Ladies and gentlemen, good day and welcome to the Devyani International's Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and anyone who wishes to ask a question may enter star and one on their touchscreen phone. To remove yourself from the queue, please enter star and two. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchscreen phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Devyani International's Q4 FY24 earnings conference call. We have with us Mr. Ravi Jaipuria, Non-Executive Chairman of the company; Mr. Raj Gandhi, Non-Executive Director; Mr. Viral Joshi, CEO and Whole-time Director; and Mr. Manish Dawar, CFO and Whole-time Director of the company. We'll initiate the call with opening remarks from the chairman, followed by key financial highlights as a CFO. Before that, we'll have the forum open for a question-and-answer session. Before we begin, I would like to point out that some statements made in today's call will be forward-looking in nature, and a disclaimer to this effect will be included in the results presentation shared with you earlier. I would now request Mr. Jaipuria to make his opening remarks.
Good afternoon, everyone. I warmly welcome you all to our earnings conference call to discuss the business performance of DIL for the fourth quarter and the financial year 2023-2024. In a tough consumption year, we have diligently focused on our strategic expansion goals over the course of the year. We opened 256 new stores, including 47 in the fourth quarter. As of March 31st, our total store count has reached 1,782, including the 283 KFC stores we acquired in Thailand on January 18th, 2024. The year was also marked by successful acquisition and seamless integration of the Thailand KFC business. The transaction which was completed during quarter four has been a significant milestone for us. This development has expanded our international footprint, and the same is in line with our long-term growth objectives of having a mix of international businesses.
The business in Thailand is performing reasonably well, and the results are in line with our expectations. Alongside our global expansion, we have also been working on a strategy to enhance our domestic footprints of food courts business in response to India's emergence as a major destination for travel, tourism, and shopping. The domestic travel market is picking up very well, and we are seeing religious tourism as one of the important thrust areas. India is also gaining importance in the international market for medical tourism and a value-for-money shopping destination. All these changes are structural in nature and here to stay. There is a common theme that runs across this phenomenon that is food on the go.
With this strategy and to cater to the rising quick trend, we are making food courts as one of the important pillars of our growth aspiration across various consumption channels and touchpoints of travel and shopping. Our existing bouquet of brands will help us with this strategy. We have also tested the concept of food courts in multiple locations across such touchpoints, needless to add that we are pleased with the consumer response and performance of our existing food courts. With this objective, I'm pleased to state that DIL has entered into a strategic partnership with PVR INOX to develop and operate the business of food courts at shopping malls across the country to co-promote movies and food. This will not only help us strengthen our presence at various malls in the country but will also give a boost to our brands and the food court business.
This agreement is in addition to other existing strategic tie-ups for food courts across highways, malls, railways, apart from some of the airports and highways that we already operate. As I said before, food courts will be one of the key focus areas for us going forward, apart from our existing core brands. Consumer sentiment continued to be weak throughout the year. Weak disposable income, tight liquidity position, local consumption, and geopolitical situation were the major drivers for the weak consumer demand. The Nigerian currency continues to significantly depreciate during quarter four, resulting in a significant impact on the full-year results of DIL. Coming to India, we expect things to improve, post-elections, and some stability on the West Asia geopolitical situation. In our view, the weak consumer sentiment and depressed consumer spending is temporary and short-lived.
Amid these challenges, our operating and financial performance has remained stable, and we continue to invest in the business for long-term growth to successfully navigate the dynamic and evolving QSR landscape. We have implemented multiple initiatives this year, including menu optimization, reducing wastage, enhancing cost controls, and improving operational efficiency. These initiatives have helped us to deliver the results. To sum up, we believe in the long-term potential of the Indian QSR industry. As we actively grow our presence, we are strategically positioned to tap into this opportunity, ensuring sustainable growth and value creation for our stakeholders. With this, I would like to conclude my address and now hand over to Manish for the financial highlights. Thank you.
Thank you, Mr. Jaipuria. Good evening, everyone. A very warm welcome, and thank you for your valuable time for attending DIL's quarter four and FY24 earnings conference call, our 11th call since the listing in August 2021. Having completed the Thailand acquisition, our total store count now stands at 1,782 stores as of the year-end. We have a footprint of 1,692 stores across our continents, out of a total store count of 1,782. This consists of 941 stores for KFC, 572 stores for Pizza Hut, and 179 stores for Costa Coffee. Our store distribution in India continues to remain marginally in favor of non-metro destinations. The operating revenue for FY24 was INR 3,556 crores, a growth of almost 19% over the previous year. Indian business witnessed a growth of 12.3% over previous financial year. Quarter four FY24 revenue stood at INR 1,047 crores, representing a 38.7% year-on-year increase.
This was supported by Thailand acquisition and new store openings. We have consolidated Thailand numbers reflect from January 18th, 2024. The gross margin for the consolidated business, including Thailand, was 70.3% for the full year versus 70% for the previous year, an improvement of 30 basis points on a full-year basis. The margins for quarter four were lower because of Thailand consolidation and a significant currency impact in Nigeria. As you know, structurally, Thailand and Nigeria operate at a lower gross margin for KFC business versus the Indian business. The brand contribution for the full year was at 15.5% versus 18.7% for the previous year. The deleverage in top line because of lower ADS numbers across KFC and Pizza Hut, along with Nigeria's currency issue, has led to the impact on brand contribution margins. The pre-Ind AS margins for the full year for the consolidated business was 10.7%.
Reported EBITDA on a post-Ind AS basis, including Thailand for FY24, was 18.3%. During the quarter, the same number was 16.6%. Consolidated operating EBITDA on a pre-Ind AS basis was INR 96 crores versus INR 79 crores in the previous quarter. The Nigerian currency continues to weaken in quarter four. During the financial year, Nigerian Naira has got depreciated by almost 200% versus the USD. As a result of this, Nigeria business has recorded an impact of INR 236 crores forex loss on account of USD-denominated liabilities. Out of this amount, INR 90 crores has been recorded as an exceptional item in the P&L for the full year, and INR 147 crores has been recorded under other comprehensive entries. The impact of significant depreciation in Nigerian currency has been taken as part of exceptional items in quarter four, unlike the previous quarter.
In view of the above, DIL has also taken a full impairment of its investment of INR 116 crores in Nigerian business through its subsidiary, R.J. International Private Limited. There is no impact of such impairment in the consolidated financial results of the group because the impairment has been taken in standalone books. The PBT for FY24 on a consolidated basis was INR 3.7 crores. The main drivers for this variance compared to the previous year have been significant currency impact out of Nigeria, deleverage impact coming out of Indian business, and marginal impact because of Thailand consolidation. With respect to the Thailand acquisition, DIL has recorded the purchase price allocation on a provisional basis. As per the accounting standards, DIL has a measurement period of up to 12 months from the date of acquisition, and hence, to that extent, this is subject to final adjustments.
The total debt in the books at a consolidated level is INR 910 crores as of March 31st, 2024. Out of this, INR 835 crores in the bank debt consisting of INR 470 crores at international and INR 365 crores in India. The gearing position, despite this debt on a consolidated basis, sits comfortably below one as of the year-end, and debt-to-EBITDA coverage is almost 1.28 times. Taking the discussion to our core brands, KFC in India added 106 new stores in FY24, reaching a total count of 596 stores at the end of the year. Average daily sales for quarter four was 93,000 versus 104,000 in the previous quarter. Revenues at INR 494 crores during the quarter grew 11.3% on a year-on-year basis. Gross margins for KFC during the quarter were 69.9%, thereby reflecting an improvement of 50 basis points over the previous quarter. Brand contribution remained healthy at 19% for the current quarter.
During the year, Pizza Hut added 61 new stores, reaching a total count of 567 stores in India. Revenue for the full year was INR 709 crores versus INR 700 crores in the previous year. ADS was INR 32,000 versus INR 37,000 in the previous quarter. Gross margins for the quarter came in at 77.3% versus 75.8% in the previous quarter. Brand contribution was INR 7 crores for the quarter with margins at 4.2%, just slightly lower on a quarter-on-quarter basis, mainly due to the ADS deleverage impact. Costa Coffee added 67 new stores during the financial year, reaching a cumulative store count of 179 stores. Quarter four FY24 revenue was INR 45 crores with a growth of 13.6% on quarter-on-quarter and 36.3% on a year-on-year basis, driven by the expansion of new stores. The gross margin was 76.7% in quarter four.
Brand contribution in quarter four stood at 17.9%, an improvement of 3% versus the previous quarter. To conclude, we want to reiterate our commitment to ambitious growth plans in the Indian QSR market. As we continue to expand, we remain committed to improving our financial performance, reflecting our emphasis on prudent financial management and creating long-term value for our shareholders. On that note, I would like to request the moderator to open the forum for any questions or suggestions that you may have. Thank you very much.
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask questions, please press star and one on your touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only the handset while asking your question. Ladies and gentlemen, we will wait for a moment for the question queue. The first question is from the line of Tejas Shah from Avendus Spark. Please go ahead.
Hello. Hi. Thanks for the opportunity. Just wanted to start with, wanted to get your brain on how are you seeing the demand scenario evolving now for the brands in India, or rather all the three brands in India, and how should we think about this year, both in store expansion and SSG? How are you kind of projecting for this year?
Hi, Tejas. So, Tejas, as we said, I mean, the last one year, demand has been weak, and we do hope that, let's say, post-elections, we should start to see some improvement. At the same time, you know that quarter one is seasonally a better quarter compared to quarter four, and therefore, you will see some better numbers in the current quarter. Having said that, there is no change in our overall thinking. We remain bullish on the QSR space in medium to long term, and that's the reason we continue to kind of invest in our brands, in the new strategic tie-ups, in Thailand acquisition.
So, therefore, as far as we are concerned, there could be some, let's say, quarterly adjustments here and there, but we are absolutely bullish on the overall opportunity that is there in QSR, especially in India, and therefore, we continue to press ahead and invest.
Just elaborating on that, sir, the election should not be a trigger, right? In the sense, it's post-election, is it just a hope, or are you seeing some you have some granular data which you can't share, obviously, that gives you that hope that demand will bounce back after election?
So, Tejas, obviously, we'll not be able to share the granular data, but on the ground, again, it's too early to comment, but we are seeing some green shoots, and we hope that they are kind of long. So let's see. I mean, obviously, there are some green shoots which are coming out.
Sure. And second and last, this pivot that we are making towards aggressive or more compulsive action on food courts. So just wanted to know what consumer insight or market insight have led us to kind of make this pivot?
See, if you look at the new generation consumers or if you look at, let's say, the current trends, it's people want more choices. They want quick choices, right? At the same time, travel is gaining a very significant movement within the country. Shopping is gaining significant movement on an overall basis, and therefore, through this whole strategy, we want to be available at all the channels and touchpoints. So if you look at, let's say, despite the overall slowdown, travel and tourism traffic is almost at an all-time high. India is becoming a good international destination for reasonable shopping also. So we are seeing a lot of tourists coming into the country, and they've started shopping in metro destinations. And you will have also noticed that, therefore, with this strategy, we talked about a small railway joint venture. We've talked about a strategic tie-up for highways openings.
We already have talked about PVR, as Mr. Jaipuria has alluded in his speech. So we are trying to kind of make food courts as a comprehensive strategy which will span across the airports, the food courts, the highways, the malls, and everywhere. So this is how we are approaching it. And within the tourism also, if you see, there's a lot of religious tourism which is gaining momentum, and at some point in time, we've already started working on in terms of how do we get to these religious sites also with the initiatives we've taken.
Sir, how does the store economics of food court work out versus, let's say, our traditional store?
See, food court because we've been operating food courts for a reasonably long time, obviously, not at a scale that we are now anticipating. Because the footfalls are high, the consumer choices are available. It's a mix of our own brands and international brands. The profitability is better than the traditional brands, and the payback period also for the food courts are very attractive.
Sure. I'll come back in a bit. Thanks so much for that.
Sure. Thanks.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead.
Hi. Thanks for the opportunity. A couple of quick questions to start with. What was the revenue contribution and EBITDA contribution of KFC Thailand in Q4?
So, Jay, we've disclosed the consolidated results, and we've disclosed the India results. So, therefore, by derivation, you can get to international. Now, within that, let's say if you look at predominantly, it has come from Thailand only. So, therefore, I mean, you'll be able to get the numbers. Needless to say, because of the currency issues and all, Nigeria is sitting in a negative zone as far as the bottom line is concerned. So, therefore, it is predominantly all contributed by Thailand. And what we talked about at the time of acquisition, the business is more or less in line with that. So we've seen some bit of impact of the geopolitical situation in some of the stores in South, but beyond that, the business is doing very well.
Sorry. You mentioned predominantly entire international availability is KFC Thailand?
Largely.
Understood. So that would be close to 50 stores in that case, or somewhere around 30,000.
I'm not making up stuff. Yeah, it's largely.
But, Manish, how do you propose we evaluate the progress of this transaction, right? Normally, companies do sort of share performance of an organic acquisition from year to year, and then.
So maybe we can evaluate that and come back to you because, as of now, what we were thinking that, for example, India piece is one and the international piece is one, that is how we were planning to look at the silos. But we take your suggestion on board that for at least a year, we should look at Thailand being given separately. So we will evaluate and come back to you.
It'll be very helpful, Sam. Second is this partnership with PVR. Essentially, what is the sort of if you can give us some color in terms of what would be the contribution of PVR INOX to this partnership? What would be the role of both the entities, Devyani as well as PVR INOX, and what is the investment you think that comes from PVR?
See, we are still working on the entire business plan and all, and therefore, obviously, we will not be able to share the investment number as of now.
But the whole thesis is if you look at, let's say, the footprint of malls, PVR is a very strong contributor there, and they are one of the favored tenants whenever a good mall or a great mall is coming anywhere, and they are the first ones to get approached for a cinema because that, I mean, the entire cinema space is more or less like an anchor tenant, and they get to know about this whole mall things being opened from a timeline perspective much more and much ahead than us. By the time, let's say, the food courts get ready, by the time the rest of the malls are ready, and they are giving to brands for the setups and all. And that's where we saw that whole strategic kind of advantage with PVR in terms of going with them.
At the same time, if you look at there is a captive footfall that PVR has in terms of people who are coming to watch movies, people who are PVR loyal fans or loyal customers, and therefore, the objective is to somehow kind of combine the food courts along with PVR so that we are able to kind of co-promote the movies and foods. And if you look at outside the countries, it's a great concept, and it's a very, very significant value creator.
Primarily, the focus to start with will be on the pipeline of malls that are currently under development and where there would be opportunity to sign long-term contracts for operations of food court. Devyani's role would be largely operating the food court part, and PVR's role would be, given their relationship with the developers, and they already would have a lot of leases pertaining to. Is that right understanding?
Yeah, broadly, it's the right understanding. Plus, all the brands will come from DIL, and we have the operational capability and the expertise. And PVR, on the other side, I mean, obviously, in terms of how they are looking at it and what is the relationship with the landlords and the mall owners. So it's a great win-win combination for both of them.
Sure. Lastly, there are a few investment questions and perhaps concerns around some of the senior management exits in March quarter. So your thoughts on this and whether we should expect stability going forward and whether there was any slippage in execution associated with this attrition that we should?
Doshi, we are a large company now, and obviously, I absolutely take your point in terms of what you're trying to allude to. But if you look at, I mean, typically, we have a huge management bandwidth available. We have a huge talent pool available and a bench available. So, therefore, there is nothing, I mean, Viral was handling it earlier. He was there even while, let's say, Rahul was there, and Viral continues to handle. So, therefore, from that point of view, there's no big change. At the same time, I mean, Rajat, for example, if you look at, has been with the company for almost 13-14 years, and he wanted to move to South closer to his family. So I think he kind of gave his best to the company in any case. So, I mean, we don't expect any disruption.
We don't expect any big change because the strategy remains the same. We've all been working on that defined strategy, and therefore, if at all, things should be better.
Thank you so much. We should do very well so that something is fine.
Thank you. The next question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.
Yeah, thanks, Further, to the questions on PVR deal. One is, in existing properties, is there any kind of an opportunity available? Second is, around nine months back, PVR and Costa Coffee had signed the deal. So is it that one is doing well so now the next level of the relationship is happening? And if you could give some kind of an update on that deal also. Third is, in existing property, just like Costa Coffee is also there, now more such brands of DIL, can they come there?
Well, definitely, our first tie-up which was with Costa and PVR is doing extremely well. We are very happy with it, and we are expanding our plan with them. We are opening Costa Coffees with them on a weekly basis, practically, and we have already opened close to 80 Costa Coffees in the PVR, and it will be expanded, and it's adding great value to our business. And also, it's a great advertising place because all the consumers who are coming to customers who are coming to PVR are the right consumers for Costa Coffee. So I think it's a great thing for both of us, and we are definitely looking to add more products with PVR, and especially with this JV which is for the food courts, I think it'll add a lot of value for both of us.
In the previous question, you mentioned outside India, this promotion of foods and movies is far more prevalent and far more successful. Any particular country you want to highlight so that we can get more examples on how this can pan out in India also?
If you look at any of these, so you can look at, for example, take a country like U.K., take U.S., for example. I mean, all of the cinemas and screens are surrounded by the food courts or eating joints, and they have a strategic tie-up in terms of both as a combo deals and so on and so forth. So you can find, yeah, even UAE also, so.
Sir, and the genesis of this, is it because slowdown is being felt both by PVR and for you also? Is this more because of this because PVR and you both have existed for many years? So why now? Is the slowdown one sort of reason because you did mention the co-promotion? You did mention that both can promote each other. So is slowdown one of the reasons for doing this now?
No, it's nothing to do with slowdown. It's just that it takes time to build relationships. We started our relationships by having a joint venture with Costa, and then both of us felt happy, and they were both success and it was successful. We said, "What else can we do?" That's the next step we have taken.
Sir, understood. The last question on Thailand. So one wanted to understand operational intensity there versus India. That's part of the business. And the gross margins seem to be lower there, as you said. So what's the reason for that, and any progress we can see in 3-4 years in terms of the margin gap between the two businesses?
There will be some scope to improve the margin, but the volumes per store are much higher there than what it is in India. So it makes up in the other format instead of. And rentals are much lower there. So overall, that's what the margins are in that part of the country, and overall, it's a very good business. And especially, we are market leaders. I mean, KFC is the market leader in Thailand. Against 1,000 stores of KFC, there are most probably 200 or 250 stores of McDonald's.
So Abneesh, Thailand is more mass market for the brands, and therefore, that's the reason the focus is more on the number of transactions rather than the margins. And therefore, on an overall basis, that's a great model to be in. If you see the Thailand eating-out culture is very, very strong, and fried chicken is one of the important contributors for the street food. So that is what you are competing, and that's what your future customers are also. So that's the reason the KFC positioning is a little different in Thailand versus India.
Sir, understood. Thanks a lot, Mr. Jaipuria.
Sure. Thanks.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Thanks for taking my question and congratulations on a good marketing execution in this matter. Just small thing on the food court a bit, Manish. Is it food court within theater premises or common food court that is there in the malls? Just give us an explanation on that.
It is the new properties that we are discussing, Devanshu. It is the common food court in the mall, not inside the whereas if you look at the Costa Coffee tie-up that we have with Costa, that is inside the movie premises. This is outside. How do we design? How do we make it contiguous? Obviously, that comes in terms of what is the property availability, how is it designed, and so on and so forth. That will really depend on the property.
Got it. Will it be only other brands, or I just want to check if competing brands will be comfortable with this kind of a relationship because there are global precedents, so any views there?
See, it depends on the nature of the property and size of the property. Obviously, our preference would be to kind of put in our bouquet of brands which are there, and we have a good bouquet of brands. Let's say, apart from that, if there is a space available, we can look at other brands as well. As you know, I mean, we do run some of the mall food courts in Kolkata or in Noida, and we do have the other brands in those food courts as well.
Got it, Manish. I understand. And secondly, I wanted to check there has been a strong sequential improvement in gross margin across our core format. This is all-time high gross margins in our marketing history that is there. So wanted to check what are the steps that we have taken to improve this, and is this a sustainable trend?
It is a sustainable trend, Devanshu. I mean, obviously, post the hyperinflation that we saw, things have stabilized. They have not kind of come down dramatically, but stabilization, given our negotiations, obviously, we are seeing good results. We've also done many optimizations which Mr. Jaipuria talked about in his speech. That is also helping. How do we look at the promotions? That's the other piece that we continuously evaluate. So see, I mean, in the middle of the current consumer sentiment that we are, we take all the steps to kind of make sure that the margins are protected, and that is what we are continuously kind of striving towards and delivering.
Then a follow-up on this. Manish, under such weak demand scenarios, is there a significant savings from promotions, or is it more cost-cutting, etc., supply chain efficiencies that you're seeing?
I think promotion is a small element, but obviously, there are opportunities available to speak because, let's say, when you're coming out of a hyperinflation, a consumer also is looking for more value-for-money products. We've introduced the value layers, as we've talked about in the previous calls. But wherever the opportunity is there, I mean, we just kind of keep refining the promotions, make it more effective, make it more targeted. At the same time, I mean, the cost-saving opportunities also, which are there, we just kind of continue to plug those things as well.
Right. I have more questions. I'll come back into your things, Manish.
Sure. Thanks very much.
Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi, sir. First question is on Pizza Hut. Now that it's been many quarters into the slowdown, have we and when I say we, I mean both the franchises as well as Yum Brands together, the three parties of you, done some kind of soul-searching as to what is really going wrong with the Pizza Hut format? I understand that there is an overall slowdown. I understand that pizza as a category is affected more. However, if you look at the difference in performance of SSSG versus Pizza Hut versus the other competitors that you have, the difference in the SSSG is very stark, like 15 percentage points, 10 percentage points, and so on. So why is it that on a competitive basis, we are losing out? I can understand the overall macro trends and the consumer being under pressure, etc., etc.
But at least on a market share basis, we should not be performing so badly. So what is the reason for that, and what are the steps we are doing to address it?
Thanks, Percy. Great question. So I think let me just give you a little bit of history so that you are able to understand what is happening currently to Pizza Hut. So Pizza Hut, as you know, has always been a premium brand in the minds of consumers. So be it the quality, be it the pricing, be it the overall look and feel of the store, and so on and so forth. And when we got into this hyperinflation, we tried to experiment with Fun Flavor Pizza, and that kind of just got the overall pricing table down.
I think in hindsight, maybe, yes, we can call ourselves buyers, but probably that's where somewhere, I think, the brand positioning also got affected because the premium consumers who were used to coming to Pizza Hut with a particular expectation, while, let's say, Flavour Fun Pizza was available at a much more attractive price point, but it did not resonate well with the consumer expectation and the consumer psyche. Probably that's the reason why, let's say, I think it's kind of impacted the brand so much, and that will take some time to recover. We have taken initiatives in terms of putting more money on the premium side of pizzas, putting more money on advertising and marketing so that we are able to bring back the consumers. We are doing product innovations. You would have seen this whole Melts range recently.
So therefore, I mean, we are taking all the steps to make sure that Pizza Hut kind of comes back to its original positioning, but we are still not seeing that in numbers. And that's the reason we've kind of slowed down Pizza Hut expansion a little bit, and we are a little more cautious there. So we are not able to kind of go wrong again on this one, so.
Two sub-questions for this. In light of the fact that Flavour Fun is basically what you've identified as a culprit, is that something that you would want to discontinue? And second sub-question is that we have seen this happening across many brands over the last 2-3 years, that all the brands have launched more affordable variants. Even in KFC, which has been a premium brand, you have launched meals at INR 99, and you've launched that roll at INR 119 or something like that. And we have not seen an adverse effect on that for the overall brand and the other offerings. Why is it that this kind of an adverse offering sorry, adverse impact is happening only in Pizza Hut?
See, it's a different proposition, Percy. So let's take KFC first. So the KFC core consumer is all about chicken on the bone, and we've not touched chicken on the bone at all, whether it is the pricing or the quality or the pricing table and so on and so forth. Now, in consumers' mind, pizza is a pizza, right? So let's say if you're able to get a pizza at INR 79 or INR 99 versus a pizza at, let's say, INR 200, in their mind, it's the same pizza while, let's say, the ingredients are different, the toppings are different, the cheese is different. But from a consumer point of view, a pizza is a pizza. Whereas for KFC, it's a very, very distinctive proposition. So probably that is the reason why we are suffering more on Pizza Hut.
Whereas KFC, for example, when you talk about the wraps and the rolls, it's more of a side, whereas pizza to pizza is more of a main proposition, so.
Understood. Understood. Second question was on the margins. As someone just mentioned, your gross margins are at an all-time high, and this is at a time where consumer sentiment is poor, demand is poor. We are in negative SSSG zone on both the brands. So do you think it would be sort of prudent to give back value to the consumers in terms of lower pricing or higher promotions, probably bring down the margins, which might hurt in the near term, that that would lead to some kind of revival on the top line? Your thoughts on that?
So Percy, it depends as to how you want to give back to the consumer. So let's say if you look at KFC, I mean, we've launched this entry-pricing range or the value proposition for consumers in terms of Rolls and Wraps and all. So that's a way to attract new consumers, and therefore, that will continue to kind of build your footprint as far as consumers are concerned. On Pizza Hut, we tested with Flavour Fun Pizza. That was the objective, but it did not succeed. So therefore, I mean, you have to continue to experiment with various models in terms of something works, something does not, and we are at it. So it's not that we are just increasing the price to be able to get to the margins. Pricing is a very small component. It's the whole efficiency which is coming in.
So have you done some kind of sensitivity? Supposing you've cut your pricing on an average by 2%-3%, what kind of impact does it have on your overall sales? So what is the price elasticity of demand? Is it more than -1, less than -1? How does it affect?
See, this category is all about large, big bag announcements, and large so let's say a 2%-3% will not make any difference from a consumer point of view. So it is all about how you.
Flavour Fun is 2%-3%, and some of the products, it might be more also.
Correct. So, which is where I'm going. So therefore, you can consolidate that from a different promotion level. And we keep on experimenting with promotions. So there are promotions which are working, where we can kind of continue to be aggressive. There are promotions which are not working, and they are dragged. We continue to cut it down. So that's how the margin optimization happens.
Okay. That's all from me, sir. Thanks and all the best.
Yeah. Thanks, Percy.
Thank you. The next question is from the line of Srinath V from Bellwether Capital. Please go ahead.
Hi. Am I audible?
Yes, sir.
Yeah, you are. Yeah.
Yeah, yeah. So looking at reported numbers of the food aggregators and whatever newspaper articles we are able to get of the unlisted aggregators, these seem to be growing at a much faster pace than most of the listed QSR universe. And so I wanted to understand how is the competitive dynamics stacking up? Is there a shift in palate towards more Indian cuisines, or how do you kind of read this data broadly? I would like to hear your thoughts.
Sure. So if you look at the market that we are trying to address, the market that, let's say, the food aggregators are addressing, that's a far bigger market. So let's say, for example, if I were to talk from a Bombay perspective, a Vada Pav guy who's putting a cart, let's say, in Naka, he can reach the Andheri consumer, right, and vice versa. Let's say, whereas in our case, I mean so there, for example, they are able to capture a much bigger share of the unorganized market by making sure that the delivery is seamless, by making sure the logistics are working well. And therefore, at the same time, it could well be that there is a Vada Pav guy in Andheri who's getting impacted and who's not visible. And therefore, all of that gain kind of comes in the food aggregator numbers.
So because otherwise, if you look at the food services market, it's not that it is mirroring whatever is happening on the food aggregators. It's just that they continue to expand, they continue to penetrate more, and it's a combination of listed players, it's a combination of unorganized market, it's a combination of local competition, and so on and so forth.
Got it. Because if you kind of look at the outlet growth, the restaurants' growth, at these platforms, they're growing off of 50%. So is it that there's a significant new addition of, say, me-too pizza players or local street players? Have you seen an escalation of competitive intensity, which is periodic, right? In a 10-year window, you do tend to have a couple of years which have competitive activity. Are we in one of those zones right now?
See, it is there, but at the same time, please understand, and I'm quoting something from what was available in public domain. If you go back, whatever, a couple of years, there was this unearthing whereby at one address, there were some 160 restaurants which were being run, right? And so there, for example, you will take 160 restaurants as a restaurant addition, all with different GST numbers to save different GSTs and so on and so forth. So I mean, so we don't know what is happening behind, right? Whereas, let's say, if you come to the brands, if you come to the listed players, it's all kind of available. You can see it. You can touch it. You can feel it, so.
Got it. Got it. My second set of questions would be on Costa Coffee. An excellent performance both in SSSG store addition. So I wanted to understand, again, is there a big trend change because we are seeing multiple unlisted players getting funding, and at the same time, we are also seeing very good numbers roll out. So is there some sort of coffee culture change or café change? One would be that. And second, I wanted to understand how the food menu qualitatively, how the food menu is playing out in Costa Coffee. That would be great.
Sure. See, coffee is an aspirational category. It is something that kind of appeals to the youth, and therefore, it has a great scope. If you look at, let's say, globally also, coffee is a large category. If you look at I would not say, let's say, Chinese market transition from tea to coffee, but I mean, if you look at the Starbucks performance in China or look at some of the local coffee players in China, the coffee market is here to stay. Coffee is something you cannot get the same quality of coffee that you can get from a barista at your home. Whereas tea is something that you can easily make the similar tea at home. So therefore, coffee market has that unique niche, and it's here to stay.
Now, within that, let's say if there is a category which is kind of growing, there is a category which has a huge potential, you would see multiple players kind of coming in. And therefore, you have the local players also coming in and doing it very well. So therefore, I mean, we are serious about Costa Coffee. And that's the reason Mr. Jaipuria also talked about that we started experimenting with PVR for putting up Costa Coffee machines in their cinemas and screens, and that has also done well. So therefore, coffee is a serious category for us. As far as food part is concerned, I would say food contribution is going up. It is still not at the ideal stage. That's still a little bit of work in progress.
If you go to any of the consumer panels, if you look at any of the consumer studies and all, the common feedback is Costa Coffee is the best coffee available in the market.
Yeah, yeah. So in the Mumbai effort, it's absolutely fantastic. Just want to squeeze in a last one. Is the delivery of coffee being a trigger point for Costa growing as well as the whole segment growing? Is it moving from a 100% dine-in kind of format to a pure delivery format or at-home consumption of outside brands? Any views?
See, we have consumers coming in and ordering, obviously, home delivery, but you cannot have the same experience at home. I mean, if you deliver cappuccino at home, by the time it reaches home, it's probably 30% of the coffee is gone. So therefore, I mean, there are those challenges. But there is this increasing traction which is coming in whereby consumers are asking for coffee to be delivered at home.
Thank you. Thanks a lot.
Thanks so much.
Thank you. The next question is from the line of Ashish Kanodia from Citi. Please go ahead.
Hi, Manish. So first, on the India business part, so if I look at the last 4-5 quarters data which was reported earlier, see, brand contribution margin was between 14%-15%. So that's maybe not exactly on a number, but was there any meaningful deviation from that kind of a brand contribution margin versus what you have reported this month? Because on the international part, the brand contribution margin now stays at 10%. Definitely, there's a big impact on Nigeria, but I mostly wanted to see if Thailand was still in that ballpark 14%-15% range.
Ashish, it is still in that range. Obviously, as I said, there was a little bit of impact in South because of the geopolitical situation, but it is a handful of stores. So there was a very, very slight dilution, but directionally, it is absolutely the same numbers that we talked about earlier. There's no change.
Sure, Manish. Secondly, in terms of store expansion, I think in Pizza Hut, you have alluded earlier as well that there will be more calibrated store expansion. Looking at 2025 to 2025 quarter, the part versus in terms of expansion across the whole place in India?
So Ashish, overall, we are looking at a similar number, which is 275-300 stores. Obviously, I know and I do realize that in 2024, we were a little short, but overall, on an operational basis, I think we've done exceedingly well in the middle of slowdown and all. So we are not changing any of our numbers. It remains same at 275-300. KFC remains a similar number, no change at all. Pizza Hut, as I said, we'll be a little cautious in terms of how we are opening the store given the overall brand performance. And obviously, we've taken initiatives there, so let's see how it pans out. But otherwise, no big change in strategy.
Sure, Manish. That's important. Last year, this entire discussion and slowdown has been sustaining for almost, say, 1.5-2 years now, and it has impacted across categories. So when you look at the new real estate deal sign-ups, are you seeing more lucrative offers? And if you can just throw some light, do you see that some of the other international brands are feeling more pain? They are rejecting some of the real estate. So is real estate availability and cost becoming a competitive edge?
See, Ashish, as I've talked about earlier, if you look at India overall as a market, the real estate probably is a challenge only in top 50-70 locations. Beyond that, real estate is not a challenge. So let's say if you look at, let's say, prime commercial areas in Delhi, prime commercial areas in Mumbai, and some of the other metro towns, that is where any prime retail space is heavily fought for. But the moment you step out of the metros or you go to even, let's say, suburban areas of metros and the smaller towns, real estate is not such a big challenge. There is availability. You can negotiate. The brands are respected. Landlords are willing to tweak their terms. They are willing to sit on the table, and so on and so forth.
Sure. That's helpful. Thank you. Okay. Thank you.
We'll take the next question from the line of Gaurav Jogani from Axis Capital. Please go ahead.
Thank you for the opportunity, sir. So my question, one, is in regards to the slowdown that you are seeing in the overall ADS numbers, would you allude more based on a pricing of the value format, or it is largely due to a reduction in the transaction size across the products?
Gaurav, it's a combination of both. The transactions have not fallen dramatically. It is the overall pricing coming out of the hyperinflation scenario because the consumer wallet sizes have remained the same. Therefore, typically, let's say when this kind of hyperinflation happens and we were coming out of COVID, obviously, it takes a little longer term to kind of have a reset for the consumers from building up the income levels as well as this whole sentiment and emotion. At the same time, we've also seen, I mean, if you look at the overall credit offtake in the country, the consumer credit offtake is sitting at almost all-time high. That is also something which is kind of putting pressure on consumers. I think probably we do feel that we are towards the bottom of it, and things should kind of start to improve.
Sure. Manish, with regards to the Pizza Hut performance, your market performance has been much better versus the other peers that you have in the country. You know they alluded to higher marketing spends during the quarter. Haven't you or you have not been managing for Yum to do a similar marketing spend? How do you look at the marketing strategy for the brand there?
So Gaurav, as far as you know, Yum also very well. So it cannot be that Yum can favor one franchisee and not the other one, right? So it has been because we all want to revive Pizza Hut brand between us, Sapphire, and Yum. And therefore, it was a common effort. It was a common funds contribution also from their side, from our side, from Yum's side. And that is how we are trying to build the brand back. So it is not that it is any different from us. But despite the additional contribution on marketing and all the common initiatives, obviously, our performance is better.
Yeah. So I mean, actually, the question was why it is better versus what is the difference, and how are you looking at the margin profit for the brand there? Do you think that the margins are now bottomed out and should pick up from there?
See, from a cost efficiency standpoint, Gaurav, we are almost there. The top line has to pick up to be able to give us back that leverage and bring the margins back again to the levels they were at. So we've taken initiatives from a marketing perspective. We've taken initiatives from a menu perspective. So let's see how it pans out if at all we think the margins can only improve from here.
Sure, Manish. Thank you and all the best.
Thanks, Gaurav.
Thank you. The next question is from the line of Robert Marshall-Lee from Cusana Capital. Please go ahead.
Hello. Can you hear me okay?
Yes. You are definitely please proceed .
Just a question about same-store sales growth and obviously in terms of customer segmentation. So typically, kind of premium versus mass and behavioral. So do you see in a lot of consumer areas, you've seen the premium customer areas being more robust. Obviously, you're seeing kind of the opposite with Pizza Hut. So it sounds like there's kind of a specific kind of aspect to that. But I'd be interested in what your kind of view or perspective are on the same-store sales growth that you'll see and whether it's a much more competition and new additions in the market versus consumer behavior more generally. And just a second question linked to that, how you're seeing the marginal return on investment in your expansions. Again, the slowdown on your Pizza Hut expansion seems to be indicative of that.
I'm interested in what you're seeing in terms of marginal returns versus high format.
Sure, Rob. So Rob, it's always good to have a premium positioning. And obviously, if you're able to kind of appeal to more and more consumers and get the consumers into your fold with the premium positioning, it's always the best proposition. And that is how, if you look at KFC and Pizza Hut brands and Costa Coffee for that matter, has been positioned in the minds of the consumers. And obviously, let's say when you get into a hyperinflation and when the consumer wallet and the disposable incomes get impacted, you do kind of start to think in terms of, "How do I increase the value layer?" And India, if you look at from a consumption point of view, we are probably addressing the top portion of the market or the consumers. We are not even addressing maybe 25%-30% of the population.
So from that point of view, a value layer is important because you are able to get more and more consumers into your fold. That is how you'll be able to build the brands into mass brands and bigger brands. So therefore, there is always this whole delicate equation that needs to be balanced between premium positioning. And at the same time, it appeals to. I'm not saying that we'll be able to appeal to 100% of the population. But given the way the India is growing, we should be able to. We should be in a position to appeal to maybe 40%-50% of the population. And that is where that whole fine balance kind of comes in. And that's where we kind of come into the value layers as far as KFC is concerned, or we talked about Flavour Fun pizzas and so on and so forth.
We kind of keep on working on both sides to be able to maintain the positioning and get more consumers in. So sorry, what was your second question? Yeah, the return on capital, right?
Yes, exactly. I mean, I guess, yeah, we'll turn the previous question on to the sales or sales growth that you're seeing between the different brands, how that's impacting it, and what is the approach to competition. And then the return on capital between the different brands and what that means for your expansion plans.
Yeah. Sure. So if you look at the same store sales growth, if you look at the competition, if you look at the overall market, it's more or less sitting in the same zone. So we've seen the market leader on the burger side giving a negative SS SG. We've seen our peer competitor giving a negative SS SG and negative SS SG on Pizza Hut. The same situation is with us. So the entire market is kind of in that zone. We do expect the consumer sentiment to recover. And therefore, this will kind of return back to normal. In the middle of all of this and despite whatever is happening, KFC, at a unit-level economics, maintains the payback period of 2-3 years. So earlier, it was more closer to 2 years.
Now, it is closer to 2.5-3 years kind of range. And therefore, I mean, as long as our so it's a good and attractive ROI from that perspective. And that's how we continue to expand.
Thank you. And just could you just compare that against the other brands that you're seeing in terms of Pizza Hut currently?
See, I would not have the insights in terms of the other brands in the market. But let's say within our portfolio, Costa Coffee also sits in the same ballpark numbers of around 2 years. If you look at Vaango, it is under 2 years. So therefore, Pizza Hut, obviously, given the current situation is longer, it's around 5-6 years. But otherwise, all of our brands in the portfolio are less than 2 to whatever, for KFC, 2-3 years.
Thank you.
Thank you.
Thanks so much.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing.
Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our investor relations team. Thank you once again for your interest and support and taking the time out to join us on this call. Look forward to interacting with you soon. Thank you.
Thank you, members of the management. Ladies and gentlemen, on behalf of Devyani International, that concludes this conference. So thank you for joining us, and you may now disconnect your lines. Thank you.