thin among so many [ cities ] instead of going deeper into the existing city or state?
So it's not a question of a choice for [ new design ]. We have -- we've invested in a commissary in Bangalore. In Bangalore, we have 11 stores, right, 11 or 12 stores. So wherever we are finding opportunities to take -- for example, I mean, when we opened Chennai, we found opportunity in Madurai. From Bangalore, we found opportunity in Manipal, Mysore.
So we are looking at all towns, big towns to cover and organized to -- completely organized in terms of our [ BD ] pipeline, logistics support, store teams to cover entire [ out ] India. And we will be expanding beyond that, too, of course.
I don't think it is like we are [ splitting ] ourselves -- and we will open stores to cover the entire city. So wherever we find good property, which suits our customer profile, we will go ahead and make that investment in [ South ]. And I think the important thing to note is are customers liking it, do we have the lines set on the opening day, and answer to that question is yes.
The next question is from the line of Varun Singh from ICICI Securities.
Sir, my first question is on like-for-like average daily sales for matured store, which is positive. But it has come down to 1% compared to 3% level, where it was during last quarter. So any reading out here? I mean, what explains this, like instead of improving from 3%, the number coming down to 1%?
I think that this quarter had a few headwinds on fasting days, right, and [ exams ] of [indiscernible]. So other than that, no particular reason.
I would say that it is not that the -- we did not execute well. But I think the positive side is it's just growing. It is now in 80,000, which, I believe, is a good benchmark for the category and the industry for the size and the footprint that we have. No particular reason to between 3% or 1%, to be honest.
Okay. And sir, my next question is on the dine-in segment. I understand the store reimagination and faster delivery is helping. Plus, I think the more fine-tuned menu that you make through regionalization from your kind of shifting from four [ region licenses ] like from fourth sector to seventh sector, et cetera, that will help to improve SSG.
But still, given a significant chunk of our revenue from delivery, like one simple observation of mine was that there is a significant pressure on store to deliver the product to customers. As a consequence, you see a significant amount of, for example, the boxes, et cetera, at the -- inside the store, which makes the dine-in experience relatively not as superior compared to Pizza Hut, which is also aiming to become a relevant player in the value segment, where we already belong to.
So other than the reimagination, plus ACE 2.0 design regionalization of menu, so I just wanted to understand that given this, both delivery, which is our strength, but also having a cost of customer experience for the dine-in set of [ code ] of customers, so given this context, when do you expect meaningful recovery in dine-in in our business, like maybe 1 or 2 quarters down the line?
Or what should be that green shoot for you, for example, after store reimagination of X level? Or how should we read that when a positive or a significant meaningful recovery in the dine-in business for us to happen?
I think -- I wish I could mathematically tell you this quarter, this week, this day, this time. I will refrain from doing it. But more importantly -- see, wherever we reimagine, we get high double-digit growth in terms of dine-in.
It is led -- I think the other things that you are pointing out, we have to get sharper on correcting delivery and/or segregating delivery and dine-in. And this one of -- one of the reasons for ACE 2.0 [ actually ] that I alluded to, is to its aggregate is even sharper. And this is not something that we've learned right now. I think we are getting better at -- with our designs in this space, 1,200 square feet that we want to operate in.
Third, I think the dine-in, also, we are looking at our processes. We have constituted some massive mystery audit exercise that we do in the teams. We have gone ahead and trained multiple of our restaurant managers and the men and women who man the -- who are at the counter, how to upsell, cross-sell and also serve the customers with a massive process, not only store design, on multiple levels that we are fighting. I am very encouraged by the results that we are seeing, by the way.
While there is a general tendency or like a sentiment leading to lower ticket sizes, I would say we have seen the sharpest increase in ticket size, actually, in dine-in. So that gives me the confidence that whatever we are -- wherever we are investing behind, we are beginning to see results.
Its hard -- unfortunately, it's hard for me to say [ if it ] is this next quarter or 2 quarters later. But let me show you, it is not also a 5-year program that we are looking at.
Understood, sir. And just one last question. Our pace of new city addition, that has also come down to kind of 2 or 3 cities since last, maybe, 2, 3 quarters. So anything to read out over here? Or you think that 15 to 16 new city addition is a normal [ course ], which would -- which may be from [indiscernible] quarter onwards?
Firstly, we are reaching 400 cities, which is [indiscernible]. We have the most penetrated QSR chain. We are not slowing it down purposefully. In fact, we've always been very positively surprised by all new stores that we opened because we are -- we become, in some sense, a destination in that city to go to.
As we speak our peer -- as we speak over here, our teams were in the markets scouting for new cities that we need to enter, too. So there is -- we are not discriminating one city versus other. Our goal remains at a certain threshold of sales, that is CapEx and the store economics model. If that makes sense, we will open store, we are not shying away from opening stores in new cities.
The next question is from the line of Robert Marshall-Lee from Cusana Capital.
I'm just trying to understand the kind of the labor cost dynamics as solid [ EBITDA ] in the operational deleverage that you've seen. So could you -- are you able to break down what's happened in the kind of more like-for-like labor basis and separate it out from kind of new ventures? What -- could you disaggregate the changes in labor costs that we've seen over the last couple of years?
So if I've got your question, Robert, you're saying can we [ deaverage ] the labor cost?
Yes. I mean obviously, you've seen a lot of operational deleverage below the EBITDA line. So from the payroll cost in particular, we can see why the depreciation cost has gone up in terms of the investment you've made and so on. But in terms of breaking down the cost of the rise of your labor force, could you help to explain why that's been so steep?
So if you look at like a longer-term period, I mean, a couple of years, then, of course, there has been a structural change in our labor cost itself because as we have moved to more variablized manpower. Part of that cost has shifted into manufacturing and other costs in the way we report. And therefore, there has been a re-class of labor cost into that. But of course, this has been a phenomenon, which has happened almost 6 to 8 quarters back.
So if you look at the more short-term phenomenon, whether you're looking at it versus last quarter or last year, then this structural change is not reflecting there. What is reflecting there is, of course, the efficiency that we have been able to drive in our overall cost structure as part of the [ bridge ] project, which Sameer was alluding to earlier. And of course, there has also been a headwind on account of the wage inflation that we have seen across -- in both formalized and formalized labor in India.
So I think it's -- and the third, of course, is the investment that we have made as part of the new structure that [ as ] we talked about. So I think if you were to look at this, we have headwind on account of the fact that we have bolstered our structure. We have [indiscernible] account of the fact that there is wage inflation. And of course, there is tailwinds on account that we have driven efficiency [ harder ].
So if you were to disaggregate that, what are you seeing on a like-for-like store basis in terms of labor inflation?
Minimum wage inflation, is that your question?
Yes. So if I'm looking at existing store basis, so separating out some of the other factors that you talked about, what are you seeing at the underlying basis?
Of course, the underlying increase in wage part is in line with the minimum wage increases and the salary [ increases ] that are in there, which are typically in the range of 8% to 9%. And we have not seen any abnormality there. And therefore, we have been able to absorb that, as I said, partly on account of the [ fact ] that we have been driving higher efficiencies as well.
And so what is your expectation from here, so -- given the higher growth that you've been seeing in the personal expenses versus other areas? Are you expecting that to sustain at a high level?
I think we should be able to continue with the levels that we have. There are -- there will be some pluses and minuses. But I think by and large, we will be able to land at the level that we are [ trying to ].
The next question is from the line of Percy Panthaki from IIFL.
I just wanted your view on a medium term, let's say, over a 5-year period averaged out. What do you think a strong brand like Domino's could sort of generate as an LFL growth?
I think it's a question that we model all the time, Percy. So 5% to 6% growth is in the real. I just what -- my belief is driven by -- in three factors: One is we are multichannel or rather omnichannel across dine-in, carry-out, aggregator, our own app. And we are adding more channels like [ IR, CTC, ] et cetera, to the same store. So there is enough headroom to grow across channels.
Second piece is the use of technology makes -- debottlenecks the store. And with 20-minute delivery, some of these pieces also get impetus. And number 3 is, at some point in the future, I'm not saying right now, we'll also take calculated price increases, right? And therefore, together with these three, I think anywhere from 5% to 6% is a good number to aspire.
Right, sir. And see, next quarter, anyway, your base becomes favorable. So hopefully, if all goes well, your LFL on a Y-o-Y number will turn positive. But what I wanted to understand is also how this translates to overall growth. Because between LFL and SSG, there is maybe a difference of anywhere between 2% to 3%. And then again, what happens is that the new stores which you open, open at a lower sort of throughput versus the company average.
So if you're adding a number of stores in the region of about 10% to 12% and I think -- let's say, averaged over the next 5 years or so and there is a 5%, 6% LFL, in my calculation, that should translate to 10% to 12% kind of a overall sales growth. Would that be sort of in the ballpark of what you also have modeled?
Yes, I think we -- our internal [ push ] is to get closer to 15%. That's how we model and 5% to 6% of SSG and about 12% of -- through network expansion. If we can get these two, then we get closer to 15%.
Right. And this would be only on Domino's and what you do on the other stores, other formats would be over and above this, right?
Of course. Of course. Very correct.
Right. My second question is on the other brands, Hong's and Popeyes. What would be your medium-term targets? Let's say, 5 years out, how many stores will you think that Hong's would have?
So I will -- I think I'll talk about Popeyes, right, where the model is internationally proven, particularly in the large market, and we have a benefit of learning from -- through the sharp brand proposition and the experience of RBI, which is our partner, who owns the brand Popeyes. So therefore, we have a good start. We've said that we'll get to 250-odd stores, right, in the medium term.
On Hong's, I would -- like I did mention that it is beating all our internal targets. But I will refrain from giving any such guidance till the time I am comfortable and have seen the store in multiple locations at a base of 40 to 45 stores, where -- which are being operated for at least 6 months, for me to give a very sharp answer on that one. So maybe in a couple of quarters, I will be able to give you a good answer on Hong's [ Kitchen ].
The next question is from the line of Ashish Kanodia from Citi Group.
Sir, just on Popeyes, right, I just wanted to understand that if you have to take this 30 store expansion in FY '24 to maybe 70, 80 stores in FY '25, right, what is the biggest, maybe, bottleneck or what's the equation which you're trying to solve?
Is it -- because from a real estate perspective, at least my understanding is given that you have 1,900 Domino's stores, the understanding of real estate market is much better. You are already opening 200, 220 Domino's stores. So is it just that the demand environment is muted? Or is it the supply chain -- what would be that equation which you need to solve if you have to surprise us on Popeyes store expansion next year?
Yes. I think the [ fourth ], we have a very strong project execution team, which can open 100 stores in a quarter, and we have delivered those numbers. So that is not the constraint.
I think the constraints are, number one, the Domino's has a far higher top-of-the-mind awareness and recall versus Popeyes, right? So you have to open stores more -- in a more -- in a naturally footfall congregating area. So that is one constraint. So we are very conscious of where we open the stores.
As we enter the new cities, we also want to open larger flagship stores because that's how you build the brand. The best building of brand is where customers see a large frontage and they walk into the store. So that, we'll have to rely on that tactic.
Number three is the supply chain. We use fresh chicken, we do in-house marination. And all of these require a strong back-end food factory and the logistics to supply and the right temperature.
So those are the constraints, right? And I think what is the good part is we have a good consumer value proposition. And therefore, it is a matter of time to get to the supply chain and also the right store location. That's where we want to be.
Sure, sir, that's helpful. And I believe the supply chain will partly get addressed through the Bangalore commissary, right, sir?
Yes. For South, it will be Bangalore. Then for North, we will look at Greater Noida facility or some other facility. So I think it is again, likely build Domino's through regional commissaries. We will follow the same model and leverage the same infrastructure.
Sir. The second bit was on the demand. So I think during the call, you talked about two, three things. One is that our Tier 1 cities are doing relatively better, they kind of reported positive like-for-like growth.
And then also on the last 20, 25 days demand, if I read it correctly, I think what you're saying is on some of the days when you have Dussehra or India matches, you are seeing that uptick in demand. But the core underlying demand, which is excluding some of these days, continues to remain muted.
Is that understanding correct? And I mean, any other differences you see in demand that -- or maybe how big is the difference in demand in, say, Tier 1, Tier 2 cities versus smaller cities?
I think I was more alluding to the point that we invested behind store densification, delivery infrastructure, back-of-the-house processes to improve our delivery credentials and performance in Tier 1 cities, which led to positive growth. That was the fundamental point I was making.
But I think your question is broader. Our -- we seeing the demand, especially in light of festive season and World Cup, I think like I said, on days where India is playing, we do see an uptick. We also are able to go inside the stadium and actually create big opportunities for serving or taking store inside the stadium.
So those pieces are actually working quite well for us. We just got off Navratra, and the last few days have been good for us. Let me just stop here and not give any more color for this for the current quarter.
Sure, sir, that's helpful. And lastly, we discussed earlier on new product development in terms of adding new venues of footfalls within Domino's, right, that while pizza is more kind of a mill, how can we add more products. So just on the new product development, I wanted to get a sense, if there is anything in the pipeline to kind of add new footfall driver?
And secondly, is the -- when you look at the kitchen especially from a Domino's pizza perspective, the kitchen is much more simpler, right? So does the existing infra of Domino's [ 2.0 ] network is agile enough to add new products? That would be the last question.
Yes. I think I call kitchen as a platform where we can launch multiple items. Our core [ oven ] and a make line is actually very versatile to handle multiple products over there. We've shown that from the same make line, and we -- [ oven ], we can produce Choco Lava cake, we can produce sort of bread, garlic bread or a sandwich or a pasta or a wonderful-tasting pizzas. So I would say, we are, at the moment, not thinking of adding any equipment to the store.
Having said that, India is a land of opportunities, and customers are looking for experiences across [ dayparts ]. We have a good pipeline of products, internally. And this quarter, we launched -- for the first time, we launched mutton and prawns, right, into the pizza topping for East. I think so you will -- and we also had Champaran mutton, which is a more addition we [ have ].
So we'll continue to -- our teams on many, many India's or -- serving local tastes. That is one piece. There are other opportunities that the team is very actively working on, will be launched in this quarter and next quarter and the next quarter. So -- but we'll announce it once we have launched.
The next question is from the line of Resham Jain from DSP Asset Managers.
So I have just one question on margins. So if we look at the margins pre-COVID, we used to do around 16%, 17%. And you mentioned the margin, let's say, in the near term, you are modeling at around 15%. And I presume that the split stores, which may not be a very big factor pre-COVID and both Popeyes as well as Hong's Kitchen is an additional stuff, so I think a few years back, you used to mention the drag on margins because of newer additions.
So any number would you like to give on that front that how much margins is being compromised because of these new initiatives, plus split stores? And this gap of 200 basis points versus pre-COVID levels, how should one look at it?
Ashish, you may want to start. And then I can add.
So Resham, I think we would not like to put a number in terms of what is the investment behind this new opportunity. I think suffice to say that they're comparable with base, so there is no incremental basis point investment that is going into the new brand. And as I've said in the past as well, that if that number becomes material, of course, we will come back and make a disclosure. But as of now, they're pretty much in line with what we have been doing over the last 2 years.
And of course, I think comparing margins pre-COVID to now, I don't think would be fair because there's so much which has happened in between. I think the business structure has changed significantly, the cost lines have shifted materially, we have had unprecedented level of inflation over the last couple of years. And we still are reeling with that, it's not that they are softened.
So I think those margins are not even comparable. We were also -- and of course, we have operating deleverage in our business, given the fact that we have been having negative LFL for the last couple of quarters.
So I think a lot has changed in the business pre-COVID to now. The good news is that, of course, we have -- even despite the challenges in inflation and operating day leverage, we've been able to head on to our EBITDA margins for the last 2 quarters and at the same time, growing our gross margin. So things should only improve from here.
And you've -- Sameer was also saying that this is despite the fact that we also made investments for growth on our overall -- of structure as well.
The next question is from the line of Kunal Vora from BNP Paribas.
My first question is on Cheesy Rewards. So it's been about 6 quarters and almost 20 million customers, what percentage of customers have actually claimed rewards by ordering more than 6x? And what is your assessment of the cost and benefit now? And do you see a need to make any adjustments to the program?
Yes. I think, firstly, there's always room to innovate, right? I mean I think this is -- firstly, for a QSR company in India, this is a historic first that we launched Cheesy Rewards loyalty program with full fanfare, with a media campaign behind. We also celebrated 1 year of Cheesy Rewards this quarter with a TV campaign. And it just shows that we are invested behind this particular program in terms of what it delivers.
Nearly half of the orders come from customers who have enrolled themselves to this loyalty program. And in fact, our new customer addition on the app -- through the app has been the highest. And I -- my fundamental belief is that a lot of this is also word of mouth and new customers enrolling on the Cheesy Rewards program and ordering.
So I think it's a very positive thing as we see. It cushions us from end customers who claim -- one, who have gotten to [ 6 5 ] and therefore, claimed one, are -- actually the stickiness is on tremendous side.
There will be days or occasions when our service will fail. It could be a rain delay, it could be a store shutdown, it would be an oven breakdown, there will be days when for a very high-frequency customer, one in, like, say, 100 occasions, our service may not be up to the standard. Therefore, these customers who claim Cheesy Rewards as a program -- as a benefit, actually are the most loyal customers. They are more forgiving. They understand who we are and have some of the highest NPS ratings in our system.
So very satisfied with the program. We'll continue to see how do we grow this and make this more meaningful to the customer. And we are learning also from worldwide and Domino's, which are also doubling down behind this program.
Just to add to that, Kunal -- yes, I'm just saying that on your question on cost and benefit, I think the benefits far outweigh the cost because as Sameer was saying, we see reduced churn on account of the existing customers. We also see much higher frequency of the customers who are enrolled on to the program versus who are not.
Also, there was a lot of concern when we had launched the program, and I remember these earlier calls where -- there was a year that our discounts would really go up because of this program. But we have demonstrated that we've actually been able to optimize on our discount, which is reflecting in the gross margin improvement while running the program and expanding the program. So the cost benefit clearly weighs in favor of the benefits.
In fact, this is the best customer to give discount to. So you are actually sharpshooting your discounts to customers who are most loyal, who come back, who want to give you a larger share of wallet. So from that perspective, I feel this is the best laser-sharpshooted discount strategy.
Just to -- if you can share some insights on how many actually are able to claim because of the 20 million, and that number was 7 million a year back, is it like 10%, 20%? Any insights that you can provide on how many are actually claiming and what kind of expense are we incurring?
We'll refrain from it, but let me show you that number is significant, right? It's not a small thousand sector. So that number is quite material and ever growing.
Understood's. My second and last question is on growth potential. On a 4-year CAGR basis, store addition is about 10%, the sales CAGR is about 8%, operating profit is flat. So while the longer-term outlook, medium-term outlook, you mentioned LFL growth will be 5%, 6%, so [indiscernible] can be strong.
But -- and many of the factors which you mentioned as positive, were existing even 4 years back. What's gone wrong in the last 3, 4 years? And what's giving confidence that in the next few years, you can actually get to the 5%, 6% LFL and 15%-plus growth?
I think it's a little bit laid out in our strategy. It will be like -- I'll not want to do justice to the question in this call on delayering the -- what happened in last 4 years. Let's look at our last 3 or 4 years. I think we are opening stores at a faster pace in better locations, with higher sales per store for the new stores. Our technology assets are building to results. Our conversion, monthly app usage, Cheesy Rewards program are at an all-time high.
Number three, we didn't have new brands and -- while I always talk about Popeyes, I don't talk about the other two for certain reasons. But let me just say we have a much better portfolio of brands that we had versus 4 years ago.
And I think the team is far stronger, digitally savvy and operationally agile. And we have enough levers like 20 minutes, et cetera, to kind of grow at a much faster clip than what we have done in the past.
Just a follow-up on this, would you think the rise of aggregators and -- has given way for more unorganized competition? And has that played a role? Is that a big reason or do you think that's not really a reason for this [ slow ] growth?
No, I don't think so, to be honest. I think we work with all -- We want to be -- we want to serve customers wherever they go, right? And that's been our strategy. And whether it's aggregator, we were one of the first ones to go on to aggregator in the Domino's system. We invested far ahead versus the competition on our own app, and we are improving dine-in experiences. We are on [ IR CTC ].
So from that perspective, I think we want to go where customers are and be that neighborhood store, which can serve all the consumer needs, and that's what we are executing on. So aggregator is a good thing for ecosystem, and delivery is growing, right? At the end of the day they've also [ democratized ] delivery. So I'm thankful to them for their partnership.
Thank you very much. We'll be able to take one last question. We take the last question from the line of Aditya Soman from CLSA.
So firstly, just in terms of volume growth, can you give us a sense that pre-COVID till now, what would be the rough level of volume growth for the company and maybe for perspective, even for the industry?
And the reason I ask that is because we had several moving parts, right? We've got changes in -- because some changes take place because "Oh, and we've had obviously very sharp inflation and changes in pricing." So I just wanted to understand volume growth at a system level for pizzas? Or another way to put it, if that will be better in the number of pizzas sold?
We don't give that, but let me give you some color. And -- from an order standpoint, this was our best quarter ever from orders that we serve. Our delivery order volume has been one of the best in this quarter in a long -- when I look back 4 or 5 quarters.
So from that perspective, it should give you color that the volume growth is real for us and we invested behind this particular growth 4 quarters ago by launching our value range of pizzas or relaunching our value range of pizzas at [ 49 ].
So all of these -- we are confident that along with the commissary model, we will be -- we will stand for value, we'll stand for great taste and fastest delivery when it comes to ordering at your home or your workplace. So volume growth continues to be strong.
I understand. And just to follow up on that, when you talk about sort of some pressure on ticket [indiscernible] not prospective for this quarter, but [indiscernible] I think would that be fair -- would it be fair to assume that a part of it is just -- or is it that people consuming smaller pizzas are lower-value people, which is the way to think of it?
I think the CapEx cycle is more because I think our -- we have -- for ticket sizes. Okay. Maybe I didn't understand the question.
So I think ticket size is -- yes, customers have chosen to downgrade from a large to medium or medium to regular. We do see that trend. But the -- volumetrically, the items of quantities per order is not degrowing, right?
So they're still consuming the same amount of calories or same amount of number of items, but they're closing a lower price-point item, which actually works for us, to be very honest, in the current demand environment that at least we are retaining our customers, we're growing the customer base and their frequency continues to [ grow ].
I understand, sir. So just to be clear, so we have higher total number of orders. We see [ lower ] order value because people are ordering a lower-value pizzas, not necessarily less pizzas. Would that be it?
That's correct. And also, I think, like I said, the ticket size has also been arrested or declining ticket size has also been arrested, and we've grown on the ticket side for the last 2 quarters.
I understand. And would this be an industry phenomenon? Or this is something that is specific to Domino's?
I will wait for others to declare the results and then compare notes. So we believe that it is our use of technology, data and our processes. But I'll wait for others to learn and declare the [ base ].
Thank you very much. We'll take that as the last question.
Thank you.
On behalf of Jubilant FoodWorks Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.