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 Q4 and FY [Audio Gap] Earning 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, and welcome to the Jubilant FoodWorks Quarter 4 FY '19 Earnings Conference Call for analysts and investors. We are joined today by Mr. Hari Bhartia, Co-Chairman of Jubilant FoodWorks; Mr. Pratik Pota, CEO; and Mr. Prakash Bisht, CFO. We propose to commence with perspectives from Mr. Bhartia. Thereafter, we shall have Mr. Pota sharing his views on the progress that JFL has made operationally, the strategic imperatives that lie ahead and the outlook. After the opening remarks from the management, the forum will be opened for question-and-answer session. A cautionary note, certain statements that may be made on today's call will be forward-looking in nature, and the actual results may vary significantly from these statements. A detailed statement in this regard is available in Jubilant FoodWorks' quarter 4 FY '19 results release and earnings presentation, which are both available on the company's website under the Investors section.I would now like to invite Mr. Bhartia to share his perspectives with you. Thank you. And over to you, sir.
Thank you. Good afternoon, everyone, and welcome to the quarter 4 FY '19 earnings call. I'm pleased to state that we have ended the financial year 2019 on a very high note with encouraging growth momentum in both our brands, Domino's Pizza and Dunkin' Donuts. For the last 2 years, we have stayed on course for our strategy that we outlined with you.Let me explain this. We have continued to give more value to our customers. As all of you know, we have taken no price increase for over 2 years. We offered everyday value instead of occasional discounts, also took initiatives like small-time menu to give value to the dine-in customers. We continue to improve customer experience by improving delivery time. We introduced railway ordering, online delivery. We also launched our new store design, which has self-ordering kiosks to improve dine-in experience. This has been very well received with our customers.We have continued to innovate with new products, like recently launched Cricket-themed pizzas, to bring new excitement with our customers. We also improved beverage offering through the launch of fountains with our new partner Pepsi. This will help us substantially give better combo offers with a beverage.We have continued to invest in technology, data science and the digital infrastructure to improve customer experience and operational efficiencies. Our online sales grew strongly and now have reached a level of 75% of our delivery sales.As promised to you, we turned around Dunkin' Donuts and brought it to breakeven as committed. This was achieved on the back of a healthy growth in portfolio, starting off on profitable stores and cost reduction. We'll continue to drive operating leverage to increase margin while increasing same-store sales as well as reducing cost at all parts of operations and supply chain.Over 2 years, we achieved large savings on our costs, which helped us increase margins and give more value to our customers. Going forward, while we continue to work with these initiatives with new rigor, we also want to grow our business in clear strategic direction. Here, I must tell you that we continue to see large opportunities for opening new stores in the existing market by splitting stores and in new markets in existing and new cities.We will build a portfolio of brands and cuisines that allow us to address different customer segments and different locations. Last quarter, we launched Hong's Kitchen with very good response from our customers. Our nationwide network of supply chain, our existing technology platform and deep expertise in delivery will help us to scale our new Chinese brand further. We will also continue to explore and test other cuisines for future launch. We also brought back focus on international market by a record-breaking launch in Bangladesh. While we develop Sri Lanka and Bangladesh markets, we will continue to explore adjacent and new markets. Finally, we will continue and increase our investment in creating strong and focused teams to build new cuisines and international expansion of Domino's.And as I close, I must thank our partners in Domino's International and Dunkin', all our employees, our vendors and all our other stakeholders who have been a great partner in our growth journey.With that, I would now like to call upon our CEO, Mr. Pratik Pota, to cover the operational highlights during the quarter.
Thank you, Mr. Bhartia, and a very warm welcome to all of you joining us on the call today. I will begin with the key financial highlights of quarter 4 and the FY '19 performance, starting with the quarter.Operating revenues during quarter 4 were INR 8,652 million, an increase of 10.9% over last year. This was driven by same-store sales growth of 6% in Domino's Pizza on a base, as you'll recall, of 26.5% from last year. EBITDA during the quarter was INR 1,476 million at 17.1% of revenues, up by 15.5% over last year and with a margin expansion of 70 basis points year-on-year. Profit after tax stood at INR 739 million at 8.5% of revenue, a growth of 8.6% over last year.Turning to the full year. Operating revenues for FY '19 were INR 35,307 million, an increase of 18.5% over the last year. This was in the back of a strong same-store sales growth of 16.4%, that is 16.4% in Domino's Pizza, which was the highest SSG in the last 7 years. EBITDA during the financial year was INR 6,078 million at 17.2% of revenues, up by 36.2% over the previous year and with a margin expansion of 220 basis points. This is the highest EBITDA margin in the last 6 years since FY '13.Profit after tax was INR 3,228 million at 9.1% of revenue, a growth of 56.4% over the last year and with a margin expansion of [ 220 ] basis points as well.Now let me turn to share some operational highlights of the quarter and the initiatives that we have taken. For Domino's Pizza, in India, we opened 30 new restaurants and closed 3, thus bringing our restaurant count to 1,227 stores across 273 cities. During the quarter, we entered 2 new cities. We also care about innovation focus with the launch of 10 new international pizzas as part of the World Pizza League offering. These were launched just ahead of the busy cricket season and have received very positive feedback from customers.Online sales during the quarter grew well and now stand at 75% of delivery sales. We do love the new Domino's store design in quarter 4. We believe that this warm and contemporary design will help improve our dining-in experience. And going forward, all new stores will carry this new design.In Dunkin' Donuts, we closed 1 store, taking the total store count to 31 restaurants across 10 cities. Our Dunkin' Donuts delivered yet another solid quarter marked by strong SSG and the second straight quarter of breakeven performance. You're aware that we launched our first own brand Hong's Kitchen during last quarter. Hong's Kitchen marks our entry into the large Chinese food segment and addresses the vast gap and chasm between street vendors and premium fine-dining restaurants. Our first restaurant has been opened in Gurgaon and has got off to a very promising start.This quarter also marked the launch of our entry into the Bangladesh market. The launch received a very encouraging response, with the Domino's Pizza Dhaka store breaking the world record for the highest number of orders by any new Domino's store in a market in its first week and also in the first month of operations.Given that this is the start of a new financial year, I want to take this opportunity of sharing the longer-term vision and strategy for the next year and beyond. Owing to a number of economic, demographic, consumer and technology trends that are serving as strong tailwinds and that are known to all of us, we believe that the market for non-homemade food will grow on a sustained basis over the next many years as consumers seek more and more convenience. In this growing market, we believe that the levers of sustainable, competitive advantage will be: number one, brand strength, one that builds on trust, easy accessibility and good customer experience; delivery expertise, the ability to deliver professional experience in delivery at the right cost; innovation, the ability to offer a variety of food options to consumers for different occasions, for different segments and indeed, for the train depots; technology that drives a superior customer experience and also helps improve efficiencies; and insight, the ability to use data to arrive at precise and actionable consumer insights.At JFL, we put together an exciting strategy to grow our business over the next 5 years, which Mr. Bhartia talked about in his remarks. The strategic themes are: build a Domino's fortress in India through high-quality products, continued value for money and an omnipresent network; scale up Hong's Kitchen and further build a portfolio of brands across cuisines; nurture and build up strong international business in Sri Lanka, in Bangladesh and beyond; invest in building a great customer experience, especially in delivery but also in dine-in; invest in technology and data science; and transform JFL into a strong food tech company.To sum up, we are pleased with the performance in FY '19, excited with the opportunities that lie ahead of us and working on what we believe is the right strategy to drive sustainable growth in our business and to create value.With this, I would like to request the moderator to open the forum for questions, please.
[Operator Instructions] We take the first question from the line of Arnab Mitra from Crédit Suisse.
My first question was on the same-store sales growth in Domino's, which has come at 6% versus 14% last quarter. Just particularly looking at it, it looks like a significant slowdown. So how would you look at this number in difference of what you've been doing in the last few quarters? And then your comment that you are confident on growth -- good growth in this coming year. Would you expect the growth rates to improve from these current levels that you've delivered this quarter?
Thank you for the question. Let me respond to your question and comment about same-store growth last quarter. I think as you look at the number of 6% SSG, it's important to frame it in the context of the same quarter last year, where we delivered our 26.5% same-store. So one of the reasons for this number being optically low is the fact that we are cycling a very high base growth quarter from last year. That's the first point. The second point, which we talked about last time as well and it's important to underline is that a lot of our store expansion -- in fact, more than 50% of our new stores have been deliberately and planfully opened in existing store areas, they are split stores. And they have been randomly opened to improve the customer experience to help us manage the store load better. And this, in turn, while it improved the customer experience, brings down the same-store growth number optically. And the third point, which is an important point to also acknowledge is that as customer behavior evolves to being more delivery-centric, we are seeing pressure in dining in as customers move more towards delivery. So those are the 3 points that you need to sort of underline with respect to the same-store growth from last quarter. I'll comment about us being confident is absolutely spot on. We are confident that the long-term prospects about -- of this industry and of this category are strong. And we have what we believe is the right set of plans and strategies to leverage growth in this growing market. I do want to comment on quarter-to-quarter outlook. But like I said, our optimism remains as confident as ever.
Okay. The second question was on gross margins where you've seen a strong expansion, not just Y-o-Y, but even sequentially between the third quarter and fourth quarter. So other than the change in the beverage partner, what are the other elements driving gross margin? And incrementally, are you seeing more pressure because we do hear about inflation in dairy and wheat flour prices? So is incrementally the pressure higher on the gross margin side now?
So you're right, the gross margin expansion has been strong and robust. I think there are 2 reasons why we have seen the gross margin expansion vis-à-vis last quarter and even vis-à-vis last year as well. The dairy prices, the wheat commodities have been soft, and that has been a tailwind. And the second reason is that our beverage margins have improved post the transition to the new beverage partner. Going forward, we may expect to see some headwinds on commodity costs, but we believe that we have some headroom -- further headroom to grow our margins and mitigate that headwind through beverage margin improvement, reduction and management of wastage and inefficiencies. And there, we do not expect to see a material impact on gross margin going forward.
Okay. Okay. And just one hard question on Ind AS 116, this new accounting standard on leases. Is there any -- likely to be any impact in your reporting, positive or negative, because of this coming in, soon?
As you may be aware, Ind AS 116 becomes applicable from next year. So the way this standard has been designed, so there will definitely be a change between the line items because the fixed rent item goes off from the face of the P&L. And since you capitalize the cost of the rent -- cost of the leases, it gets charged to depreciation. The way the standard has been designed, the front loading of interest is higher in the initial years. And in the later years, the interest is lower. So yes, in the initial years, there'll be a little change at the bottom level because the interest cost will be higher in the initial years. But in the later years, it's only an issue of timing because it's clearly accounting. It doesn't affect any cash transactions. So therefore, the initial years, there'll be a little impact on the [ back ], but in the later years, it will be higher.
The next question is from the line of Manoj Menon from ICICI Securities.
Just a couple of questions here. One, if you could just talk a little about the changing landscape of the aggregators and the equilibrium [ that lets you do ] business with them. The reason I'm asking this is pretty quickly if I may say that if I take a step back and look at your usual months' rent, you have probably 27,000, 30,000 deliverables. Today, ex you, the others, it's probably 400,000. So how is the equilibrium changing and how are the conversations, whether it's margins, benefits or revenue, et cetera. That's the first question.
Sure. So thank you, Manoj. So I think it's important to recognize that aggregators, we believe, have played and are playing a very important role in helping grow this home delivery market. This is a market that we've been growing by ourselves for many years, and we are happy to have allies and partners in growing home consumption and driving frequency. We enjoy a very strong partnership with all aggregators. We have very strong discussions, long-term planning discussions, short-term planning discussions, tactical discussions. And we keep talking about how we can collectively grow the market. Our growth in the last quarter, I talked about the pressure in dine-in, where conversely, we had a strong growth coming through in delivery. Within that, in online, both on our own app and also on aggregator platforms. So we really -- we remain very confident about the prospects going forward as well, and we believe we have a shared and a mutually aligned interest in helping grow this market. We bring to them a very strong brand. We bring to them a network of stores across 270 cities. We bring to them quality. We bring to them scalability. We bring to them consumer insights and delivery capability and a great customer experience. So this is a partnership of equals, a partnership where we have aligned interest in growing the market.
Understood. Just quickly on this, for example, when I order in, as I did today. It essentially acts as a pipe, and everything else is actually done by Domino's. There have been recent media reports saying that maybe Domino's will get somewhat aggregator [that picks up]. So any comments you would want to make on this?
So Manoj, you are absolutely right. Actually, correct that we land orders from aggregators, but we deliver, and we control the post-ordering delivery experience. We believe that's an important part of the customer experience value chain, and we intend to own that. We do not have -- in fact, the media speculation has been just that, speculation, completely unfounded. Like I said earlier, we have a very strong partnership with all aggregators, and we are in active conversations with them every day on how we can grow the market together.
And you believe that you'll be able to retain this for a reasonably long period of time, the same equilibrium?
Manoj, I think the fact that we have a common relationships and strategic interest in growing consumption and frequency, the fact that we are a large network, the fact that we are expanding a portfolio of brands, which we talked about, we have Dunkin' and Domino's. We just entered into Chinese with Hong's Kitchen, all of these collectively give us the conviction, the confidence that our strategic interest will remain aligned, and we'll enjoy a strong partnership to come for many years.
Understood. And just one last question. Any comments on the pricing through process -- on the pricing outlook, including mix. How are we seeing this currently? What is the mix? Basically, how is the mix trending -- the revenue mix? The second point is these general thoughts on pricing given that it's been more than probably 24 months we have actually seen a consumer price increase.
So Manoj, let me respond to the mix question first. You're aware that we've just launched a couple of months back our World Pizza League offering, a range of 10 pizzas that I talked about in my opening remarks as well. These are all at higher price points, none of the pizzas are in the entry-level everyday value slab. So we are growing the mix of slightly more premium products in helping drive revenue realization upside to mix management, number one. Number two, I talked about the beverage partnership and the margin impact. What's also happened and what we are driving deliberately is beverage portfolio growth. We had a very robust increase in beverage mix vis-à-vis same time last year. That again is helping us improve realizations and helping improve the flow-through. That said, coming to the first part of your question, pricing is a lever that we will be deploying sometime this year. We haven't taken pricing for almost 2.5 years now, close -- just under 3 years. And we realize that this is an option open to us, so that's something that we intend doing sometime in this year. As to how much it will be, very important play out, can't comment on that, but absolutely pricing is on the card at some point of time this year.
[Operator Instructions] Next question is from the line of Abneesh Roy from Edelweiss.
My first question is on international business. So Bangladesh launch has happened. And also you have taken a loss in the Sri Lanka business in terms of revenue recognition. So my question is what happened in Sri Lanka now things have got worse in terms of law and order there. Would there be further diminishing? And any learning from Sri Lanka which you are applying to Bangladesh?
So Abneesh, thank you for the questions. So obviously, we believe in the long-term potential of Sri Lanka market. The portion that we have taken in further diminishing the value of the investment, that is towards the close the stores. So like you are aware that we -- as a part of our business process, we continue to review and we continue to open and close stores. So in case of consolidated accounts, since all the losses gets absorbed, in the standalone, this was reflecting in our value of investments. So as a prudent accounting practice, to the extent of closing a store, we have taken off a write-off in the value of investment. We remain a bit about the potential of Sri Lankan market, and we believe that the current situation is only temporary. In the long run, we believe that our investment is good and recurring.
If I can add to what Prakash just spoke. I want to reiterate the fact that we believe the Sri Lanka market has potential in the long term. We believe that the current unfortunate events that are playing out will pass, and the market will recover soon. We have a very clear game plan in play for the Sri Lankan market and which will help us, we believe, turn the business around. We also have a new management team in place that has been deployed. So therefore, Sri Lanka, we believe, should start seeing positive signs soon. On an aside, and then this is very important for us, we were very, very relieved to know that all our employees and their families were safe through this unfortunate set of events. Coming to your other question about the learnings from Sri Lanka into Bangladesh. I think the very fact that Bangladesh launch had such a great start tells us and should sort of highlight the fact that, indeed, the lessons from Sri Lanka have been well learned. Let me call up 2 or 3 things that we specifically sort of introspected about from Sri Lanka, and we put into play in Bangladesh. The first one was that we created the menu and the set of products in Bangladesh, [as fresh], from scratch even though the Bangladeshi consumer spent about a year doing consumer research, consumer work product testing iteratively. So we almost -- I think there were about 4 iterations that we did at Gujarat to make sure that we got the products right. Bangladesh is a very, very different market from India, even from Bengal and it was important for us to acknowledge that and incorporate that in all the work that we did. That's the first point. The second point was about the importance of offering differentiated offering to customers. Our competitor, largest pizza competitor there, has been there for more than 10 years. And it was important for us to differentiate ourselves so our products were differentiated. Our pricing, we entered with BDT 149 pricing when the income went at, starting at BDT 249, BDT 249, that is. And the market was constrained. It hadn't seen growth. Pizza category wasn't democratized. It was and in many cases, many ways, it still is a premium category. So attempt in Bangladesh is to grow the category to expand the market and, therefore, value pricing, customized products, great in-store experience, all of these have helped shape demand. The other point, and it's interesting why we broken the world record, and we called it out earlier, it is largely on the back of dining in. Because delivery is -- we've just begun to open it right now. It should tell you how much of a latent demand exists in that market and that we are working to unlock.
Two follow-ups here. So why have you closed the stores in Sri Lanka? And what number of stores out of total in India you have closed? And you also closed 3 stores of Domino's in India. So could you get into the reasons where and why?
Yes. Let me talk about the Sri Lanka market that was part of the question. We closed 3 stores out of a network of 25 so we have 22 stores now. These were stores where -- which were loss-making for many years, where we believe after doing all the modeling and all the forecasting, it wouldn't turn around, wouldn't break even in the foreseeable future. We tried all avenues, including rent renegotiation, cutting other fixed costs. But I think that our prognosis was that these 3 stores we were best off -- better off just closing them. So those are the -- that's the response of Sri Lanka team. In India, coming to your India question, we closed 3 stores, 1 was in Calcutta, 1 was in Jaipur and 1 was in Chandigarh. One of them was for reasons linked to the property -- 2 of them were linked to reasons linked to the property and the real estate there where the mall was under renovation or was getting closed down. And in one case, again, we had similar issues of survivability. And the landlord refused to renegotiate the rent and we made the hard call of moving out.
And then last question is on this cloud kitchen, for example, one story has came up on [ Sigi ]. So what are the impact do you think because they are aggressive on pricing. And obviously, food takeouts are promoting them very aggressively. Second, any synergy benefit between Domino's and Hong's Kitchen in terms of delivery can happen?
So coming to the first part of your question, cloud kitchen is a format that many brands are using. I think it's important to know, and we talked about in the last call as well that Domino's also has few -- very few, but we do have some cloud kitchens going. Our learning on cloud kitchen is interesting that wherever you have a cloud kitchen, you have customers coming to us and asking for take away and for dining-in orders. So given our brand strength, we realized quickly that by having a very small and a very compact delivery carry-out store, we get better economics and better throughput than just having a pure dark kitchen store. Now coming to your point about Hong's Kitchen and Domino's. Prospectively, absolutely, we see efficiency as a possibility, and we see the possibility of using manpower, using platforms, using technologies. Of course, we have the common supply chain and back end. We have all the other common synergies that exist. But prospectively, we saw scaling of Hong's Kitchen, the synergies in delivery can also be opened to us.
Delivery uses Domino's shirts. So how will that be working?
Yes. So Abneesh, I don't want to go into the specifics of what we can do, but we are challenging ourselves to find the synergies between Domino's and other parts of the business. Obviously, the first part is to ensure that the Domino's experience still supporting it doesn't get compromised. So that is the number one, number two, number three priority. So we will not let that happen. We will not dilute that. But as we expand Hong's Kitchen, we will look at possibilities of how we can use the Domino's experience and the Domino's platform to get some synergies working for Hong's.
We take the next question from the line of Prasad Deshmukh from Bank of America.
A couple of questions. Firstly, you mentioned analytics to be a part of your growth driver, growth strategy in the next year. Just wanted to know as to what -- how will it be different from what you have been doing until now in terms of customer targeting, including customers to encourage them to purchase more? Is there some change in the strategy there?
So Prasad, I think you're right. I think we will be collecting data from customers for many, many years. I think what has happened in the last 3 months is that we built a huge capability -- or we built a data lake, we will use analytics engine on top of that. So we now have the ability to be able to work with this terabytes of data almost on a real-time basis and get very sharp and actionable insights. We had the data, but we didn't necessarily have the view of the customer and the infrastructure and the capability and the tools of being able to look at the data minutely and with very specific segmentation. So we now have the capability to be able to dice, slice, analyze the data and get information for segment of N is equal to 1. And that's the value add and building what we've done over what we had earlier. And as you can be sure that given the importance of data and the role that data will play in driving growth and driving customer behavior, we will invest even more in sharpening our capability of extracting those insights. So we are in the process of creating a strategy and insights team that will base out of the corporate office working with the digital team, with the marketing team, with the operations team and that will -- whose day job will be to look at customer-level data day in and day out, by segments, by dayparts, by types of stores and find ways of customizing our offering and our promotions to segments very sharply targeted. Essentially, we have began growing that capability. We realized the importance of this. We had the data but now we have, and we are building on the capability to be able to work with large amounts of data and get very specific insights.
Okay. So just last question as follow-up on this. We have -- I mean, in terms of financial impact, will this have an impact on your advertising spend? Or will this have an impact on the revenue generated? Or just to arrive at a number, how should one look at it?
So 2 things, Prasad. Of course, it will help us sharpen our marketing ROI. It will help us get a much sharper sense of which marketing dollar is giving us what kind of ROI and what kind of media mix modeling will certainly be an interesting by-product of this. And that will help us get back on marketing cost, help improve the ROI on marketing spend, number one. Number two, by customizing our products, our promotions, our messaging to customers, based on very sharp personalization, we will be able to hopefully get a revenue impact as well. It will be in terms of increased frequency, in terms of higher ticket. So it will certainly help top line.
Next question is from the line of Amit Sachdeva from HSBC.
So Pratik, I have one question on the SSG of 6% you mentioned 3, 4 reasons why it is 6%, which is very logical but if I were to look at coming quarters as well, probably all the factors are going to stay the same because base is high, and you will continue to open stores in existing locations and so these factors will probably persist. So should we take it from that sort of -- and basically is that whether going forward, we are looking at SSG growth in the same range? I'm not looking for guidance but just how to think about this when you think about FY '20, especially Domino's SSG growth?
So here's the way I want you to think about it and here's the way we are thinking about it. If you heard our opening remarks, we reiterated and we underlined our confidence in the long-term growth potential of this category in the long-term potential of Domino's and of Jubilant. And we talked about a set of strategic teams that we are deploying to drive growth. And nothing that has happened in the last quarter has shaken our confidence or made us believe that we need to have what we think. What the growth will be quarter-on-quarter, next quarter, the quarter after that, I'm unable to comment. But you can be sure that our longer-term confidence is undiminished.
Sure. Sure. Understood. Yes. In case you want to -- so just very quickly on Hong's Kitchen, I mean, obviously, it's very early days. But can you give us, like, what is your operating plan is for, say, 5 years now that you are basically seeing that format is having good response? What's the gross margin you're seeing this format could operate at? And how many stores we can have 1 year, 2 years, 5 years from now? Is there a vision that you would share? And what is the size of the opportunity you are seeing, say, 10 years from now? How many stores you could potentially open? How to think about this as well with some guidance will be helpful.
So Amit, I think -- let me repeat what I said earlier in terms of Hong's Kitchen and the way it got off to a very solid start. The one store that we have in Gurgaon, we have seen a robust order count, strong weekly sales. We are seeing very -- even more encouragingly, a very good customer response. We are seeing great customer satisfaction scores whether it's for products, whether it's for service or value for money. Our food that we're offering there in terms of the Indianized Chinese, if you will, that's been accepted well. We've got a few products that are a standout for us, differentiated products. Those are doing well. Our combos are doing well. So overall, the experience has been -- the feedback has been very positive and has given us a lot of conviction that we put the right mix going that we can scale up with. Chinese, as you know, is the second largest cuisine in the country after North Indian. It is roughly 3x the size of pizza. So the potential for Chinese cuisine remains very strong. And the [ cords ] that we are deploying for Hong's Kitchen we believe are the right ones to grow this market and to grow this space. Chinese food, customized for the Indian palate, great value for money, both dine-in and delivery. So the potential for this format and the brand is enormous. We intend, we've got 1 store now. Like I said, we intend to have at least 10 stores this year. And this will all be limited to Delhi this year because we want to first get that density of operation going. And next year, we intend to scale it up to other markets as well. I don't know how many stores we have 2, 3, 4, 5 years or 10 years from now, but the potential is enormous. I mean -- so if we are able to do the right things and early indicators are fairly reassuring and fairly positive, we believe that this format has a lot of potential.
Sure. That's very, very true. Pratik, just on a gross margin, at what gross margin the store is operating, if you can share?
We don't share the gross margin number, but we believe that between the gross margins and the fixed costs that we have, the algorithm that we've got going for Hong's Kitchen is strong and it's sustainable. Just one call out I want to -- given the other question. The question might come later but even if it doesn't, it's important for us to state that out, that our learnings from Dunkin' Donuts and the way we scaled that up are very, I know, are very vivid and very sharply etched in our mind. So we will make sure that we have unit economics rightly, confident, right to deliver as we scale up Hong's Kitchen. So gross margins restaurant profitability on numbers that we track very, very closely. And what we have seen in the last month, 1.5 months has given us a lot of confidence, and we believe that we have the right algorithm between -- in the store that we can scale up with.
Sure. What are the [ table turns ] that you've got in the first week of experience?
First week is misleading, Amit, because there's a lot of trial. I don't want to talk about specific numbers. But like I said, the start is very, very encouraging. And we have a great deal of confidence. If you had talked to us a couple of months back, we would have been optimistic, hopeful, but still a little anxious. And now the anxiety has reduced, and the confidence has increased.
Okay. That's actually good to hear that. Okay. Very, very good. So just very quickly, if I may, on the employee cost per store has risen by 10%. I see an acceleration over the last 4 quarters. It was flattish last year, but for the last 4 quarters I think per store employee cost has increased by 11% this year. So -- and it was 6 last quarter and 6 the previous quarter as well. So that sort of seems like a persistent trend, and you have to sort of combat this rising inflation of employee cost. Is that a fair assessment given the aggregators are, in the quest of hiring delivery personnel? And how we should think about that trend will continue?
Look, actually, Amit, the story in this quarter vis-à-vis last year, the last quarter that is in Q3 is actually a positive story and let me tell you what I mean. This clearly is the insight that you are seeing of deleverage in Q4 versus Q3, and that is impacting the personnel costs. There is inflation on account of minimum wage increases. A number of states have made wage revision, especially in the northeast, [ Odisha ] and [ Jarkan ]. That clearly flows into the cost line. However, and this is very important, however, I think a lot of good work done by the operations team in mitigating this cost inflation to productivity measures. So 2 or 3 things. One is that using technology that we've now got in play in our stores, we're able to monitor the orders that are delivered by our delivery partners. And needless to say, without compromising on safety or on food quality, we are finding smart ways and efficient ways of improving the orders that we deliver for non-[indiscernible]. So that efficiency has flowed through, number one. Number two, I think the operations team has done a very good job of managing the different kinds of manpower. So part-timer count has increased, and that's again delivered some efficiencies. And the third thing is that we've also had reduction in our fixed costs as we increased spans of control of our store managers and the themes outside the store using technology. They have more data. They are able to, therefore, have a wider span of control. All of those things that help mitigate the personnel costs. So going forward, these trends will play out. There will be inflation of minimum wage increases. But again, we believe that all our initiatives that we are putting to play in driving productivity will help combat that inflation.
Next question is from the line of Avi Mehta from IIFL.
Just if you look at the start as well, there seems -- you were highlighting an increasing focus on expansion to new cuisines, new geographies. Just wanted to kind of get a sense, does this suggest that you're seeing some sort of limit in your ability to grow Domino's given the size that you achieved in India?
Quite the contrary, Amit (sic) [ Avi ], actually. Because the first strategic pillar that we've called out and now that your question has come I want to repeat and reiterate is that we remain very, very confident about the prospects of Domino's in India. In existing towns, there is -- the market is much deeper. So markets like Bombay, Delhi, Bangalore, et cetera. We believe the market has a lot more headroom to grow, number one. Number two, in markets where we have only 1 store, for example, we can open 2, we can open 3; and very importantly, in new markets as well. So right now, we have about 270-odd towns. There could be many, many more towns, 500 more towns, 600 more towns that we believe the Domino's store can be profitable now as we speak, number two. Number three, there are formats, there are channels, travel and transport format like food trucks, et cetera, which can deliver higher growth for Domino's. So Domino's, we will remain in the bull side of the growth plan. I think the point you were making was about the prospects of Hong's Kitchen because the question came up, and we want to make sure that our center of gravity is Domino's and will remain that in the foreseeable future.
Perfect. Sorry, so Avi here again. Just wanted to understand the expansion that you are kind of contemplating. Does it in a way -- are you concerned about it kind of impacting margins? Or is it now given that this center of gravity would remain Domino's, this is not going to be material change in your trajectory?
So Avi, given the Domino's will remain the predominant part of our business, number one. Number two, given that the learnings from Dunkin' are not going to be forgotten. We do not expect the expansion to have a material impact on gross -- on margins.
Perfect. And lastly, just accounting question as asked earlier. Ind AS 116, is there an impact that you could quantify for us?
Avi, not at this point of time because in the transition, there are many options that are available. We are evaluating those things now. So when we come back at the Q1 time, obviously, we'll have all the numbers. So it's a little early to share those numbers.
Okay. And what are [indiscernible] probably be FY '20 store additions are you able to give any guidance on that one as well?
Yes. You'll recall that we have opened 102 stores last year. We intend to maintain the same trajectory in FY '20. So we're planning to open 100 stores of Domino's this year.
We take the next question from the line of Nishit Rathi from CWC Advisers.
Actually, my question on the store expansion has been answered. Just one question, any guidance for Dunkin', because if Dunkin' -- and you're kind of looking to expand that brand? Or are we happy with what we've achieved?
So Nishit, our Dunkin' plans for FY '20 are clear. It's -- we do not intend to expand the network as of now. We intend to get Dunkin' to full year breakeven. Watch the space. See how the contours of growth achieve with all they do. And in the next 12 months, chart the part for the next phase of growth for Dunkin'. As of now, it is not going to be expansion mode for Dunkin'.
I think there's one more question. 100 stores in light of what you achieved and the kind of resources at your disposal appears to be on the largely [consumer side]. So would just love to understand what is the reason for [this]? And what is the biggest constraint for you to open much more stores over there?
So Nishit, you will recall that we opened in the past many more stores, even up to 150 stores a year. But the one thing that we will not let ourselves forget is the fact that more than the number is the quality of stores, that's really important. So we do not intend diluting the process, diluting the rigor that we have deployed in the quest for speed. So we believe as of now that given all the opportunities out in the market, given what we believe is our own plan and our own set of resources, this is what we believe to be the best place to be, which is open 100 stores. But through the year, if we believe we need to recalibrate this upwards or downwards, we'll settle back with you folks. But as of now, we believe this is our best bet right now on what we think we can open without compromising on the rigor, without compromising on the thoroughness and the profitability that we put in place into our opening.
[Operator Instructions] Next question is from the line of Mahesh from CLSA.
You mentioned some moderation in growth rates in your dine-in segment. Can you shed some more thoughts on this? Is it more of a market or something specific to your chain of fast food segment per se? Any more insights you can share on this?
Yes. Mahesh, this is what we believe a trend that is across the restaurant industry, across the food service segment. As consumers morph their behavior, evolve their behavior and are getting increasingly comfortable with ordering food home. Certainly, the entire industry, and we were no exception last quarter. So all the impact on dine-in very clearly, whether it also includes some moderation on account of a larger slowdown, I'm unable to comment. But certainly, there is this visible behavior shift of dine-in coming under pressure and delivery growing faster. If anything, I believe, Mahesh, that our dine-in operations were impacted less than maybe some of the other restaurant brands, given our sharp focus on value for money, given our hyper-local presence, but this is a trend we are indeed seeing. I think the fact that aggregators are offering aggressive discounts, consumers are becoming much more convenience conscious, convenience seeking, this shift is happening. And this is an industry-wide phenomenon.
Okay. Okay. So secondly, quickly on your CapEx for FY '19. What is the total amount that you've spent? And if you can give some breakup in terms of how much you've spent on new stores, maintenance, anything on the back-end supply chain? And finally, what is your guidance for FY '20, especially given that you're now indeed a new format? So what is the CapEx that you're planning for this particular format of new store in Domino's?
So Mahesh, for the last year, obviously, the CapEx [ wasn't really ] [ about INR 360 crores ]. Mostly, it has gone into the new stores. And apart from new stores, we had also done some reimaging. So part of [ the capital ] went to reimaging. And we have some regular maintenance -- not actually maintenance, but replacement CapEx where we need to replace the old [indiscernible]. So part of it has gone into that. But mostly, it has gone into the new store. So as far as the next year is concerned, we are expecting currently that the CapEx should be in the range of around 2 30 to 2 50, within that range.
Okay. And tell me, this new format which you unveiled for Domino's the new format, self-ordering kiosk, et cetera. So what is the CapEx per store expected for this particular format? Is it higher than the -- I mean, it looks like it is a bit higher?
Mahesh, we believe it will be more or less cost-neutral probably some self-ordering kiosks we are putting in. So to that extent, the costs will go up, otherwise, by and large, [indiscernible].
I would say you need a number to work with CapEx for the new store vis-à-vis this new design, including self-ordering kiosks. The delta will be about between 7% to 10%.
Perfect. Perfect. And the new store opening you're opening at, say, 1 -- INR 10 million or -- plus or minus or a little higher than that now?
That's pretty much the...
The range. That's the range, yes.
We will take the next question from the line of [ Pranav Deldunkar ] from [ Blain ] Enterprise.
I guess if I -- I'm sorry if I missed this data, but what is the amount of proportion of delivery and in-restaurant earnings for Hong's Kitchen? How does it compare with the current mature Domino's outlets?
Sorry, we didn't hear who's asking the question. I'm sorry. Can you repeat the name, please?
It's from the line of [ Pranav Deldunkar ].
Sorry. I didn't hear that. The Hong's Kitchen store that has begun is just about 1.5 months old. As we've seen all new stores, it begins with dine-in. So the business is, right now, predominantly dine-in but in the last 2 to 3 weeks, we are beginning to see a very encouraging sign of delivery growing, number one. I think in Hong's Kitchen, what you may not know is that we also have our own app. We also do delivery by ourselves. And of course, we have a voice ordering engine as well. So we are beginning to see an encouraging growth in delivery orders, both on our own platform and also on aggregator platform. So -- and we are getting a lot of positive feedback on deliveries. They are getting [ their feet wet ]. Therefore, in the next 2 to 3 months, we see delivery growing significantly in line with what's happening in the rest of the market. But as of now, the Hong's Kitchen revenue is much more dine-in-centric, which is not unexpected, which is not surprising for us as planned.
Okay. So there is no behavioral change of consuming order design, order the Chinese way? Like the user will kind of feel both as the same, the [ fastness ] and freshness, everything?
Yes. Well, you know all the work that has been done on delivery show that Chinese retains flavor, retains temperature as well, if not better than pizzas. That's one of the cuisines which is very delivery-friendly.
Next question is from the line of Trupti Agrawal from White Oak Capital.
Just a quick question on this phenomenon that is happening in India of people changing trends of eating in versus dining out, for all that we've spoken about. What I'm very curious to know about is that how we will see the fact that there could be a potential threat to pizzas, which perhaps was one of the few categories which was available for delivery and in-house consumption versus now when there's such a wide plethora of choices that a consumer has in the changing times. So that's one. And two, I just want to know, are you seeing any trends -- maybe it's too early but in any of the micro markets, are you seeing trends in terms of this playing out with your pizza -- I mean, your deliveries or your orders are going down because of the competition from the aggregators?
So we are seeing this a little differently from the way you posed the question. We believe that the growth of the delivery market, the fact that consumers are becoming more and more comfortable with ordering food from outside of home more frequently, we believe that's a trend that plays to our strength, it's to our advantage. And therefore, we are very confident and very happy that we have allies in growing the space. Yes, there will be more cuisines and more choices and more options available to consumers in their ordering process at home, but the pie will grow so much more that it will help us drive overall growth. I think it's important to also to acknowledge that the frequency of ordering food home and the frequency of ordering pizzas home, both have tremendous headroom for growth vis-à-vis even comparable markets in the neighborhood, whether it is Thailand, whether it is Singapore, Malaysia. I'm not commenting about more and more developed markets. So we believe that there is a lot of headroom for growth, both in the pizza category in terms of recruitment, getting new customers to try the pizza category, in terms of frequency getting customers to order pizzas more often, in terms of ticket realizations, getting people to order more food per order and also, of course, growing order frequency of ordering food home. So we believe that this is not a threat. We believe this is an opportunity.
But by your own admission, I think you said that the categories of Chinese, for example, is so much bigger than pizza and the North Indian is much bigger. Now these were traditionally not -- so I mean, not available to all consumers to order in which are now available. So why are you so -- I mean, how are you so confident about pizza being the preferred category when in the light of the kind of situation that we are in?
Yes. I think it goes back to the point about the place that we are starting from. The fact that Domino's enjoys tremendous equity and even today, notwithstanding the competition, we remain the first choice of consumers. We understand consumers, we understand their requirements and their needs, and we are best placed to offer that across a variety of locations. So yes, the category will, I think, multiply in terms of choices, but the category will also grow in terms of frequency and in terms of expansion. So we've seen -- like I said, it's not a threat. I mean all the work that we are doing, all the consumer data points are showing undiminished regard and love for the Domino's brand, undiminished preference even in the face of increasing the choices on our data platforms.
Great. So just one last question, this one's on the rent. [indiscernible] [ quarter 4 rent ] [indiscernible] I think just about increased by 2%. But we've added about 30-odd stores, 33 stores. So how -- why has the rent expense not gone up? Can you please help me understand that?
Prakash?
Yes. So Trupti, 2 parts. The rank movement that you are seeing, of course, has the impact of new restaurants that were opened. It also has the impact of nominal inflation in rent in contracts. However, it was mitigated partly by productivity. Now the impact was also mitigated because a lot of our store opening was biased towards the latter half of the quarter. The full impact of the new stores didn't necessarily play out entirely in this quarter, but also important to recognize that we've gone back and in many cases, we renegotiated rents and even productivities as well.
Sure. And if I may just squeeze in one more quick question. I just want to know if you're seeing any changing trends in the app downloads over the last few months? Are they still at the same pace as they used to be? Or has that declined or increased?
Trupti, the fact that we've got a very strong app, I think that is also a strength for us. It's not widely known that our app rating on the Play Store are comparable or better than that of aggregator rating. Our app size is 6 MB, which is amongst the lowest apps that you see in this entire space. When we talk to customers, we get a lot of positive feedback. So as the app is a real source of strength for us. Our app download trajectory has not changed, and we've not seen any pressure on that as of now. What we also began doing, Trupti, and that's something we just started off last quarter is that we began using our dining-in assets and dining-in footfall and traffic to promote app downloads. So if you walk into a Domino's store in your neighborhood, you will see an invitation for you to download that and a promotion that will be offered to you on your first 3 orders when you download the app. So if you think of dining-in, footfalls should drive app downloads as well.
The next question is from the line of Amit Sinha from Macquarie.
Firstly, on your dine-in commentary, does this slowdown worry you in a way that you know the contribution from dine-in business is still pretty high for you? And if the slowdown is significant, then no matter how much is the growth in the delivery business might get muted on account of decline out of a significant slowdown in dine-in?
That's a fair question, Amit. And of course, the fact that dining in has slowed down is something that concerns us. It's something that we are focused on. So we're not taking this as a fait accompli or as something that we cannot impact and change, we have a set of plans that we are working on that we believe will help mitigate the demographic trends, which is coming -- which we talked about earlier for dine-in potential. So there are plans and issues that we will roll out through the remaining part of the year, which we believe will help drive dine-in traffic and dine-in growth. How that will impact us, we don't know. But certainly, it's something that consumes our attention and something that we are focused on.
Okay. Secondly, on your [ A&P ] spend as a percentage of sales. We don't have FY '19 numbers. I'm assuming that it has gone up meaningfully from FY '18 level so on the number at which we have for FY '18 is close to around 4.8% as a percentage of sales. So the question is, I mean, how should we look at this cost for FY '19? And going forward, should we expect a significant ramp-up even going forward as a percentage of sales?
Amit, clearly, given the fact that -- what we spoke about earlier that our aspirations for growth are high. The fact that there is now growth of a marketplace, the customers have more access, we need to make sure that we invest in the brand through focused investments and efficient investments in marketing and in advertising. So yes, there will be investments made in FY '20 incrementally or FY '19. However, we do not expect the percentage of spend to materially alter, number one. Number two, we are looking at very focused and data-driven ways of improving the ROI on a marketing spend, which will also help deliver the same bang for a lower buck.
[Operator Instructions] Next question is from the line of Vishal Gutka from PhillipCapital.
Most of my questions are answered. I only have one question. Can you please tell us what is the potential for Bangladesh market and those stores even the high population density we have over there?
Vishal, that's a great question, and it's a question that you can imagine we ask ourselves very often given the start we have had in Bangladesh. So Bangladesh is one of the most populous countries in the world. It's a market that reminds us in many ways of India a few years ago. It's young, it's growing, it has 60 years of 7%-plus GDP growth rate. There's a very young demographic becoming increasingly tech savvy. But we believe the market, like I said earlier, has been kept confined to the top sliver of the demographic. The market has not been expanded enough. So we believe that when we walk in, and that's what our first couple of months have shown, as we offer the right proposition, the right product, we are helping grow the market. So the potential in Bangladesh is tremendous. And we expect to tackle that as we play out the next few quarters in the next few years. How many stores, by brand, can't give a guidance. But certainly, this year, we expect to have 5 stores opened in Bangladesh. We -- just one other sort of caveat that I want to put here is that getting the right quality real estate in Dhaka at the right price points, the right floor size, et cetera, and with all the compliance in place, all the licenses in place, sometimes end up being a challenge. So therefore, what we need to be able to get more real estate, we could open more stores. But certainly, we expect to open 5 stores this year in Bangladesh and then more thereafter.
Thank you. And ladies and gentlemen, that was the last question for today. I would now like to hand the floor back to the management for their closing comments.
Thank you, everyone, for joining us on the call today. I'm hopeful that we were able to answer and address all your queries. Of course, it goes without saying that should you feel the need for any clarification, any further questions, please feel free to reach out to us or to CDR. And before I sign out, I just want to reiterate given what we've all talked about in the last hour or so that we are optimistic about the growth potential of the foodservice market in India, and we are very confident that we have the right strategy in place to drive growth and drive sustained profitable growth. Thank you very much, and have a good evening.
Thank you very much. Ladies and gentlemen, on behalf of Jubilant FoodWorks, we conclude today's conference. Thank you all for joining. You may disconnect your lines now.