Westlife Development Ltd

NSE:WESTLIFE

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Westlife Development Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Dattaprasad Tambe, General Manager, Finance and Account. Thank you, and over to you, sir.

[Dattaprasad Tambe, executive]

Thanks, Steven. Thank you all for joining us on the Westlife Development Limited Earnings Conference Call for the quarter ended March 31, 2022. We are joined here today by Mr. Amit Jatia, Vice Chairman, Ms. Smita Jatia, Director and myself, Mr. Dattaprasad Tambe, General Manager, Finance for Westlife Development Limited.

Please note that our financial results and investor presentation has been mailed across, and these are available on our website as well. I hope you had the opportunity to browse through the highlights of the performance. We shall commence today's call with key thoughts from Amit, who will provide a strategic overview, which shall be followed by Smita to take you through the key business initiatives with overall operational progress and strategic imperatives that lie ahead. I will cover the analysis of the financial performance. At the end of the management discussion, we will have a Q&A session.

Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties we face. A detailed statement and an explanation of this is available in the quarterly press release, investor presentation and annual reports, which are available on our website. The company does not undertake to update these forward-looking statements publicly.

With that said, I would now like to turn over the call to Amit to share his views. Amit.

[Amit Jatia, executive]

Thank you, Datta. Good evening, everyone. Thank you for joining the call and hope you are all doing well. I am very happy to report that FY '22 has been a good year for us, despite challenges of the second and third wave of COVID inflation and other international events we have managed deliver one of our best results. We have delivered our highest ever full year revenue so far, our results demonstrate that we manage to build a fairly resilient playbook to successfully navigate challenging external environments.

The dine-in business has recovered completely to the pre-COVID levels and the convenience off-premise channels continue to grow strongly quarter-on-quarter, bringing in significant incremental business and growing baseline sales. This trend has reinforced our confidence in our bricks and clicks omni-channel strategy, where the dine-in and convenience channels are complementing each other and giving the consumers more occasions and option to experience us.

We are firmly back on track on expansion plans. We are aiming to be around 500 restaurants over the next 3 to 4 years. The growth will be predominantly funded by internal accruals as we have done in the past. Strategically, we are growing our presence in smaller cities and towns along with key cities, and that is showing very promising business results.

We have consistently been driving efficiencies in utilities, supply chain and labor productivity, leading to improvements in margins. We entered the pandemic with a strong balance sheet, and we have come out of it with an even stronger one. All of this can be attributed to the phenomenal agility displayed by our people. I'm proud that we have been able to recruit and retain some of the best talent in this industry.

Our next-in-line management team, which has been working relentlessly over the last 2 years has joined the leadership council of the company, which is the strategic decision-making body in the company. We have a strong succession plan in place. And with the knowledge and expertise of our management team, we are confident not only maintaining our market dominance, but also setting new benchmarks in the QSR industry.

To sum up, I would like to say that I'm proud of our remarkable progress on the strategic growth levers that we had outlined at the start of this year, which is driving profitable growth, increasing wallet share and exploring white space opportunities, increasing our geographic footprint and market penetration. I believe we are on a strong growth trajectory, and we'll continue to build on our competitive trends and further our business advantage.

With this, I hand over to Smita to take you through the highlights of the quarter.

[Smita Jatia, executive]

Thank you, Amit, and good evening, everyone. I'm happy to see that in Quarter 4, we were able to build on the strong growth momentum that started in quarter 3, which was [indiscernible] quarter thus so far. Our revenues for this quarter are up by 27% and same-store sales growth SSSG for the quarter stands at 23% Y-on-Y with 12 store openings.

We have delivered a strong March with INR 4.6 billion revenue for the quarter and recorded a PAT of over INR 231 million in the quarter 3 in there. This was driven by growth across both dine-in and convenience funds that grew by a solid 15% and 42%, respectively. This growth in revenue has been complemented with continuous cost efficiency. So in spite of strong inflationary pressures, our top line ensures a robust 34% Y-on-Y jump in the restaurant operating margin and 46% growth in our operating EBITDA closed at 16% for the quarter. Our margin growth has been more than our sales growth, hence ensuring operating leverage.

Out annual numbers are even more interactive despite the first half of the year being significantly impacted by the second wave of COVID. Revenues jumped over 60%, making it to our highest revenue gross so far. Our FY '22 return on capital employed stood at a respectable 16% plus, which is back to the pre-COVID level. And in the second half of the year, we are trending significantly higher. What is very encouraging is our accelerated growth in H2, which mitigated the impact of the first half to some extent.

We have seen a strong comeback in dine-in that has recovered to pre-COVID level combined with consistent growth in the convenience channel. Dine-in along with [indiscernible] is now driving revenues of over INR 450 crores every quarter. The average unit volume currently stands at INR 6 crores, which is 1.5 to 2x higher than the industry average. This clearly indicated that our growth in both dine-in and convenience channels have been continuously setting a new baseline for the business.

Our omni-channel strategy has given us better business predictability. Owing to our multi-change, multi-day part strategy, we are able to serve our customers wherever they are, whenever they want it and however they want. This has helped us cement our market leadership position even further. We have been making concerted efforts to build and grow our meal day part business through our Gourmet Burger platform and McSpicy Fried Chicken.

I am happy to share that this quarter, we have seen a robust 40% plus jump in our meals category revenue and are inching towards becoming leaders in the meals category while continuing to maintain our snacking leadership. Last quarter, we launched our Gourmet collection a range of indulgent more filling burgers.

We are happy to report that this has helped us to recruit new customers, given our existing one more occasions to come to us. We have seen a solid 15% update in our "Great Tasting Burger" scores. Our chicken category has also made its mark in the south market. We built our McSpicy Fried Chicken marketing campaign with celebrity announcements, and it's yielding our significant results. McDonald's Great Tasting chicken scores have grown 3.7x significantly gaining share from the competitors and that help grow our market share, as well as, achieve the highest monthly sales in the region.

We continued our efforts to strengthen brand trust and affinity to our various initiatives like the truly Indian Burger campaign on the public day, Valentine Days initiative around McCafes and International Day of Happiness. Last quarter, we enhanced the nutritional profile of our Happy Meals. And this quarter, we introduced Happy Meals Readers, which is an addition of a series of books to encouraging -- to encourage reading as a habit among kids.

We took International Women's Day opportunities to further our inclusivity agenda and open stores that were exclusively run and operated by women. We are proud to share that 35% of people who work with us are women's, including those at the restaurant. We also introduced easy delivery reusable bottles exclusively for our delivery channels for our range of the [indiscernible]. We thus continue to launch campaigns with different themes to connect with our customers and further enhance brand now.

We are continuously building a brand that is accessible to customers at their convenience to various digital platforms through the [indiscernible] and the McDonald's App and the self-ordering kiosk at the restaurant. These digital platforms contributes 57% of our revenue and are growing well. While the McDonald's delivery app continued -- continues to enable our delivery proposition on McDonald's offer engines that gives customers personalized offers, plays a key role in driving, dining, walking and frequency.

These digital platforms saw a cumulative download of 17 million. We also saw both the active user base and average check for the McDonald's app increasing significantly. We are now firmly back on track with our network expansion plan. This quarter, 12 new restaurants and entered 3 new cities. As Amit said, we opened in Tier 2 cities of Vellore, Bilaspur and Bhilai.

Sales in the first few weeks in these cities are even higher than our metro city restaurants clearly indicating a strong appetite in these emerging markets. With this, we have a total of 326 and 262 McCafes across 47 cities. We are also happy to announce that 118 of our restaurants are now fully refurbished swanky digitally enabled experience of the future stores.

Inclusion and sustainability have been important pillars of our business in the last 25 years. We have been consistently taking step to mindfully build them into our business. I am proud to say that now we have a significant ESG footprint that we can talk about. We have taken definitive steps to reduce our energy and water consumption. Some of you may be aware that we convert our used cooking oil into biodiesel that is used to power a delivery truck, thereby reducing carbon emissions. And we only use FSC certified paper for packaging. We have reduced waste and hence landfills by completely doing away with single-use plastics.

Lastly, we launched the EatQual packaging to make eating burgers easy for people with limited ability. We continue to serve more people under this initiative and will be innovating to bring happiness to many more people. We also continue to support the RMHC Family Room at the Wadia Hospital, and this year alone, almost 3,000 families have been able to use our facility. I will end by saying that we are absolutely committed to growing our environment and social footprint as we are to the highest standards of financial and [indiscernible].

I now hand it over to Dattaprasad, who will take you through the financial highlights of the quarter.

[Dattaprasad Tambe, executive]

Thank you, Smita, and good afternoon, everyone. Hope you all are doing well. As you are aware and already as shared by Amit and Smita, we have ended up full year 2022 on a very strong amount. As a company, we got the higher sales for the fourth quarter.

Our revenue for the quarter stood up by 27% year-on-year to INR 4.6 billion. And I must mention that for the year, our sales jumped by 60% to INR 15.8 billion, firmly setting us on the path of future growth.

Our gross margins have been stable at 55% despite the inflationary pressures. This was because we continue to maximize our supply chain efficiency and product mix management.

I would like to highlight that our strong operating margins is the best in class with INR 1,016 million. And even as a percentage, we have been able to achieve 33.7% improvement in ROM year-on-year.

Talking about the operating EBITDA margin, our margin for the last quarter stood at 16% and for the year, it was respectable 13%. We believe our cost management strategy is working, which is helping us to improve our profitable substance more than our revenue. Our profits are growing more than our revenue.

Our EBITDA stood at 14% for the full year, wherein the EBITDA in the second half was recorded at 17%. It is important to note that for the last 2 consecutive quarters, we have delivered a PAT of INR 230 million plus Pre-IND AS, reaching our best ever sales in Quarter 3. We are also able to deliver a positive PAT at Pre-IND AS level for the full year.

We believe that the flow-through of the top line growth and the cost leadership initiative also gave us our margins a strong boost. It is heartening to share that we maintained a strong balance sheet and a robust liquidity position by optimizing our treasury and working capital. Going forward, we are confident that our operating performance will continue to fuel growth in our already strong free cash flow profile.

As a result, we are committed to our historical capital allocation priorities to invest in new restaurants, refurbish existing restaurants and locking opportunities to grow the business.

With that I hand it over to Amit for his closing remarks.

[Amit Jatia, executive]

Thank you, Dattaprasad. On the outlook, I believe the business environment will continue to be volatile, rising inflation, coupled with the shortage of inputs due to the global geopolitical situation will continue to be a challenge. While there may be some blips in the short term, we are confident that in the long run, we will be able to navigate these successfully to deliver strong sustained growth. In the last 2 years, we have redefined our cost structures and increase productivity. We believe that with strong average unit volume and restaurant cash flows, we are well positioned to withstand the pressures ahead. We have already embarked on an aggressive growth journey to deliver accelerated business results and shareholder value. Thank you. With this, I'll open the call up for Q&A.

[Operator]

Thank you very much, sir. [Operator Instructions]. The first question is from the line of Avi Mehta from Macquarie.

[Avi Mehta, analyst]

Just wanting a bit on the inflation. If you could kind of give us a sense whether you've taken any price hikes in the first quarter? And is there any other line item that kind of makes -- in any pressures in terms of availability that employee or any of the other -- any inflation in the other line items that you would want to highlight? That would be my questions.

[Amit Jatia, executive]

Sure. In terms of price hike in the last quarter, of course, we didn't do anything. In the current quarter, we have taken a price hike recently. And yes, that's that. In terms of the line items other than food we are alright. I mean, yes, utilities could be something that could come up depending on availability of coal and all these things that I'm reading about -- but currently, 45 days are gone, and we've been able to navigate most of it quite well.

[Avi Mehta, analyst]

And the price side, what would be the quantum? And would it be enough to take care of the input pressure? Would that be a right understanding?

[Amit Jatia, executive]

Sure, I mean see price, we don't believe that it's only price hike that covers all the costs as we've been able to do that over the last 5 to 7 years consistently, I think the whole idea is there are 3 levers, as I always talk about, product mix, it is menu prices and raw cost. Currently, of course, there's pressure on raw cost. So typically, we take 3% to 5%. And currently, what we've done, and we don't anticipate sort of going back to that in the near term.

[Avi Mehta, analyst]

And lastly, Amit on the store expansion, would we -- would -- any guidance would you seek to maintain that 40 stores that we are planning on an annual basis? Any -- if you could give us a sense on what should we expect. That's all from my side, I come back in the queue?

[Amit Jatia, executive]

Absolutely. So basically, as we have said consistently over the last 1 year, particularly that we intend to build another 200 restaurants over a 3 to 4 year window. Obviously, I'm happy that even with half a year of many difficult times in the last financial year, we still built 12 restaurants in the last quarter and made up for building 25 restaurants. Obviously, the pace quarter-on-quarter and year-on-year is going to grow. This year, yes, we are looking at 35 to 40 restaurants, and that is the plan. And of course, the following year, if we want to do the 200 in the 3 to 4 years, the pace will go up. So we are well geared up for that.

[Avi Mehta, analyst]

Perfect. And if I may, just the last, I just wanted to clarify you said some blips in the short term. Is this more on the -- if you could kind of just explain which is it you're looking from a margin that your guidance that you had given, the targets you've set for ourselves of mid-teens. While do you kind of be online, is that trajectory what you're talking about? Or was it -- I mean, would you just clarify what was that blip?

[Amit Jatia, executive]

I'll explain. I mean when we say blips, you read in the newspapers every day, one day edible oil is not allowed for import, one day, the government stops wheat and all this mean volatility and all things are going to happen. But I personally feel that with 25 years of experience and particularly since you've been watching our results, the entire community, I think irrespective of anything we've consistently delivered.

Now we have history to talk, and we've consistently for the last 5 years now, given 100, 150 basis points improvement year-on-year on the EBITDA level. So while something goes up, something else we are able to manage. So the whole point being that quarter-on-quarter, some line items may move, but year-on-year, you will continue to see this company kind of deliver what we talked about. So the mid-teens EBITDA, we don't shy away from it. That is what is what we are going after.

[Operator]

The next question is from Percy Panthaki from IIFL.

[Percy Panthaki, analyst]

I just wanted to understand your town tier-wise mix of the stores versus what you have today, 3 years, 4 years down the line. Would it remain roughly the same? Or would it change?

[Amit Jatia, executive]

Okay. I mean, see roughly, these are rough numbers. Our broad strategy is not changing. We will continue to grow our sort of key cities, which is Mumbai, Pune, Ahmadabad, Bangalore, Chennai and Hyderabad. Meanwhile, the smaller cities, we are penetrating that a bit more aggressively. So let's assume we are 70-30 today, maybe we are 65 -- 60-65 and 35-40. That's the mix change at all, because the good news is that look at the opportunity. So far, we have 330 restaurants roughly with only 44 cities. And I noticed that our competition is in over 100 cities. So that's an extra 60 city advantage that we have to penetrate, and yet, we believe that in our key cities, we are going to further double.

So again, I'm proud to say that if you look at Mumbai, we opened in very difficult markets like Mazgaon, more recently in Mahalaxmi area and so on and so forth. So I do believe in summary that we will continue to penetrate aggressively in our Tier 1 cities, which is Mumbai, et cetera. But we will now start expanding a bit more rapidly into the smaller cities. And therefore, maybe the 70-30 makes at best will become a 60-40.

[Percy Panthaki, analyst]

Two follow-ups on this. One is, as you penetrate further into the existing large cities like Mumbai, let's say, where you have more than 100 stores already. Do you see some kind of store splitting effect, like, for example, we have seen in Domino's, because they are opening in the vicinity of their existing store in the same micro market. So there is some effect, of course, the total system level sales does benefit, but the sales per store grows at a slower rate than it would have if the stores were not clustered close to each other. That's Part 1? Part 2 is a very small effect you did mention that Tier 2 sort of exposure going up, not a very large effect, but just wanted to understand that the sales per store in those smaller towns, how much lower would it be versus metro town?

[Amit Jatia, executive]

Firstly, I don't understand the meaning of the splitting and all that. I mean, at the end of the day, we are 330 stores and 100 in Mumbai. So we don't believe in splitting and therefore, we share same-store sales growth consistently since we started quarter-on-quarter, and that's the only definition we understand even globally. So we follow that particular norm. But to give you examples, we have 2 restaurants opposite each other in Andheri, more recently, we have crossroads, and we opened what is called Saat Rasta, Mahalaxmi, and both have increased sales. Both have done well because these are underpenetrated markets. The same thing in Ghatkopar.

We opened -- we had a store nearby in our city and then we opened Ghatkopar station. So our philosophy is we spent a lot of time. We've done what is called a trading area survey, and we understand impact by restaurant. And eventually, we find that if the location selection is right, the impact is very short term. And we believe in a big basket, that's not a shelter we want to take. And therefore, we talk about comp sales.

Number 2, last because you asked me a question, how much lower is that? And I felt, why can't it be higher? And it is higher. It's not -- you have to understand the dynamics. They are different. You go to say Tirupati, we have a restaurant in Tirupati [indiscernible] is small in the sense that there are not many players, McDonald's is a good brand, now with McCafes, Fried Chicken, et cetera. We have a tremendous draw from families to young people and so on to go. And therefore, actually, average volume in smaller stores is higher. It's just that I believe in a cluster approach, and that is why we've taken a specific strategy, and to be honest it is working beautifully for us.

[Operator]

The next question is from the line of Gaurav Jogani from Axis Capital.

[Gaurav Jogani, analyst]

So my first question is with regards to the impact of the Omicron in terms of our margins. I mean given the fact that [indiscernible] and we have been able to do [indiscernible]. How much would have been over the bigger markets?

[Amit Jatia, executive]

I mean I don't think we can do that macro -- the micro rather. I mean, Omnicom impacted pretty much most of January. And I can give you a hypothetical answer, but the important thing is that without January, we still delivered INR 455 crores in sales, which is absolutely top-notch, and we've been able to keep margins, because when you lose a month, it's not that you can gain that back in the following months. You lost that overhead. So I would not like to isolate those 20 days and so on. It's hard for me to sort of give you a more accurate number on that.

[Gaurav Jogani, analyst]

Just not an accurate number is what I was speaking. The reason I asking was that, how much are we [indiscernible] margin expansion here because of the Omicron, like it is showing 11.5%, if not -- could be higher [indiscernible].

[Amit Jatia, executive]

No, that's what I'm saying Gaurav, yes, it would have been higher that there is no question in my mind, because like I mentioned earlier, that the fixed overhead that you've lost in the sale, you've lost, you lost, right? So if we had that sale, the contribution flow-through would definitely come. But to give you a number because just guesstimate. It would definitely be better than the whatever margin you are seeing today.

[Gaurav Jogani, analyst]

And my other question is with regards to your menu innovation that you have plan by the Gourmet Burgers plan, [indiscernible] both seems to be a higher price point product, and we -- McCafes now also is expected to come back with these store opening? How do you see the impact on the gross margins are favorable. I'm assuming that these products would be a favorable one to gross margin base.

[Smita Jatia, executive]

So I'll take that question. So we've always said gross margin is a combination of 3 levers, raw material efficiencies, as well as, product mix and pricing. Just spoke about pricing of your question back. Product mix has always been a very key leader. And while as you have heard that we've always been snacking leaders, meal strategy was one of our [indiscernible] 2 quarters back when we actually launched Gourmet Burgers and then in the last chicken and in the last quarter, we launched Gourmet Burgers. Now obviously, when a person consumes a meal by vis-à-vis a snack is definitely higher, and the gross margins are also higher. And hence, as we keep -- there will be [indiscernible] chicken inflation is also hard to stay for a bit. However, we are confident that we will be able to respond to that with a good product mix management.

[Gaurav Jogani, analyst]

And just one last question from my end. Like Amit did mention that the operating performance has been aided by the various aspect of the division that might [indiscernible] specific line items as you told giving you this expense in the operating line?

[Amit Jatia, executive]

We didn't get the question because your voice is not clear. So I didn't understand the question.

[Gaurav Jogani, analyst]

I am audible now, is it better?

[Amit Jatia, executive]

Yes, this is better.

[Gaurav Jogani, analyst]

So sir, I was just asking in terms of the line items, the specific line items are you posting on, in terms of driving the operational efficiency.

[Smita Jatia, executive]

So I think that's a continuous process over so many years, there are a few line items where inflation is always there, and you have to continuously drive operating efficiency here. This would be the food cost. This would be utilities. And that is again a line item while inflationary in India just now. But world over, there is a shortage of labor, which is being seen and somewhere it will come to the -- to our country also. So I think it's always been utilities, labor and food cost. I think these 3 line items are driven well through operating efficiencies, we will be able to combat inflation.

[Operator]

The next question is from the line of Capital Amnish Aggarwal from Prabhudas Lilladher.

[Amnish Aggarwal, analyst]

I have a couple of questions. Firstly that on the number side, I think in the reported numbers on a consol basis, our other income is showing INR 13 crores, vis-à-vis the number INC 3 crores last year. So is there any one-off sitting over there?

[Amit Jatia, executive]

No, absolutely. One second... Datta, you want to take that?

[Dattaprasad Tambe, executive]

Hi Amnish, this is at Dattaprasad. So basically, there are no one-off shipping in there. It's in the normal course of the operating income.

[Amnish Aggarwal, analyst]

Okay. But there is a sharp jump in the format in which we report to the exchange. It is going up from INR 3.3 crores to INR 13.1 crores?

[Amit Jatia, executive]

We'll have to probably get back to you. We can figure that out. I mean, we'll come back to you on that. But there is no one-off gain. These not be -- maybe some supply chain write-backs if there were some costs that were taken earlier, it might be some of that, but we can come back to you on that.

[Amnish Aggarwal, analyst]

And secondly, Amit, if we look at, say, on the expenses side, despite our opening so many stores during the current quarter, on a Q-on-Q basis are, you can say, other expenses, they have not risen -- actually, they have gone down. So any particular reason of cost control or whatever we have done over there?

[Amit Jatia, executive]

See quarter-on-quarter, it's very hard to sort of talk about that. It's all about operating leverage. I mean, with sales going up, I've always maintained when people ask me what is it that's going to take you to the mid-teen EBITDA levels. And I've always said it's average unit volume consistently for the last 5 years, and that has been our focus. And the best example is if you look at say fried chicken, it's an example. What happened with fried chicken, the old restaurant base is there. With minor equipment, we were able to get say INR 50 lakh extra sales per year per restaurant, which is only increasing. So the flow-through to the bottom line is pretty nice on that.

The other thing is if you look at even G&A, it's pretty well managed. So the whole idea is every quarter -- I always say this, we have to have the latitude, if some line items going up, we play with some other line items that's outside our control. But the key is we are going to show delta, in either the operating EBITDA and PAT, which is really the 2 measures. So I can't sort of comment on each line item. But yes, cost control is tight. And wherever we are finding an opportunity to control when something else is going up is where we focus on. Smita gave in the last question, the 3 or 4 key line items that we focus on and the operating leverage part.

[Amnish Aggarwal, analyst]

And finally, just one more question from my side. Like I think what is the proportion of, you can say, convenient sales of the delivery sales which happened from our own app and from, say, Swiggy, Zomato or from, say, on distribution and outsourced one? And is there a difference in the profitability of the margin, which we make if we supply it from, say, using McDelivery vis-à-vis Swiggy and Zomato?

[Amit Jatia, executive]

So we don't share the breakup. Our own app does quite well as well. We've shared the numbers of download and usage. So clearly, there is tremendous focus in building our own app. In terms of profitability, again, we don't share it by channel. But the good news is we do well on both accounts. My philosophy, which I shared many times in the past, is that wherever there is business, you have to make your business model work. And we work very hard to make our business model work even with 3 [ PO's]. It's all about partnerships. And I think we've demonstrated that in our supply chain partnership over 25 years, and we've demonstrated that with both the [ 3 PO ] partners. If you see all my interviews over the last [indiscernible] touchwood for us, we've always worked with them even through difficult times. We've never really felt them as a threat to our business.

[Operator]

The next question is from the line of Jaykumar Doshi from Kotak.

[Jaykumar Doshi, analyst]

On fried chicken, when you mentioned INR 50 lakh people store on what base -- how many stores do you sort of in your portfolio? And how many stores in your portfolio offers fried chicken?

[Amit Jatia, executive]

So it's all of the South stores, so that's roughly about 130 -- 130 stores.

[Jaykumar Doshi, analyst]

So it's averaging INR 50 lakh average unit volume for that 100...

[Amit Jatia, executive]

Incremental, yes.

[Jaykumar Doshi, analyst]

Incremental, okay, that's useful. Can you give some color on how Gourmet Burgers have sort of said for you since the time we launched it payment across the network in October '21. Any data point that you can share that allows us to appreciate the product is extraordinary and any numbers that you can share?

[Amit Jatia, executive]

Yes. So we've shared in our earnings presentation, how -- it's all about the brand eventually. And what this has done, my philosophy is that any new category that we have launched burgers as a category many, many years ago, and the category evolves, and that is when consumers want indulgence. And that's what the Gourmet Burgers offers. So with the halo of brand McDonald's, when you launch the Gourmet Burger in the packaging, in the [ patti ], whatever we've done with the [ Allopneus ] and the taste, I think that's resonated very well. Some of the data points are already in the earnings presentation where we talked about how Great Burgers cost has gone up.

It's on Slide 15, where Great Tasting Burger scores have gone up by 15%. That's quite a lot, by the way, in a short period. We talk about the [ Fillingness ] scores are important because you see the IEO construct meals are a very important part, and in snacking, we've kind of given you the data today that we are leaders in snacking. And here is news. Today, we've openly come and announced to the world, that that's where the next frontier is. And with both the fried chicken and Gourmet Burgers, that frontier can be conquered.

Lastly, we've given the sales contribution, we don't share breakups, but we shared that it was up 20% pre-gourmet to post-gourmet. So our sales contribution of Gourmet Burgers is rising. But the halo effect of Gourmet Burgers is amazing, because whenever I talk to people qualitatively, right, I'm hearing very, very good things around that. And the feedback that we are getting from consumers is very, very positive. So Gourmet Burgers are here to stay, and it's a category in itself that we feel we are going to grow substantially.

[Jaykumar Doshi, analyst]

Sure. Can you help me with that chart again, when you said Gourmet Burger sales contribution has gone up by 20% versus pre-Gourmet. What -- how should I read that data point, because you were earlier offering this burgers through a very small number of stores and then you've launched it across the network. So that 20%, I'm not able to understand my understanding is [indiscernible]?

[Smita Jatia, executive]

So basically, pre-gourmet, we had some, what we call premium burgers like the Maharaja Mac, and spicy McChicken. So if you take -- and then we included the Gourmet Burgers and that the contribution from these premium burgers have gone up by 20%.

[Jaykumar Doshi, analyst]

That is helpful. Is it possible for a onetime exercise, give us some color on -- roughly what would be the premium burger contribution in overall burgers for you and what it would have been 5 years back.

[Amit Jatia, executive]

Unfortunately, we don't share such breakup at all. Product mix breakup is not something that we share. All we believe is, I think we have given a construct of the Gourmet Burgers -- , of the IEO market. I think we felt this is really the right time to introduce this concept. And the whole point is, as on that slide, Slide #13, we are talking about meal and leadership for brand McDonalds in the meal category. And essentially, we feel that Gourmet Burgers in West and the chicken platform in South is what's going to give us leadership in the meal category, which is the largest category in the informal eating out.

We already lead in the snacking daypart, but the whole idea in the last couple of years has been to go towards new. So there has to be a logic for doing something -- as to talk about premiumization of the brand. But premiumization is a very generic word. Really, there has to be a more sort of measurable reason why we are doing something. And today, we decided we should start talking about why really -- what is the relevance of Gourmet Burgers in our strategy and what is the relevance of fried chicken in our strategy. And if you see Slide 13, it will kind of give you a better indication. But breakup on product mix is something we don't share.

[Jaykumar Doshi, analyst]

Understood. My final very quick short question. Do you have any plans to launch fried chicken in West -- Western market or your existing front?

[Smita Jatia, executive]

So we are doing some research and we are -- we've launched it in some of the trial stores depending on what the result. I'm sure we will see a need, but we're just going to balance in terms of what we focus on. So just now we feel gourmet is what we are focusing on the west. At the right time, we will launch [ gourmet ] chicken also.

[Amit Jatia, executive]

So you can visit some of the stores that have it and see how fantastic the product is, because that's what our consumers are telling us.

[Jaykumar Doshi, analyst]

Gourmet is there in South or gourmet is yet to be launched in South?

[Amit Jatia, executive]

No, gourmet across the board.

[Operator]

The next question is from the line of Devanshu Bansal from Emkay Global Financial Services Ltd.

[Devanshu Bansal, analyst]

Sir, I wanted to understand when other players are sort of taking 10%, 12% price hike. Why are we taking only a 4%, 5% price hike, why not increase our gross margins with other levers like you talked about efficiency product mix, et cetera. Third part is that, do you feel that this 10%-12% price hike will not be able to be absorbed by the industry and can affect volumes?

[Amit Jatia, executive]

I mean leave some of this management to us. I think we know what we are doing. What we've done is all scientific. It's not that we just increased 5% or 3% or 2% because we liked it. There is a -- we've been doing some research for the last 6 months and that data and that data tells us certain things. And based on that certain things, we have a full pricing workshop, and we get support from global pricing team on this. So pricing decisions are not just arbitrary that inflation is running at this would take the price increase. We are here to build a long-term sustainable business. And my philosophy always is we are leaders we lead, we don't follow. So we've set the path based on what it is. And I think today, after 5, 6 years of history, I mean, I think we deserve quite a bit of an applaud on the way we managed our gross margins, and we've kept our pricing tight. So leave it to us net-net.

[Devanshu Bansal, analyst]

I actually wanted to appreciate only that...

[Amit Jatia, executive]

I know, you did, but I'm saying -- I'm saying that we stay with what we've done, and I hear you, but I gave you the logic of why we follow this path. It's on a study. I know that you are appreciating it, and you're saying we can take more and get better. But trust me, what we are doing is a wealth for growth strategy.

[Devanshu Bansal, analyst]

Sir, we have sort of improved our non-veg portfolio in the Southern states. So I just wanted to check if you can qualitatively share, I mean, how has this helped us improve the profitability in those cohort of stores when things are sort of returning back to normal?

[Amit Jatia, executive]

So that's a very good question. And I have in the past explained that, of course, if I were to just take West, I mean, you would love our business even more. I think you might still be loving it, but you'll love it even more. And South, we entered South very late. And I feel by doing what I've done, putting INR 500 crores, INR 600 crores, the bold move, we've earned the right to play in South. It's a very important point. And now, we are earning the right to win. And therefore, with what we've done with the product mix, the brand relevance in South is going up, and obviously, average unit volume in South was lower than what we would have liked.

And all of this play around the chicken and some other things that we've done experience of the future, even McCafes for that matter, all the reimaging that we've done even in smaller towns, the resonation to the brand is phenomenal and our market share in South India has come up very, very well. And I mean, we are really loving it. We want to grow even faster, but I always balance the quality of real estate with growth. So it more better and it's helping us get a better return, Smita today talked a bit -- again subtly gave out another number, our return on capital employed was over 16% for the whole year. And remember, the first half was where it was, and we lost a lot of money in the first half. And yes, that's the number we are at. So imagine what's the run rate that we are at today. It's quite very promising.

[Devanshu Bansal, analyst]

That's encouraging. Sir, a couple of data points I wanted to -- I was looking, also what is the [ warranty ] rate that is going to be for FY '23?

[Amit Jatia, executive]

4%.

[Devanshu Bansal, analyst]

4%, and can you also sort of tell us what is the current rental cost run rate?

[Amit Jatia, executive]

We don't share the breakup of rentals. It is not -- it's under control. I mean it is what it used to do. It's not something that we are. I think the portfolio rethink we did has really been very helpful. And like I always said, I mean, if you've been on our calls that how do you come out -- how do you not lose this COVID time? And how do you keep it useful? And I think we worked very hard to get the cost structure right. But the other work that is not necessarily sort of understood, because we've not talked about it, is the portfolio mix and all the work we've done to get the restaurant portfolio are very, very strong and solid.

[Operator]

The next question is from the line of Nihal Jham from Edelweiss.

[Nihal Jham, analyst]

A couple of questions from my side. The first is on the SSSG. Now despite the Omicron, impact, we have seen a very strong performance, and that's not on weak base, it is in performance as we put in. As I deconstruct our performance, as we noted that over the last couple of years some of the strong initiatives that has implemented has been the delivery then we've obviously spoken of Gourmet and chicken being an addition. Would it be right to say that delivery has been the biggest driver, even if I look at how the share of delivery has sustained, at that growth is really driving the strong SSSG. If it's possible to deconstruct as much as possible?

[Smita Jatia, executive]

So actually, if you see Slide 7 and 8, it kind of gives you a understanding of our convenience channels. If you look at it from even Quarter 4 of [indiscernible] it has grown by 42%. So if it was 100, it's 1.42. And if you actually look at pre-COVID levels, our convenience channels have grown by 2x. So you're right, other than just menu interventions, it is the omni-channel we have adopted. And we also gave a data point that is 7% of our sales are now digital, which is also linked to our convenience strategy, as well as, our dine-in strategy. So net-net, it's not only menu. It's definitely convenience and in convenience, delivery does play a very critical role.

[Nihal Jham, analyst]

The other question is, I do notice that we obviously been implementing our EOTF strategy, and above that we've obviously launched a range of Gourmet Burgers, so there is an effort to premiumize the look and feel and the menu. There is obviously a core practically to McDonald's also let you say the value of the evening snacking category. And there, I think we only have one entry level veg and non-veg burger. Would it be right to assume that most of the launches that you want to do in the future will be more toward the premium side and where the portfolio is more or less out?

[Smita Jatia, executive]

So I mean, if you again go to Slide 13, it's not that snacking is just about the veg and a non-veg burger. It fried, its coffee, even in McVeggie, McChicken is sometimes eaten as a small snack. So I don't think our strategy is only to premiumize and only speak about [indiscernible]. We have to be continued to be leaders in the snacking strategy, and we will continue to add [indiscernible]. And at the same time, we will add the products which are required for the new strategy. And again, we've always said that we are a limited player because that's what helps us to keep operational efficiencies, get better quality service to the consumer. So there is by no way I think there was a gap in the new strategy, which has been augmented by Gourmet Chicken. But as time goes and as our customer needs will change, we will obviously be abreast of them and be able to introduce relevant burgers in both categories.

[Nihal Jham, analyst]

Sure. Smita, just to follow up on that was that the launches are being one the gourmet side. While we do have an extensive portfolio, it's not as we add in anything. Is that the right thought or there have been many additions inside menus.

[Smita Jatia, executive]

Sorry, the question wasn't clear. Can you please repeat it?

[Nihal Jham, analyst]

Yes. My only follow-up to that was that I was asking that in the gourmet category or in the [ pizza ] category there is multiple burger launches, whereas at least in the value category, while we have an extensive menu, I don't think any new SKUs have been launched. So I was coming from that part either?

[Smita Jatia, executive]

Yes, absolutely. We -- I think our snacking strategy is quite robust, and we have products which we can play with. Coffee is a very integral strategy also. And therefore, we didn't feel the need to introduce something just now. You're right.

[Operator]

The next question is from the line of Shirish Pardeshi from Centrum Broking -- from Centrum Capital.

[Shirish Pardeshi, analyst]

And you see the efforts, what I have heard over the last 45 or 50 minutes, I think it is really commendable. And today, I understand, I think product innovation, which in the past you said it's a continuous thing. But how this effort at the back end, I mean, if you can spell out what is the team size or how this innovation happens and maybe spend a minute or 2 how this whole thing gets up to the supply chain.

[Amit Jatia, executive]

Sure. See, this goes back. I mean we've been doing this from 1997, and we build competencies around that time. So we obviously have a couple of steps, but it's all about our suppliers. These suppliers are our global partners, and there's a lot of research involved. And with research, we understand consumers, we look at competition. And then we have a pretty set global process as well where we then do some designs, the products are focused to us, but it's all around a consumer need. So it's quite a detailed process, and there's a workshop we do on the menu vision, and that menu vision lays out a 3-year plan, and it goes back to that the Slide 13 [indiscernible] IEO we are targeting for the relevance of the market today. So I mean, it's going to be hard for me to just explain the old process. But broadly, it's a pretty well-defined process. It's not that I'll wake up in the morning and I see competition has launched something and we go after it. So to give you an example on fried chicken, we decided in 2017 that we need to go after chicken leadership in South.

And then our team went to different McDonald markets. We looked at our entire range. We looked at competition in the entire range. We identified some gaps and that is when direction was given to our suppliers and the menu team where they start putting the product together, then we do some trials, then we do some small tests and then we put it into a market and then we launch it. So in 2019 -- 2020 Quarter 1 is when we launched it when COVID hit. So this is typically the process of how we go forward. And the whole idea is to do something that is unique. So the big differentiator and we are getting this from consumers about our fried chicken, is that if it's spicy to the whole, up to the last bite and not just the coping. And that requires some process reengineering as well at the plant, and we are quite pleased with what we talked.

[Smita Jatia, executive]

And just to add to this, this came from consumer insights. It wasn't something which we just kind of worked on and innovated ourselves, insight was that when a customer eats Momin Chicken. Normally, the flavor is only in the coating. And by the time they get to the bone, the chicken becomes bland. And that's the insight we caught on and we kind of gave the brief to our chef to develop the product.

[Shirish Pardeshi, analyst]

That's helpful, Amit. I have more questions on that. I'll take it off line. I actually wanted to see that what is the speed to market rights on the conceptualization to the actual prototype and launching in the market. I'll take it offline.

[Amit Jatia, executive]

So that's why there's a 3-year menu vision. And that is why it's continues, it's always continues.

[Shirish Pardeshi, analyst]

On Slide 26, you have given quarter numbers, where the growth in dine-in was 15% and 42% for convenience. Can you spell out what was the full year number?

[Amit Jatia, executive]

Numbers, I think we gave it somewhere…

[Smita Jatia, executive]

15% in dine-in.

[Shirish Pardeshi, analyst]

That was for quarter 4.

[Smita Jatia, executive]

Okay. So I would just say that, if I look at it -- you can take Slide 7 and 8 -- so again, in Slide 8, because the only issue is Quarter 1 was not the right quarter to take on, because dine-in was not present. So if you analyze the number, I don't think you will get a better understanding. So only when you look at it quarter-wise, even if I take Half 2, the numbers would be same where convenience has grown [indiscernible] not completely.

[Shirish Pardeshi, analyst]

Okay. I'll do that. Amit, would you like to comment how April and May, which is more of a normalized months?

[Amit Jatia, executive]

No, how do you think -- sorry, that would be too forward-looking, and let's keep the...

[Shirish Pardeshi, analyst]

Okay. My last question is on the downloads, 17 million downloads is a very good run rate you guys have managed. But if you tell me what is the hit rate or maybe what is the commercial rate you are getting from this? I mean the question is more of how the repetitive customers are there and when somebody can downloads, how quickly it…?

[Amit Jatia, executive]

We have the data, but we don't like to share beyond that. So maybe for now, this is what it is. I mean, in our opinion, we are best in class.

[Shirish Pardeshi, analyst]

I do understand Amit, and I respect what you have built the business. The other thing is that you will not be able to give on a quarterly basis, but maybe on a annual basis, you should make it a practice, that I can share some data point, so that it will help us to model it correctly?

[Amit Jatia, executive]

Sure. And that is why this time around, we gave the whole construct of the IEO. And we are trying to, at least on a yearly basis, give a little more insight into our business so that the understanding is slightly better for point taken, and we'll definitely consider that.

[Operator]

Thank you. Ladies and gentlemen, due to time constraint, we've taken that as a last question. I would now like to hand the conference over to Mr. Amit Jatia for closing comments. Over to you, sir.

[Amit Jatia, executive]

No. Thank you, everybody, for patiently listening to the commentary and attending the call. I really appreciate it. If there are any more questions, please direct that to our Investor Relations, and have a lovely day. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, on behalf of Westlife Development Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.