Ladies and gentlemen, good day and welcome to the Westlife Foodworld Limited Q4 and Full Year FY 2023 Earnings Conference Call. As a reminder, all participants' lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. We would like to remind you that certain statements made by the management in today's call may be forward-looking statements. These forward-looking statements reflect management's best judgment and analysis as of today. The actual results may differ materially from the current expectations based on a number of factors affecting the business. Please refer to the safe harbor disclosure in the earnings presentation. I now hand the conference over to Chintan Jajal. Thank you, and over to you, sir.
Thanks, Vikram. Welcome, everyone, thank you for joining us on Westlife Foodworld Earnings Conference Call for the fourth quarter ended 31st March 2023. I am Chintan Jajal, Lead IR at Westlife. From the management team, I have with me Mr. Amit Jatia, Vice Chairman; Ms. Smita Jatia, Director; Saurabh Kalra, Managing Director; Mr. Akshay Jatia, Executive Director; and Mr. Saurabh Bhudolia, Chief Financial Officer. We will kick off today's conversation with Smita sharing her thoughts on overall business progress and outlook. This will be followed by Akshay taking us through operational, financial, and strategic highlights. Post that, we can open the forum for questions and answers. We will be referring to the earnings presentation and financial releases available on the stock exchange and the investors page of our website. With that, I now request Smita to commence the session. Thank you, and over to you, Smita.
Thank you, Chintan, and a very good afternoon to you all. On behalf of the Westlife Foodworld team, I'd like to warmly welcome you to our investor update. It gives me great confidence and happiness to share that we have delivered another strong quarter, resulting in a record year. We can say with great optimism that our strategy is generating growth and strengthening our brand year after year, and we have now established a new baseline to beat the curve. We also acknowledge that our strong performance is a result of great teamwork and individual efforts. Towards that end, we are rewarding our employees with the highest-ever variable pay. We also celebrated our success in a grand convention in Pattaya, wherein 650 of us got together and aligned to the organization's vision. We achieved execution excellence through our focus on menu, meals, and branding.
With increased sales, we enforced our belief in our bricks and clicks omnichannel strategy, in which dine-in and convenience channels complemented each other, providing consumers with more occasions and options to experience us. We have consistently driven efficiencies in utilities, supply chain, and productivity, resulting in margin improvements. Our consistent focus on the right network and economic cost management and profitability and seamless service at every customer touchpoint throughout the year has enabled us to build a strong business model, which is broadly debt-free and a much-loved brand. Our expansion plans are on schedule to add 40-45 new restaurants in FY 2024. If we continue to grow at this rate, we will be well-positioned to provide all our stakeholders with accelerated business results and long-term value.
We also promised a strong succession plan for the company. Today, the organization elevated Saurabh Kalra, our COO, to MD, with effect from March 2023. I'm also delighted to inform you that Rohith Kumar and Saurabh Mehta will lead our teams as CHRO and supply chain head, respectively. We are confident that the knowledge and expertise of our management team will continue to enable our differentiation. In conclusion, I'd like to say that I'm proud of the remarkable progress we've made on our strategic growth levers, which include driving profitable growth, increasing wallet share, exploring white space opportunities, expanding our geographic footprint, and increasing market penetration. I believe we are on a strong growth trajectory, and will continue to build on all our competitive strengths and further our business advantage.
I'd like to thank all our shareholders, customers, partners, and employees for their contribution to our strong performance. I will now request Akshay to share the operational highlights of the quarter gone by.
Good day, everyone. I hope you have been able to go through the numbers. FY 2023 was a great year for us, where we executed our strategic goals flawlessly. During the year, we have grown from strength to strength, achieving market-leading performance across all core parameters and establishing a new baseline. With the highest-ever annual sales at INR 22.7 billion, marked by 36% same-store sales growth. Our average unit volumes crossed INR 66 million with nearly 60% of sales driven through digital. Our EBITDA margin was the highest ever at 17.3%, while grosses stood at 31%, with a strong financial position. Looking at the year, we can finally say we are the smarter, bigger, better, bolder, which is what our goal was when we entered the COVID period.
Moving to quarter four, it is very encouraging to see that the growth trend has persisted across channels, geographies, and the portfolio. Overall, sales during the quarter grew by 22% year-on-year on the back of very healthy same-store sales growth of 14%. Our on-premise business gained significant traction by growing 38% year-on-year, led by continued strong uptick in the dine-in business. The key driver of this performance is our robust value proposition backed by relevant offerings and consistent investments in modernizing our restaurants to offer memorable customer experiences. As of March end, over 72% of our restaurants are in the Experience of the Future format. Our off-premise business continued to rise steadily on a high base, contributing over 40% to the business. Our McDelivery platform continued to grow at 1.5 x the growth of thi rd-party operators.
We introduced our new McDelivery app in March. It has a highly scalable backend, which significantly enhanced user experience design. It will help us drive much higher levels of consumer interaction while offering the ability to manage greater order volumes during peaks. Our menu innovation centered around burgers, meals, and chicken at McCafé continues to work well for us and captures customer preferences. Our Chicken Big Mac launch elevated the Mac platform and burger meals while bolstering our market position in chicken. McCafé beverages also grew strongly. I'm pleased to share that we saw continued improvement in our great tasting burger scores and coffee scores, which stood at the highest ever mark in Q4. Geographically, west and south markets continued to grow steadily. Digital sales in Q4 jumped sharply to 62%, led by improvements in self-ordering kiosks and an increased number of EOTF stores.
Moving to slide number 10 on profitability, we saw an overall improvement in margins. Gross margins improved by 371 basis points year-on-year, led by one-time volume delivery incentive, cost savings, and flow-through of earlier pricing actions, while EBITDA margins grew by 51 basis points to 16.5%, with gains being partially offset by higher G&A. Our cash flow stood at INR 567 million in Q4, implying a 10.2% margin. During the quarter, we added 18 new restaurants, achieving the annual target of 35 new restaurants in FY 2023. With this, we now have a total of 357 restaurants, including 311 McCafés, 68 drive-throughs, and 220 EOTF restaurants spread across 56 cities.
Going ahead, we are further stepping up 40-45 new restaurants in FY 2024, eventually moving towards our vision of having 580-630 restaurants by 2027. I would also like to touch upon another topic, which was discussed during Strategy Day back in early December. As you would, the business is generating a healthy amount of cash, perhaps slightly more than what we will need for network expansion, CapEx, and other business activities. Hence, we were working on refreshing our dividend distribution policy with an aim to balance shareholder reward while retaining sufficient capital for growth. Accordingly, today, the board approved an updated dividend distribution policy, which guides for maintaining around 25% dividend payout ratio subject to conditions mentioned in the policy. The policy document will be available on our corporate website shortly.
Also, for the first time, Hardcastle Restaurants Private Limited, our wholly-owned subsidiary, proposed a dividend to Westlife. I will end by saying that we had a strong quarter and a remarkable year. We are happy with our achievements so far and aiming much higher. I now hand over the call to the moderator and open the forum for your questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands-free while asking a question. We will wait for a moment while the questions are assembled. To ask a question, please press star one now. We have our first question from the line of Jay Doshi from Kotak. Please go ahead.
Hi. Thanks for the opportunity, and congratulations on the recent SSSG performance. My question is, you know, could you give some color in terms of how SSSG trends have been during the course of March quarter, January through March, and continuing into April? Have you seen any deceleration in general, or has it been more or less stable for you?
Thank you, Jay. I'll have Saurabh answer the question.
Okay. I think it's a good question. I think same-store sales growth for-
Robust. As we've also outlined in the deck, that what we see this last year as a new baseline, which has been established. From there on, we expect what we've talked about with million with 37, which is high single- digit same store sale growth coming into account. We believe from that standpoint, what we delivered last quarter was quite robust and on point.
Thank you for congratulations, Saurabh, on your elevation. My second question is on, it's a bookkeeping question. Could you please provide us breakup of CapEx, the INR 270 crore CapEx that you've done in the year, spread across new stores, EOTF initiative, any other optimizations?
Amit here. sorry, we don't share break up of our CapEx, but broadly 60%, 70% of that is into new stores.
Understood. In that case, you know, is there any significant inflation in a per store for restaurant CapEx that you've seen given the inflationary environment? Because if I'm not mistaken, INR 270 crores of which CWI think increases 20. INR 250 crores would be of that 60%, could be INR 150 crores for 55 gross store openings. Am I... And it comes across as a little over INR 4.25 crores. Whereas our year inflation was INR 3.25 crores or something in the McCafé.
Yeah. Let me clarify. You see store CapEx, therefore we always give a range, and I think we had talked about it in the last call as well, where we are now sort of between INR 3 and INR 4 crores. For example, if you do a drive-through, it's on the higher side. Now McCafé along with EOTF and certain higher design standards that we are now following, you know, would stay in the INR 3.50 crore-INR 4 crore range. Also remember, we have not only increased the penetration of McCafé now in almost 320 restaurants. Also now EOTF is in 72%, 73% of our restaurants. There's a lot of incremental investment that has gone to keep our facilities modern.
I've mentioned this in the past, at least I'm a strong believer that you've got to keep your facilities, your asset base very modern and relevant. Even by global McDonald's standards, in fact, 95% of our stores are in that category. We have invested a lot of money into that. There is some IT investments as well on information technology. As you know, the base is increasing. You know, just to give you a small example, with 350 restaurants, you know, different cities, price point, product, food deals could be different. You know, we put in a central file management system that allows us to manage our menu across all these four sitting from the corporate office itself, and some investments in technology around our app and so on.
Like I said that it's not all into new restaurants, but I hope I've answered your question.
No. That was helpful.
Clearly.
One final follow-up there. Next year you are targeting 40-45 stores versus gross store openings of about 35-36 this year. There'll be 30% higher store openings. Will the absolute number of new INR 70 crores go up or you think that the other CapEx that you are doing will probably not grow or will moderate?
Our typical CapEx range is between INR 200 crores-INR 250 crores, and I think we will continue to maintain that.
Understood. Thank you so much, and wish you the very best for the financial 2024.
Thank you. Thank you.
Thank you. We take the next question from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yeah. Hi, good evening, Amit and team. Congratulations for good results somewhere. Just wanted to check between last quarter and this quarter, we have added four new cities. Would you give us some color, some sense how this SSSG is panning out? Maybe if you have now just took on INR 67 million average store sale, what are the store sales happening these four cities over, say, quarter one, quarter two?
I mean, we don't break up our SSSG by cities, to be honest. Essentially, as I think we said in our presentation as well, we are seeing the smaller cities respond extremely well. A lot of it has to do with aspiration and then especially the new Experience of the Future restaurant along with McCafés opening in these new cities, we are seeing the response pretty good. I would say that it's. We don't share the breakup, unfortunately.
Amit, I'm dialing the numbers. just let me clarify. is that number is significantly higher than 14%?
You know, what we've said in the past is that when we have gone into smaller towns and newer cities, we've seen a very good response for the brand, because our product market fit brand relevance has only been increasing. As a result, these smaller towns have performed very well and they inch up to the system average quite fast. I think that's all we've said in terms of color, and we continue to maintain that.
Sure. That's helpful. My second question is that in this quarter, have we taken any price increases? The second question to Saurabh, is that what is the inflation, bucket, we're facing at this time?
From a pricing standpoint, we haven't taken any price increase yet. We typically take 2%-3% a year.
This year we will be 53%. Inflation, like all of you know, is generally in range of what normal India range is, which is 4%-6%. I think we've operated the business for 25 years in that range. The normalcy has restored unlike last year, which was excessive inflation. There are some commodities like dairy which are still having a little bit of inflation. Nothing out of manageable range. I feel very comfortable on the way we've been able to manage inflation and we'll continue to do that.
Okay. My second last question. We have now 205 EOTF, 220 EOTFs rather, which covers almost 72%. During the investor day you said that very quickly we want to go to 100%. Does that mean that all the new stores what we are opening, will we essentially have a EOTF feature?
Yes, yes. Absolutely.
Okay. Okay. my last question. I'm sure you will not give me the numbers. This Big Mac spot what we have done, what would be a rough contribution, maybe if you can share in terms of revenue or volume or in terms of SSSG growth?
As you rightly guessed, you know, we don't share break up of our product mix. Sorry to share that we may not be able to do that.
Amit, I wanted to check if this part has really helped. It shows in the numbers. Such in the conference sense, you will do more of in FY 2024 or it's just one of the learnings?
No, no. I mean, see, as I said before, our menu is a very, very important part of our growth around SSSG. We have to engage with the consumer, and we have 3 or 4 different ways in which we engage with them. Hopefully that might give you some sense. One is where we do what I call limited time line extensions. We may take the McSpicy Chicken and, you know, play with it a little bit and give lovers of McSpicy Chicken a slight different flavor or something new to look forward to. There are platforms, and platforms are like the fried chicken, where we've launched that particular platform itself.
There are some other, you know, just seasonal things that we do, which in Diwali we may do something or if there's a movie, you know, like Minions, we may do something with banana. This is how we deal with it. You will continue to see us do things around premium, around value. It will fit a particular situation in the market better, right? Like gourmet burgers, I must say, you know, was a quite interesting thing because everybody thought McDonald's entered with McAloo Tikki and the McVeggie. We've clearly demonstrated that gourmet burgers have done well and they are here to stay. More recently we did a TGT, you know, extension around that, and that has worked very well for us as well.
I got that, Amit. I was just trying to push you to give us some sense that is there any target the management is working that certain contribution should come from the new experiments or new product developments or something like that?
I think that our entire goal is to grow average unit volume, and we do that through this multi-category, multi-product approach because we believe we're relevant across, you know, all these categories. We stand for all of them as leaders. That's the approach when we look at new product development because we wanna launch platforms. Within the platforms we do limited time offers, as he was saying, but the entire objective is to grow average unit volumes.
One last thing on this, maybe that helps you. That we keep pushing ourselves to look for lines like we did with McCafé. For example, we will keep experimenting with things which will give us a very large chunk of our business for day after tomorrow. Past examples around that are the fried chicken, McCafé and things like that. We are constantly innovating to see because we are saying that at least 50% of our business has to come from innovation over a two to three-year horizon. That keeps the brand modern and relevant, which is the vision that we've set for ourselves.
Sure. That's helpful. My last question on the margin, if you can help me, given the milk inflation, which is looking very high, rather steep, and cheese is also looking very steep. In the medium to short term, I'm not saying guidance, but should we inch up the margin because you always have the price increase lever with you. Any, any indication that we should be inch up more or we will take some time to improve the margin?
No, like I said, I think the inflation is absolutely in the range. We should be able to more than easily manage the inflation at this current state of where it is right now. From we don't give any future guidance, but obviously we are comfortable managing it and continuing with the momentum which we've got as far as margins are concerned.
Thank you, Saurabh. And Mr. Kalra, and congratulations for your appointment. Thank you.
Thank you.
Thank you. We'll take the next question from the line of Percy Panthaki from IIFL. Please go ahead.
Hi team. Congrats on a good set of numbers. My first question is on the gross margins, which has sequentially expanded, 170 basis points, so 3 Q over 4 Q. Could you give some idea as to what has driven this, 170 basis points expansion?
Sure. I'll have Saurabh answer that.
Yeah. Obviously there are we've given a break of what's... We have given a break in terms of how in the presentation also. If you look at it broadly, if I zoom out. Obviously there have been inflation has reduced, et cetera, et cetera. We do go into renegotiation in the time of January. Some of it is the benefit which has come into the system, which is here to stay, and some of it is one time, which is advantage in terms of volume benefit, et cetera, which is flown back into the P&L in quarter four. That's how it is.
Okay. Basically this 71.9 which we are seeing in our Q4, that is a more or less sustainable number, is what you're saying?
See how, this is Amit here. How I look at gross margin, as I mentioned before, I feel that we are in very good territory with gross margin. 100 bps here and there is hard to sort of determine. At the end of the day, it's about finally delivering the operating lever. Sometimes, you know, that line item goes up, sometimes some other line item goes up. I would keep 100 bps ± , and I would say that's the range in which we will deliver. I think Saurabh also, would also like to add.
Yeah. Hi, this is Saurabh Bhudolia. There is like a slight change this time while we were doing the accounting of entire COGS. The company has taken few measures where we have started doing part of our production through the job worker, which is related to processing charges, has been regrouped from COGS to other expenses as processing charges. If you see like to like, my gross margin should be for the quarter would be in the range of around 68.2%. Because of this regrouping, it has went up to 71.9%. This entire regrouping impact has been given in the presentation for all the five comparable previous, so that the apple to apple comparison can be done.
Right. Got that. There is still a substantial increase, and I was just asking the drivers for that. Got that. Second question is, over the next two to three years, what would be your main top line and bottom line drivers? Like for example, over the last three, four years, McCafé was a big driver. Now with McCafé present in a very high percentage of stores, EOTF also present in a very high percentage of stores, what are the drivers for the next few years? These drivers have served us well in the past, but they have sort of already caught up in terms of percentage penetration to a very large extent. Yeah. That's my question.
Actually, you know, we had our strategy day in December, and we spoke about the next phase of growth being very similar, right? We've highlighted that our core remains burger, chicken, coffee. We're gonna continue to double down on average unit volume growth through these categories. Secondly, we're a very strong digitally-led company, so a lot of digital focus. We will continue to work on a growth pipeline as well, and we discussed that too. This is how we kind of built out that INR 4,000 crores-INR 4,500 crores of sales as a vision for 2027, and that's how growth will look like. I'll pass it on as well.
Just to build on what Akshay said, that in the vision document we kind of described what we will do. I also wanted to clarify that by no means have we even come close to scratching the surface on either McCafé or Experience of the Future. All we've done right now in the last four or five years is, one, get the platform across our network and, two, introduce the fact that McDonald's does beverages. We still feel there is a lot of room to play out in the beverage category. Similarly, the Experience of the Future is still consumers are still understanding it. Day by day, it is helping us get a better yield on that and for consumers to feel more comfortable.
Soon, as they continue to use this, after a few years further, consumers will now comfortable, and as they get more comfortable, sales continue to grow. I don't think it's over. I also wanted to add that along with what Akshay said.
Right. Very clear. Thanks and all the best. That's all from me.
Thank you. Thank you, guys.
Thank you. We'll take the next question from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Hi, sir. Hi, thanks for the opportunity, and congrats on a good set of numbers. This optimize sales have seen some growth moderation in Q4 to about 5%, despite launch of a new app. What is the reason for that?
Saurabh, do you wanna?
I think, number one, a lot of our growth in the last few years has been on the back of dine-in. Dine-in typically has got some amount of seasonality. We factored this kind of growth. We are very, very happy with 13% growth on a very high base. We believe that this is something which is gonna continue, and we'll be able to deliver our goals, both for the year and for the next five years as we have talked about.
Great. This 45% is the optimum level of optimized mix or do you see a further reduction in this, Saurabh?
In optimize, on-premise, these are various channels to do sales, that depends on the given point in time of where the business is. For example, in a month of February, March with the more exams, you will see optimized business going up and see that turnaround in some other quarter. We don't actually look onto optimize on-premise only from the lens of percentage. I think as long as overall the average unit volume is growing versus the previous year, we believe we are in a good space and growth has to come from all channels, so that McDonald's true omni-channel experience comes to light across the country.
Got it. The CCP mentions that McCafé has seen strong growth in this quarter. What is the extent of recovery in McCafé sales related to pre-COVID on a personal level?
We don't give breakups. Having said that, I think we've already said last quarter that dining and McCafé are doing better than what they used to do pre-COVID.
Got it. Last question from my end. Sir, we have seen a very healthy offline growth, but G&A expenses sort of remains stable at about 6% in FY 2023. Do you expect this level to sustain or it can go down going ahead?
I think one of the titles which we need to look at is the annual number. This has been a phenomenal year for us, and we believe we have set up a new baseline on which we need to deliver beyond this in the coming years. If you look at it, I think Smita mentioned we had our convention in Pattaya, where 60 of us went and celebrated a great year. Also on the variable incentive, we've given a higher incentive than what was budgeted initially. It's been a great year. Some of it is one-time expenditure which has come into G&A. To me, the way to look at the entire P&L is look at the annualized P&L for the, for the entire financial year to that financial year.
Yeah, longer term, you know, as sales continue to rise, we do believe that there will be some benefits that we will get out of G&A as well.
Got it, sir. Thanks. That's it from my end.
Thank you.
Thank you.
A reminder to participants, if you wish to ask a question, please press star 1 on your telephone now. We'll take the next question to the line of Chirag Lodaya from Valuequest Investment Advisors. Please go ahead.
Thank you for the opportunity. My first question was on guidance on store addition. We have said that we'll be opening 40 - 45 stores. Just wanted one clarification. Is it a gross store addition or a net store addition? Is there any seasonality in terms of store opening over the quarters?
Sure. We spoke about 42, I think, new stores in the coming year, as being part of our plan. This is gross. We, you know, rarely close any stores. At the most, you know, it's at a number of one to two or so. I'm sorry, could you repeat the second part of your question?
In terms of store opening throughout the year, is there any seasonality, you know, between the quarters?
Yeah. I mean, what you've seen this year is you've seen a large number of openings in half two. Our cycle times are long from identifying real estate to opening, especially as we're opening more drive-throughs. However, we look to even it out, you know, in the years to come. You will see marginally more store openings in half two this year as well, probably. You know, we continue to kind of show you all the trends in the years to come as we, you know, ramp up our store opening plan.
Right. In terms of, you know, SSSG, this year, you know, we have done almost INR 6.6 crore as an average sale, you know, throughout the year. Do we expect high single- digit kind of SSSG on this number? Is that the understanding?
Yeah. The guidance we have given, you know, for the next five years is to maintain, you know, high single- digit SSSG and new store growth on top of that. Yes, I mean, that is our plan as well.
Right. In gross margin, can you help us understand what was the quantum of one-time volume delivery incentive?
That comes every year, so it's more a quarter aspect. Essentially, as I mentioned in my earlier conversation, that, you know, 100 basis points here and there, but I mentioned this even a year or two ago, but we've continued to improve it. Essentially the focus is not really to now grow gross margin, but at least to try and maintain it in this territory. The focus is really to grow sales and through operating leverage, you know, bring profit to the bottom line.
As we've mentioned multiple times, it's about operating profits for us, and that guidance is anyways given in our vision statement. We've spoken about how we're gonna sequentially year-on-year improve our operating profits through multiple levers, operating leverage being one of them.
Right. Just lastly, any plans to introduce chicken platform in West India or still it is a South phenomenon?
Currently, we treat it as a South phenomena for now because it's still playing out extremely well over there. When we think it's right, you know, we may decide to do what we need to do. For example, when you saw the Chicken Maharaja Mac promotion, that was of course across West and South. It is something that will evolve. Currently, our focus is to keep fried chicken in South India.
Got it. Thank you, and have a good day.
Thank you.
Thank you.
Thank you. We'll take the next question from the line of Amnish Aggarwal from Prabhudas Lilladher. Please go ahead.
Yeah. Hi, Amit and Akshay, congrats on good set of numbers. I have a couple of questions. My first question is that you can say there was lot of buzz that the demand in the various country segments in QSR that is slowing down. What is your assessment and what is the current picture as we are sitting already in the month of May?
I think, you know, we've spoken about same store sales growth, delivered a very healthy number in the last quarter, and that is what we can comment on, right? As we're in the current quarter. We maintain our plan, you know, like we said, of high single-digit SSSG for the year. You know, that's our outlook on demand as well as same store sales growth.
Yeah. Essentially, you see, at least from our point of view at McDonald's. We believe in growing the baseline. If you are continuously doing what I talked earlier about Horizon two, you know, like how we did McCafé a few years ago, and similarly, we intend to do similar things in the future. We believe that by building baseline, as Akshay said, we will be able to maintain the same-store sales growth. As long as we deliver that, I think what happens in the marketplace to some extent is irrelevant from our point of view. We have to, of course, push harder, but we are quite confident that our foundation is strong to be able to deliver that.
Okay. That's very helpful. My second question is that next year now we are aiming at adding 40-45 stores. I just wanted to understand that as we, you can say, open more new stores while our average draft is around INR 66 million per store. How is the performance in the new stores in the first year or second year?
I mean, again, we don't share a breakup of how stores did and all of that. Even these numbers that you've seen is with 35 new openings and before that, 25. On our base, the percentage of new openings have been reasonably decent. Our belief is that the 66 has to go up. The 66 million volume per restaurant per year has to go up with new stores included in that.
Okay. It means that you don't expect that any drag coming in.
No, whether there's drag or not, we will give you a number higher than 6.6 is the endeavor.
Okay.
Far, we've been able to do it through the last five years, I would say.
Yeah, yeah, sure. My final question is on the manpower cost in this quarter. If I look at it on QoQ basis, it has gone up from INR 83.7 crores to INR 92.6 crores. I just want you to understand that is there any one-time element in this?
Which number are we talking about?
Payroll and employee benefits.
Payroll and employee benefits. Yeah. That is to do with two. You see, what happens is, I mean, we have, as you have seen, broken up P&L, and we are able to share store-wide data. What happens is that as sales go up, your crew strength required goes up as well. Overall, I think if you look at it from a year-on-year basis, we have done extremely well. 9.1% has gone to 8.9%, and that normally comes through as well, because as volume goes up, your incremental cost as a percentage goes down. In a quarter, you know, things move up and down, it is hard to predict. Please look at it from a year-on-year basis.
Okay, sir. Thanks a lot.
Thank you.
Thank you. We'll take the next question from the line of Madhav Gokal from Sundaram Mutual Fund. Please go on.
Hi, good evening. This is a question slightly away from Q4 numbers, on what is recently happening in the QSR space as well as the delivery space. How do you see this new opportunity of ON DC as a strategy? Or you think it's an evolving one and we have to wait and see how it helps the restaurants?
How we approach new areas is that we register the fact that this is something to watch out for, and we start thinking about how we could sort of apply and utilize that. There is a lot of conversation around what its implications are from our business point of view, and that is something that will evolve quarter on quarter. We will share more data as it evolves.
Okay. As of now, you are on an assessment form.
Correct. Correct.
As a platform, it all works well. This one will be different from from a margin perspective, more accretive compared to the existing channels, right?
No, I don't think so. I don't think it's gonna be more accretive. I mean, again, you have to look at my comments consistently over the last five years. You know, we've always been proponents of delivery. While I see a lot of news items around how the industry is sort of up in arms against these aggregators, our belief has been it is collaborative. You've got to participatively work out a business model that's a win-win for both. Finally, the consumer is consuming our food outside of our restaurant on the delivery platform. We have been able to build our business model where it's all right for us to work with the TPOs as well, which is reflected in our margin growth as well.
That even with delivery business growing as a percentage larger than in-store in the last two to three years, if you notice, our margin has moved up quite well. I don't think at this stage it's too early to say whether it'll be margin accretive or not. I'm just trying to say that it's already decent margin for us in the current platform itself.
Sure. Thanks, Saurabh. We'll probably take your opinion at a later stage. Thank you so much.
Thank you.
Thank you. We take the next question from the line of Amruta from Wealth Managers India Private Limited. Please go on.
Thank you for the opportunity. My question is regarding McBreakfast, as in how is the acceptance around the breakfast menu? Like, does it have a sizable revenue contribution to the top line?
I'll answer the easy one, and I'll give the more difficult one to Saurabh. The easy one is we don't share the breakup of our breakfast sales. I'll let Saurabh explain what breakfast does for us.
Yeah. To me, I'll give you the flavor. We are the only player in the QSR industry doing breakfast. Out of breakfast in, at an India level is small and our job is to grow this. Obviously we prioritize. This is all the levers we have and what can maximize our revenue. Breakfast is always in the consideration set. It is in our horizon. We will put money on breakfast at some point in time, but we already see great green shoots. For example, if you look at the highway restaurants, especially on Mumbai-Pune, I don't think anybody can miss McDonald's breakfast at Kalamboli and the restaurants on the highway. We see great action. We have to be able to be invested in breakfast with our take.
Over a period of time, you will see as the breakfast markets also starts to explode, McDonald's emerging being the leader, can continue to maintain its share of very high percentage of breakfast in the QSR industry.
Right now, like, do all the McDonald's outlets serve McBreakfast or is it's not across all?
No, that's not the case because some of the malls open late. We've got around 130 odd restaurants which do the breakfast. Mostly all the restaurants do not have any issues with the timings, do breakfast. All of them doing very decently well. We would like to keep breakfast running and then add to its value as we feel it is a big opportunity emerging.
Thank you.
Thank you. We'll take the next question from the line of Kapil Jagasia from Nuvama Wealth Research. Go ahead.
Thank you for taking my question. Amit, first question is, during your five-year vision meet, you had indicated gross margin target of 57% for 2027, and already you are touching much higher margins around 60%, you know, in the last two quarters. Is it that, you know, any improvement in margins going forward would be driven towards increased efficiencies of tech and probably, you know, more of EAT or delivery? Just your focus on this.
You know, if you see the annualized margin, I think we're probably roughly around 67% odd. If you look at how margin works year-on-year, definitely we try to show some improvement. you know, food inflation in our country is pretty volatile. As a result of that, we've broke out four, five levers in terms of how we plan to drive, you know, operating profit moving forward. Gross margin is one of them, which we'll continue to work on. You know, you'll have few years where it'll marginally go up and probably stabilize. However, a lot of the growth is gonna come from operating leverage, increasing sales, doubling volumes as we've spoken about, in our strategy meet. As a result of that, you will see a lot of operating leverage increasing our operating profits.
Yeah. Okay. Just to get my number right, you had indicated price hike of 4% in the coming year, right? Like, for first you would be taking a price hike of closer to inflation. You know, are we seeing less of inflation for us in the coming year or are we, you know, just taking a lesser price hike because of increased competition? You know, just your thoughts on this?
No. Again, we've been very consistent with our price policy. Typically, we take between 2%-3%, and it all depends on the situation at that time. At this point in time, no price increase has been anticipated. That's where it is. In some very good years, we've not even taken a price increase. Typically, we prefer to stay at the 2% in great years. When inflation is higher, we may go to the 3%-4%. That's where it stands. At this point, we haven't decided, but that's typically our principle, how we think about it.
Okay. Makes sense. Thanks for all this.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I'd now like to hand the conference back over to the management for closing comments. Over to you, sir.
Yeah. No, thank you everybody for participating on the call today. We really appreciate it. Have a lovely evening and talk to you soon.
Thank you very much. Ladies and gentlemen, on behalf of Westlife Foodworld Limited, I thank you for today's conference. Thank you for joining with us. You may now disconnect your lines.