Hello, everyone. Welcome to this session with Sameer Khetarpal, CEO of Jubilant FoodWorks Limited, and Ashish Goenka, the CFO. I'm Amit Sachdeva. I head India Equity Strategy and Consumer and Retail Research for HSBC. I'll be your moderator for this session. First of all, thanks a lot, Sameer and Ashish, for making this time.
Thank you.
Let's straight go to it. I have broadly structured our discussion into three, four broad areas. First one, near-term demand and margin concerns, which a lot of people had a lot of questions about. Second is, the competitive advantages that Jubilant brings to the table and how you deploy that in your battlefield. Third, what is the fine balance of growth and profitability you're after, and again, capital allocation and some sustainability. That's the broader, but we'll be open to questions from everyone as well. This is a Q&A format discussion, everyone, so please submit your questions in the Q&A bar, and we will take the questions as they come. Let me start off by asking Sameer. He's joined you, and he's looking things from all angles.
Sameer, why don't you share with every one of us with your background, what excites you, and what unique perspectives and capabilities that you bring to the table, and what are your key focus areas?
Wonderful. Thank you, Amit, and thank you, investors, for joining us today. I'm truly delighted to interact with you at least soon within the first six months of my journey and look forward to an engaging conversation today. About me, I'm in my 25th year of professional life, 50th year of birth, of since birth, and through 25th year of this company, right? I somehow feel that it's very opportune. I come from a very humble background, grew up in a, in a literally a house shared by 16 families, therefore feel very blessed, and I'm an eternal optimist. Professionally, 25 years, started with hardcore manufacturing of ice creams. I commissioned the ice cream plant in Nashik for Hindustan Unilever, therefore understand the food space back in 19 when there was no cold supply chain.
I moved to services business thereafter in GE, where I was part of the big outsourcing offer in ways there, and ran a team of nearly 1,000 people across four, five countries. Learned the hard part of people management, distributed teams. It was nine years or nearly my thirties spent in McKinsey as a consultant, where I worked on multiple topics of strategy, sales, account management, operations, but more importantly, driving performance. Last seven years was again very unique with Amazon, which was building very tough businesses like food, grocery, healthcare, understanding the retail landscape. The most important piece over there is how do you bring customer back inside data technology and hard executions.
I'm delighted that all of this is culminating right from what I learned in a small house when I shared a bathroom with 16 families to right over here building some India's probably most loved technology company and now at Jubilant. Opportunities galore. Very delighted to be here.
Thank you so much, Sameer, for sharing. A very inspiring tale. We'll obviously, you know, take notes individually as well on that later. Let me just, you know, ask you also that if you could narrate that what you've seen so far, what are the three main targets that you have kept for yourself for next three years?
At Jubilant, I think the, My, again, six months is not a long time, but time enough to start forming, a path forward. My initial time was spent in visiting nearly 200 stores, speaking to nearly 1,000 customers. Also equally our own frontline employees, which are the true conduit between, or the, or the closest to the customers. Having said that, I think my first task was to accelerate what we have. Learn and accelerate. When I look forward, Amit, this company is actually sitting on a goldmine.
I will talk about it as our conversation goes forward. There will be four pillars of acceleration that drive our strategic agenda in terms of having industry-leading growth rates and industry-leading profitability.
Sure.
These four pillars are customer first and customer and market first, where there is. Again, we can talk more about it. I think again, with data technology, it just comes to life. The second piece is data and technology forward. Third is we are in the business of delivering a great product fastest to the customer, which is freshest, hottest. We are there to delight the customer, therefore operations excellence will always be harder. Fourth is that I know you'll have questions on, from the past, what happened and where are we moving, but good to great journey is embedded in a deep-rooted culture and the people that man the post. These will be my four pillars. All my answers, everything you will see or I spend 90% of my time on these four pillars and this will be the core part of my strategy.
Excellent, Sameer. Thank you so much. That was brilliant. Wish you all the best as you execute this strategy. Let me come straight to the, you know, basket of issues that I also spoke about. This is, again, comes from various investors and in terms of my issues, I've sort of spoke a few and these are some of the issues which are obviously in everybody's head. Let's just straight go to it. First is basically demand and margin issues. Like clearly SSSG or like the quotes they call it, has decelerated very sharply in Q3.
Yeah.
Like it is. One is that to sort of understand from you, what are the key issues underneath, why it has happened? It's probably cyclical, but how soon you believe this could start to normalize? As you, as such, you want to take the growth to 5-6%, what will be the key drivers and how you're addressing and mitigating the near-term demand challenge? Once you answer that, I'll probably blend it with the margin issue as well. Why don't I just focus on the LFL growth and the issues underneath first, and then we'll follow up with that?
Sure. I, Ashish do pitch in. As I see, I think, my understanding of the macroeconomic pieces, of course, we are in decade-high inflation rates. We have carefully and thoughtfully taken price increases. Right? After COVID, there has been structural shifts in demand.
Sure.
Right? Therefore, in the short run we are seeing some of these patterns kind of playing out. Let me assure you that despite these headwinds, I see actually tremendous opportunity on 3 dimensions. Number one, our loyalty is firing. It's working.
Sure.
Our high-frequency and medium-frequency customer base is ever increasing. Second is, habits have shifted materially from ordering in home versus going out, though indoors is coming back, and I know I spoke about dine-in as a growth sector too, but our credentials on delivery and moving from 30- 20 will again, I think we will stand out for our excellent delivery credentials. Number three is our store networks, right. At 7,176.61 stores, 387 towns, we have access to consumers versus the competition, which is truly, I think we are the neighborhood stores.
Sure.
We've always stood for value for money. Backed by our high throughput of our stores, commissaries that we've built, and the logistics prowess that we have. When I combine these four: value for money, neighborhood store, loyalty, excellent delivery, I think it is up to us to kind of execute. I see therefore, a little more internally how to tap this growth. We are still at a frequency of 3.
Sure.
That is the reality.
Good.
Right? When you look at some of the western geographies, even southeastern geographies, they're far higher than that, this number.
Okay.
I see it more as a natural expansion of store thoughtfully done.
Improvement in service led by digital and technology, that should increase the frequency as well.
Of course, value for money.
Value for money, et cetera.
That you also refer to loyalty being firing. Could you elaborate on that please? Like, what is the contours of that statement that you made?
I think the, we crossed 1 crore loyal members last quarter. Right? That's quite meaningful. In fact, if our internal research also says that it is working very well with our consumers in terms of loyalty program that exists in the world of food, right? I mean, like, so the Cheesy Rewards as a program is just in seven months of inception is hitting the minds of the consumer.
Sure.
I think. That is a great hook in today's day and age when we are omnipresent, right? There is a digital tool or digital product that we launched has very quickly reached an adoption of INR 1 crore.
Sure.
Right? We are seeing more and more number of orders are being. Because you can order anywhere, but you have to burn on our app. That drives traffic, that creates assets, and that's why I think loyalty is a core member. This is also been panning out in U.S. also. You would see how. Domino's U.S. has used this particular product and grown in a very competitive environment.
Also just to add to Sameer's that I think there were two main objective of this launching the program. One, how do we drive frequency up of our existing customer cohorts? Second was to reduce churn, because in our category, where the frequency is low, the churn also tends to be very high. Of course, the initial days of the program, the frequency will be out over a slightly longer term period. We are already seeing a uptick in frequency, though very marginal. A reduction in churn.
Very good.
The two key reasons why we launched the program, already seem to be tracking well.
That's good to hear, Ashish. Thank you so much. Which means that We are some of the building blocks of going towards 5-6%, as Amit talks about, as the demand cycle normalizes, inflation, et cetera, macro issues sort of settle down a bit. These are the structural building blocks that you are building to spur more action. If I paraphrase what you said correctly.
Yes, Sanjam. I mean, I look at it like this. It's a $45 billion market size. About four and a $500million of QSR. I think the opportunity is just so immense, right? As movement happened from unorganized to organized.
Sure.
Right? As we launch our INR 49, INR 50 products, right? I mean, samosa or a pav bhaji, right? I mean, that's what the space that we can.
Sure.
-compete with versus gourmet pizzas and Right? That's important. We'll not leave that segment. Really the mass, we are here for I'm here for growth in the category, improvement in penetration. That is what we have already started taking steps towards that.
Excellent, Samir. We'll talk about that value addition, innovation of yours of INR 49 in a bit, but let me come back to Ashish and to get on margin size. I think for the near-term, demand appears to be challenging, and you are taking some steps to mitigate it through value offering, but input prices have risen further in Q4.
Yeah.
Q3 they rose, but I would gather that Q4 the trend has, you know, been incessant. While in absence of any price increases, well, one can, and Amit speak demand, one can again fathom that margins may not have bottomed out Q3 and the pressure will continue. What should be the near-term dynamic on margin that would play out? If the 75% kind of margin which we saw last quarter, it seems to, if I were to take a, you know, long view, probably is a new normal. The 78 was an abnormal high on margin, but this is the new normal you are sort of comfortable. Is that how we should think about it? If that's the case, I would probably argue that not just coming quarter, but next 3Q would continue to see margin being somewhat compressed at the cost level. I mean, I'm sure you can mitigate through other means, but theoretically. The picture does seem little bit challenging for margins. How do you react to that?
No, I think your assessment is right. I think we are seeing almost at the cyclical level of inflation. Any prognosis that we had in terms of what time the commodity cycles will play out, have actually turned, you know, against us in that sense. Because quarter four is typically the quarter where you see softening of the cheese prices.
Sure.
It's really not happened. There'll be some moderation, but not to the extent we would have expected. If you see, there are broadly 4 contours of how we look at gross margin. One is of course pricing. As you're rightly saying that, you know, given the constrained demand environment, I think pricing will be a limited play. We are looking at mix, very closely, which is the second lever. That is why on one hand, we have the Vada Pav Range that we have launched, the Gourmet Pizza. Within the portfolio, how we can drive up uptake of higher margin products.
Sure.
What I also want to clarify here is that, despite launch of low margin products, our margins across all our products are by and large improving. The product mix does not impact us on the low end, but of course it gives us a higher view, higher end of the portfolio. We continue to drive out the mix. The third, of course, is how do we play out on discounts, because discounts have a direct bearing on gross margin. We have been again, very, very, select on in the way we deploy discounts. Of late, of course, we've been wanting to pass on more value, but that is one equation we would look to correct over the next few quarters.
How do we get more tighter, more digitally, you know, savvy in terms of the way we deploy discounts and in a more targeted manner. The fourth, which is the joker in the pack, is how the commodity prices play out.
Sure.
My sense is that commodities by and large in terms of pricing would have almost peaked out by now. We have already seen some softening in oil prices, in, box prices, which is actually paper prices. Oils have come off, a bit. There is some hardening of flour, which is again for reasons we know, and cheese, which is the largest input that we have at cost. If we do not see any further hardening from here, we should be able to sort of maintain. Yeah, it remains a little tough, right.
Fair enough. I think margin is something to watch out for.
Yes.
Again, you know, retailers' margins are not just gross margins.
Yeah.
Our revenue suit will balance off as well.
Yes.
You know?
Yes.
I would also argue that, you know, as, you know, one may also argue that since you in the last three years variable-sized a lot of your cost structure, especially on the employee side, things have become a lot more variable.
Yes.
Which on the adverse effect in time like this, there's not much you can do. You can't optimize. It is all already on a variable footing. In some sense, it, you know, leaves you very little wiggle room. You should hope for many things to sort of play out your way. At least, it sort of seems clear that near term seems a little bit of rough patch.
Not so much.
Is it a fair understanding?
Sanjam, to just make a small correction to what Ashish Goenka said or to allow me to counter a bit. Having been a consultant for 10 years, I think there is always a bottom base. Right? We will get that bottom base right. Right? We've already launched an initiative internally that as we get into 1Q , we want the initiatives to be rolled out and fleshed out. I use this classical training that I've had on industrial analysis. That if my bottom quartile stores, not on revenue, just on cost- Adjusted for revenue were to move to the next quartile, that is itself is a large amount of money.
Sure.
Right? As you know, these cost is in manpower. While it is variable, right? Are we matching demand and supply?
True.
Food, food costs, making sure that we have zero wastages in our stores. LPG costs, electricity costs, right? The petrol costs for the bikes that we use. Again, there is what I get on the margin front, again, there is a lot of opportunity in terms of what we can do in terms of recipe optimization, reducing wastages, using technology to pass on sharper discounts, reducing our promotion burns without impacting revenue. Again, there is lot and lot of opportunity that I see in the PNL.
You won't probably resort to pricing as a tool to mitigate it.
Yes.
Is this something that you're willing to do that everything else will be tried and hope that it improves prices? Correct. There's a bit of a fear, or if I may say, a bit of a reservation, even not just with industry-wide, whatever comment you've heard. Nobody wants to touch pricing. Is it so price elastic that demand is that, you know, you would probably not touch pricing?
I wouldn't say, I mean, more than elasticity of demand, see, we've always stood for a value for money operator. We would rather continue to pass on that value, especially in times where they're themselves are constrained because of high inflation.
Sure.
I think, in the long run, you would rather have customers who are on our platform engaging with the brand because the lifetime value that we can extract from a customer who is onto our brand is far higher than the short-term value extraction that I can do through higher pricing. I think that is been a guiding philosophy.
Yeah.
will remain fair. Yeah. I think just to be clear, I think in the last three years or so, we did initiate the delivery charge.
Sure.
Right? That was one big move. We also took very calibrated almost three price increases in the last 12-15 months.
Yes, sure.
I think we are not afraid of doing that. It's just that it has to be calibrated with make sure that my overall customer base grows, their share of wallet shifts with us.
Sure.
Using that as, I would say, as a lever very surgically when we know this is the right time to do it. We're constantly monitoring. We have the data models, we have the learnings from the past, how much goes in, how much doesn't. We will be very thoughtful about it. At the moment, at least in the next two to three months, all that I can say is I'm using more internal levers to get money out of the base rather than passing the pricing to the consumer.
One other thing which played out well for us is despite these price increases in the last 3Q , we have actually seen our order-led growth, even if little price-led growth. I've said this in all our earnings call as well, that consumers have been calibrating and reducing or downgrading, but they haven't left the app. They're not giving us price, which is actually always well for us in the long run, and that is why if you see all the consumer metrics relating to the AMUs that we have on our app, the engagement level remains very high.
Okay. Got it. Understood. Great. Let me take you to now, you know, basically network rollout logic and comparative advantages, the long-term capture. What I always wanted to ask this, to be honest, but since many people have asked this, so I will not take the credit as mine, but several others may have sort of asked the same question. Is that what is the key reason that network rollout target was so brought forward and compressed in a short period of time, became very aggressive? Was it competitive responses that everybody's doing it, so you might as well do it before?
Has it happened that, you know, if my SSC goals are slowing, because we know the period of 2013-2017 where growth came but SSC declined and margins declined, and the period of four years had zero profit growth despite the revenue growth was 16% CAGR, if I were to remember that number correctly in that period? My sense is that, you know, that fear drums that, you know, this aggressive network rollout, at least lot of people will cynically be circumspect in saying, you know, is it because economics looked tough, so let's just build network? It is really showing on your negative PBT drag because that shows that PBT is growing slowly. Why grow so fast?
Why not grow at a virtuous pace which gives you not only just revenue growth in a structural sensible way, but profits are also ensured at the same time. That looks much respectable framework for growth rather than having to lump CapEx or at least your expenditure in such a short period of time. I don't know what's your reaction to that. In my sense is that is a little bit of issue in understanding how your growth strategy is carried out. You want to sort of guide us how you are thinking about it. Is it old understanding? Whatever you feel, please feel free to sort of...
Yeah. We've taken several learnings from the past. I think this, and the system has that muscle memory of not to make those mistakes.
Sure.
Now, let me illustrate why I say that. Firstly, we are not wedded to a number.
Okay.
Particularly, right? We are wedded to ROI per store, payback periods, and the EBITDA yields.
Sure.
Right? Those are the markers we keep. We have a very strong... Firstly, how do we identify a store? We have an analytics insight model which predicts the sales for a region that we want to open a store. And then there is a very rigorous process of looking at the site, evaluating it, negotiating, making sure we keep our CapEx controls. Having three rounds of discussions to approve a site or not. Right? One thing I want to assure you is that we evaluate every store standalone on its own merit, keeping payback periods and EBITDA it will generate as the two primary dimensions.
Sure.
We are not wedded to any particular numbers, and we'll of course evaluate it when the time is right in terms of when we get into our strategy session, there is a change, we will come back. The second piece is I think we have the backend strength through our commissaries. Logistics, cost control to serve these cities, be ahead of the competition, serve these cities or new towns, and still have the same level of capital efficiency and the P&L EBITDA that we generate. These stores may be lower on throughput. They are lower on rentals, lower on manpower costs. We get leverage of our marketing costs, the ATL campaigns we do.
Sure.
It brings in a lot of goodness to us. Of course, we are building these stores for 10, 11 years, right? The payback periods are still very, very lucrative. In fact, our payback period has remained constant or marginally improved in the last couple of years.
Got it. That perhaps explains why revenue per store looks stubbornly resilient, because the marginal stores may bring in lower revenue, but probably they're on ROI basis, there's no difference. There's a value capture happening.
There is.
optically it gives you a sense where...
Yes.
Your store is resilient and/or at least stubbornly stuck at that number of... Is this the correct understanding?
Well, absolutely, and I've explained this in the past as well, that there are two factors that we must consider when we look at REPS. One of course, is that we're making deeper inroads into tier three, tier four towns. Which again, in terms of ROI and profitability are at par with the stores in the tier one.
Sure.
The second is the fact that we have been splitting stores in tier one.
That and not for fortification, but for release of the leases, which also optically reduces the AEPS. That's why we started reporting LFL AEPS.
Sure.
That should give a, give you a little more better color in terms of how
Got it. Take you from that, and I think summarizing what Sameer said, that, you know, one is that the lessons from the past have been well documented, and there's a rigorous evaluation that goes for each store. It's a standalone business opportunity which is evaluated as if it's a standalone business opportunity, and then all the aggressive metrics are inflicted on it before anybody says yes to the store.
Yes.
It has multiple rounds of evaluations and then finally. That process stays. Secondly
I think one more very important lesson that is I think embedded in the DNA is never take your eyes off, LFL growth.
Sure.
No, I think anyone in the company is not getting a revenue growth.
Got it. Got it.
Revenue growth is an output of what we do, but I think the targets at the KRA largely linked with LFL growth.
Got you.
That is, I think, absolutely the lesson that we learned from that phase.
Sure.
That you cannot just keep driving revenue growth without driving LFL growth.
Understood. Ashish, thank you so much for this answer because this was, I think, bit of penetration in many areas. I would also probably, now we talked about CapEx store, and Sameer mentioned commissary as well, but I think let me just relate it back to commissary CapEx, which, you know, is a very bench shallow CapEx that happens in the background. I would probably, you know, say that some people manage without that CapEx, you know. I would probably ask Sameer and you is that there's some competitive advantages that massive CapEx brings to you that is not replicable or managed by others. How much, you know, when you do this cost benefit analysis, make or buy, what sort of advantages that you derive from that CapEx that you believe that it is...
Why not spend that CapEx in consumer centricity, build more stores or do some product quality or whatever. Why go build a back end which is such CapEx heavy? How do you justify that cost benefit and could you share some anecdotal evidences that this is money well spent in some sense?
I can start. Then Ashish, please chime in. I think we make the same margin at INR 49 rupee pizza at the gross margin, right? In terms of INR 49. When we launch a INR 49 rupee pizza, we get the same gross margin. The reason is because we have a very solid back end.
Sure.
Right? When I say solid back end, it is the process of sourcing. It is also the process of conversion and forward logistics from there.
Sure.
It brings in those efficiencies.
Right.
Versus if we were sourcing for different places. We'll have more number of trucks coming into the store. We'll be spending in consolidation. Equally, our fill rates are above 99%, right? Which is in fact the best that at least I have known in India. We have like zero store closures or zero store shutdowns because the material was not there.
Sure.
I think it gives us that advantage of opening stores and then forgetting in terms of would be able to supply really reliably on to them. It keeps a very high bar on our safety standards, food safety standards, Quality and temperature control that we are able to do. It also helps us play on our ESG commitments, right.
Sure.
Because we source from a, from antibiotic-free chicken. We know where that is coming from. We process it in-house. We make sure we are not using any artificial colors or preservatives.
Sure.
It just brings the whole story together for us. When we deploying CapEx, again, the rules of the game are the same. What is the ROI? What is the payback period, right? What are the aspects to the... What is it giving to the customer and what is adding strategically to our business? I think, again, having visited to some of the, some of these factories, and I would encourage some of you to go see these factories. I think you'll just see is believing and will get convinced. Because in India at this scale, the supply chain is broken.
Sure.
Right? Therefore, all big companies, they invest in their own capacity. We again, we have taken very thoughtful decisions where, what we will outsource, what we will buy versus what we will build. Again, a very careful evaluation is done and these assets pay for themselves.
Got it. Got it. No, I think, thanks so much. You have highlighted many competitive advantages, you know, whether it's coming from scale, delivery capabilities, digital assets and brand obviously, which brings in the trust in the consumer. You know, I also recently noticed that you went out and launched a 20- delivery across various of your markets, not probably entire India, but some selected markets. Now, interesting thing is it's a clear push on capabilities that deliver in 20 minutes. It has implications for delivery staff, it has implications for kitchens and processing everything. One, how did you manage it and you know, how scalable that is? Would you be able to roll it out entire markets and where it has been implemented already?
Can you quantify, has that resulted in some change in consumer behavior or you started seeing revenues being, you know, throughput being better in those markets? Even end of the day should result in consumer delight and willingness to buy and pay. Where you see that change or it is, it's like a marketing innovation, but it is, you know, it needs to sort of reflect on how consumer franchise is building on it. Any reactions to that?
It is not a marketing campaign, it's a hard consumer benefit. That's how we see it. We have been preparing for it for the last three years.
Sure.
The whole fortification, densification strategy was done to give a better service, greatest, freshest pizza, tastiest pizza, fastest to the customer. This program is places where we have the network where we can do it, which is in top six, top seven cities. That is where the consumers are looking for more convenience.
Sure.
30-minute delivery has been democratized by aggregators. This allow us to really, I think what are more versus aggregators to form favor of our consumers. Where a pizza box never leaves our hand right, from the start to consumer's door. It allows us to wow the consumers.
Sure.
I commute from Gurgaon and when I joined the stores were struggling over there in terms of their delivery capability.
Yeah.
The moment we started pushing on this dimension, growth has happened. I clearly see that if consumers will come back when you offer them a great service. Given our reliance, like 2/3 of orders are online or delivered, right? This is a chance to wow the customer. Backed by loyalty that becomes like a flywheel in itself. Great service, value for money, delivered in 20 minutes, it becomes like a flywheel.
Sure. bit of a like all scenarios beautifully placed in.
Absolutely. Therefore I think long term it becomes a competitive advantage.
Sure, sure.
I think that's how I want to see this. In isolation you may think, "Okay, 20-minute delivery, so what? Right? You see loyalty, 20-minute delivery, store densification value for money, then it starts playing like a mode.
10 minutes is a lot of time in food delivery because food gets colder by 10 minutes, it's much less eatable than a fresher food. I see that as a bit of a advantage here. Given the scale up so far, do you see it is scaling up to larger footprint or it is still at a pilot stage or how you see over one year period it would be like a national phenomenon? How one should see that service? Or it's still metro-centric?
I think it will be largely where consumers want it.
Okay.
It will be more metro-centric. I think our dining mix is different from top 6, top 7 cities versus tier 3, tier 4 cities.
Sure.
Right? Where consumers, where we are the first QSR, consumers want to go dine and take their family, versus where in metros we are a known brand and the consumer will open the app and order it.
Sure.
I think we will. Again, it is, like I said, it's part of our fortification densification program. Wherever the catchment allows us, we will offer it to consumers. Where consumers want it, we will again give it to consumers. I think it is not national program that way.
Sure.
It is to give us the competitive advantage in the, in the regions we are delivering.
Sure. Understood. Understood. Well, that's very... Obviously the question is well I'll probably, you know, continue with a couple of more and then we'll go to the live questions as well and address few of them too. See, one thing I want to distract you, little bit to a very, abstract question. This is abstract in the way that, you know, because every product has a value proposition. Every taste, preference, quality, aspiration to, you know, it's convenience or, you know, where I trade for it. You know, a variety of food offers us different value proposition, pizza being one of them.
We've seen, like, a lifelike growth also coming down a bit, if not this quarter, but there has been a bit of a trend which is still, COVID had a tailwind because I trusted quality food and everybody find very easy to order. Is the value proposition somewhat challenged? If, for lack of a better word, vague? How do you see it? Do you see that, when you slice the markets, you know, top 10 cities, four metros, tier 2, tier 3 towns, and some cohorts like, for example, IT, which are facing some challenges of job losses or at least slightly video. There could be a variety of reasons. Do you see some cohort-wise, some interesting trends that you could point out for us that how one could find conviction that the growth is here to stay?
While top numbers of, you know, 10% or $45 billion, it's a great opportunity. Theoretically, you know, if you look at US market of last 70 years, 50 years, it continuously grow. You know, one can find conviction that this market will grow for a very long time.
Yes.
In the near term, do you feel some category headwind as such, or do you feel it's very cyclical and it's inflation-linked, and we need not worry about it, nothing structural about it?
I said I don't see anything structural except for near-term headwinds that which be there largely on account of inflation, right? Where consumers are making sharper choices to protect their wallet and.. Looking for at some entry-level price points, right? I mean, and therefore, again, I think Domino's being always a value-centric brand. I think it presents opportunities to that extent, right? It's kind of ours to capture.
Sure.
In terms of category, we are a food, every food business, right? Even if my mother cooks the same thing every day, I would want a refresh.
Right.
Having said that, we have the team, we have a team of great chefs. We have team of great culinary science. We have all the kitchens. You are sitting in our office, you can see above the kind of infrastructure that we've built. Right? Therefore, when I say customer and market first, one of the themes in that is menu India. Right? We launched Paratha Pizza, we launched a INR 49 Desi Pizza. We also launched a INR 600 Gourmet Pizza.
Sure.
From the same kitchen, same oven, using the same ingredients. We will innovate for east, north, west, and south.
Sure.
Right? Bring local flavors because in South people love to eat and more spicier non-veg. Right? I think our, again, our network allows us to have like a unique for 150 to 100 odd stores in a particular state, we can launch a Gongura Chicken in Andhra Pradesh, in Telangana because we have the store density and unit economics work for us.
Sure.
That is what the local talent sees. What I'm saying is consumers moving towards value, we are there. We will innovate on the menu.
Sure.
We are on three, we're on all three formats of, or channels to consume.
Got it. Got it. Let me, you know. Thanks so much for this. What you're essentially saying is that value proposition creation is on us to excite consumers, and you are expert at that. You have the resources and the scale to affect that change. Point taken. Let me go back to the web questions because, you know, my side. One question I would like to read is from, "For Popeyes with the network rollout story is similar to that of Domino's, what elements of the latter's model are you looking to replicate in the chicken brand? Also, any comments in the fried chicken opportunity, given it's a lesser crowded market than pizza?
Indeed, it is a great opportunity. That's why we very carefully chose Popeyes. We have seen Popeyes, country after country, kind of becoming the brand that consumers love. Its bold Cajun flavors actually work very well with Indian palate. Yes, I agree it's a crowded, a less crowded market. In fact, I was speaking to one of my friends and I pointed out to him that whenever you go on to even a fine or casual dining restaurant, it will fight you.
Right.
Therefore, it is in a sense, a unique opportunity. We have done two things very successfully up till now. One is to make sure our taste is consistent. We have great feedback on food quality, food product. We are sourcing antibiotics, free chicken. We are bringing lot of these processes in-house in terms of marination to control cost and to control taste and the food safety. I think we are ready to scale.
Sure.
Right? I think gives us the confidence. You would have seen the lines outside, whether we opened a store in Koramangala or in HSR Layout or recently in.
In Chennai.
in Market City Mall in Chennai, right? The response is tremendous. Therefore, from that perspective, I think some of the hard work of building the category basics has been done.
Sure.
The discussions I have internally with my own team is why are we not opening stores fast enough? So it's less about the demand, more about the supply. Of course, we'll always be very thoughtful in terms of where to open the store. I think we internally are chasing 250 odd stores. I think we should get there. In terms of, because the backend hard yards have been actually done to carry the momentum forward now.
Would you believe, Sameer, that the margin structure on a steady state would be as good as Domino's, given probably it's a higher throughput, slightly lower margin category, or how your initial hypothesis about the scale up model.
Excuse me.
How would it apply?
Yeah. Amit, I think, we know the category margins in this category. There's already a well-established benchmark. I think in the fullness of time, better margins should not be very different from where Domino's is today. Of course, the gross margin profile are going to be different because the categories are very different by nature. We believe that in the fullness of time. We should get to the category margin and then improve from there because we have the, again, the competitive advantage of having the scale. The scale in commissary, the scale of supply chain network will be shared across the both the two brands. I think just to add to what Sameer was saying, and those competitive advantage, we are now bringing into Papa Johns brand. We have the franchise strength, we have digital strength. Papa Johns was the only brand in the world wherever Papa Johns had launched with its own app on day one.
Got it.
Because we had a digital strength when Domino's had to go re-exchange. Similarly, the institution, the brand development, the projects team. I think that backend is getting shared, and that gives us more confidence that we should be able to scale it much faster.
I'll actually ask, you know, Lakshya to read the rest of the question.
Yeah, sure. We have the next question from Saurabh, where he's asking, why is it important to move to a market ahead of competition in terms of either the customer traction, taste, or user acquisition? We have always maintained a gap of almost 150 cities where we are the only U.S. presence. The question is lastly, why it is important to move to that particular market first?
I think these cities have visitor flow we last quarter we opened a store in Vidisha in Madhya Pradesh. I was kind of skeptical when I was giving approvals for that store. On I think 30th or 31st, I got a call from a customer at 11:30 P.M. in the night that I am waiting for 40 minutes. I have not gotten the pizza. I can't even enter because there is a big line.
Sure.
Right? I think these are very encouraging signs. While I want to serve that customer, I was disappointed that the customer had to wait for, to get inside the store. This is the opportunity that these towns offer. As India builds more highways, as the income disparities reduce or rather I would say there's flow of incomes and capital towards these cities. I think it is important for us we invent the right model, right cost structures for these cities and be ahead of the market.
Sure.
It's not that we're going to open five stores in a, in a town like Vidisha. We'll open one store, and we stay put for a couple of years. till the time we see that, okay, now the stores are bursting at the seams. Right? I mean, there are several such stories where be it Bulandshahr or Moradabad, where we give approvals to expand the number of stores
Sure.
because the other stores are bursting at the seams.
Got it.
Again, the process is very rigid and tight, that we always go in, okay, this is a new town. Our algorithms are telling us it will generate the revenue that we expect from a store that it should. Payback period is there, we do it, then we see the results then go to the next one. I think it's very scientific in our approach.
Sure, sir. We have the next question on reimaging. The question is, what is the CapEx, additional CapEx you require for reimaging program? What are those element of changes which we are doing while we are reimaging to the case design within Domino's? Will it be a large additional CapEx, which for this? What is the quantification of the stores?
I think in my assessment, firstly, a part of it always a part of the process, right? We relocate old stores, where rentals have gone higher and the customer or the dining proposition is weak. Right? It is not something that new. Yes, it's where we, it's where there are stores where the competition intensity has increased and we have not spruced up our experience and the changes, these are not more than 10-15% of the store, by the way. Large part, like almost in the two years, whatever 500+ stores we would have opened, those are anyway new design.
Cool.
Right? We are looking at some of the older stores which are lower in terms of percentage. Over there also, I think there are four sets of changes. One is only dining area changes, change of furniture. There are the next level, which is minor modifications, where we change the furniture and the walls. There are medium modifications where we expose some of the AC and some of the dining area. Finally, there is a full reimaging.
Got it.
That number is in the tune of 10% to 15% as we look at the overall stores broken into all four. There's no additional CapEx. We'll manage within the CapEx we have in mind. It's just that doing it timely is more important than the CapEx part.
Sure. We have the next question on the growth within the pizza category. Is the pizza category very cluttered, in terms of the network expansion, even by the competitors and Domino's own network expansion in the past? Given the high penetration of stores, is maintaining growth even possible for a company, like Jubilant FoodWorks and Domino's for that matter?
I think I did allude to it, 45 billion market size, $4.5 billion of QSR category. I think it is still significant headroom, I would say. I mean, the reality is the, I mean, Domino's in U.S. continues to grow, right? I think they have a far greater number of stores per capita, right? I think we are scratching the tip of the iceberg over here. Again, we have to be prudent in our expansion. I don't think... I see more about execution, tapping the opportunity, having the right CapEx model, inventing on behalf of customers in terms of menu choices, value for money, doing the delivery excellence. Huge headroom, right? I mean, We have what? 12 million monthly, less than 12 million monthly active users.
Swiggy, Zomato and other combined are more than 150 million. We are just too small in the overall scheme of things. That's how I see it. It's more about execution than maybe than the, than the demand opportunity.
Sir, the next question is on Hong's Kitchen. Indian Chinese category is very popular, and it's the large part of the supply chain still remains fragmented. What are your views on Hong's Kitchen and what is your ambition here?
Yeah. No, I think I had to take a tough choice, like when I, when we, when we did kind of move away from Ekdum!, right? The answer was also partly in Hong's Kitchen, which was, it was doing quite well, right from a. If you look at the, you can open up Swiggy or Zomato and look at the customer rating and the feedback that it is receiving. We worked very hard on changing the recipes, making it more Indianized, again, fixing the supply chain, going back to our commissaries, taking a lot of those back-end processes or consolidating those lot of kitchen processes into our supply chain so that we can give a very consistent quality.
Our store format, store designs, we work a lot on it to how do you do the right throughput in a 1,000 sq ft store, have the right balance of dine-in, plus delivery and takeaway, again, using our own app. Those are the core element that we are building all businesses upon. Yeah, I see it more as an opportunity. In some level it can be even bigger than chicken because at least in chicken you can name a competitor. In Chinese you can't even name a competitor, right? Which is across 100 stores, right? As a food company and the largest QSR company, I also see it as a I take it as a matter of challenge and also pride that we have to have one, at least one homegrown brand.
There is our answer on Hong, but we will be very prudent about it again. We will treat it as a startup, do it in a sandbox of 14-15 stores, prove out the economics, get the food cost right, have an awesome, lovable customer experience, and then fire.
Sure, sir. We have the next question on loyalty program, which has partly been addressed. It has started well. What are your ambitions here? I think we have covered that in the response.
Only double down, right? I mean, it's a source of strategic advantage. I will not comment on it. The idea is to double down.
Sure. Next question is on the capital allocation going forward. In the last few years, we have seen Jubilant entering multiple cuisines beyond pizza and, while pizza as a category offers significant larger possibilities, all these categories also address a larger audience. We also have expanded in Sri Lanka, Bangladesh, and have acquired stake in DP Eurasia . What is your thought on, A, the capital allocation, and second, even geographical expansion? How do you see that happening?
I think in terms of capital allocation, I think the priorities are very clear. First, all, if I had INR 1 to put, all of it will go to Domino's because we will not stop Domino's at all. Second, we have thought about Popeyes as the next big priority, and therefore between Domino's and Popeyes, bulk of the store expansion CapEx will go. As Sunil said, some of the other brands are in the sandbox. We will only invest if we find a model which we thought was relevant and scalable. The third level of investment would with, in our backend supply chain. As I alluded to that, I think they're getting a slightly higher CapEx cycle as because it's a step investment. We have Bangalore commissaries getting commissioned itself, equal investment, probably Mumbai will follow after that.
We have a bit of a higher CapEx cycle coming in terms of our commissaries spend. I think beyond that it will be some very small strategic investment depending on whether the opportunity is attractive or not. I think that is the basic framework that we follow. Domino's, Popeyes, commissaries and some of the capabilities that we are building around digital.
Sure, sir. We have last five minutes. I'll take probably the last question. Hand it over to you for closing. What happens when any competition across category in QSR opens a store near to your Domino's store? Have you seen any adverse impact on your revenue throughput or anything that you can share?
In fact, it's, I mean, I certainly cannot, but in fact it works the other way around.
Yeah.
We always go to a catch point which has higher throughput, higher footfalls, and where there's a concentration of QSR brands. Those places actually attract the highest level of footfall. Whenever a competition or any other QSR is in close proximity, the throughput from the store over a period of time actually grows higher than actually going down. That's why most QSRs actually follow each other as a strategy in terms of their store expansion.
Yeah, I think like for like in a mall where we have all the competitors, right? Domino's tend to do one of the best, right? In a food court of a mall. I think same logic works actually in our favor.
That's right.
Prashant asked, Domino's did the best when Pizza Hut was too focused on dine-ins. While Domino's cracked the delivery opportunity, seems the strategies are reversed now. How do we ensure that our focus on dine-in does not reverse those gains as Pizza Hut is expanding more delivery outlets?
I think they will excel in delivery through continuing their delivery, which is true. Our own delivery unmatched and our own app capabilities, I think, which is all towards delivery.
Sure.
Loyalty of course. I don't think there is any drop in focus and time to investment capital on the delivery side of. In fact, we're only doubling down even more, right? I mean, in terms of the leadership bench strength I'm creating, it is only large part is good. I think we have these stores.
Sure.
Right? Which is a neighborhood store. COVID did kind of reset the base. It is only natural to get our humble right share in those neighborhood stores so that whether I'm going, coming back from office or school, like within these stores, outside near every store has like a school nearby. A little girl will bring her parent or mother, "Can I have a pizza?" Right? Those are the joyous moments that are created inside the store. Somebody celebrating their birthday in a location. India's homes are small, and this gives us the opportunity to celebrate and be part of daily lives, which is inside the family unit.
Got it. With possibly with time, I think you have a schedule on you. I would be cognizant of that. It's 4:28. I will just ask you about one common theme which we ask everyone. The sustainability things that you talk about is what sort of material changes that you are making in Jubilant that you are proud of?
Yeah, I think good thing is you have the ASC leader sitting in this room starting this very important, right? How we, how we view this.
Sure.
Each department is carrying a target on I think 3 dimensions. one is sustainability of food, two is the use of electricity, solar power. In fact, we launched a big campaign internally on how to move quickly on forward on that dimension. 3 is emissions. Right? Popeyes, for example, is 100% of the bikes are e-bikes.
Sure
We have the same intent and commitment on the Domino's side. Like all new stores opening, recently there's in Delhi area, they all open with e-bikes.
Sure.
If the capacity of e-bikes were there, we would have in fact converted all our bikes to e-bikes. I think it is again, on all three dimensions, food sustainability, energy and emissions, we will push forward and it's part of my goals and the KRAs of my team. You want to add?
Only thing I added is I think the way we do sustainability is not a project. I think it's very integrated with every part of the business, and that's how we approach the whole ESG agenda. Of course, we will be putting more formal targets, but it's already very well embedded in the business. Whether it's the antibiotic free chicken or the solar power that we're using in our industry, almost 30% of our fleet is on e-bikes.
Sure.
Our reduction, energy waste management system across our stores. It's very much part of the way we run the business.
Great. Thank you so much, Sumeet, Ashish, for generous time, sharing your thoughts with us. I hope it gives us some clarity in how you are taking the business forward. I'm sure it is one of many interactions which will happen in future, and you'll continue to sort of update us how you make progress on the priorities.
Sure.
I also thank all the participants for, you know, being here, patiently being there in the webinar and while asking questions. We have tried to take as many as we could, but I'm sure some questions due to bit of paucity of times and a lack of time as well, sometimes it's old age comes across. We will come back to you, and forward all the questions to, you know, Akshay, and we'll reach out to you for your answer. Rest be sure of that we will reach out for your answer. Thank you so much for asking your questions.
Thank you so much.
Thank you, Ashish. Thank you for moderating this very well. Really appreciate your time, the way you have spent, and look forward to more interactions.
Thank you so much.
Thank you. Thanks for everyone who joined in. Thanks for your interest in Jubilant. Thanks for your support.
Thank you. Thank you.