Jubilant Foodworks Ltd
NSE:JUBLFOOD
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Jubilant Foodworks Ltd
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Ladies and gentlemen, good day, and welcome to Jubilant FoodWorks Q4 and FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.
Thank you. Welcome to Jubilant FoodWorks Quarter 4 and FY '20 Earnings Conference Call for analysts and investors. Today, we are joined by senior members of the management team, including Mr. Hari Bhartia, Co-Chairman of Jubilant FoodWorks; Mr. Pratik Pota, CEO; and Mr. Prakash Bisht, CFO. We propose to commence with key thoughts from Mr. Bhartia. Thereafter, we will have Mr. Pratik Pota sharing updates on the progress that JFL has made operationally, the impact and the response to COVID-19 and the strategic imperatives that lie ahead. I request to all participants given the disruption to the norm on account of COVID-19, members of the management are joining the call remotely. And thus, there could be some lag when responding to your queries. I urge you, therefore, to kindly bear with us. After the opening remarks from the management, the forum will be open for a question-and-answer session. A cautionary note. Certain statements that could be made on today's call could be forward-looking in nature, and actual results could vary from these statements. A detailed note in this regard is available in Jubilant FoodWorks' quarter 4 and FY '20 results release and earnings presentation, which are both available on the company's website under the Investor Relations section. I would now like to invite Mr. Bhartia to share his views with you. Thank you, and over to you, sir.
Thank you, and good evening to everyone. We are really meeting in extraordinary times. None of us could have anticipated that the pace with which COVID-19 could spread and effect the health and livelihood of people not only in India, but across the world. Our government also responded to this pandemic by bringing the entire country under strict lockdown to control the spread of the virus. This certainly helped in also preparing our healthcare services for the increasing numbers in the future. As all of you know, COVID-19 is firstly a public health crisis, but now with extended lockdown, it is increasingly an economic crisis. The scientists globally are trying to find a cure or a vaccine. But as all of you know, the virus is known to mutate. So it's difficult to predict how long this virus will stay with us. So while conducting our business, we definitely need to prepare our workforce for the new normal of a very heightened safety protocols and social distancing. We believe this public health crisis has large ramification on our food industry also. As a delivery-focused company, we have responded fast to effectively deal with the crisis and capture the opportunities in the new normal that will emerge. Let me take some time to explain this. Our first ramification would be concerned on safety of our employees and our customers. As all of you know, we were the first one to introduce effective safety and sanitization protocol across all our stores. Even pre-lockdown, we were the first to invest in systems for zero contact delivery and now introducing zero contact takeaway for safety of our customers and our employees. This is helping us to reassure our customers during the COVID situation. Secondly, we also saw supply chain disruption across the food industry. As all of you know, we have, right from the beginning, invested in building a robust supply chain and food processing sector across India, what we call in our parlance commissaries. This quickly helped us to introduce strict protocol on food safety and enabled fast reopening of the stores. I think having a centralized distribution point for stores definitely helps us in quick restart of the stores. Thirdly, we saw, during the lockdown, disruption in store operations. While the central government had categorized food delivery as a part of essential service, we were governed mainly by local authorities at city or district level. As and when allowed, we were the fastest to reopen among all food brands. You'll be glad to know that today, we have opened 938 stores, which is covering 87% of our entire delivery area before the lockdown. We certainly hope to open 100% of the delivery area by the mid of next June -- mid of this coming June. As you know, fourthly, that during the lockdown, only delivery services was allowed. Delivery Anywhere has been core to our business. We have made all efforts to attract customers through zero contact delivery. You'll be happy to know that we have already started to see full recovery of our delivery part of the business from any of our stores, especially in the smaller towns. As restrictions are progressively removed, we hope to recover our delivery and takeaway sales over the coming months in most of our cities. We are hopeful that our delivery and takeaway sales will help us partly to compensate for the drop in dine-in in some of these stores. If we have been restricted on dine-in, restricted seating because of social distancing will impact dine-in sales in the coming months. With the launch of zero contact takeaway, we hope to start recovering some of the lost dine-in sales. Our online ordering platform will also help us to drive contactless ordering in the stores and also create options for more innovations in this area. We hope to see our stores in malls start to reopen from June, after which we will be fully operational in the second quarter. Lastly, we have also seen increase in cost because of the additional safety protocol. During this period, we are revisiting all our cost structures, and already see opportunities in improving efficiencies. We are also taking several steps to conserve cash. Overall, we hope to come out of this crisis more efficient than before. I must add again here that our continuous investment in our tech platform and our commissaries have helped us to respond fast to the new requirements of the business. As delivery experts our own ordering platform and our own delivery infrastructure has been the biggest support in recovery during this COVID period. As some of you may know, the company has been extending help through all possible means to the communities that we serve. The company contributed INR 50 million to the PM CARES Fund, and our teams are working tirelessly to reach out to all the frontline warriors like health care workers, policemen at service. While the interim focus may be to prioritize more a conservative approach for growth, but we haven't lost sight of our bigger picture. With that, I would like to conclude that we believe in the long-term prospects of our food service industry, and we are confident that we will emerge stronger from the crisis on the basis of our safe and reliable delivery model, digital platform and a culture of strong execution. Finally, I must let you know that all our employees, whether they're at the operations level or at supply chain level, have done outstanding work during the lockdown period to help reopen the business and maintaining business continuity during this very tough period. And I must congratulate our management team are to support in this entire initiative. Now I would request our CEO, Pratik Pota, to continue this discussion by sharing his perspectives.
Thank you, Mr. Bhartia. Very good evening to everyone, and thank you for joining us today, and apologies for the 20-minute delay in starting the call. Before we start, I trust and hope that all of you and your families are safe and continue to remain so. I'm happy to report that all employees of JFL and their families are safe and sound too. I will start by speaking about our quarter 4 and the full year performance and the impact of COVID-19 within that. I will then share a little of how we have responded to the evolving situation and conclude by sharing my thoughts on the opportunities that lie ahead of us. On to the fourth quarter performance. The fourth quarter began well, coming off from strong results in the first 3 quarters. Our performance in January and February stores built solid momentum, with LFL growth in January being 8.4% and in February 14.9%. SSG in these 2 months was 7.2% and 13.1%, respectively. We remain on track to open more than 50 stores in the quarter. However, as we know, things began changing from mid-March onwards, especially post the Janta Curfew and the imposition of lockdown. Dine-in and takeaway operations were stopped completely, and even delivery was impacted adversely in large parts of the country. For context, over 2/3 of the business -- 2/3 of the sales of Domino's comes from delivery and takeaway. Additionally, product execution was stopped on the ground, and our store opening plan has to be significantly curtailed. Given this context, we reported a reasonably good performance during the quarter. Our operating revenue for quarter 4 FY '20 came in at INR 897 million, 3.8% higher year-on-year. Our EBITDA came in at INR 1,695 million at 18.9% of revenue. The EBITDA during the quarter was significantly impacted due to lower sales, like I said in the last -- in the second half of March and continued high dairy inflation, which was offset partially by a focus on productivity. Normalized profit after tax came in at INR 452 million at 5% of revenue. This includes an exceptional item of INR 323 million on account of: Number one, a provision for diminution in the value of investment of INR 200 million in the wholly owned subsidiary Jubilant FoodWorks Lanka Private Limited; and number two, expenses of INR 123 million specifically related to COVID-19 and the sudden lockdown. During the quarter, we saw an increase in online sales, which contributed to 89% of delivery sales. The Domino's Pizza app saw 3.8 million downloads in the quarter, and it remained the highest rated food app on the Google Play store. We opened 13 stores during the quarter for Domino's Pizza, with 33 Domino's stores remaining under construction and which will be completed and opened as soon as possible. Turning to the full year numbers. On a full year basis, we have reported a robust performance with operational revenues at INR 38,858 million, higher by 10.1% versus last year. EBITDA stood at INR 8,711 million and at 22.6% of revenues. Normalized tax was INR 3,090 million, at 8% of revenue. During the year, significant inflationary headwinds, especially in dairy, and the year-end COVID-19 crisis impacted margins, which was partially offset by the strong focus on running productivity and on extracting operational efficiencies. Our new store opening plan was on track until March, and we opened 130 new stores in FY '20. Of these, 123 were Domino's stores and the remaining were of the new business unit. Our present Domino's count stands at 1,335 restaurants in 282 cities. I will now turn to our response to the COVID-19 crisis, which was divided into 3 parts broadly. Phase I, we anticipated and prepared for the crisis, Phase 2, we responded to unfolding events and moved quickly to restore operations with agility. And in Phase 3, which is an ongoing phase, we are working to prepare for what's going to be the new normal post-COVID. A little bit more of details. In Phase 1, we anticipated that the coming crisis was around the corner, and we began preparations for it towards the end of February. All necessary PPEs, sanitizers and thermometers were sourced in week 1 March. We rolled out enhanced hygiene and sanitation protocols and ensured urgent training of all our store and commissary personnel in early March. As Mr. Bhartia said, we were the first brand to launch zero contact delivery, which was rolled out in mid-March and supported aggressively through our print and digital campaign. In Phase 2, post the imposition of the national lockdown, we worked with the local administrations in the cities and in the districts and the police to reopen our stores in a phased manner. Given how quickly events were unfolding and changing, and given sometimes the differentiated interpretation of central guidelines, this called for a huge amount of effort and on-ground coordination. We also worked with our vendors and our transporters to ensure that supply was not impacted, and we had supply continuity in our stores.I'm happy to share that as we speak, we have 938 stores operational, in turn covering, as Mr. Bhartia said, about 87% of our normal delivery network.In Phase 2, we also rolled out aggressive cost-reduction initiatives across the board. And we also took steps to reduce cash outflow and conserve cash a lot better. In Phase 3, we've begun working on preparing for business post-COVID for the new normal. Of course, as we know, these are early days. However, a few things are becoming increasingly clearer, and I will talk about them right now. I think stand to reason that the organized sectors will grow faster. There will be a shrinkage of the unorganized sector. And within the organized sector, trusted credible brands will grow faster and will gain market share. There will be, in all likelihood, a reduction in competitive intensity with many restaurants closing. Delivery will gain in share, in mix, and takeaway channels being in India much smaller until now, will also grow much faster. Consumers will be more and more comfortable ordering online and therefore, it will become even more important and critical for brands to have strong digital and data backbone. We believe that all of these trends will play to our strength. Finally, unexpected as this event was, I believe that our strategy for growth rolled out in 2017 and its disciplined execution since then has in a way almost prepared us for this crisis. Our strong balance sheet, our towering strength in delivery, our continued investment in digital and technology and our love mark brand, all place us in a unique position of strength, in which not only can we weather the storm but actually come out from this even stronger. Before concluding, it will be remiss of me if I didn't call out the tremendous amount of hard work, selfless service and courage of all our employees in the difficult period, especially those of our store and supply chain center teams. They continue to persevere day after day in the duty of serving the needs of our customers and our communities. I feel truly privileged, honored and humbled to lead a team of such incredible food soldiers. With this, I'll stop, and I would like to request the moderator to open the forum for questions, please. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on the store openings in Q4 and going ahead. In the previous quarters, you were adding around 40 stores, while this time, 75 days were normal, out of the 90 days, and you added around 13 stores. So was it a planned reduction because you saw COVID ballooning in February itself or it was more of March last 15 days bunching up which happens? And any insights into FY '21? Do you see more cloud kitchens because people will not be coming to restaurants initially. So instead of store opening, will cloud kitchens be the expenditure?
Thank you, Abneesh. In response to the first part of your question, I think the intention was to open more than 50 stores in the quarter. And we had the stores signed up and we had the stores under construction and we would have hit the targeted number had it not been for the 15- to 17-day disruption on account of COVID. So it wasn't a planned slowdown, it wasn't a planned pullback. We were confident that we would have delivered the targeted store opening number. Going forward, how do we expect the stores to change? Given that we will see a lot more of delivery and takeaway centric growth, we will expect the contribution of delivery carryout stores or delco stores to increase significantly. In any case, as you're aware, the Domino's store model is a very compact, very efficient one with small store sizes. Within that, we'll optimize it even further for delivery and carryout. I think given the evolving situation of COVID right now and, of course, also given the fact that it is impossible to execute things on the ground right now, we are taking a pause this quarter for store openings. What we will have opened in quarter 1 and as soon as we can, other rollover stores from last quarter, of which there are already about 33 as you're aware, those stores will open as and when to get permissions to execute projects on the ground. But we are right now taking a pause in opening more stores for quarter 1, waiting for the situation to unfold. As and when it unfolds, as and when we start opening the stores, like I said, there will be even more optimized and efficient stores oriented towards delivery and carryout. I hope that answers your question, Abneesh.
Yes, slightly. I couldn't understand pro rata 50 stores versus, say, 13, I couldn't understand. So it was more bunching up which happens at the end of the quarter or so.
That's right. That's right. That's right. It was by design and meant to open in the second part of March.
And any insights...
As part of our calendar -- sorry, please go ahead.
Yes. So one follow-up on the first question only. So any insights you can share on the 930 stores which are opened. How has been the response in the past few weeks?
Sorry, Abneesh, I couldn't hear you. Your voice broke a little bit. Can you repeat the question?
The 930 stores which have reopened, how has been the response past few weeks?
Okay. So let me talk about how April and the last few weeks have gone. I think it's important to recognize that in this period, our single biggest priority has been to ensure the safety and the good health of our employees and our customers. In these stores, and as we resume them for delivery, of course, we know that dine-ins has remained shut all through April post the lockdown and even now. In delivery, we are seeing some encouraging signs and especially in the smaller towns, many of our stores have recovered their pre-COVID delivery sales. I think our communication about zero contact delivery, our strong brand and our marketing and CRM efforts have ensured that in many markets we've recovered delivery pace. I think there is room for us to catch up in some of these larger towns which have been more impacted by COVID. But I would say on the whole, our experience is fairly encouraging.
Right. My second and last question is on the Domino's Essentials. So how do you recognize the revenue here? And what is the revenue share? And are you working with most of the bigger companies? And all the cities is this being offered, all the cities, all the stores, wherever open?
I'll request Prakashji to answer the question about revenue recognition. But just to point to your second part of the question, almost 100 cities now have Domino's Essential live. This is a portfolio which has a number of essential products. There is atta, there is milk, there are spices, there is edible oil. So there is a portfolio that we put together, keeping in mind the varying needs of consumers. Prakashji, over to you.
So the revenue recognition for Essential, it's a trading model. So we buy it from the FMCGs and then we sell it. So it is at the point-of-sale for us. It's our stock.
And revenue share?
No, no, we buy it at -- not a revenue share. So it's a straight purchase. So it's a kind of a trading. So you buy it from the supplier and then you sell it at MRP.
And one follow-up here, the thought process behind this is better utilization of the delivery person, right?
Pratik, over to you, back.
Yes, sorry. No. So Abneesh, the -- I think the purpose behind launching Essentials was to be of additional service to our communities and our customers at a time when access to even basic essential products was difficult and hard to come by. So we asked ourselves the question, how can we think back end, our store footprint, large store footprint, and our last mile delivery capabilities and of course, our digital presence as well to be able to be of service to customers. It was meant as a community service project using our legacy brand.
The next question is from the line of Arnab Mitra from Credit Suisse.
On the cost side, I wanted to understand from you, what are the kind of cost levers that you have on the staff cost and rent, especially on rent if any kind of renegotiation at a very large scale you have been able to get? And on the staff cost side, how much of the cost can be variabilized in this period of very low sales? So that was my first question.
Okay. Let me respond to that. So given the nature of the crisis and the impact on revenues, it was imperative that we moved quickly to address each and every cost and reduce the cost and variabilize them as far as possible. Rent is an area where we have reached out to the landlords, explained to them the challenge that we are facing and asked for their support with rent reduction. We've invoked the force majeure clause in the contract and requested for rent reduction. We made reasonable progress. Depending on the region, depending on the format of the stores, we made differential progress. There's more work that remains to be done, but we have made some reasonably good progress on the rent front. On the manpower, you would recall, Arnab, that our manpower, as we talked about in the earlier earnings calls as well, our manpower was a combination of full-timers, part-timers and pay per delivery. And we've often called out how we changed the mix to drive efficiencies. I think it was critical for us to variabilize even that model. So we have moved to convert all our full-timers and part-timers to flexi-timers. In other words, we do not need to call them and commit to them X number of hours, either 8 hours or 4 hours, but we can indent and call for them in incremental slabs of 1 hour each. So that effort is going on, and we made very good progress on the ground. Most of our store manpower now has been converted from full-time or part-time to flexi-timers. We've also had -- we've also made good progress on reducing the G&A costs across a variety of line items. And on the store operating costs, again, it was imperative that we went back and looked at all the cost lines. We made very good progress there. To illustrate and give you one example, in all our maintenance costs, we have had AMCs for efficiency. In this period, given the uncertainty about the outlook, we have moved from AMCs to incident-based and instance-based costs. So only when there's a breakdown would we incur the cost and we would not incur the fixed cost of the AMC. We've also had significant savings driven on logistics and warehousing. We've reduced the number of -- the size of the fleet that we use because we don't need to. We reduced the warehousing costs. So across a variety of areas we've actually had a relook at cost and made encouraging progress. And of course, going forward, as Mr. Bhartia said in his opening remarks, it allows us to become a much more efficient business as we revisit all the costs and look at them from a rent bearing perspective.
That's very helpful. My second and last question, you did share that in the smaller towns, you are almost back to the -- in some cases, back to the pre-COVID level of delivery. So in the top 10 cities, what kind of salience of sales currently do you have? And any sense of what kind of recovery are you seeing there in the delivery part of the business?
No, so Arnab it is hard to give you specific numbers, but let me tell you the broad theme. Even in the large cities, it's not as if there is a common theme across. We are seeing much better pickup in some of the towns as compared to the others. So to give you an example, I think we were impacted as a category, not just us by the incident in mid-April which created some headlines and news. So North has seen a slightly slow recovery, but most of the markets are seeing -- even the large towns reasonably robust and good recover in the delivery sales.
The next question is from the line of Manoj Menon from ICICI Securities.
Pratik and team because it was an extremely good performance given the context and thanks for the high level even significantly better disclosures, particularly on the cost front just now. So just one question on the consumer behavior part. While I understood the comment about the small towns back to the pre-COVID, the only question here is, if I understand correctly, probably 70% of the revenues in value terms comes actually from probably the top 5, 6, 7 cities. So it's mostly a metro phenomena which is COVID, so to that extent there is that bit of an exposure. So just trying to understand what's your prognosis of how does it look? I know that it's a bit of a crystal ball gazing here, let's say, on the consumer behavior over, let's say, a 6-month period from where we are today?
Thanks, Manoj. And I hope you are safe. Let me respond to your question. Like you said, it is indeed crystal ball gazing to an extent. But we've got a series of initiatives going on in the ground to understand the likely change in consumer behavior, and some themes are becoming fairly clear even now, and some of them are reasonably obvious. I think given the growing importance of sanitization, hygiene, we will see the unorganized street-side sector shrink. People will move towards organized sector. And as they come to the organized sector, they will enter in segments which are a combination of great quality food, safety and hygiene and value for money and that, of course, is the QSR category. So we believe that the QSR space will start seeing significant growth and reap the benefits of the industry being more and more structured and more organized. That's the first point. We will see and we are beginning to see already a change in behavior where consumers seek and navigate less by discount and more by trust and more by quality and more by brand credibility and brand experience, number two. Number three, there will be a very clear shift in channel behavior. Why we believe dine-in will come back at some point of time because the dine-in behavior of groups of people going out together and celebrate and to have a good time, that will not go away forever. It will come back. But in the near-term, in the near future, delivery will grow faster and takeaway channels will be opted by consumers to replace part of the dine-in occasion. We also expect consumers to become more value conscious and more value focused, given the nature of this pandemic and the anxiety around it. And then also, we expect a lot more adoption. This crisis period has been almost a driver of a lot of consumers embracing online ordering, even for categories where they were not doing so earlier like groceries, that behavior will rub off onto our category as well. So we will see a lot more adoption of delivery and of online ordering even amongst consumer cohorts who weren't doing so earlier. So those are the likely trends the way we are seeing it. And like I said earlier in my remarks, most of these trends -- in fact, all of these likely trends are going to be playing to our strength.
If I can add, Pratik what you have stated, this is Hari Bhartia, see, the initial period of action by the government on lockdown is -- the behavior of local authorities were different in different cities. In some places, we were allowed to open till 5:00, some places till 7:00, some places we were allowed to open until late. And more and more, we are hoping that there is a realization that business must continue. So we will also see that with proper sanitization protocol, safety protocol, we would be able to operate more number of hours in more cities as it is important even for the government to allow business continuity as even though COVID situation may not go away. So to that extent, the initial shock factor also will slowly die down. And that, to some extent, should affect the consumer behavior because some normalization, hopefully, will take place, and we are seeing that in different cities.
Understood. Understood. If I may, just the second question here is essentially linked to the first one because I was trying to get it right in my head, that if let's say, the size of the delivery market in India pre-COVID was, like say, an index of 100, I was just trying to understand that, how does this 100 would look like in an year's time, not a quarter or 2 because that's, at least in a year's time, 12 months from today. And the context of this question was the actions by 2 leading delivery players, Swiggy and Zomato. And when I was reading their blog and what they're actually thinking, it seems to be what they are communicating. There seems to have a little more cautious view about the size of the delivery market in itself 12 months from today?
No, it is a fair question. And I would probably wouldn't like to comment on the views professed or shared by others. I think our outlook for delivery looking at our brands, our business model, our strength, we believe -- and looking at our own consumer behavior and data, I must confess we don't share that pessimism. We believe that for the reasons that I mentioned earlier, consumers will look for safer, healthier, high quality food when it comes to trusted brands. So they embrace alternate channels like takeaway. They may not be comfortable sitting in a store, in a closed thing for long, in the beginning, but they will need to live life normally and they will change and alter behaviors to make sure that they can go out, celebrate, live the normal life. Also remember the material effect that in a time of crisis people look for some markers of normalcy, some markers to tell them that life hasn't changed so much. We believe brands like Domino's which are strong, trusted brands, having here for the longest time, for 25 years plus, will offer that comfort, will offer that reassurance that all is still well. So like I said, I don't think we are pessimistic about the recovery of delivery. The pace of recovery, your guess is as good as mine. We are seeing some good recovery in the smaller towns. So we can debate how that recovery will play out. But we are not pessimistic.
Yes. I just like to add to that, I'm Shyam Bhartia, that for some players, the total availability of restaurants will come down because many of the restaurants will close down, which will benefit us because those people will come to us and more trusted brands.
Absolutely. Absolutely. Absolutely. Because I think -- so I'll tell you a note, earlier in the morning today, right, I was talking to this [ LAZIZ PIZZA] their comment essentially was that, look, pizza probably as a product also because of the high-temperature baking, low human contact, even as a product potentially could outperform significantly. Good luck Pratik and team.
Thank you. Thank you, Manoj.
[Operator Instructions] Next question is from the line of Ruchit Mehta from SBI Mutual Funds.
So I know you commented about qualitatively on post-March, how things have been behaving. But in line with what Domino's Global has done, could you share what has been company level trajectory on revenues or SSG, even if you just qualitatively come in, let's say, in February, you were at 100% and in March was X, and how that has progressed going forward?And secondly, in terms of store counts also, would you, at some point in time, need to reassess viability of some stores if you look at -- whether you want to continue with the expansion given the situation currently or existing stores need to be kind of relooked at?
Thank you. Let me respond to the first part of the question. No. I think our -- my response will not be very different from what I shared earlier. It will be a little bit more qualitative than specific and quantitative.Like I said, through the month of April towards end of March, well, our focus was on ensuring that our employees and customers were safe. And equally, we worked on the ground to restore normalcy, to reopen stores, to ensure supply continuity. All of those are very, very important drivers of business. I think we also made sure that we maintained our communication in Naukri with our customers and the consumers. I think it was important for them to know that we were around, and we were taking all necessary steps to ensure their safety, to ensure we were taking even heightened protocols for that. So the entire zero-contact delivery campaign that we did, aggressive campaign in digital, on the ground, and thereafter, in Network CBC were important in that regard. And that has clearly helped us. I mean we have seen our customer confidence come back. We have seen the momentum in many, many markets come back to either near pre-COVID level, or like we said earlier, absolutely pre-COVID level. And as the lockdown rules get more relaxed and as more activity permitted in the ground, and afterwards, allowed to open for the full duration and not for curtailed timings, we expect that this will increase even further in the month of May and June.
Okay. Just for a much better understanding, sorry, would it be fair to say that a large part of April, because the stores were shut, we would have had 0 revenues completely in most of the locations in there, as such. Can I get a...
So the question was what? Can you it again, please?
The lockdown started getting lifted partially from 21st of April. So would it be fair to assume that a pretty good part of April, there was 0 revenues?
Yes. Look, I don't want -- like I said, I don't want to give a specific response. But our stores began reopening from April itself. We were the first QSR to reopen our stores, and even as we speak today, our -- the network that we have opened and operational is the highest among QSRs. I think given our strong on-ground presence, the fact that our store model is not molding, our store model is a combination of high-speed stores, neighborhood stores optimized for delivery and a few stores in malls and in food stores. I think that a very robust combination allows us to open a lot faster and a lot ahead of others.Okay. Now coming to your second question about stores and our store outlook. Like I said earlier in my response to Abneesh, we are looking at only opening the rollover stores from last year in the first few months, even as we take a look and revisit our store opening plans for this year.Yes, given the nature of the business impact, there will likely be some stores where profitability will be challenged. In these stores, the first thing we'll do is to address and revisit all cost lines first. Starting with rent, we'll go back to landlords and renegotiate rents, share them transparently the rough revenues and ask for rent reductions; other operating costs; other manpower costs. We'll look at first all the cost items. And if we believe that the store can be made to turn around with those reduced costs and the lower revenues, then the store will continue. We'll, of course, also have, it goes without saying, extensive effort need to drive revenues from these stores. So if we could convert a few dine-in-only stores to dine-in-plus, takeaway-plus deliveries, that will obviously help drive revenues. Between the revenue maximization efforts and the cost reduction efforts, if a store looks like it's not going to become profitable, then we will take a hard call and look at shutting that store. But there are a lot of work themes that we want access to before we take a call on store closures.
The next question is from the line of Avi Mehta from IIFL.
This was in regard to what you said in the start -- in the mid of the call about the consumers trying to seek value products. Is that something that you are witnessing in your delivery sales as well? And if you could kind of highlight that? And also, if you could also highlight the share of delivery, how would -- what would it be for -- till Feb because March obviously would be different?
So Avi, on your first question, my statement was more about the likely impact of the COVID crisis on consumer behavior in the future. As people worry about their income, job security and just the uncertainty around the crisis, all data points that we are tracking show that consumers have become more value-conscious, and we expect that to play out in the future. We believe that's something that will play to our strength because we are extremely value-driven company. And we are at the...
Sir, what I was trying to get is, is that April and May also witnessing your focus more towards value? Is that also what we're seeing right now as well or no?
See, if we're looking to call -- look at April and May numbers because these numbers are impacted a little artificially because of the lockdown, because of people being at home, large group sizes, large orders, meal replacements. So I think -- and in fact the dine-in is not open. So it would be a little misleading to look at only April or only April and May. But I think this is a trend that we can plan for in the future.
Okay. And the delivery savings in -- till Feb, would you be able to share?
Look, like I said in my opening remarks, almost 70% of our sales come from delivery and takeaway.
70%? Okay.
Yes.
And if -- with your permission, just this provision, is this more one-off, the COVID provision? Or is this likely to continue? Because I'm not able to understand this nature. Could you explain that? That was all from my side.
Sure.
Yes. Avi, this is Prakash Bisht. So let me take this question. So it is more of a one-off kind of a thing because what happened was when we -- lockdown was announced suddenly, so all our running stores had to shut down. So as you recall and as you are aware, that we have perishable raw material. So a lot of raw material that we had in the stores got perished and we had to write it off. So unless otherwise there is a sudden stoppage of the entire network, this kind of one-off may not be there, but part of it is also, as Pratik was saying, towards our increased hygiene and that we did during that period.
But not towards the higher operating expenses, the sanitizing, you said, zero contact, you have to invest in your employees?
No. But mostly, it is the write-off of the store which happened because of the sudden nature of stoppage of the stores.
The next question is from the line of Manasvi Shah from ICICI Prudential Mutual Fund.
So if I see your employee costs for the year, they have actually gone up sharply around 16%, 17%. Can you throw some light on this? Why is this so? And what sort of trends do you expect over here for the coming 1 or 2 years?
Okay. Again, this is Prakash. Let me take this point. So employee cost is a big line item for us. So obviously, as you are aware that employee cost is subject to inflation because when you have employees -- and in our case, as you are aware, that most of our employees, including the store manpower, were company employees. And part of it were covered under minimum wages. Now the government keeps on changing the minimum wages. When the minimum wage increases, we have to give the minimum wage. And we have to also give the increments. So partly, this is coming mainly because of the inflation. So that is the reason why you see the increase in the employee cost.
Okay. Okay. Fair enough. And also, there is an increase in the inventory days. Is this because of the Domino's Essentials portfolio?
No, no, no. It's mostly because as the -- suddenly, the shutdown happened in the second half of March. And prior to that, we were carrying inventory for normal operations. So when suddenly, the operation did not happen and we had to close down, so that is the increase -- that is getting reflected in the [ inventory days ]. If the operations were normal, it would have been consumed.
The next question is from the line of Chanchal Khandelwal from Birla Mutual Funds.
And just on the question, which was told before and when you highlighted that the organized industry will gain, you are sitting in a huge amount of net cash. I know people are consolidating now and people are trying to preserve cash. But if I were to look in a different way, the opportunity for you to grow in different brands and use this as an opportunity to grow and prepare ourselves for the next 2 to 3 years. Any thoughts on this line?
I think, Chanchal, at a time like this, it is -- gives us rock-solid comfort to have a balance sheet that we do and the cash reserves that we do. Our interim focus right now is on ensuring that we conserve cash and manage it well to tide over the crisis. So that's an absolute razor-sharp, near-term focus.In the further out future, does the same cash reserve give us opportunities for growth -- to continue our growth? Yes, it does. But that's further out in the future. Right now, we are focused on cash conservation.
But just to add, this is Hari Bhartia. And at this period, not only -- even if we have cash reserves with us, the focus would be really that we see how to bring Domino's back to its full form and growth that we used to see in the last 2 years, and then look at expansion into other brands or acquisition, if you really look at it that way.
Sure. Sure. This is very clear. Secondly, on the employee cost, I mean, employee would play a critical role going forward as we hear in Bombay and some of the other restaurants, employee has got COVID and people are closing buying from those restaurants. How are you all taking care of -- you've highlighted a few of them, but how are you taking care that employees are, in particular, taking care of health when they go back and when they rejoin you? So anything you want to highlight in terms of what are the precautionary steps you are taking?
I think that's a really good question. And no, I must say that, here, we are doing -- a lot of initiatives we are taking to ensure that our employees are safe. That's obviously the #1 priority.In our stores and in our commissaries, all employees have been wearing masks and gloves from early March. They have daily temperature checks that gets done. All our store teams have Aarogya Setu app, and therefore, they have the self-certification of their health and of their contact behavior. We moved very quickly to remove cash-on delivery from our OLO app. So we only now accept prepaid orders to further minimize the risk of contamination. And additionally, we've now introduced to all our store employees 100% medical checkup that's done every week. So all our store employees get checked every week by a doctor, and that's additional comfort for our employees that they are safe and they're taken care of.
[Operator Instructions] The next question is from the line of Prasad Deshmukh from Bank of America.
So two questions. Firstly, on Hong's Kitchen, how was the response during -- I mean, post-COVID to this format? And does this change the expansion strategy here because, I mean, you mentioned that in Domino's, you would be looking at more cloud kitchen kind of a format. In Hong's Kitchen, does that change the strategy? That is question one.And second is, you mentioned that some of the markets have opened up and the levels of activity are back to pre-COVID level. So could you just share some learnings from these markets? First of all, which are these markets and some learnings from these markets?
Sure. Sure, Prasad. So let me point to the question on Hong's Kitchen first. The Chinese food segment, we had talked about earlier, that it was a very high opportunity market for us. If anything, the onset of this pandemic, of COVID underlines the opportunity, the immense opportunity in the Chinese food space. There is a vast chasm between the fine dines and the premium casual dines in Chinese. Most consumers adopt the street-type Chinese consumption. Between the 2, there is a gap. And therefore, the space of an affordable, safe, hygienic, tasty Chinese would experience, that space is ready to be taken. And Hong's Kitchen plays fair and square in that space.We were seeing good momentum on Hong's Kitchen pre-COVID. After the hiatus in end March and early April, we have seen momentum pick up in Hong's as well.To your question about the formats in Hong's, I think, given the ubiquitous nature of dine-in being under pressure, we will also have Hong's Kitchen focus more on delivery and carryout, not so much cloud kitchen because brand theme is important for a new brand, but certainly, more optimized smaller stores which are oriented towards doing delivery and carryout. So that will be the strategy. We will be focused to begin with on the Delhi NCR region this year, and thereafter, we'll expand to other markets.
So does it mean that the number of store openings will accelerate here versus what you had earlier planned?
No, I would not say that. I would say that we will remain focused on Delhi NCR in the Chinese food space. The point I made earlier about being conservative in this quarter and part of the next remains valid also for Hong's Kitchen.
Sure. And the second question was about that markets -- the learnings from other markets?
Yes. No, I think it is a good question. I think there are many markets, like I said, many towns where we have recovered our delivery sales. These towns are towns where we were allowed to continue uninterrupted for long stretches of time. In other words, there haven't been frequent stoppages of our operations. So if consumers are aware that we are available, and we are available on a continuous basis, the learning is that they go back to their old habits, and again, start doing home ordering. So that's the one big learning that we have vis-à-vis markets where we haven't done as well, where recovery has been a little slower.
The next question is from the line of Tejash Shah from Spark Capital.
Let me start with a word of appreciation for your whole team, and especially your store-level staff to take so much risk in this time to provide food to customers like us. Sir, my first question is delivery of essentials. Now is this line of business just an outcome of the crisis like what we are facing right now? Or are we seeing a long-term engagement as a vertical here? And do you think this can pivot something into like liquor delivery as we saw last evening that a couple of states have allowed food aggregators to be part of the supply chain here?
Thank you for the kind words, Tejash. And I must say that I have tremendous pride in the way our store teams have responded to the crisis and responded to the government calling this out an essential service and ensuring that our stores stay operational and serve communities.Essentials was a step in that direction. We were seeing lots of reports about customers struggling to get dal, chawal, atta and those kinds of basic essential products. So we asked the question, how can we be of help? How can we make a difference? And from there, came the essentials project. I think the fact that we were able to turn it around was 48 hours plan from end-to-end and tells us how deep our stems are across supply chain, across digital, across last-mile delivery. The essentials project was born out of that consumer need and the community need. It is intended to stay in operation for the duration of this pandemic and as long as we believe communities still need us. It is not envisaged right now as a long-term business opportunity.
Sure. Sir, second, you spoke -- you touched upon that, that dine-in seems to be the biggest casualty of this event. Now post the lockdown also in whatever we are reading in other markets where COVID is subsiding, dine-in was actually not picking up. So any structural changes in terms of open kitchen or other interventions in terms of extra discount that you'll have to run to give that comfort for customer to step in? Or you believe that, that demand will actually be cannibalized and serviced by delivery -- home deliveries?
No. The thing -- I think it's a fair question. I think the point of fact on dine-in is that it is not allowed right now in any market. So it is premature right now in learning to anticipate how consumers will respond to when dine-in opens. But again, our research shows and our consumer data shows that when dine-in opens, there will be a few things that will become really important. Like I said in my opening remarks that the people would go towards hygiene and sanitation. And therefore, symbols of that would become important. So an open kitchen, like you said, is going to be of super importance. And all our stores are pizza theater stores, they are open kitchens, consumers can see exactly what standards are being followed in the kitchen. We believe that's going to be something that will work to our advantage, number one.Number two, we are -- and Mr. Bhartia spoke about it in his opening remarks, we are looking at launching a contactless dine-in proposition when dine-in is allowed in our stores. The zero-contact dine-in will allow consumers to maintain social distance and to avail of -- or dine-in experience, order pizzas in dine-in, pay and consummate that -- the transaction. We also have redesigned all our stores in dine-in and then changed the layout completely to make sure that there is 6 feet of separation between tables, we put the floor markers and stickers. So we are completely ready to hit the ground running as soon as dine-in is allowed.Dine-in will remain a challenge for some time. But like I said earlier, dine-in will come back at some point of time because people will want to go out and eat together as a group. But we are prepared to respond to the consumers' need for a safer and more transparent dine-in experience.
The next question is from the line of Latika Chopra from JPMorgan.
My first question was on the gross margin profile. You did mention about high dairy inflation, and you did talk about lower promotion intensity and lesser competition. In this context, as we look ahead, how do you anticipate gross margin profile to look like? Is the dairy inflation abating at the margin? That is the first question.
Thank you, Latika, and I hope you are safe. In response to your first -- your question about inflation, you are aware that last year, we saw a significant inflation in dairy and cheese, and we've called out in all our quarters the impact of that on our gross margins. Happy to report that on account of a variety of reasons, including increased supply, we have seen the milk and the cheese prices come down. That impact has not flowed into the P&L in quarter 1 because we're carrying inventory -- in quarter 4 rather, sorry. But we expect to see going forward, some positive rub-off on account of dairy inflation coming down.
Sure. My second question was on takeaway and carryout. You mentioned 70% of sales are delivery and takeaway. Is it possible to talk about what is the salience of takeaway? More importantly, what I wanted to understand was, what are the steps you could take to ensure higher share of takeaway on board.
Latika, I won't be able to share specific numbers on the takeaway contribution, but it is still small. It is not very large, and we believe that there is a huge headroom for us to grow takeaway as a channel. Takeaway will serve to the least stage and to the occasions that a consumer currently right now adjusts for dine-in. And that occasion will now move to takeaway increasingly. And we are very, very bullish about the prospects of this category. So we are working on a specific plan for driving zero-contact takeaway. It's ready in our stores and ready for us to -- for consumers to come in and experience.
The next question is from the line of Pulkit Singhal from Motilal Oswal Asset Management.
Very glad to know that everyone is safe in the Domino's family. Just a couple of questions. Number one, first question is more in terms of some data points. Whatever be the new customer acquisition rate that you had prior to COVID, let's say, you apply a certain number of customers every month, has that gone up or gone down in April and May? And if you could give some percentage of how much this might have gone up or gone down?
Thank you, Pulkit. Thank you for your message, and I hope you are safe, too. Pulkit, we don't share such data, as you know, in our -- granularly -- for even the past quarter and even on the current quarter.But given the present something -- let me give you some broad trends, and I talked about it earlier also in my remarks, about delivery beginning to come back, some towns faster than the others. The same trend is reflected also in new customer acquisition. We are seeing in some markets, customer acquisitions come back. There was a slowdown in March and early April. But post mid-April, we began to see some recovery in the pace of customer acquisition as well, as reflected in metrics like app downloads and active users going up. So we are seeing those lead indicators go up and improve. And like I said, the trend is better in some towns as compared to the others.
And in terms of discounting for the year, how should we look at it? I mean given where the situation is, is it reasonable to expect that some of the raw material benefit prices you might have to pass on to the customers for -- to kind of revise demand? Or I mean, how would discounting be for the full year compared to the last full year, broadly?
Yes. I mean thanks for that one. And that's a great question. Look, there'll be 2 contrarian trends we note on the discount cost line. The first one, which I think, Latika also sort of alluded to earlier, was the reduction in competitive intensity. And therefore, any consumer looking for -- more for quality and sanitation rather than discount and deals. So that will be one trend and one theme which will help us possibly contain discounts. Equally, however, there'll be the consumers' need for value and promotions and offers to come back into the category and to come back and drive consumption harder. So these 2 contrarian trends will play out. It's hard to sort of estimate right now where that will end up. But obviously, the trend will be to mutually contain margins as much as containing responses as much as we can while driving growth.
My last question, sir, is on the employee expense part, and I'm just thinking of it from the next 3 to 5 years perspective. I mean we all kind of agree in -- that e-commerce will kind of pick up or already had picked up in a major way and possibly will continue. And to that extent, a part of the benefits also goes -- comes to Domino's in terms of the ordering habit. But I mean, one of your key sense has been this huge delivery fees. And I'm just worried whether, I mean, your ability to contain the cost out there for the kind of inflation we might see out there, do you expect that the next 3 to 5 years can be quite different from what we've experienced in the last 3 to 5 years on this aspect? And what can be done to kind of contain it?
Just to clarify, Pulkit, you're asking about the delivery fees, you said. Is that what you said?
Yes, considering the employee expense, I'm just trying to understand that line item because if e-commerce is going to pick up in a major way across different categories, I mean, for -- in general, even to deliver FMCG goods, et cetera, that can result in a lot of poaching, et cetera, for the delivery boys, right? So I'm just trying to understand, is that going to be something which will be a headwind over the next 3 to 5 years structurally versus the last 3 to 5 years?
So Pulkit, no. Thanks for clarifying. We don't expect that to be a headwind or structural issue in the future for a variety of reasons. The first one is that given that 90% of ordering now is online and we have technology adopted in our delivery ecosystem, we have a very good idea of our delivery performance in terms of efficiencies. And using data, we're able to drive a lot more efficiency, and therefore, a lot more orders with the same or lower manpower, that's number one.Number two, and I talked about it earlier in my -- in response to an earlier question, about the structural shift we made of moving out our delivery manpower and all the store manpower from being fixed and full-timers to being flexi-timers. That will allow us to flex our deployment of delivery manpower in response to the demand curve. So I don't expect us -- third point, of course, we traditionally had extremely very, very powerful sourcing systems for sourcing our manpower for small town and from interior markets, that remains robust. And therefore, all 3 things put together, we don't expect manpower costs to be a structural headwind for us in the business.
And just to add, in the past, if you really look at it as a percentage of sales, we have been consistent on manpower costs.
Right. Right. No, I was just checking for the future because everyone talks about delivery going up. I mean, so I'm just wondering how this ecosystem will evolve. That was just naive.
Ladies and gentlemen, we'll be taking the last question, that is from the line of Aditya Soman from Goldman Sachs.
Two questions from my end. So firstly, we had an extra day in February, so -- and that happened to be a weekend. So how much of the impact was due to the extra day? And how much of the acceleration? And what was the reason for the rest of the acceleration that we saw in February in SSG or LFL?
Sorry, Aditya, your question was about the impact of the 1 extra day versus the rest?
Correct. So I mean, we saw a significant acceleration in February SSG versus January. So the extra day should typically account for about 3.5% to 4% of that. But it also happened to be on a weekend. So would a large chunk of that acceleration be explained by the extra day or was there any other factors that led to the acceleration in Feb versus Jan?
So the good part, Aditya, is that our momentum during the quarter 4, pre-COVID, of course, was consistently increasing, consistently improving. So even if I take out the impact of that extra day in February, the trajectory of the incline between Jan, Feb and the first half of March was consistently upwards and increasing. So yes, there was certainly some impact on account of that extra day which fell, like you said, on a weekend. But the trend without that also, notwithstanding that, was positive for us and driven by delivery, driven by online, as it's been the theme in the past as well.
Fair enough. And that's very clear. And secondly, just on the employee cost question, again. We've seen employee costs being sort of up 16% year-over-year in 4Q. And as you mentioned that from February, you saw some inflation of sort of the COVID impact. So there's no real deceleration in the Y-o-Y change in employee cost, if you compare with 3Q -- compare with 4Q. So any reason why that would happen?
Sorry, can you repeat the question, please? Your voice broken into a couple of pieces?
Yes. Sorry. I'll slow it down. So your personnel cost is up 16% year-on-year in 4Q. Now as you explained, some -- a large part of your personnel cost is variable, so it should have sort of started to fall, especially given that you started seeing momentum slow down maybe from the middle of March itself. So one was, why was the momentum on employee costs so high Y-o-Y? And secondly, on that employee cost, do we expect any changes because of the new minimum wage regulation?
Prakash Ji, I see you on mute.
Yes. I'm so sorry. I just wanted to explain one point. The employee cost you should not link it only to our store manpower. You must also note today that we were building our digital assets also. So we have made investments in building our digital assets. So part of it is also an investment towards building our digital assets. So that's one factor.Other factors are because as you know this year, again, the COVID impact has hit on our sales. So when you are seeing it relatively as a percentage to sales, that has also impacted the results for us. Third point, we explained earlier that is mainly because of the minimum wage and the increments. But having said that, we always have used the levers to control those costs as Pratik was saying, earlier, we had the levers of part-timers, pay per delivery and full-timers. And now we are also working on it to make it more efficient. Pratik, would you want to add something?
If I want to just -- if I can just add to that, Prakash Ji, just one more point that you need to keep in mind, which is that our stores, as you know, closed completely for dine-in and mostly for delivery from 22nd downwards for the month of March. Yes, all our employees, regardless of whether they were -- the stores were open or shut, the store teams, the shift managers, the store managers, all got paid in the month of March. So I think that operating deleverage that we got also is reflecting in the cost line there.
Yes, Pratik. This is Hari. Yes, that's what is the explanation for the fourth quarter, actually. The last 15 days, with virtually less sales or 0 sales for almost during lockdown period while the employee cost was fully paid, so I think that has impacted it. Otherwise, consistently, we have been -- as a percentage of sales, we have been quite consistent in employee cost.
Yes, fair enough. No, I was just wondering about the pay on delivery sort of cost that you have, right, which would -- I'm assuming you did not incur for the latter half, but fair enough. And just on that minimum wage, the new legislation on minimum wage, given that you're one of the largest companies that's just impacted by minimum wage or do you -- how do you see that progress and impact over the next year?
Aditya, it's right now an intent that's been put out, I mean, just accelerated by the state. But again, my -- like I said earlier in my earlier responses, I think we have with us the lever to drive efficiency and to reduce costs in delivery through a combination of data-based efficiency and increasing now a variable deployment of manpower by all to match the demand curve and the demand shape.So we feel unworried, and we feel reasonably good about our personnel and our delivery costs, notwithstanding the changes in the minimum wages across the country.Our cost per delivery is tracked very, very closely. And our cost per delivery has been coming down over quarters. And we expect that trend to continue on the back of efficiencies using data and using a smarter manpower deployment in the stores.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for their closing comments.
Thank you, everyone, for joining us on the call today. We hope that we were able to address your queries. This is a difficult and unprecedented crisis, as we know, and it has re-emitted some short-term themes. However, if you look beyond this in this period, we have deep conviction that we have the right strategy to ensure that not only would we navigate this crisis well but emerge from it even stronger. Should you need any clarifications, please feel free to reach out to us. Thank you so much, and stay safe. Have a good evening.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Jubilant FoodWorks Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.