Restaurant Brands Asia Ltd

NSE:RBA

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for patiently holding. The conference is expected to start shortly. Please stay connected. Ladies and gentlemen, good day, and welcome to the Restaurant Brands Asia Q1 FY '24 Conference Call, hosted by Nuvama Wealth Management. As a reminder, all participant lines will be in the listen on mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nihal Jham from Nuvama Wealth Management. Thank you, and over to you, sir.

[Nihal Jham]

Yes. Thanks, Echo. On behalf of Nuvama Institutional Equities, I would like to welcome you all to the Q1 FY '24 results earnings call for Restaurant Brands Asia. From the management today, we have Mr. Rajeev Varman, Whole Time Director and Group CEO; Mr. Sandeep Dey, Brand President, Indonesia; Mr. Sumit Zaveri, Group CFO and Chief Business Officer; Mr. Kapil Grover, Chief Marketing Officer; and Mr. Prashant Desai, Head of Strategy and IR. I would now like to hand over the call to Mr. Rajeev Varman. Over to you, Raj.

[Rajeev Varman, executive]

Thank you, Nihal, and thanks, everyone. Appreciate your interest in our company, and thanks for joining on this Tuesday call. What I'm going to do is I'm going to give you a quick roundup on our journey forward, both here in India and Indonesia. And then I will hand it over to Sumit who will then carry you through the numbers for both the countries and the consolidated P&L as well. And then we will go into each country, India and then Indonesia. First Kapil Grover will give you the marketing strategy here in India and then Sandeep Dey will give you the study gap in Indonesia. And then finally, we will go back and open up for questions. So with that said, just a little bit. In the past, you have heard me speak about the India strategy, which has to continued to drive value. We started with value many years ago when we had the 2 per offer. People might still remember the INR 2 to 50 offer that we had. Subsequent to those offer, we went to a stunner menu, which you saw the groundbreaking advertisement that we did, which was applauded all across the world with the [Indiscernible]. And then the next chapter 2.0 on the value strategy is what we have on running right now, which is INR 99 menu, which is doing extremely well, actually has driven a lot of traffic into our restaurants, high 7% kind of traffic in dine-in and Kapil will share more and so will Sumit. But it's -- this value platform is integral part of our strategy in both Indonesia and India. And here in India, we continue to strengthen that, and we will, from time to time, upgrade and improve the strategy, but the intention is to make sure we have a ground good, stable strategy on value. Then we came up with cafes, right? We built 240 cafes last year to prop it up to 275 cafes and now we are sitting at about 280-plus cafes in India. And also very happy today to report to you that yesterday, we completed opening of 400 restaurants in India -- so congratulations to Cicily Thomas, the development team, the construction team, Sumit Zaveri and the entire construction team for doing a fantastic job and all the operations people for opening all these point restaurants, and we continue our journey this year to go to 450 restaurants. So cafe being integral part of our business now moving forward, all restaurants open with cafes on a standard basis. So that's one thing that we have already installed and we are working and we continue to grow the [ ADS ] on that. If you look at the last quarter, we kind of climbed up the [ ADS ] from the previous year that we ended up by another $1,000 to $50 at about upwards of INR 15,000. That [ ADS ] continues to climb and roughly about half of that is incremental. So it's like incremental sales coming into the system. Then also, we spoke about introduction of the premium menu, Kings collection. We spoke about the wraps and so forth. So Kapil will talk to you about that. But moving forward, as we go into this balance of this year and into the next 2, 3 years, we are going to be expanding our total consumer base by including families and kids. And you will start to hear from first here today from Kapil, and then you will hear about this more in subsequent quarters. But you will find that expansion to continue our journey to climb from our existing [ ADS ] towards our target in the future. And then the final thing is a walk on leadership, which is something that we have invested a lot of both money and time and building a fantastic product. You will find -- in the next quarter or so, you will find also news on how we're going to go forward with the Whopper. And so having a premium layer, having the Whopper layer, having the value layer and having the cafe, all these things are in place for India. So now what the work is, is a single laser focus for the balance of this year in India to increase top line sales and to increase the [ 4-wall ] EBITDA. So the team in India has put over the last, I would say, 24 months, all these basic modules in place, the value strategy, the premium strategy, the Whopper strategy, the cafe strategy. All these have been completed and rolled out, training has been completed. And now the focus will be a laser on top line revenues and on [ 4-wall ] EBITDA. And you'll hear a lot about that from Kapil as we go into his presentation. Now on the growth side, there's -- and similarly, Sandeep will speak on the Indonesia side. Indonesia has been a fantastic. We've been speaking about Indonesia about rolling out of [ value ], rolling out of new products, rolling out of the chicken menu. We used to have only 1 chicken handheld, where that's a country which has a classic and there's spicy. We introduced the spicy version. We rectified a lot of our products, which we tested and all that was done last year. And as we were doing that, we went up in SSSG of 1.7% last year. And this last quarter, we further improved that by going up 5.5% SSSG, which is all driven by almost 10% of traffic in the dine-in. So -- and Sandeep will talk more to that. But also, there's a very clear strategy in Indonesia now to move that business to a positive in this year to break even and then growth task that in this coming year. Now on the growth side, one of the things that we are doing in India is obviously a journey towards 700. We are at 400. We have crossed the midway mark and we continue to kind of march forward towards getting that 700 by December of 2026. On the Indonesia side, we have 2 brands there. We have Popeyes, and we have Burger King Indonesia. The Burger King Indonesia, we are rationalizing that. You will see that we have closed a few restaurants and we'll closed a few more -- very few more restaurants, rationalize that. These are [Indiscernible] restaurants and malls that died up of COVID or some events that happened that kind of compromise the location of those restaurants. And you will see that rationalization will be complete in the next -- a little over next quarter. And then the Popeyes story, which is we continue to build restaurants. We have got 11 restaurants, 10 as of last quarter and then we opened one just in the last few days. And this journey will continue to get to 25 restaurants by December of this year. So that growth journey continues, and you will hear more from Sandeep on that. Finally, we are going to go into a digital Phase 2. So while we have fixed the product side, we have fixed all those things in Indonesia and India, we already had a winning menu. So we continue that journey, but we are going to step up what we're going to do. We are already doing this, by the way, in Popeyes and we are now going to install this in India, Burger King as well as Burger King in Indonesia, which is twofold. We call it digital 2.0 with 1 [ ordering kiosk ] in all locations, and you'll hear that from Kapil as well. Table ordering. That's something Cicily Thomas, our President Burger King India is rolling out and then 100% known guests, which I think Kapil will address in his speech. So this is the way forward, right? Top line growth in India, [ 4-wall ] EBITDA in India, rationalized the portfolio Burger King in Indonesia, get to break even in Indonesia, continues the journey of Popeyes. By the way, the Popeyes restaurants are doing twice the sales of the Burger King restaurants over there, it's a very high double-digit [ 4-wall ] EBITDA. So we have really cracked that menu well. We are starting to build those restaurants. And you imagine when we get to 45 restaurants, we will be equal in to 50 Burger King restaurants. It's a great job to Sandeep and his entire team over there, launching a great brand over there and doing a good job launching it, and the fruits of that are starting to roll in. So with that said, I'm going to turn it over to Sumit Zaveri. Sumit will carry you through the numbers for the quarter and then he'll hand it over to Kapil. Over to you, Sumit.

[Sumit Zaveri, executive]

Thank you, Raj for the [ visual ] perspective to where we stand. I will take some time to just explain and take you through how we performed as far as the financial metrics is concerned. Firstly, starting with [Indiscernible], which is specially the key driver for that in terms of our business and profitability. We moved from INR 365 crores in quarter 4 last year to INR 422 crores in the current quarter in India. So first covering India stand-alone financials and then subsequently go into Indonesia, [Indiscernible] of India. There is an overall growth of 16%. Raj initially mentioned that we have very clear sharp focus on our value strategy. And the perspective of getting into [Indiscernible] was to very clearly [ dining ] traffic and they're also [ obtaining ] back into what clearly meant by driving traffic, we literally also wanted to make sure that the traffic that we are driving is on the dining part of the business. Really looking at how we performed on that part of the strategy. Our SSSG at an overall business level was at 3.6%. And I'm really happy to mention the resource which we have the back of growth in dining traffic. Our dining traffic asset [ TG ] as we call it our same-store transaction growth was in excess of 10% for quarter 1. So we really kind of remain sharp on our strategy to grow traffic and revenue through dining, and that is what we've been able to kind of achieve. That gave us an improvement in ADS from [ 106 ] in quarter 4 to 120 in quarter 1, a substantial increase of 11%. Growth. Coming back on to growth, as Raj mentioned, growth has been one of our key pillars. We have now reached 400 stores as we speak. We will then focus to get to 450 by end of this financial year and the target of 700 by the summer '26 continues to be one of the key milestones as far as growth is concerned. While we [ plant ] really stronger value strategy. Our key was and key focus was that we should not -- and we should make sure that we continue to also segments remain stable or more than positive direction on gross profits. Very clearly, there is no reason internally for us as we said that, okay, because we go stronger value does not seeing that we can actually take a shortcut on the margin side. And we continue to remain strong at 6.5% for the quarter. We strongly believe that this number is a stable state and only move in the positive direction as we go along. Coming on to store EBITDA, and I just want to kind of [Indiscernible] that. And just kind of [Indiscernible] we put this kind of marketing expenses part of our performance results. We felt that if you really look at it from the perspective of commitment that we have towards spend, on an annual basis, we spend 5% of our revenue. But obviously, a lot of you would understand that in business, it is not easy to spread our marketing spend. We would rather spend the money where we see a sensible impact. Generally, we've always been spending higher on marketing in quarter 1 and then it cuts it kind of averages out at 5% for the full year. But in order to make the quarter comparable, we took that number of marketing spend that we have done on -- in the past year, quarter 1 of previous quarter this year. If you really look at it from a perspective of stable state marketing, which is there, actually the year would go down too. We have, in current quarter, delivered 9.8% on store EBITDA level, which compared to quarter 4, adjusted for marketing would have been 7.3%, which is very clear, an improvement of 2.5% on a store EBITDA level. On a company EBITDA level, if we were to exist for marketing, we would -- should be at 4.2% as compared to 0.6% in previous quarter. This is coupled with 2 things. One is a shift in the marketing cost or [Indiscernible] in the marketing cost. At the same time, as the revenues have grown, we've also seen the baseline of the leverage effect of the corporate costs by almost 1 percent point over the previous quarter. Looking at -- and I'm on Slide 6, looking at the overall numbers, as I mentioned, revenue of INR 422 crores. At the store level, we had been talking, saying that we have brought efficiencies on the labor line side, and we are at 10.1% as compared to 11.1% over last quarter, and we continue to kind of make sure that we build efficiencies on different lines of costs as we go along. And then on the corporate cost side, as I mentioned, we have remained at a stable state of INR 34 crores. This is as we internally target. This is likely the cost at which in and around these levels of cost at which we will remain on corporate costs on a quarter-on-quarter basis over next quarter as we report our numbers for the year going forward. All in all, we feel that it was a good quarter with a company level EBITDA at INR 10 crores. Adjusted for the marketing -- incremental marketing spend that we did in quarter 1, we felt really we could achieve on what we call it as a stable state of the [Indiscernible] ADS of close to around INR 18 crores at the company level EBITDA and a substantial shift from what we have seen in quarter 4 of FY '23. Going into Indonesia, and this is something which is what we strongly feel and believe that this is the beginning of the journey of -- on the positive side as far as Indonesia is concerned. If you really look at it from the perspective of average daily sales, which is actually the key driver for us to be able to pick the business towards of its surely to profitability. We moved ADS from last year, 17.6% to 19.4%, almost 10% increase in overall ADS with an SSSG of 5.5%. So this is a strong positive excess that we grew. And there are no seasonality variations. So these are literally like-to-like quarters very clearly. At the same time, we continue to look at our portfolio of stores in a very hard manner. And wherever we feel that we need to rationalize the stores, we rationalized. We will continue to look at this. So coupled with rationalization of stores and SSSG, we've been able to move the overall EDS from 17.6% to 19.4% in and we will continue to build on to these sales. And Sandeep and his part will certainly cover why we feel confident of this baseline number and what will be our path to grow from go. As far as Popeyes is concerned, we are at 10 stores. Our journey is to get to 25 by end of the year. And we are -- we remain focused in terms of making sure that this PDS has continued to remain on a higher side. We are currently at 40 million EDS. This seems to be a strong $40 million for us. Margins -- gross profit margins on this brand is something which has been one of the big positives for us, and we will continue to build and grow from there. So if we -- going on to Slide #9. If we really look at it from the perspective of quarter 1 performance for Indonesia, we did a revenue of INR 189 crores as compared to INR 150 crores last year or previous quarter, very similar numbers. But at a company EBITDA level, we are at INR 12.5 crores loss. But just similar to like the way we invest ahead at the start of the year on marketing side, we've done similar investments in Indonesia as well. In the current quarter, our investments in marketing for Indonesia stood at 7.7%, which is 2.7% ahead of what our annual plan is. If we really adjust for that, then the loss at the company EBITDA level would reduce down to around INR 7-odd crores. We had very -- at the beginning when we started the year, we had very clearly laid out that we are working towards reaching to profitability in Indonesia, that's our very sharp, clear focus for the year. We strongly feel that the performance in quarter 1. We see some retailers [ we are on the part ] to be able to get to achieve the profitability for the financial year of FY '24 as we go along. So with that, just a quick on the consolidated performance between the 2 countries, we are at INR 610 crores of revenue up from INR 514 crores over last year, a marginal company-level EBITDA loss of INR 2 crores. But as I explained, some parts of it as on account of investments, higher investments that we did in India on the marketing side, which was around close to INR 8 crores and incremental marketing spend that we did in Indonesia, which was around INR 5 crores. So it really exist for some of the money that we've invested ahead of the [ curve ] at a company EBITDA level as well, we are standing positive or we feel confident of the numbers that we want to achieve going forward. So with that, I will hand it over to Kapil, who will take this through the initiatives that we have on the marketing side of these. Over to you, Kapil.

[Kapil Grover, executive]

Thanks, Sumit. Good morning, everyone. As you heard, Raj and Sumit share quarter 1 results where we're seeing about 3.5% SSSG, which is on the back of system sales of 25% and 91 new store openings. I just want to reiterate how the team has stayed focused on the key strategic pillars. Now on Slide #12, -- number one is our ambition to be the value user in the market, and we continue to offer [ that ], create value for money and drive additional footfalls in our restaurants. And value is not just about tactical promotions. It's a constant endeavor to offer food, experience and service that is really worth it. I will share how the 99 week promotion helps us drive strong dine-in traffic growth this quarter. The second pillar is our endeavor to offer differentiated products. On our core menu, we have the flagship product Whopper, and I will also share how we continue to create the premium end of the menu kings collection over time. [ BK Stacker ] is a new incremental layer that we've now added to 286 stores, and this will continue to grow over the long term as a strong innovation and a very profitable menu. The third pillar on the digital side, we have committed to significantly improve our guest experience and offer them even more convenient ways of accessing Burger King at stores or at the convenience of their homes. Last but not the least, we continue to build a strong brand with the gen z, which will relate very strongly with our audience. Moving to Slide #13. Our key initiative this quarter was the launch of Tasty Meals promotion starting at INR 99 available in dine-in and takeaway. This menu is an extension of the stunner menu whereby we improvised the proposition by offering a complete menu around our winning stunner products like Crispy Range, the Makhani Range and the Crunchy [Indiscernible]. In April, we rolled out a complete 360 program around 99 meals with television, digital media, out-of-home branding and mall sandwiches wherever we have stores. We also leveraged the [Indiscernible] season with a [ moment ] marketing campaign, which is very engaging. As a result, this campaign helped us drive incremental timing traffic growth, same-store traffic growth of over 10% in this quarter, which is a very strong sign of how we progress on this business in the future quarters. Slide 14 talks about the launch of the new innovation on our menu. We strengthened the King's [ calcium ] portfolio by adding premium wraps to revenue. Now this is a loaded wrap with a soft [ patty ] or a crispy Fiery Chicken Patty along with fresh salads and very delicious sources and it offers a great lead solution on the go. Now this is based on consumer wraps and rolls, whether you look at the [ rolls ] the north or the [ Francine] in the West or the [ Calcite ] rolls, it's -- there's a demand for [ differentiating ] product of this format. So this product got added to our menu last quarter, and we continue to build the premium menu. In addition to that, we continue to build Whopper franchise by offering new case experiences every quarter, last quarter was the twisted whopper, which was a limited time offering. This there allows us to win with the Whopper fans, they come back and they can try a new variant every time. So it helps us to build frequency over time. Slide 15 talks about the cafe menu. Cafe, we continue to build awareness through very innovative either social media, influential marketing and a lot of focus on driving at store awareness and [Indiscernible]. This has helped us drive income revenues of 8,000 through the cafe menu across 286 operating stores. [ Badra ] mentioned about almost 15,500 total cafe areas. Of that 50% is almost incremental. This cafe business in the long term as we grow awareness and trial will help us build new locations in between mid-day parts and build a new line of business over time. Moving on to the digital experiences. As I mentioned in the beginning, you will see that Burger King stores will now offer 3 new experiences to our guests. The Burger King app continues to grow and offer consumers a very convenient way of ordering timing or delivery. We have now started to improve our loyalty program, the Crown rewards, and you will see more progress on that in the coming time. This will help us drive more frequency with our guests. The self-ordering kiosk is a new interface, which will -- the new way guests are adopting this interface very rapidly. It allows them to explore the menu, pay and order via a very seamless digital experience. And you couple that with the new initiatives that we're testing on table service -- so effectively, as we scale this up, the guests can walk into a Burger King store, use the Burger King app or the kiosk all the kiosk orders are placed on the tables, right? They can select their favorite menu items, avail very exclusive offers on the BK app or Crown rewards and get their food served on the table. So this has become a very sort of [ great ] experience for our Burger King guests. On Slide 17, I shared a few examples of how we continue to bring a very engaging brand through social media, a lot of innovative content, and we continue to build brand love with Gen Z. And the effort has been recognized on Indian and global platform, the Standard campaign on Silver at the [ New Arkni ] awards and also got shortlisted at the [ Towns ] Award as one of the top 10 campaigns in the world for most effective use of influencers. At this point, I'll hand over to Sandeep to talk you through the Indonesian [ market ].

[Sandeep Dey, executive]

Thank you, Kapil, and a very, very good morning to all of you from Indonesia. See you heard both Raj as well as Sumit talking about the overall business performance for the Indonesian market and the progress we have made in the last quarter. Now what I'm going to do in the next few minutes is share with you some of the work we are doing to move our key strategic growth pillars forward. But first thing first, let me reiterate that for the Indonesian market, our single-minded objective continues to be building back a profitable company. And in order to deliver that, we will continue to focus on 3 of our strategic pillars. Number one, it is an extremely strong chicken market, and one of our key strategies is to build our credibility in chicken. Second, we will continue to establish leadership in burgers. And third, we are building a comprehensive dessert menu which will help us drive incremental locations and over a long period of time, incremental traffic. And I'm going to talk about each of these 3 pillars in a bit. But most importantly, the bedrock for all these strategies are having a very solid foundation with regard to operational excellence, products, people capability processes, and they are ensuring that we provide best-in-class guest experience every single time. And we will always continue to provide a very strong value proposition to all our guests across the entire menu layers. Now I'm going to talk about each of these strategic pillars. So first, let me talk about the chicken. See Indonesia as a market is where the staple food is fried chicken and rice. And we have identified a gap in our menu with regard to taste as well as the variety. The team did a fantastic work. We work very hard, improve the quality and taste of the classic chicken and also develop [ a spicy variant ]. Before these variants, by the way, we did a detailed research with guests and [ Popeyes ] products performed extremely well in Consumer Research. After that was understood, we launched these products in the last quarter and afford a very aggressive trial price of [ IDR 25,000 ] per meal. And just to give you a context, the normal price for such means in any other [Indiscernible] are typically in the range of IDR 35,000 to IDR 36,000 -- and we supported the launch with a very comprehensive [Indiscernible] marketing campaign. And we are quite encouraged to see the initial results. In fact, the biggest indicator is that the incidents of chicken improved by 25-odd percent and, of course, helping us increase in both sales as well as traffic. Now I'm moving to the next slide, which is Slide #22. See, our next strategic priority is to build Burger leadership -- and we have to build that through base credibility, build that through clever innovation and also offer strong value propositions across the entire menu layer. Now we have built a robust menu architecture, offering trade testing over across all the price bands. It starts at IDR 29,000 for a burger meal. By the way, this idea, I'll just give you some numbers so that we can understand from the INR perspective, IDR 29,000 for a meal translates to over INR 155 in INR. And we call this branded value layer as key [ deals ]. And then we also have our sales at a price gap of every IDR 10,000, which is every INR 50 crores, INR 55 and going all the way up to IDR 79,000 for a gold collection well, which is our premium layer. So these burgers are pure taste [ intelligence ] and at the same time, quite affordable pricing. Now our strategy is to promote these products and generate trials across all these layers. So we have created some aggressive offers like [ 2 for 30 ], which may include the Junior whopper as well, where guests can enjoy a very deep discount almost to cover 45%. And we also have a bunch of other aggressive offers. And now we are promoting them through social, through digital, through coupons. Now moving to the third pillar, which is the dessert pillar. Now dessert is a very big business opportunity in this market. And a couple of quarters back when we launched a branded dessert partnering with Nestle, KitKat fusion, we got some fantastic results. Our volumes of dessert went up almost 3x and the incident grew almost about 10%. So based on that learning, we are building a pipeline of branded desserts in partnership with both local as well as global partners. And at the same time, generating trials for this [ intelligent ] desserts through a very aggressive pricing. The final objective is to drive incremental locations and in the long term, drive incremental traffic. Now moving on to Slide 34, which is my last slide, and I'm talking -- I'm going to talk about is Popeye. Popeye brand we launched in last December, and it's been over 7 months, and we continue to drive reasonably high sales and a fairly, very profitable [ 4-wall ] EBITDA. So growth forward, our focus is to build on 3 strategic pillars. Number one, our #1 strategy is to make sure that we continue to deliver blockbuster new store openings. Now we have a lot of global best practices across multiple markets, and we have our own learnings from the previous successful launches. And based on all those earnings, we have built what we call it as a new store launch playbook. So we tend to follow that playbook for all our new store opening to ensure that every single launch is a successful one. And our plan is to open 25 stores by the end of this year. So last July -- I mean the last month, we opened 1 store. So our store term is at 11. We have another 5 stores under construction and almost about 10 to 12 stores, which are at various stages of preconstruction and lease signing. So we have a robust pipeline to ensure that we build about 25 stores of Popeye this year. The second pillar is to build this brand into a chicken destination. So we are basically a culinary brand. And we got not only winning products with regard to taste, but at the same time, we have enormous variety of products to address different occasions. So our priority now is to generate trial for all our electronic products. We are taking one product at a time and running campaign with attractive offers to generate trends. The intent is to get our guests to track all our electronic products and then eventually find their own personal sale rates. And over a period of time, they will become loyalist of our products and eventually the brand. The third pillar, and Raj spoke about it, the digital 2.0. So our third pillar is to build a brand with digital first experience. All our restaurants, by the way, have kiosks. Every restaurant has video world, which runs brand content, product content and all our drive-through mini booth is a digital mini booth. Our long-term ambition continues to have 100% on diners, right? And we are moving quite positively in that direction. At this moment, almost 37% of our dining sales is done through kiosk. And each of those plans actually comes at almost 18% to 20% higher check. And our near-term plan is to take that number from 37% to close to 60%, 65%. So that is all from my side about the Indonesia business. And now I'll hand it over to Prashant to share the overall outlook for our business.

[Prashant Desai, executive]

Thanks, Sandeep. There is no major change in the outlook that we had presented last time around, but I'll just reiterate that we remain committed to delivering the 10% plus same-store growth in the current year, taking gross margins to 67% this year and about 69% over the next 2 more further years. In Indonesia, as we had guided, we remain committed to delivering a cash breakeven, maybe a little bit profit this year and to open about 325 restaurants between Burger King and Popeyes over the next 4 years' time. So with that, I open up the floor for Q&A.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Devanshu Bansal from Emkay Global.

[Devanshu Bansal, analyst]

I just wanted to understand the gross margin performance better. So despite this launch of value offer at INR 99, we have been able to sort of maintain our gross margin. So just wanted to understand how we have been able to achieve that? And is there any sort of price hike that we have taken for the rest of the portfolio?

[Rajeev Varman, executive]

Yes. So thank you for your question. So we haven't taken any price hike. In fact, as you can see, we are on national TV and across the entire country, talking about INR 99. So that's our strategy on the marketing side. But you're absolutely right. We have maintained a gross margin. There's a couple of things as you have known from our presentation that we continue to grow our Popeyes business, right? So we have grown that business and that comes at a higher margin, and we continue to kind of use that to make sure that we are moving in that journey. So there are a lot of programs that are in place within the supply chain department, whether it is from procurement, whether it's on rate decrease, on delivery or transportation or whether it is on the ingredients itself. Multiple buying, we continue to do that by introducing newer and our supplier base, we continue to grow that. The second thing is we also continue to make sure that our parties and so far are efficiently driven. Now as we have moved from [ European ] restaurants to [Indiscernible] restaurant, gross synergy is also playing in, right? Because each distribution center is now not delivering 5 or 10 restaurants, maybe delivering 15 or 20 restaurants. So we save a lot of that as we amortize the primary cost into all those restaurants. So you will continue to see this either stabilized or continue to move in the north direction. Our objective, as we have outlined, is to move this to about 67% this year and then we're kind of fully confident that, that's where we're going to go.

[Prashant Desai, executive]

Just to add to what Raj mentioned. Had the 99 offer not been there, we believe we would have delivered a further 100% increase in gross margin. So you can see broadly that's the impact.

[Devanshu Bansal, analyst]

Got it, sir. And you mentioned that the SSTG in dining channel was in double digit. Just wanted to check if you could mention what is the kind of SSSG in the dining channel?

[Prashant Desai, executive]

So 1:03:20 the SSTG is a reason of around 10% on the dine-in channel on the transaction growth side. And SSSG was around 70% on the dining channel.

[Devanshu Bansal, analyst]

Sir, one question I wanted to understand. So we have also sort of on our overall business level, we have seen about 6% SSTG and about 3.5%, 4% SST and the competition itself has seen about 7% SSG. And largely, they have also indicated that the transaction growth was largely has driven the SSD further. But our margins have sort of gotten more impacted vis-a-vis the competition. So just wanted to understand why is there such a sort of investment that we have to do for generating similar amount of transaction growth and why the competition is able to achieve at a lower investment. So any thoughts on that, please?

[Prashant Desai, executive]

We don't like to talk about competition. It's not fair on our part. All we will tell you is we've been -- we started this business in 2014. We've been running this business for about 9 years. You know when they came in the number of years that they have taken to reach where we are. We also believe as we continue to build scale, coffee, which is still just about INR 8,000 of incremental ADS to our number as our overall product mix gets better, we are confident of delivering better gross margin. So from that perspective, just look at what we are where we are keeping that metric in mind.

[Devanshu Bansal, analyst]

Got it. So it's more the timing journey, which is [Indiscernible]. And the third one, we haven't provided this contribution of channel-wise sales for India business. If you could just give me that number, and I'll be done.

[Prashant Desai, executive]

Sure. So- so we -- on the back of the strategy of putting dine-in traffic back in store for whatever getting dining traffic in store, we were at 40% delivery share. So it has come down from 43% in the previous quarter to 40%. So the journey that we had embarked upon to kind of make more sales in the Burger part of the business is something which we are doing. And we will make sure that this number is coming part of our presentations going forward. So just on that.

[Rajeev Varman, executive]

Just on what Prashant was speaking, I just wanted to make sure that you clarified. See, the ADS of Q1 of FY '23 and the ADS of Q1 in FY '24 is exactly the same [ 120 ], right? So the ADS basically drives the volume and all the numbers below it, right? Now let me explain to you what happened there. We added about plus restaurants. 90 stores, 91 stores. 91 stores between that quarter and this quarter, the quarter of FY '23 to the quarter of FY '24. Now these stores always start at a lower areas. In most businesses, most concepts they start because they're in the traffic slowly picks up, right? Now the SSSG stores or the stores that are comping, they delivered a ADS 126, right? So when we put these new stores, obviously, with the low ADS, they cut down the total ADS down to 120. Now as these stores mature over the next 2 quarters, you will find that they will go towards the average ADS as well, right? So that's the difference between adding a own bunch of brand new stores to your portfolio versus not adding them. If you don't have them, then you have the existing portfolio, which climbed to 126, of course, that's going to deliver much higher margins. I hope that really clarifies the difference that you were asking.

[Operator]

Our next question is from the line of [ Soham Samantha ] from Sintrom Stock Broking.

[Unknown Analyst]

Just 2 questions in the beginning. Starting from you and it's up to Kapil also. We have spoken a lot about driving traffic. I just wanted to understand on the ground, what are the currents you're getting? Is the consumer down trading and that's why the traffic is becoming more important. Because what I see that our value strategy over the last 2, 3 years has remained steady. So there are 2 parts. One is that what is the consumer traffic is saying? Is there is a down trading and that's why this value proposition is becoming more important, and that's why we're driving the traffic? And the second part is if you can say at what is the impact of this strategy is driving traffic in terms of quantitative numbers, is the traffic has gone already quantitative numbers you can share?

[Rajeev Varman, executive]

Yes. Thank you, first of all, for joining the call. See, traffic on the value platform. See, we have been doing value now for the last 8 years, right? So it's not that we have started doing value because there's a downturn or it's just part of the way that QSR operates. They have a value offering. They have a premium offering, and then they have the core menu, which is a ladder venue. So this is not specifically because the market is down and so forth. In fact, you'll see both the competitors, both the companies in the burger sector, both reported higher traffic. And that's to tell you more about the market. There's a higher traffic out there to especially to our Burger business. So I don't think that's an issue or that's a downturn. You will have a month here, a month there. For example, when you have [ Sravan ] going on, you will have every Monday will be down because most people are fasting in that day. And then this year, we have 2 [ Sravan ], 2 months of [ Sravan ] versus every 10 years, I think, in terms of just having 1 month of [ Sravan ] have 2 months of [ Sravan ]. So all these nuances come and go. But generally, the way we are seeing it is we did 2 for 50 and then we did the stunner menu and now we're doing the INR 99 menu, you can see that we have only kind of done value at a higher price point, right, not at the INR 50. Now we had INR 99, right? So I think the strength of the market is there and all information out there in the market industry is that it's going to continue to grow at double-digit numbers, especially the chain restaurants, both in Indonesia and India are going to be growing significantly faster than the entire food industry. So we are confident on that. That's why the growth that we have planned for this year and then for the next 2 years as we kind of make our way to 700 restaurants. Kapil, do you want to add anything else?

[Kapil Grover, executive]

So just add to what Raj already shared, I think consumers will continue to seek value for money or as they call it, worth it. I think we are not just offering value at INR 99. We have a very balanced menu. We actually were able to sustain volumes of every layer of menu through the promotion. So wherever consumers find that the price they're paying for and what the experience they're getting or the products they're getting is worked, they will continue to sort of invest and grow that way.

[Unknown Analyst]

That's helpful, Kapil. But again, I'm asking quantitatively, what is the traffic growth, which has happened? Or maybe if you can say or spell it out, what is the MAU growth we are seeing?

[Prashant Desai, executive]

We don't share traffic data on a quantitative basis, only on the percentage basis is what we share.

[Kapil Grover, executive]

Yes. As I said, we have seen diner traffic growth in excess of 10% in quarter 1.

[Unknown Analyst]

Okay. Right. My second question on Indonesia. I think it's heartening that Sandeep has done a lot of efforts. But what is the bed impact we will see? Because today with the 10 stores in Bupa, you can't really guess what kind of areas we will see. And obviously, as compared to BKI, the ideas is double. But I'm just curious, is the bcI will show the higher growth or Popeye will see the higher growth? Because obviously, Popeyes has a more relevant men in terms of local population. So when you ran 25 stores, what kind of areas we can expect?

[Rajeev Varman, executive]

Yes. So first of all, let me just kind of tell you that the Indonesian market, very similar to India market. It continues to grow. I think the chain restaurants are projected to grow at 16% each year for the next 5 years, right? So that is the expectation of that market generally, right? So in that market, and that's why it's such an exciting market for us to grow in there and establish this business. I mean we have now got access. Our company has got access to 2 great markets, India and Indonesia. So we were there at the right time, we did the deal. We got access to this market. Now we have 2 strong brands to build there. Now Burger King, look at the last year, as we were turning around, as Sandeep was putting in all these things like the menu, the back to basics and so forth. As he was doing it, we got a 1.7% jump in SSSG. Now that was completed by the end of last year. And then this first quarter of this year, he jumped up 4.5% again at SSSG on top of that, right? And that SSSG is on top of all the restaurant dine-in traffic that is coming in. The ADS went up from 17 plus to 19 plus million, right? So we know that that business is now on track because all the elements have been fixed. The menu has been fixed, the restaurant has been fixed, the operations, the team, everything has been in place. Over the last 4, 5 quarters, I've been talking to you about all these things we were doing. And now they are complete and now we are now marketing it and getting the product out. Now the Popeye story is fantastic because you saw we started off at INR 5 million kind of on those restaurants, and we are doing -- those are the launch ADS. And we opened a restaurant, the whole town was there, right, in the first year. Now of course, we have settled down to between 35,000 to 40,000 -- INR 40 million kind of business over there. And I think this is a stable business moving forward. And as we build these restaurants, just imagine in a chicken market, 25 restaurants is a drop in the bucket, right? There's a journey towards 300 restaurants we're going to build there. I think both these businesses are strong businesses. We have opened several of these Burger King along with Popeyes together, and we have seen that, that is a drilling combination. They're doing really well. Even the latest -- the last restaurant, the 11th Popeyes we opened was a joint restaurant with Burger King, and 2 together are doing a fantastic job sharing rent, sharing a lot of CapEx and so forth and delivering some very high volume on either side. So I think it's a billing combination. You will see now entirely will be built in that way, no. But we will try to see wherever the opportunity exists to combine those 2 restaurants and put them together. So we can supervise them better. We can get the inventory to them at a cheaper price and so forth and deliver those wells. I hope those -- both your questions to that answer on this.

[Operator]

[Opeartor Instructions] Our next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Parma.

[Kaustubh Pawaskar, analyst]

So this year, for India business, we are -- we have maintained our guidance of around 10% as up. In quarter 1, the efficiency is still at around 3.5% and Q2 because of the extended [Indiscernible] and demand is let to recur fully. So Q2 is also expected to be little on the moderate side. So considering that the second half would be quite strong for us to achieve double-digit kind of. So can you just help you on that line?

[Prashant Desai, executive]

We agree with you, and we completely conquer concur with you. Also, if we get into October, we have the Cricket World Cup coming up in India, plus interestingly for us because we have a pretty decent mall portfolio. The malls are now beginning to do well because of the way the movies are doing. So overall, as I said, had we seen a significant challenge to this, we would have probably gone and corrected that SSSG. As we move forward month-on-month, the cohort of a store perspective also changes and more store coming to the SSSG bucket.

[Kaustubh Pawaskar, analyst]

And just one question on the value offering. So this value offering would help us to achieve incremental footfalls as you said. And you don't expect it to be a gross margin kind of a dilute your transaction number of transactions or number of footfalls increase -- so that is the reason why you don't expect gross margins to gross margin value to this particular strategy? Or there would be a mix improvement, which should help to negate the impact because of the increase in service on the value offering?

[Rajeev Varman, executive]

Yes. So Prashant was saying earlier, if we've been doing this value offering, we we'd probably be way back 67% right now, right? So we are taking some of that gross margin and invested into this traffic, right? But we have a lot of work streams right now in play. And some of the work streams you will see over the next 2 quarters coming because they were already put in place. The benefits of that are going to start coming in now. And then some of the work streams will go in next quarter, which will bring benefits into the next talent of the year, right? So we are very confident that as far as the gross margin, we've always been on the money on this, if you go back and look at all the quarters since we went public, every single time we report better or stable gross margins because we have built a good kind of infrastructure to deliver that, and we continue to do. And by the way, just remember, our gross margin includes paper products. It includes food. It includes complete distribution, secondary and primary. Everything is in there. So it's something that we be strongly in, and I think we will continue our journey towards 67% and then we'll give you guidance for the next 2, 3 years post that.

[Prashant Desai, executive]

Just to add to what Raj mentioned, I guess, because of the 10% traffic growth that the team spoke about, a lot of focus has been because of the 99%, but couple mentioned extensively in his commentary that for us, value is one pillar, building copper and premium Kings collection is also a very important part of our menu architecture, right? As you come into the festive there, you will see Popeye at television. So all I'm trying to say is our product mix also spans across a premium menu, which is very, very strong at Burger King and we will continue to invest in trade is with coffee incrementally beginning to show its presence is where we feel that we'll be able to deliver the gross margin guidance of 67% despite the little offering.

[Operator]

Our next question is from the line of [ Aliasgar Shakir ] from Motilal Oswal.

[Unknown Analyst]

I had a question on your store level EBITDA margins in India, which is somewhere about 8-odd percent. If you could just share over the next 3, 4 years, how will the journey be for the store-level margin? So you didn't give a lot of indication of your growth, SSSG and store additions. But also if you could share how the store level margins should behave in the next 3, 4 years. And how much time we should reach probably mid-teens or higher teens kind of number. And just a follow-up there. So if you could also kind of explain what could be the lever -- so productivity gross margin, as you mentioned, will also be improving. So what could be the levers of that.

[Prashant Desai, executive]

Earlier, as you know and people who have been listening to our calls, we don't guide on restaurant margins. We don't kind on company level EBITDA margin. However, because you have enough history of a lot of the [ QSR ] places, you'll understand a lot of the operating leverage is very directly linked to the growth in ADS. We have shared with you our SSSG guidance for this year and our long-term SSSG guidance of about 8%. If you overlay this to the ADS number that we have shared, we will get a sense in terms of the operating leverage that will kick in, which will expand our store EBITDA margins and our company EBITDA margin. So from that perspective, I don't want to go beyond this for some reason, understand where we are kind of coming from.

[Unknown Analyst]

Understand. No, this is helpful. Another question I was asking is more from the point of view that productivity-wise see, because we have a smaller store related to some competition. So productivity-wise, would you benchmark yourself today? And I mean how much scope you see that improvement basically in the next 3, 4 years?

[Rajeev Varman, executive]

Just to let you know, there is no restriction on our stores to do any kind of ideas right now. So we are not building small stores. We -- our average size is about 2,400 square feet, right? So we don't have any constructions coming in from that. So we're not worried about that. Traffic is coming in slowly into our restaurants because like I said, 91 stores were built on the back of this FY Q1 FY '23 to Q1 FY '24, those 91 stores usually take a little while to kind of get speed up and then they hit the average and then some of them go way beyond the average. So this is what it is, right? The SSSG guidance is for this year, then there is the aggressive long-term guidance. You know that our gross margin continues our journey to 67% and then beyond. You know that labor is more kind of a fixed to a variable expense. So that keeps shrinking as the productivity goes up. all the other expense, except variable rent will become a lower percentage of margin. So you should be able to guide that. But to make a forward looking on the growth on the margins of the restaurants, probably won't be proper for us to do. But I think you understand the model and you've seen other concepts a year that have been there for 30 years, you should be able to put all this together and kind of make your guidance over there. If you have any other questions as you're doing this, feel free to call Prashant or Sumit and we'll be happy to help you.

[Unknown Analyst]

Absolutely. No, this is a very, very detailed and helpful. Just last one question is on BK Cafe. I wasn't very clear. You saw the incremental sales, it is doing is about INR 8,000, right, but overall is about 15,000. Can you just explain that point? So overall, in a cat about 15% contribution is coming from BK Cafe, -- is that understanding correct?

[Rajeev Varman, executive]

See, the reason we also -- we came off a little bit strict on ourselves, right? We can just report 15,000, 16,000 ADSs and so forth. But every time we sell, let's say, sometimes it cannibalizes not buying a soda. So then we take the difference between the price of the soda and the soda and CST carbonated drink versus the Cafe price, and we only report that as incremental sales, right? So while our ADS has now grown up to over 15,000 per store per day. By the way, a lot of these cafes are new. They've not even got a quarter behind the debt, right, not even a quarter beyond about. So when we report 15,000, generally, half of that is incremental. The other half is potentially cannibalizing something else the person could purchase, which they have opted to switch to cafe. I hope that makes it clear.

[Operator]

Our next question is from the line of Harsh Shah from Dimensional Securities.

[Harsh Shah, analyst]

First question is on the Indonesian business. Since we are down to 1 60 stores. I wanted to understand on the DK side, how many more stores do we plan to rationalize there?

[Rajeev Varman, executive]

Yes. It's not a lot. I mean we're looking at single-digit number of stores. We have basically rationalized the portfolio. We are just working on a few of them. We'll probably be successful. The reason we can't give you the numbers, we are trying to keep them all open, right? We're trying to negotiate rents down. And if you do then we'll keep them all open, if you're not able to, then we'll rationalize a few of them. A good part of Indonesia is its turnaround, right? We worked -- we put in a year. We put -- we fixed all the stuff. We put it all in place. Now it's all turned positive. It gave a whole year of positive SSSG. Now it's double that -- more than double that SSG positive for the first quarter. Sandeep has got a great team. He's a great leader. He's building a strong business over there. And then coupled with Popeyes, and Popeyes are coming in and doing a great job. So we are very, very confident with the business there. I always was. I mean, today, we purchased this to 2 days, I completely and very confident this is a strong business in the long run because the market is very strong, right? So both these businesses, we continue to drive in the outward

[Harsh Shah, analyst]

Okay. And on the innovation side, as you mentioned that the strategy -- strategic initiatives on the minus side is then with the chicken menu and we are also introducing the range of desserts and also value offerings. So just wanted to understand on the ADS side, currently, we are at around 180 mllion, 190 million IDRs. So when do we see the -- what about is the ideal target for the Indonesian ordering ADS?

[Prashant Desai, executive]

Yes. We are not guiding currently, as you know, on the Indonesian business because we just, over the last 6 months made all the strategic changes or big picture, internal target and what we have shared with you guys is to ensure that we break even this business, which will be INR 100 crores steam from last year. We are now seeing some stabilization coming back on the BK Indonesian side. As you know, we reported at 19.4 million ADS. But today, we sit here and guide will be a little tough for us. Just give us another couple of quarters once we kind of get a bit of true sense in terms of the visibility, we will come and revisit this over the next 2 quarters.

[Operator]

We move to our next question. Our last question for today's question-and-answer session comes from the line of Krishnan Sambamoorthy from Nirmal Bank.

[Krishnan Sambamoorthy, analyst]

There was a mention of building relevance and credibility of the chicken menu in BK. And here, the aim initially was to increase the proportion of chicken and reduce the proportion of matter, right, in Indonesia. How -- what is the stage of progress that has been made over the last year? And where do you intend to be from a year at?

[Rajeev Varman, executive]

Yes. So first of all, it's not money. It is beef over there. So they are beef and then they sell chicken. If you look at the market generally, where the burger players, there's a few burger players there, 70% of their sales is chicken and 30% of their sales is usually in the beef sector. So that's generally where the industry is. In Burger King as we took the business over, where we saw the opportunity was, we saw that the chicken business was at about 30%, and the beef business was at about 70%. Now we're not trying to decrease the 70% business. I think we actually want to grow that business as well because we are a leader in delivering Whopper, and we are the leader in pure taste and quality all around the world as we are known for it. So there's no intention in decreasing that portion, we will continue to increase that portion. But if you look at the pie, you will find that slowly as the chicken because we did not have both the chicken element, right? We only had one, which is a classic chicken but wasn't really classic wasn't really spicy, but somewhere in between those. So now we have a proper classic for those that don't like spice products and even for the kids we have a classic version. And then the Spice version, which really kicked off and started doing really well is on generating new people coming in that never had that spicy version. So you will see that this 30% portion will start to grow, and it will not grow at the expense of the 70% business. But as it grows, you will find a proportion of the pie will be more evenly split. My conversations with Sandeep and Sandeep is on the call as well is the first step is to make sure that at least we start selling 50% of our portfolio as chicken. So we'll start working towards that and then beyond that. I don't know, Sandeep, if you want to add anything else?

[Sandeep Dey, executive]

I just want to add one thing. If you actually walk into a restaurant, you would see the way the consumer is actually continuing this chicken. So I said in our presentation that chicken actually is a staple food here. So what is happening is they are buying burgers and adding a piece of chicken on to their need. So the chicken incidence is just coming as an incremental incidence without compromising or cannibalizing our order sales. And that is how actually the overall business is increasing. So that's the beauty of this market having a combination of burger and chicken as the overall portfolio. I hope that answers to your presentation.

[Krishnan Sambamoorthy, analyst]

That's useful. Any time line of what Raj mentioned, top equal contribution from chicken and burgers maybe it's a 1.5 years, 2 years, 3 years? Would you like to have had against that?

[Sandeep Dey, executive]

So I can tell you is during the campaign period, actually, our chicken portfolio almost reached to the tune of about 50%, right? And then after that, we are stabilizing, but we have used the dose, and I actually said in my presentation that the overall chicken incidents from the pre-campaign period to post-campaign has gone up by about 25%. So it's not going to take a long period of time is all I can tell you at this moment.

[Operator]

Thank you. Ladies and gentlemen, that brings us to the end of our question-and-answer session due to time constraint, that was the last question of our question-and-answer session. I now hand the conference over to the management for closing comments.

[Prashant Desai, executive]

Thank you, everybody, for taking the time and joining us. I know we've not got a sense to answer everybody's question. As you know, my e-mail is on the presentation, feel free to write an e-mail if you have any further questions on this, and we'll be happy to answer -- thank you.

[Operator]

Thank you. On behalf of Nuvama Wealth Management, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.