Jubilant Foodworks Ltd
NSE:JUBLFOOD
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Jubilant Foodworks Ltd
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Ladies and gentlemen, good day, and welcome to the Jubilant FoodWorks and -- Q3 and 9 Months FY '18 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.
Thank you. Welcome to Jubilant FoodWorks Conference Call for Q3 9M FY '18. Joining us today are Mr. Hari Bhartia, Co-Chairman of Jubilant FoodWorks; and Mr. Pratik Pota, CEO. We will initiate with key thoughts from Mr. Bhartia and follow that with updates on the performance and strategic direction from Mr. Pratik Pota. Management will respond to queries that you may have afterwards. Underlining our standard disclaimer, certain statements that may be made on today's call could be forward-looking statements, and that actual results may vary significantly from those statements. A detailed statement in this regard is available in JFL's Q3 9M FY '18 results release and presentation, which are both available on the company's website under the Investors section.I would now like to invite Mr. Bhartia to share his perspectives with you. Over to you, sir.
Thank you, and a very warm welcome to everyone who's present on the call. I'm glad to share with all of you our results of quarter 3. We have sustained and built on our same-store growth, yet again delivered a healthy performance during the quarter, driven by focus on consumer with disciplined approach towards cost optimization.Before I share the update on the quarter, let me briefly share my views on the changing GST regime for restaurants. As you are aware, the GST rate for the restaurants has been reduced to 5% without input tax credit. I believe this is a positive change for the organized restaurant industry, and believe this will drive growth and conversion from the unorganized sector. In line with JFL's customer-centric approach, we immediately passed on the benefits of lower tax rate to our customers, while very nominally, we increased prices on select menu items to cover for the input credit loss.Now I would like to share my perspectives on our performance in quarter 3. You may recall that we had undertaken a number of initiatives at the beginning of the year, with clear focus on sustainable growth. We expect that we will bring in more value to the customers. We will continue to innovate and bring superior product quality, bring seamless customer experience and of course continue to invest in technology. Cost optimization effort is continuing, and Pratik will update you on that. I'm also pleased to underline that we have made progress on almost all the areas on which we had focused, and this is visible in our earnings performance. As mentioned in the previous call, we continue to receive encouraging response to our Everyday Value initiative, which focuses on value for money aspect and target families and group of friends. In addition, an all-around comprehensive upgrade of Domino's Pizza quality done in quarter 2 has been very well received by consumers and continue to drive growth for us in quarter 3.On the digital experience, we have made efforts to improve the user interface and are now revamping our mobile app to further improve the experience and include new user-friendly features.Dunkin' Donuts has made significant progress during the quarter, and we have considerably reduced the losses in line with our stated objective. Our focus of closing down the unprofitable stores as well as emphasis on beverages and donuts will help control costs as well as drive efficiencies for us. Given the scope of the opportunity, our commitment for growth and steps taken by the management, we are confident of driving sustained and profitable growth.With that, I will request our CEO, Pratik Pota, to please take this address forward.
Thank you, Mr. Bhartia. Good evening, and thank you for joining us on today's call. We are pleased to share with you the results for Q3 FY '18. Operating revenues for Q3 stood at INR 752 million, up by 20.7% over the same period last year. This was on account of a strong 17.8% same-store growth in Domino's.EBITDA for Q3 FY '18 came in at INR 1,369 million, a growth of 103.7% over Q3 FY '17. The corresponding EBITDA margin came in at 17.2% as compared to 9.7% in Q3 FY '17 and 14.1% in Q2 FY '18. This EBITDA margin was the highest since Q3 FY '13.Net profits in Q3 were INR 660 million, an increase of 230.6% year-on-year. Net profit margin was 8.3% for Q3 FY '18 as compared to 3% in Q3 FY '17 and 6.7% in the preceding quarter. This was the highest PAT margin since Q1 FY '14.During the period, we opened 3 Domino's Pizza restaurants and closed 1, giving us a total store count of 1,127 stores across 265 cities.In Dunkin' Donuts, we opened 1 new restaurant and shut down 9. The Dunkin' Donuts store count, therefore, stands at 44 stores across 12 cities.I will now turn to some of the highlights of the last quarter's performance. As you're aware, the GST regime was a strong source of significant change mid quarter. While we believe that the 5% GST rate will be a significant growth driver for the restaurant industry in the long term, the withdrawal of input credit meant a significant increase in input costs in the short term. We passed on the benefits of lower GST to our customers immediately, while taking a small calibrated price increase on a few products to partially cover for the input credit loss.There was, however, a clear and significant reduction in overall effective prices for our customers, which we communicated aggressively toward advertising and was gratified that customers noticed and appreciated this. We have rolled out a comprehensive product upgrade, all new Domino's in quarter 2, and the benefits of this continued in Q3 FY '18. Our customer feedback to the upgraded products remained extremely positive and this drove an increase in new customer acquisition and also an increase in existing customers' frequency.Our Everyday Value proposition on medium pizzas continue to do well and also helped drive core pizza growth last quarter. Our focus on driving digital revenues and including delivery [indiscernible] led to a strong growth -- a strong increase in delivery growth. Our online sales increased to 60% of overall delivery sales, owing to an improved functionality and performance of our digital assets, particularly the app. But other initiatives such as all-night delivery and our special small towns package also did well in Q3. All-night delivery is now available across 6 towns and 42 restaurants.In Dunkin' Donuts, we continue to make good progress on our stated objective of halving the losses. The sharp focus on donuts and beverages, along with the shutdown of unprofitable stores led to our losses reducing significantly.Looking ahead, we will continue to execute on our strategy for growth outlined at the start of the year with discipline and consistency. Just to recap, the 5 themes that we have talked about were: improved product quality and innovation, enhancing value for money quotient towards consumers, providing a seamless customer experience, leveraging technology and, of course, optimizing and focusing on cost management.To conclude, we are satisfied with the performance last quarter and are confident that we have a solid set of plans for driving profitable growth in the future.I would now like to hand the call back to the moderator and open the forum for questions.
[Operator Instructions] We take the first question from the line of Manoj Menon from Deutsche Bank.
Hi team, super congratulations on excellent results, very heartening to see the initiatives gaining momentum. The first question is actually if you could help us understand the same-store growth a little more in terms of how the customer growth is trending, particularly on the delivery side which is where you'll be able to track this much more closely how the average deal value is tracking. So just trying to understand the key drivers for this SSG growth number.
Thank you, Manoj. I think our performance in the last quarter came on the back of a strong consumer feedback and a positive acceptance of all our marketing and customer-facing initiatives. What also helped was that the store -- the growth profile was more skewed towards order growth, which is new customers and existing customer frequency than the BPO growth. It was also more skewed towards delivery, and of course our core pizzas, both because of all-new Domino's and because of Everyday Value.
Okay, understood. So just to be clear, if I may, this basically means that the proportion of pizza mania would have kind of declined a tad.
I would not like to comment specifically on the mix of various products within the portfolio, but what I would like to say is that pizza mania also has seen reasonable growth and healthy growth in the last quarter. All parts of our portfolio have delivered strong growth.
Understood, understood. And just one more on the revenue side. Now that we have had the EDV for a little more than 2 quarters continuously in Pan-India, so what are the drivers in EDV which are working? Because I think -- because you have launched INR 99 EDV in Tamil Nadu, for example, a couple of months back, versus the BOGO which used to be a 2-day out of 7 days sort of a discount. What I'm trying to essentially get is how much more runway the EDV actually has got? Is it more like kind of the 6 months or do you think that it actually can be more actions possible, let's say, in terms of time line, so the next 24 months or so?
Manoj, the fundamental change that EDV has brought in our business is that it has -- it helps us provide a regular value pricing to our consumers regardless of specific date and a destination point. That's the first point. As a result of that, we've managed to drive consumption across different days, different dayparts without giving more specific deep discounts. And that is the [ mix launch ]. [indiscernible] also the fact that it has replaced the deep BOGO offer that we had earlier also has meant that we had to give lesser discounts, and obviously has helped the margin profile. We believe that -- and as I mentioned earlier in my opening remarks as well, that providing value for money as a proposition to consumers is a very, very integral part of our strategy going forward as well. As to what form and shape that will take in the future, hard to tell right now. But value will remain a big, big part of our efforts going forward, value for money.
Absolutely clear. That actually takes me to the second question, which is on margins. Now that margins are closer to, directionally speaking, an all-time peak, you definitely looking ahead will actually have more resources coming from that line. If you could help us understand let's say broadly speaking what will be the sources of investments. For example, you may have an opportunity to invest in the -- improving the dine-in quality, for example, that's one I look at. Apart from, by the way, this also -- cost reduction is another source, kind of. So how should I think about the sources and the avenues of investments over the next 24 months?
Manoj, it will be fair to say that we would continue on our journey of expanding and growing the Domino's franchise. So certainly, one big avenue of investment would be our network expansion. That's the first point. The second point is every avenue that will help improve the customer experience, whether it is improving delivery experience or the dining experience, we'll also be able to look at very closely for investment. The third point, again keeping in line with our strategy, is technology and digital. It'll also be an area where we would look at investing to help drive revenues and improve customer experience.
Just to add that with our Greater Noida commissary getting commissioned and almost -- our commissary network almost expanded. So when we grow our stores, we don't need to invest more in our [indiscernible] in the near future. So that will give us a better overall efficiency at the commissary level also.
[Operator Instructions] Next question is from the line of Avi Mehta from India Infoline.
Just wanted to understand if you could share the store guidance, because you highlighted towards and focused on network expansion. So do you have a store guidance in mind for FY '19? And if not, for FY '18 if you could share?
Thank you for the question. We have provided a guidance for FY '18, and I'd like to say that we are on course for that. We would be adding about 30 stores plus in this year. We do not, however, have a guidance for next year. The budgeting work will be happening and will be playing out, so we don't have the guidance right now for next year.
Okay. Directionally, however, we should see an acceleration. Would that be a fair understanding, is what I wanted to kind of -- maybe not...
That will be a fair conclusion, yes, absolutely. Given the way our store growth has come back, we would expect to see an acceleration in store expansion next year.
Okay, okay. And lastly, could you share the Dunkin' loss impact during the quarter, what -- how much would that be?
Sure. The Dunkin' loss impact on an overall [indiscernible] level was 112 basis points compared to 218 basis points in same quarter last year.
We take the next question from the line of Abneesh Roy from Edelweiss Securities.
Congrats on the very strong SSG. My question is in terms of geographical, is there any different trends you're getting? Why I'm asking this is in North and East India, McDonald's has been struggling, and that's a key competitor in terms of the larger consumer basket. So would North and East India have grown faster than the 17.8% number?
Abneesh, thank you for the question. Our growth profile has been fairly geography agnostic. So there is no specific skew towards North and the East. And that's very clearly the point across, we've grown across all geographies.
But sir, why you would not gain from the McDonald's crisis?
Hard to tell why we wouldn't gain, again, Abneesh. But the fact is that, in terms of our growth profile, we would've had a fairly even growth profile across all the geographies.
Sir, my next question is on Dunkin' Donuts. In the last 1 year, you're down from 23 cities to 12 cities. Meanwhile, you also opened 8 new stores. So my question is on these 8 new stores, what's the confidence level? What are the changes you have done and do you think that these are on the right track based on the last 1-year data?
So Abneesh, our attempt at Dunkin' Donuts is to look at a model that is focused on donuts and beverages with simple food. That's number one. The second part of the model is to look at smaller-format stores. So the work we've done in opening new stores is to test some of these smaller-format stores. And initial results towards this are encouraging. And we are seeing some growth coming in these stores on account of both the portfolio and the size of the stores.
Sir, one follow-up here. The fact that you have exited 11 cities, so only 12 cities are running out of the 23. So does it mean you're adopting a cluster-based approach or these 11 cities were not ready for your product or there was too much competition in those cities?
We took out where we [ virtually ] considered [ call ], Abneesh, in terms of looking at various stores and various markets. And in markets where we were unprofitable, we took that considered [ call ] to exit those markets. The reason why we weren't doing well, there's a variety of factors including market sizing, competitive reasons, our own performance there, specific store reasons. But that was a very considered [ call ] and was a store-by-store discussion.
We take the next question from the line of Amit Sinha from Macquarie.
Sir, my first question is, just wanted to get a sense on the impact of lower prices after the GST rate cuts. So was there a significant difference in the run rate of SSG after the price cuts? And I understand that last year, similar timing was very weak. So if you can give us absolute run rate, was there a significant difference in those 2 halves?
Thank you, Amit. Yes, the month of November, both from a base point of view and this year point of view was significant, it had events within the month. But through the quarter and specifically between the 2 periods, we didn't see any change in trajectory of our growth. It was fairly agnostic across the months as well.
Okay, so that means that October was exceptionally strong, I mean, if I have to remove the base advantage. Okay. The question, sir, on margin, now clearly, you said that the base price increase was lesser than the input tax benefit which you had before that. While in this quarter we are not seeing any impact on the gross margin, is it fair to assume that subsequently, there will be some impact because now there'll be full quarter impact?
You're aware that we do not give a guidance, Amit, as far as either growth or margins go. You need to keep in mind that this quarter, the context was a little different. Two points of context. One is that of course Q3 traditionally in our business is the largest and the strongest quarter because of the festive season and the December month. And also the fact that we were lapping a very tough year from last year. So those are the 2 contextual points you have to keep in mind. Our attempt is we need to recover the balance. The part that we have not passed on by way of pricing through both cost efficiencies and scale leverage.
Got it. And also the removal of the discount would have helped, right?
That's right, of course.
We take the next question from the line of Arnab Mitra from Credit Suisse.
First question, was just conceptually I just wanted to understand the SSG number this quarter. Because of this GST change, you obviously took some pricing up at your net sales level to pass on the input tax, which you do not have a benefit of. And that would have definitely supported the SSG while the consumer would not have felt it because the dining expense was down. So is there a way to kind of adjust that and see what is the SSG versus the 17%, which is the reported SSG?
Yes, so I think, Arnab, it is -- without going to the specifics of -- without the impact of pricing, as I mentioned in my earlier -- one of my earlier answers, what encourages us is that the profile of growth was more transaction order led rather than meal per order led. So pricing played a lesser role than this quarter in driving the SSG.
Okay, okay. So there will be some impact, but it's not -- I mean, the major effect was the volume or the order thing... okay, understood. Sure. Secondly, given that when you started this year, you had outlined all your priorities. One of the key priorities was costs, and your margins are now at nearly an all-time high. So going ahead, do you -- are you happy with this level of margin and you would focus mainly on growth from here on? Or is there further cost agenda left or would you say a lot of the cost agenda has been already driven in these last 12 months?
Arnab, it would be fair to say that productivity and cost efficiencies are -- these are ongoing efforts which will continue in time to come. But equally, there are very important investment asks that will be called upon to make in improving product, improving innovation and driving customer experience. All of those. So even as we drive efficiencies, we'll continue to invest and spend behind those avenues, those levers to drive growth and improve the customer experience.
Okay. And just one last question on the input cost side especially on the food input cost side, is there -- what is the level of inflation or deflation that you are seeing on the food input costs side?
So versus the same period last year, Arnab, you're aware that we've made a significant investment in the pizza quality upgrade. So there's a food cost impact sitting now there in our food costs. There's also some impact on account of inflation in the food cost. And some amount of impact on account of loss of input as in a few items for 45 days in the quarter. That's been [ complemented ] partially by improved efficiencies in our [indiscernible] and of course improved realizations on account of lower discounts for the same time last year.
And has the commissary anywhere going -- had helped in reducing the operating costs or because it's still very large compared to what it's meant to do that, that gain will come in only gradually?
Yes, the new commissary that we have just commissioned would help us reduce some of the operating costs.
We take the next question from the line of Aditya Soman from Goldman Sachs.
My first question is on again on the input tax credit. Are you saying that most of the impact has now played out and it's unlikely that you'll see a significant impact because of this in the next quarter?
That will be a fair statement to make, Aditya.
All right. And secondly, in terms of your commissary, can you just throw more light in how -- I mean, what aspects of this new commissary will drive better savings than costs? [ Kind of on ] what particular line items if you were to pull out?
So our new commissary that we've just opened in Greater Noida is one of the largest facilities in Domino's. It's a state-of-the-art facility, it will have manufacturing capacity for global and for a couple of other lines as well. It will help us reduce our OpEx on 2 counts. One is on account of freight; and b, on account of some other labor and input costs. But it will affect over a period of time, not as in one quarter.
It will slowly and gradually.
That's right. And what we'll also do on account of this new commissary, we'll consolidate 2 of our existing manufacturing facilities, 1 for Domino's and 1 for Dunkin' and that will also, therefore, help drive efficiency and cut costs.
Okay. So these are to -- current facility in Noida that will...
That's right.
All right. And you also mentioned in terms of efficiency over a period of time, so I think that I'm assuming is just because you get more leverage on the commissary costs as you open new stores, right?
Absolutely. And then also...
More leverage and even more automation that we are doing in our new commissaries. So I think we will drive efficiency through that also.
Understand, very clear. And just one follow-up, so you're still on track to sort of eliminate Dunkin' losses by the end of the year, right?
To reduce Dunkin' losses by 50% this year, on the path to breakeven next year is what we have said, and we are on track for that.
Next question is from the line of Mayur Gathani from OHM Portfolio.
Sir, any one-off costs that are significant in nature related to the 10 stores that you shut down this quarter?
Mayur, no, there is no one-off cost that is impacting the P&L, either favorably or adversely.
Okay. And how do you see the stores -- the increase in stores for Dunkin' going forward, I mean, this quarter or FY '19.
Mayur, sorry, your question wasn't very audible. Can you repeat that, please?
Guidance on store additions for Dunkin' Donuts, sir.
Dunkin' Donuts, we have said that we will be opening 5 stores this year and we stay with that guidance. There's no change there. We've opened 4 already and we plan to open 1 more this quarter.
Great. And you said you opened smaller-sized stores in the last few quarters, right?
That's right.
Yes, so what is the size and what was it previously compared to this time?
So the average size has varied earlier from 800 square feet to about 1,200 square feet. And the stores that we've opened have been on the smaller side, that is ranging from 300 square feet to about 650, 700 square feet.
Sorry, 300 to?
300 to 650, 700 square feet. 650, 6-5-0.
Next question is from the line of Bhavesh Pravin Shah from CLSA.
This is Vivek. My first question is [ related ] to an earlier question. Basically, if you look at same-store sales in this quarter and if you look at the price side that you took essentially for half the quarter, if I take there should be a 3% negative impact or rather positive impact of price hike. So is it fair to say that against the reported number of let's say around 18%, the number will be more like 15% or thereabouts?
Vivek, we don't want to get into the exact dissection of the contours of the growth. But once again, I want to emphasize that the growth was more order-led rather than BPO-led. And that is what gives us a lot of encouragement. There was certainly an impact of the price increase that happened in the second half of the quarter, but it wasn't substantive and significant.
Okay, because look, this quarter still captures only half of that. As you go ahead, SSG will have higher than what -- the impact of this price hike will be much higher than what it had been in this quarter. And hence I was wanting to get that number.
Sure, appreciate that.
Second one on the opening remark by Mr. Bhartia about conversion from unorganized. If the input credit is not available, wouldn't you -- the entire GST principal was centered around input credit and therefore better adherence to regulations and tax compliance. If input credits are not available, shouldn't it benefit unorganized more than organized?
No, just the idea of making that comment was today, the differential between an unorganized to an organized even from perception wise has effectively come down from 18% to 5%. And today, it's -- completely unorganized would charge maybe 1% or maybe 0. So our differential is today 5% only. And organized -- unorganized also doesn't get any set up. So effectively if you really look at it, government has reduced prices, has reduced tax on the consumer which we have passed on. Because we never recovered 18% completely you know, as input credit. Our recovery was much less, 1/3 maybe. And this consumer price coming down, we expect the footfall to increase both in our delivery and visiting. That is what the positive point that is what the point of making that statement.
Okay, and one last thing if I may which is on -- I'm sorry.
Consumer price has come down, overall segment wise the consumer has reduced substantially.
Sure, sir. And lastly, on the advertising bit, while you don't share the number and it sits somewhere there in others, but you mentioned that you had aggressively advertised. So that would have a positive impact for sure on same-store sales growth. So any thoughts on how the advertising trend would be in the foreseeable future.
We'll continue to invest behind strengthening our brand and supporting our marketing programs. Much to think of it in quarter 3 of this year.
We take the next question from the line of Abhishek Ranganathan from AMBIT Capital.
One is particularly -- this is kind of follow-ups of what has come across as the same-store growth, and I believe same-store growth is now being calculated on net sales value. By that analogy, not just the subsequent quarter, all quarters going ahead considering that we have taken a price hike on a menu level and discounts have been discontinued, the coupons have been discontinued to some -- to a great extent. The entire same-store growth number actually just gets rebased upwards. And therefore from what we check -- our channel check suggested, the price hike -- the menu price hike is about 5, adjusted for maybe discounts maybe around 8%. Wouldn't an 8% SSG be the bare minimum which we'll be able to do?
Abhishek, thank you for the wishes. But as you're aware we do not give any specific guidance on what our prognosis for same-store growth or margins could be or would be. I just want to reiterate a comment I made to the earlier question which is that our same-store growth in quarter 3 what encouraged us was the fact that it was driven more so by orders and transactions than it was by revenue -- by bill value.
Sure, and one more thing is that when did we switch from the gross bill value to NSV on same-store growth?
We always -- see our pricing to a customer was always without tax. And tax was always added. So instead of 18% now 5% is added, so customer outgo has come down.
So there is -- I just wanted to clarify, there's no change in the way we account for sales.
Yes, yes [indiscernible]
And the other part, is regarding one of the earlier calls, Mr. Bhartia did mention about the earlier 15% as a margin -- as a sustainable margin. Somebody asked this question and he said that it was -- those times were when the base was lower, the business was smaller in size. But we're already at 17 and there are -- as you mentioned there are still maybe some more jam to be taken on cost, some more jam to be taken on productivity. Therefore, would we actually see our base margins which we want to operate as business head on a sustainable basis? Will we revisit that comment again of operating at 15% is not anymore unachievable?
I don't know which comment you are referring to. But you have seen the margin this quarter and our effort continues to leverage our size when we grow. Continue to reduce cost. But you also have to remember that we have to pass value to the customer. So it's a balance that we have to achieve. You have seen when we launched all new Domino's, we added to our cost to give more to the customer. So I think while we look at the margin for future that we also look at how we can continue to give more value to our customers.
And make continuous improvement and reduce costs also.
All right, sir. And the last thing here is I think you mentioned that our headcount of 22 per store will remain till the SSG tolerance level and now that we are seeing orders come back do we envisage increasing the store headcount anytime very soon?
So Abhishek, our headcount in our stores as you imagine is a combination of fixed headcount and variable. The variable headcount moves up and down in response to the growth in our business, especially orders. And within that especially to delivery growth. Even as we invest and even as we deploy manpower to support and fuel this growth and service the customer's requirement, we also are mindful of the fact that we have efficiency to drive enough manpower as well. So both works streams going on. The attempt to improve our customer experience, improve our delivery NPS, improve our dining experience and therefore deploy the right number of people in the stores to support that. Even as we look at saving cost and getting smarter at forecasting and deployment of the manpower.
Sure, but are we at -- have we at -- are we at somewhere that the SSG level at which you think we will have to start investing, the 17%, 18% number what we've achieved this quarter, would that number, are we close to that number is what I am trying to understand in terms of orders, maybe the percentage number may not be the right way, but...
Abhishek like I said, that's a dynamic process. As orders move up depending on every store's serviceability, manpower goes up or doesn't go up. And that's a constant process. As growth moves up, we make sure like I'm saying earlier that we have the right manning in our stores to support the customer experience, to support delivery of those orders. But that doesn't preclude the fact that we'll be looking also at driving efficiencies.
We take the next question from the line of Latika Chopra from JP Morgan.
Most of the questions have been answered, but just a few more from my side. Firstly, on the demand environment, clearly, this quarter you saw a significant improvement in order growth thanks to your own initiatives and there was a bit of a base effect as well probably. But what's the sense you're getting from the overall demand environment on a like-to-like basis? Are you seeing a step up there which should give one confidence that the SSG number on a normalized basis will also continue to remain in a healthy zone?
So Latika, thank you, thank you for the wishes. This quarter, as you mentioned yourself, there are 2 specific points that make it harder to read in a very clean manner. Both the base impact and also what has happened during the quarter on GST. However, our own observation and own belief from what we see in our stores and in our network is that growth is driven a lot more because of our initiatives that have played out well in the marketplace and we're yet to see a strong resurgence in consumer sentiment. It is fairly flat. We are not seeing this graph move up significantly yet.
All right, that is helpful. Secondly, clearly, there's a significant improvement in the way the Domino's franchise is run. You are looking to reach a breakeven in Dunkin' format soon. Over the next 2 to 3-year prospective, would the management look to explore more platforms within the QSR space or fine dining space? Is that something which is on the plate for the team?
No. Firstly, we continue to see huge potential in our pizza business. We see India as a market. We still have to open lot many stores in itself in the pizza business. So we will definitely -- our first priority is to grow the existing business and get maximum operating leverage. As I have mentioned earlier, we have built infrastructure for much larger number of stores in terms of how we can service through our commissaries and distribution network. So that's the first priority. Secondly, we will bring Dunkin's to profitability. And then after next year look at driving growth in that brand. Thirdly, we continue to experiment with ideas where we could add new set of cuisine or format which have large potential. So I can't come to you and say that we have a plan to launch another brand yet unless we have finalized it, unless we have tested it properly. So as far as learning from the market and experiments, we continue to do that.
Next question is from the line of Amit Khosla from Catalyst Global.
I think my question has been answered partially but just wanted to go on to something very specific. When you look at the more evolved customers, the very high end of the market, is there any strategy to look at that given your expertise in deliveries that you've got?
So thank you, Amit. To your specific question about the high-end customer, let me respond in 2 parts. I'm not sure I entirely understand the point you're making, but let me try and answer in 2 parts. The first one is that we will be relevant and we will remain relevant for all consumer segments. The segment that is still about yet to enter the pizza segment or who are very light and infrequent users. Equally, people who are much more evolved consumers who have a discriminating palates and who are looking for more evolved experiences on their pizza. So we have to be relevant to all sets of consumers. And our marketing and innovation plans will cater to all of them, the entire spectrum. That's number one. Number two, if you're asking in context of frequency, then yes, we have a very clear plan, and we already are in place on looking at strong CRN programs to drive frequency across the consumer segments, including the high-frequency more evolved consumer.
We take the next question from the line of Jinal Sheth from Multi-Act.
My question was that if we notice obviously we've had great margin expansion in the last 3 quarters. And during the same time, obviously, we have been focusing on reducing loss-making stores and all that. So the point being that if in the future once we are done with this restructuring, is there a -- and considering where we are on margins, once we get back on that store growth part, would there be a downside to our margins from in that connect?
Jinal, I just want to echo what Mr. Bhartia has said a little while back that we continue to see strong potential in growing the pizza business in this country. I mentioned earlier that our store plan for next year and store opening outlook would be stronger than what we opened this year and keeping in line with what Mr. Bhartia has said. So yes, we are committed to expanding the store network profitably and sustainably. How that will impact margins, time will tell. But we believe there's significant potential for the pizza business in the country and we are committed to leveraging that potential, profitably so.
Next question is from the line of Rahul Arora from Nirmal Bang Securities.
I just wanted to talk a little bit about the digitization aspect you spoke about at the start of the call. If I see your average online ordering contribution to delivery, sales has gone up by about 11% year-on-year. And your mobile ordering has also gone up by about 15% year-on-year. And your download of mobile apps has gone up by about 80% year-on-year. So internally what sort of targets do you have for this, how much of a lever is this for our margins and how high could this number possibly go?
Thank you, Rahul, and yes, the digital business and online ordering has been a significant engine of growth for us last quarter. And as I said in my opening remarks and we talked about in the past as well, driving digital and driving technology will remain a key strategic pillar for us going forward. We've invested in improving the quality of our digital assets, including the customer experience, adding functionalities both on the mobile side as also otherwise. We've invested in growing our digital marketing profile and our footprint, and yes we believe that this source of growth will continue in the future as well given the way tech penetration is increasing, given the way our own platform is evolving and the efforts of our key digital officer who as you are aware we've hired earlier last quarter.
Can this -- the reason I ask is, I mean if I compare you to something like McDonald's and they started delivering and they've seen a surprise uptick in their margins since delivery started for them. So I mean -- when you look at online ordering to your delivery sales, this 60% number in a market like India, can it go north of 80%, 85% as well you think?
Rahul, as technology gets embraced across the pop strata as smart-phone penetration increases, I'd expect this growth to continue. But we also are committed to improving our experience in other parts of the customer landscape as well, for example, in our voice ordering. So our investment will be done to ensure we improve the experience and accessibility and ease of ordering across all channels. But that said, I think it would be fair to say that given the sheer pace of technology growth and adoption, this channel will grow faster than the others.
Fair enough. One quick question on cost, if you've already answered this, I apologize, but if I look at your staff costs, you're down about 300 basis points year-on-year. Your other expenses are down about 350 and your rental costs are down about 110 basis points. Obviously this corroborates the way you've gone about your store opening. But do you have much more juice left in terms of levers on these aspects to improve your margins or are you virtually topped off from these angles, you think?
No. So Rahul, like I said earlier, it would be facile to say that we have run out of ideas to improve productivity. So driving cost efficiencies and improving productivity is an ongoing effort and remains so going forward as well. There is, however, the countervailing forces and demands on monies and on costs which we'll have to use on these productivities to compensate for. We'll also be making proactive investments in specific areas aimed at driving and improving customer experience, which also has a call on the cost. So there will be a trade-off in margins on account of both of these countervailing process.
We take the next question from the line of Mitul Mehta from Lucky Investment Managers.
Sir, as you embark on an exercise on reducing losses at these Dunkin' store level, now this I may attribute to reduction in the Dunkin' stores from -- that's what you've been doing or it is -- is there some sort of an SSG movement, upward SSG movement that you are seeing in the current 43 stores? And third combination would be improvement of menu. So if you can just help me to understand your Dunkin' strategy.
Yes, thank you for the question, and you're absolutely right. In line with the commitment and a statement that we made earlier, we are on the journey of reducing and halving the Dunkin' losses this year on the way to breaking even next year. What has encouraged us in the performance last quarter and in this journey as part of the process is the fact that we have seen growth also come back on Dunkin' Donuts, on the back of a strong focus on doughnuts and beverages. Even as we have shut down some of the unprofitable stores. So it has been also encouraging in terms of overall response from consumers on our sharpened doughnut and beverage focus.
Sir, would it be possible for you to share what sort of SSG movement are we seeing there.
Mitul, we haven't in the past shared SSG for Dunkin' as you're aware. The only numbers that we called apart for Dunkin' is the impact of Dunkin' on the overall GSL, P&L. We would not be changing that stance going forward. However, like I said, we are encouraged by the consumer response to the revamped Dunkin' proposition.
And sir, when you say breakeven next year which means that we would be breaking even at the PAT level or at the EBITDA level.
At the EBITDA level as we exit next year, absolutely.
At the EBITDA level, we should be breaking even.
That's right.
However at the PAT level...
To be very clear, the plan that we had mentioned was that we will halve the losses. And when we exit next year, we will be EBITDA positive in the last quarter. And this can change to better or at least this we are making all efforts that when we exit last quarter we will be positive -- we'll have positive EBITDA.
[Operator Instructions] Next question is from the line of Nishit Rathi from CWC Advisors.
Just wanted to understand on-the-go formats are something you've been experimenting. Is there anything that you can call out when these formats could be scaled up and in terms of scalability of this format? And how has it performed thus far?
Are you talking Nishit of the on-the-go formats?
Yes, we've seen some of those formats in Bombay at Metro stations and maybe you'll be having it out there. So just wanted to understand what has been your experience? And what could be the scalability for these kind of formats?
So Nishit, more sort of general answer to in response to your question before I come to the specific response, we believe in the potential of the travel and transport channel, and therefore we would aim to be present in places like Metro stations, et cetera, where there's a large footfall and large consumer traffic, people traffic. Our experience with the stores which are on-the-go servicing this consumer segment has been positive, and that has remained positive and has been in line with our overall growth profile in quarter 3. So we are encouraged by what we have experienced. And like I said earlier, it reinforced our conviction in the potential of this channel going forward.
Anything you could call out when this could be a substantial part -- because the potential is huge as you said, right? Any plans to say that when this could be really large?
Well, it won't be an endpoint. There is no endpoint to this like I said earlier. We believe in the potential of this space, and we will be growing it. And as behavior changes and people spend more time on the road, out of home, this channel really grows, will grow in size and we will participate in the growth.
We take the next question from the line of Sanjay Singh from PineBridge Investment.
I just want to understand what's with the CapEx this year?
Thank you, Sanjay, thank you for the wishes. The CapEx for this year would be INR 70 crores in total.
And next year you would only be per stores, or is there any more commissary or anything else extra planned?
Sanjay, as mentioned earlier, we do not anticipate any investment in fresh capacity creation next year in commissaries. However, these small CapEx's which are anyway ongoing, but no substantive capacity addition in CapEx in our commissary. So the large part of our investment in CapEx really go behind store expansion and other investment that you need to make next year.
Okay, so in that case, this is more a question probably to Mr. Bhartia. Probably after a long time, in the last few years, the last many years we were in an investment phase where the CapEx was probably almost equal to the cash flow. Now probably, this year and maybe next year we should see a very healthy post [indiscernible] plans to capitalize this cash after CapEx, after investments.
Let's not make the plans too much ahead. And I think our effort would be to look at opportunities to expand the store growth as much as possible, as much as the market would allow us. And I would say we should have this broader discussion end of next financial year.
We take the next question from the line of Prasad Deshmukh from Bank of America.
Just 2 questions. Firstly, there is this term which was used couple of times, improving voice ordering experience, this was like used couple of times during the call. What do you intend to do in this? I mean, what specifically do you intend to do?
Thank you, Prasad. Yes, I did allude to that a couple of times and let me elaborate on what I meant by that. As you can imagine, we listen to our customers all the time and we keep hearing their feedback and working on it. One of the feedbacks that we received was that our experience of ordering, the voice experience, sometimes tends to be inconsistent. Where there is either a poor reliability of the call itself in terms of call drops, and sometimes also when the store -- when the call goes to the store, there is a divergence between the store person servicing the walk-in customer versus the order on the phone. And that makes for a poor and sometimes inconsistent experience. We want to address both of these points of feedback. We are strengthening our call center experience and investing in more technology, better quality of partners. So when a call lands in the call center, it will be serviced much better. The reliability of the technology also will improve and therefore the call drops will come down. And we also are looking at pilots where if we can migrate some of the calls towards into a centralized call center.
Okay. So will this have any immediate cost implications positive or negative?
It's too early to say right now, Prasad, because we are still in the pilot phase. But our focus right now is on validating whether this customer experience leads to enhanced revenues and business, and how the cost plays out. So that's what we are doing right now. But I just want to go back to the larger point which is that regardless of channel and access, we have to and we are committed to improving the quality of the customer experience and the ease of ordering, and removing friction from all parts of a customer experience.
Perfect. And one small second question, there is a sharp jump in online and mobile ordering. At what stage would you start thinking of reducing the manpower which typically I think you have 3 people manning the store just taking orders. So at what stage will that lead to maybe some rationalization at that level?
So Prasad, the number of people who take orders in store, it's a dynamic number depending on the order flow and the traffic. And as online ordering increases that number will remain dynamic and responsive to the shifting traffic profile. So the traffic from online increases, we'll obviously cut down the manpower in the stores. But that is, even now as we speak, a dynamic and ongoing process.
We take the next question from the line of Vishal Gutka from PhillipCapital.
Just wanted to know how night delivery has held to for on -- what night delivery had an impact on SSG given that good amount of stores are opened during the second half of December for Christmas and New Year's Eve. Can you just throw some color on night delivery, how it has supported SSG growth for the company?
Our all-night delivery, it has been very positive. As I mentioned earlier, we've now expanded our network in all-night delivery across 42 restaurants and in 6 towns. Our response has been positive and of course it has played a significant role not just -- it has played a role not just in enhancing customer experience but also in driving growth. But it has played its role along with other parts of our marketing program.
We take the next question from the line of Manoj Gori from Equirus Securities.
I just needed some clarity [indiscernible] so what would be the impact of Dunkin' Donuts currently on the total EBITDA?
You're talking about the Dunkin' impact on the EBITDA?
Yes, earlier it used to be around somewhere around the tune of 225 basis points.
Yes, yes, Manoj. So we responded to the question earlier, but let me just recap what I said. The Dunkin' impact on the EBITDA was 218 basis points in Q3 FY '17. This year, in the last quarter that reduced to 112 basis points.
Okay, so it's almost half of what we were actually resonating, so that's great. So secondly I would just like to know like a couple of quarters back, we highlighted like there are approximately 100 stores which are under observation where we are trying to monitor the performance of those stores, and we'll be taking appropriate actions for their revival or either for -- store closures. So currently like can you just throw some light like what's the status on those 100 stores.
Manoj, the strong growth that we have seen in Q3 following up on the growth in both Q1 and Q2, the stores that are unprofitable are very few and scarce and not significant in number.
Okay. So there is nothing much left for Domino's itself. So Domino's stores when we look at the store count today are much more healthy. So it's only like we need to take the requisite measures for Dunkin' Donuts at this moment.
That would be fair in terms of the store network, yes.
Next question is from the line of Naveen Trivedi from HDFC Securities.
Sir, my question is more towards the industry part. If you can just comment on how has been the industry growth during the quarter, so it gives some idea about how the trends -- the larger trends are happening in the industry.
Thank you, Naveen. As I mentioned earlier, this quarter is hard to read by itself as a clean quarter given the base impact. So it would be fair to say that there would be growth visible in numbers across in the restaurant industry. But we are yet to see a strong recovery in consumer sentiment resulting in strong increase in consumer footfall and consumer traffic. And I dare say that's true of the entire industry. The numbers do not reflect that because of the base impact, but yet to see that strong sentiment come back. And as Mr. Bhartia said earlier in his remarks, the 5% GST would be a tailwind for the industry as it breaks the -- removes the asymmetry between organized and unorganized sectors and that would be a tailwind potentially and we are all hoping that it plays out. But as of now that's not too early, it's not evident yet in consumer sentiment or in consumer spend.
But since pizza is moved from branded kind of a system-driven where the smaller players contribution and the unorganized contribution will be not very significant? So do you think that given the GST rate of 5% would change not only from the Domino's point of view but from the industry point of view would change a lot even in the next coming years' growth?
It's not only that we compete for the stomach with only pizza, we compete with other food products also that is being sold under different brands or under unorganized sector. To that extent, a customer paying less duty, less GST has an advantage. And I think to the extent our gap has reduced. So certainly it should give us some advantage as Pratik said, some tailwind in the future. It may not be evident in the short term, but in the long term I think it's a great move from our side, we are quite happy.
We know that you don't give any guidance and the SSG is something is where we have seen high double-digit kind of a growth industry to again negative SSG also and again we've reached to very high double-digit kind of SSG. So we know that you don't share the guidance, but in terms of, as you mentioned, the 5% GST rate has certainly boost the industry, can you think that the average of the industry now will change in the next 2 to 3 years' time frame? So let's say suppose assuming -- we were assuming let's say 8% to 10% kind of a sustainable growth for SSG, this will change to some extent post the rate revision.
So Naveen, you answered your question yourself. You're absolutely right, we do not give a guidance on numbers in the future. So don't have anything more to add than what I said already and we said already which is that we are committed to the path of driving sustained profitable growth in the business and we believe that in the longer term certainly the lower GST rate will be a tailwind for us. But we are committed to a strategy and execution thereof in a disciplined way quarter after quarter.
Well that was the last question for today. I now hand the floor back to the management for their closing comments.
Thank you, everyone, for your wishes and your feedback. Before concluding, I just want to reiterate that we are committed to executing a strategy like I said a little while back consistently and in a disciplined way. And we are guiding ourselves and our business on this path in a sustained way in the future. Thank you very much, and have a good evening.
Thank you very much. Ladies and gentlemen, on behalf of Jubilant FoodWorks Limited, that concludes this conference. Thank you all for joining us. You may disconnect your lines now. Thank you.