Ladies and gentlemen, good day, and welcome to the Burger King India Q3 FY 2022 earnings conference call hosted by Edelweiss Financial Services . As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nihal Mahesh Jham from Edelweiss Financial Services. Thank you and over to you, sir.
Thank you, Aman. On behalf of Edelweiss, I would like to welcome you all to the Q3 FY 2022 earnings conference call of Burger King India. From the management today we have Mr. Rajeev Varman, CEO and Whole Time Director, Mr. Sumit Zaveri, Chief Financial Officer, Mr. Kapil Grover, Chief Marketing Officer, and Mr. Prashant Desai, Head of Strategy and Investor Relations. I would now like to hand over the call to Mr. Rajeev Varman for his opening remarks. Over to you, Raj.
Thank you. Thank you very much. Good morning, everyone, and I hope you and your families are safe as we continue this Omicron phase. I think it has been an exciting quarter for us, actually a very good quarter for us. We delivered revenue-wise INR 280 crores in sales, which is 14% higher than INR 245 crores that we delivered the previous quarter. A good quarter. I'm gonna stop using the word recovery because you know, our ADS, our Average Daily Sales, actually surpassed the pre-COVID numbers. With this quarter, we ended up at 104% of pre-COVID quarterly sales. That was an exciting number as well.
This was driven predominantly by sales that come through our delivery which continues to stay stable at 160% of pre-COVID numbers. Dine-in sales also recovered. If you recall, our Q2 numbers were about 65% over pre-COVID sales. They moved from 65% to 78%, so that was also an improvement. Our region-wise, you know, west we recovered 119%. South and east we were at 108%. Then north, we had a little room for recovery, we were at 95%. However, in December we crossed a 100% mark on the north numbers as well at 102%.
Looking at the December exit number of Q3 as we kind of exited Q3, delivery sales ADS you know 166%. Dine-in was recovered 86%. West was at 146%, South and East at 115%, and North, as I said, was 102%. Very, very good recovery in sales. You know, this is on top of you know us doing only 75% of the traffic. We have done a good job in with menu in the last you know few quarters moving up the checks to a substantial number. Hoping that this moving forward into Q4 and then moving into the next year we are looking at you know as the traffic recovers to surpass all these sales.
Good quarter from that perspective. Also, just a quick note on the restaurant level EBITDA. We delivered INR 48 crore, which is 17.2%. All these are post-ADS numbers. This is more than you know the Q2 number of INR 40 crore, which was at 16.6%. That went up as well. The company EBITDA was at INR 32.8 crore, 11.7%, which is again over the Q2 numbers, which is at 10.4%, which is at INR 25 crore. Good from that perspective as well. Finally, just on the Indonesian acquisition.
You know, as you recall from our past calls, that you know, this we had the—First of all, our board had approved the offer to go ahead and buy Indonesia. Post board approval, we made a proposal to the seller that was also accepted. The latest is that our shareholders have also approved this transaction. Thank you very much for that. Really, thanks for all the support on that. This is an acquisition of about 83.24% of the Indonesian business. Enterprise value is at $183 million, which is on a cash-free, debt-free basis. That's on that side. Just quick couple of notes on our key pillars. We continue to you know, build our restaurants.
We built 20 restaurants in this quarter, moving up to 294. In fact, one restaurant just opened yesterday, and we are at 295. We continue to build restaurants. We have nine in construction, another 65 waiting in pipeline as we kind of move them into construction and forward. The BK app, Kapil will spend some time talking about the BK app, but great work there by the marketing team. We have moved that quarter-over-quarter, you know, our app sales by 41%. Thank you, Kapil, and thanks for all the work you're doing. Just on the café, you know, we have opened 18 cafés. Now if you recall, we had talked about opening cafés in Q4.
We pulled it up front and we opened 18 cafés in Q3. There are still eight or nine of them in construction as we speak today, and more going into construction for this Q4 quarter. Stunner Menu continues to be strong. You know, it is continuing to be accepted by millennial audience, and Kapil will talk a little more about that. That's just basically a top level, you know, summary. We will go dive into these areas on this call. What I'll do is now I will turn it over to Prashant. Prashant will carry you through some of the numbers and then Sumit Zaveri and Kapil will kind of follow after Prashant. Over to you, Prashant.
Thank you, Raj. Coming to slide number five, you know, we are, as Raj mentioned, has reached 295 restaurants. You know, this year our target was to touch 320 restaurants. We are well on course to deliver 320 restaurants. Next year, as you know, our target is 390, so we will continue to do that. You will notice in slide number five that, you know, we've now put the restaurant opening numbers for FY 2023, 2024, 2025. We've gone to the NRV target of 700. You will see later on also the guidance slide, we will kind of build that.
The reason I wanted to kind of share with all of you is that we've actually delivered on every single guidance that we have shared with you, be it with respect to store openings, be it with respect to the ADS guidance and be it with respect to our gross margin guidance. What we will do is, having achieved all the guidance for this year, we will come back to you guys, for when we come back to you guys for the March quarter full year numbers. At that time we will now revisit that guidance, including the guidance for the store rollouts in Indonesia, including the guidance for the BK Café rollout as a result of this being kind of expedited from here.
When we come back to you with March, there will be two more numbers in addition to the India store rollout. It will be the BK Café in India rollout, plus the Indonesia store rollout. Raj spoke about this in terms of the slide number seven, in terms of our recovery. What we have managed for your benefit, we've broken the recovery down Q1, Q2, Q3 for financial year 2020 versus 2021. If you recall, two quarters back, we had chosen to share with you that our pre-COVID numbers on annual basis when we ended March 2020 was INR 1.1 lakh. We said that it's better to compare our performance this year with the March 2020 numbers because comparing with March 2020 will always give you a very high FY stream.
As a result of this, we will share this number with you for your benefit. As you will see in the last quarter as well, the recovery continues to grow and we are at 114,000 of ADS for the March quarter. Sorry, for the December quarter. Raj spoke a little bit about slide eight. As Raj mentioned, the delivery recovery continues to remain strong. As you will see in the first quarter of this financial year, our dine-in recovery had slumped to 32% because of the second wave. It then moved up to 65% in Q2, and we ended Q3 at 78% recovery. Note the December number, where the dine-in was only recovered 86%.
Similarly, the recovery on the delivery side for December was almost 76%. If you look at the Q3 overall number, the dine-in business currently is at 47% and delivery is at 53%. If you guys will recall, you know, when we ended March 2020 for the full year, our dine-in business was 65% of our business and delivery was about 35%. You know our view. We've kind of shared this with you that we believe we are predominantly a dine-in business. As the world opens up, as schools and colleges open up and as the dining traffic kind of completely recovers, we believe you know the balance of 60/35 should return back in FY 2023. Talking a little bit about slide nine.
As I said, the recovery now stands at 104%. If you just map out December month, the recovery is around 111%. Raj again mentioned this, because we have our NRV business, the rights to open restaurant all across the country. We shared with you our regional wise recovery. West has again maintained recovery at almost 120% for Q3, followed by South and East at 108%, and as Raj mentioned, North, which was kind of lagging, also in December crossed 100% recovery number. What I will do is, you know, quickly turn it over to Sumit, our CFO, to quickly share with you the highlights of our operating performance. Over to you, Sumit.
I kind of literally summarize what Prashant and Raj took you through. The financial performance slide, which is slide 11, is literally the summary of what we achieved during the quarter. We grew our sales by 14%, got to INR 280 crores of sales. We achieved a margin of over 66%. You know, if you've been tracking our performance, you will realize on quarter-on-quarter basis we've been improving our gross profit margins. We are at 66%. We strongly as an organization believe that we should just continue to be where what we've achieved and only improve on from there on. We strongly believe that what we've achieved is certainly sustainable, and we can build our base on that going forward.
Looking at the restaurant EBITDA margins, we got to 17.2%. Again, there we've improved from what we achieved over the previous quarter. At a company level, 11.7% in terms of company level EBITDA, with an improvement from 10.4% to 11.7% on a quarter-on-quarter basis. It's been a good quarter. We believe that we've created a base from where we can kind of work towards improving further. With that, I'll just hand it over to Kapil, who can take us through some of the initiatives that we took on the marketing side, which has certainly helped us in achieving what we achieved in quarter three.
Well, thanks. Thanks, Sumit, and a very good morning to everyone on the call. In the last quarter, we've seen very good improvement in our sales recovery and especially dine-in, you know, while our delivery sales stayed very strong. Now, we've been focused on strengthening our brand, and Whopper is a key pillar of that strategy. You know, we continue to drive very exciting engagement programs and limited-time products to build that franchise. After a string of awards that we won for our social media campaigns, like Gift of Whopper, which is around Valentine's Day, and The Great Cricket Hack, which we did around the 2020 cricket tournament, last New Year's, we launched an incredibly fun campaign to engage with the youth and help them stay sober on the first day of the New Year.
You know, while people celebrated New Year's with abundant caution outside, or in the safety of their homes, Burger King made sure that they didn't need to worry about a delicious Flame-Grilled Whopper or a Crispy Veg Whopper to start their first day in the new year on a good note. The Sober Whopper was a customized product, and it was available exclusively on Burger King app. I'm very happy to share that the idea connected very well with the Indian youth and also got coverage in countries like South Korea, Australia, France, and Italy. That's where we continue to build the Whopper franchise. Move to slide number 14.
You know, we've done a lot of foundational work on the Burger King app, and we are now seeing very good momentum quarter-on-quarter, with a growth of 41% in sales in the last quarter. We now have 177 e-bikes on the ground, delivery models which are placed on the Burger King app, and we will continue to grow the percentage of e-bikes in our fleet. We also continue to invest in driving BK app adoption through digital marketing, and by the end of last quarter, we were at cumulative 2.35 million installs and over 400,000 monthly active users on the BK app. That part of the business continues to grow for us every quarter. We stay invested behind that. Now, that brings me to the next slide number 15, on BK Café.
Raj spoke about the fact that we've been able to fast-track this project and roll out 18 cafés by 31st December. These cafés are a mix of high street, drive-throughs, and malls, so we can get learnings and improve the model before we scale up. So far, we've seen that the consumers have given very positive feedback on the menu, both hot and cold beverages and the food. We're also seeing some very good patterns and improving overall beverage sales and traffic in key day parts by offering this new proposition to our consumers. As we said, it's very early days for BK Café, and we will keep you posted on how this progresses over time. That brings me to slide number 16. Last quarter, we continued to grow Stunner awareness and trial. That's our value proposition.
If you measure this versus July 2021, which is when we launched a 360 campaign around Stunner, the Stunner menu volumes have grown by 39%, which is, in a way, very strongly sort of correlated to dine-in traffic growth in the last quarter. That tells us that the consumers have a very good acceptance and trial of the Stunner menu, and we're getting fantastic feedback on the products. That, in a way, sums up the marketing update for the last quarter. I will now hand it over to Prashant to talk you through the key performance indicators.
Thanks, Kapil. Appreciate that. Friends, as I was sharing with you earlier, this slide used to be our guidance slide. Given the fact that we've achieved all the three guidances that we shared with you for the current year, what we want to do when we come back to you this March, we'll now start incrementally sharing with you the new guidance, because most of our guidance will now need to be revised upwards from what it was previously. We will now come back to you in the March quarter for your numbers with our new guidance on store openings. It will also include the guidance on BK Café as well as our guidance on the Indonesian operation.
Our view is that we should be able to, you know, now that the shareholders have approved this, we will be soon launching our QIP. Subsequent to the successful closure of QIP and acquisition of the Indonesian business, we will come back to you in the March quarter and guide you for the Indonesian business as well. Now with cafe starting, we will have to revisit our guidance upwards on the gross margin side, on the same-store side. As Raj and Kapil both mentioned, it's still early days for cafe.
Our initial response continues to be extremely strong and promising, but we are just asking for another quarter from you so that when we come back to you with our March numbers, we guide you much more appropriately with a very strong degree of confidence on that. As a result of this, you know, we kind of removed the previous guidance slide, and we will reinsert it in the next quarter. In terms of what's the update on the transaction, as you know, this was a related party transaction. Being a related party transaction, the promoters were not allowed to vote. The procedure was really with the minority shareholders. The minority shareholders overwhelmingly have voted in favor of acquisition of the PT Sari Burger Indonesia business.
We continue to be very, very strong believers, not just in the Indonesian story and the Indonesian Burger King story, but in ex-India growth as well. Now, you know, we have to go and raise this money to acquire this business. We will very soon be launching our QIP as a result of this. Hopefully, you know, with our current existing and new investors embracing our Indonesian purchase, we should be able to acquire the Indonesian business. We also have other developments now with us acquiring the Burger King Indonesia business. You know, we have proposed a name change to Restaurant Brands Asia Limited. The shareholders have approved that. We will now wait for the ROC approval before we can change this.
That's it from our side, guys. A strong quarter. Just one small thought I want to kind of leave with you. This year was also like last year, kind of marred with, you know, second wave and now the Omicron wave. In all, we are actually looking forward to the next year probably will be a very big year for Burger King. For the India business, with the Indonesian business getting consolidated, we safely now these are very meaningful part of our business. Hoping that next year we will have probably much lesser or almost zero disruption because of this. Looking forward to the dine-in business again coming back, the traffic bouncing back.
Raj had mentioned in the previous call, during this COVID, even our check sizes have grown by about 40%. If traffic comes back vehemently next year at FY 2023, we will have a very different FY 2023. With this, we open the floor for Q&A. The team is here to take on any questions that you may have.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vicky Punjabi from JM Financial. Please go ahead. Vicky Punjabi, your line is unmuted. Request to please unmute your line and go ahead.
Yeah. Thanks for taking my question, sir. Am I audible?
Yes, you are. Please go ahead.
Yeah, Vicky.
Yeah, sir. Sir, my first question is actually on the margin front. Now, I was just comparing the current quarter with the December 2019 quarter. I see a gross margin expansion of 140 basis points and an EBITDA margin expansion of 30 basis points. You know, I just, you know, when I look at two quarters in terms of character, there is definitely a higher element of delivery in this quarter versus, I mean, delivery mix this quarter versus, say a December 2019 quarter.
I'm just one of the implications that I could draw out here is that, you know, if we have the same kind of a revenue per store and the delivery mix is higher than what the dine-in mix is, it would have an adverse impact or on like-for-like basis, the margin would be lower, the EBITDA margin would be lower. Is this a true understanding or the fact is that, you know, the incremental prices on delivery does offset the the incremental expenses here?
Vicky, this is
Yeah.
Hi, Prashant here. You take. Yeah, no. Sumit, go ahead.
Thanks. Vicky, yes, what you are seeing is correct, that the dine-in and delivery has a differential in terms of margins at an EBITDA level. Your question first saying does the price differential offset the impact? Yes. Price differential and the idea of having a price differential is to offset and be competitive on the platform. That does help retain the gross margins. There is an incremental cost to do that business, and that does impact on the EBITDA side. What we've always been maintaining, that as the business starts recovering and as we see the restrictions on the COVID coming off, we very clearly see that the business will move towards and tend to move towards dine-in.
That's literally the character of the QSR business in India, and that's what we've seen. If you look at even our slides on what we have observed ourselves of dine-in recovery, as the restrictions kept on moving out, we've constantly seen the, you know, the share of dine-in increasing. You know, and if you see literally in the month of December, we got to 86% of our pre-COVID levels of dine-in. While it does impact, we do strongly believe that as restrictions go back, we will go towards and closer to the pre-COVID levels of dine-in delivery ratios. That's something which we strongly believe. Secondly, you know, and I kind of did cover this as a part of my mention.
The gains on gross margin that we've got so far, we strongly believe that we will sustain it and only kind of improve from there on. Just to summarize, we strongly believe that we are a dine-in led business. As the restriction goes back, we will go towards the higher share of dine-in. Secondly, the gains on the gross margin side that we've got, we will be able to sustain and only grow from there on.
Okay, sir.
Yeah. Vicky, just one thing I wanted to kind of build up on that, you know, what Sumit mentioned in terms of, you know, as I mentioned, our check sizes during this period has gone up. Though our percentage margin may have come down, but when you look at the dollar margin or the rupee margin percent, because your check sizes have expanded by 40%. Overall, from a business standpoint, it's not made a very meaningful difference. Though on a percentage basis, it will look up and back, but on an absolute basis, it's not made too much of a difference. Sorry, Vicky, go ahead.
Sure. No, I just wanted to, you know, just clarify my understanding out here. What you mean is that, you know, deliveries stay strong while dine-in recovers. Overall, once the dine-in recovers completely, we will have a higher revenue than what we were seeing versus pre-COVID levels. Plus the margin, the gross margin would continue to strengthen from there on. You know, partly also, I mean, despite the dine-in proportions moving up. Is my understanding right out here?
Yes. Yes, absolutely, Vicky.
Okay, sure.
Just to, there are three numbers I wanna share with you. We spoke about this in the last quarter. We said that we would exit this year, fiscal year in March, going north of 66% on margins. We have already done that in Q3. We said that we would exit this year, fiscal year, March, getting sales back to pre-COVID levels. We have already got this in Q3. We said that we will get to 320 restaurants by March of this year, fiscal year, and we are well on track to hit those.
You know, that's why we kind of, you know, put this into a very good quarter because it helped us with all the opening up and, you know, the market and the malls and so forth. It just kind of, you know, got us a quarter head start on all our numbers. That's why we're kind of placing this as a good quarter.
Yeah. No, sir. Yeah, definitely. It's a strong quarter. Just one more thing I want you to understand on the BK Café expansion side. I mean, while we are currently kind of piloting the model, once we firmed up on the model side, there is something on the number of stores that's being expanded generally, and then there is BK Café that comes in. So on the new store launches, what is the thought process here? Do we, you know, currently go with without the BK Café and then in three to four years we have to again renovate to get BK Café? Or would we actually go with a BK Café across most of our new store expansions? Just wanted to understand the thought process of BK Café expansion.
Vicky, cafes are here to stay, right? All our new restaurants are actually designed with cafes in them. We will be opening cafes all across our portfolio. Now, there's, as I said, I think two quarters ago that, you know, there'll be a full-fledged cafe and then, you know, in a food court we will have a, you know, what we are calling as a B model, which will have a counter area, and they'll have the menu board and the cafe menu over there. You know, we are now inherently building these into our designs. All the new design actually already, we have already done that. All the new restaurants that we are opening now already have cafes inside them. This will continue as we continue to build restaurants next year and the year after that. I hope that answers that.
Oh, sure. Thank you, though. I come back to you for more questions. Thank you.
Thank you. Thanks for your question, Vicky.
Thank you. A reminder to our participants, please press star and one if you wish to ask a question. The next question is from the line of Anish Moonka from JST Investments. Please go ahead.
Thank you. When I try to understand the long-term business economics of a QSR company, and please correct me if I'm wrong, customer retention plays a very critical role. Not just to check if the customer is coming back to us after visiting once, but also to check that is he or she coming to us in seven days, 14 days or 28 days. Thereafter, to get data-driven insights as to how much integration are we able to make in their day-to-day life. What does your data tell you and where is the direction? Thank you.
Yeah. Yeah, sure,
Hi. We are actually in the midst of, you know, working on a very comprehensive CRM tech integration and a long-term sort of play around understanding customers through data. That is already in the works, and we should be rolling that out in the coming quarter. So far what we are getting from research and customer interactions, both qualitative and quantitative, is that we are seeing a good incidence of our products on the Stunner Menu and new launches that is done in every check. Customers are trying it and it sustains over time. We're seeing that stickiness on the menu. As I said, we are in the midst of, you know, working on a very comprehensive CRM program, and we should be able to share a lot more data-based insights in the coming quarters.
Noted. Secondly, on the menu. As we see it, the majority of India remains a dal roti and chawal eaters and would go for a QSR not more than once a weekend. You know, as we saw with KFC when they were struggling 10, 15 years ago, to become an everyday brand, they introduced the Rice Box and that changed everything. How is Burger King planning to position themselves as a weekday brand? As we understand, that's where the untapped volumes are. Thank you.
Yeah. Thank you, Anish, for that question. If you actually reflect back on, you know, QSR usage in India today, it's approximately about eight times in a given month, right? So, that's how often they are going into the restaurants. Those numbers in, you know, the other Asian markets, for example, China and Indonesia, are significantly higher, China being at about 28 times a month. Indonesia is somewhere in between those two numbers. So that growth is happening as we speak now. You know, when I came to India in 2014, the concept of burgers and Western QSR was basically a snack. People would have that snack and then go back and have their dinner.
Now, we introduced and strongly went after the concept of combos, and we really took the lead in making sure we came up with some fantastic introduction and strategies. You know, at that time, we were actually taking a combo at INR 50 or take any product at INR 50 became a combo. We included that kind of culture at that time. We have not looked back from there. We continue to drive that you know experience with our customers. Today, if you look at our combo percentage, it's significantly climbed beyond what we used to do, which was at 26%-30%. This has gone north of that. The other two things that I'll tell you is how we learn that you know these the repeat businesses, it's through products.
It's through our product mix. If you look at our product mix, you know, we started the Kings Collection, which is a gourmet line of products. You know, lo and behold, we are expecting to sell a few of those, and now today we are selling upwards of 80 of those units per day. That is not with 100% of the traffic back in our restaurants. There's massive room over there. That's sustaining. It is not going up and down. It's sustaining. It's continuing to grow from there, which tells us that that entire menu, that collection has resonance with our clients, and they like it. The second one is the Stunner, the introduction, you know, menu or the entry-level menu.
We shared those numbers with you, or Kapil shared those numbers with you. Those are gaining massive traction. You can imagine we have not yet gone on TV this quarter. The only promotion we had was last year, as we went on television with Stunner Menu. I think this is the other one which will gain and will drive people into our restaurants at the entry level for trials. Then, you know, we have a laddered menu to our Kings Collection, to gain, you know, a check from there on. As we look at the business, we feel strongly that we have put in the discipline and the item and the structure menu architecture in place, which will give us long-term growth on not only a repeat business, but also on new trials because of the entry-level menu.
Just to add to what Raj spoke about, you know, our menu being, you know, it's structured in a manner. To your question, we have also been very conscious of the Indian taste palate in the design of the menu. From day one, when, you know, Raj set up the whole speech with the leadership team, you know, the entire menu that we sell in India is an India exclusive menu designed to the taste preferences of the Indian consumer. Even today, we continue to stay focused on that. Ideas like, for example, the Masala Whopper is a Whopper which is made for the Indian taste palate, and you'll see many more ideas that come out like that. For example, the Crispy Chicken Burger. It's got, you know, products and ingredients which are...
Because Indians like multi-texture food, it's got crispies and a spicy sauce, right? The Makhani Burger. We have a menu which does reflect the taste preferences of our Indian consumers.
Thank you, Mr. Moonka. The line is open to you for any follow-up. Thank you. Now next question is from the line of Avi Mehta from Macquarie. Please go ahead.
Hi, sir. I just had three questions. First, I wanted to kind of just understand, is there any divergence in the gross margin between dine-in and delivery? What I mean is, do people tend to order more premium products online versus offline? Or does the check size have any difference in the gross margin?
Yeah. First of all, Avi, to your question on check sizes, we've actually seen very similar check sizes between dine-in and delivery. From the perspective of gross margins that we realize on both the products is very similar in terms of percentage as well as rupee margin. The reason is that we do follow a price differentiation as a mechanism to kind of make sure that we do realize very similar gross margins from both dine-in and delivery as a business model.
Perfect. That's clear. You know, I was trying to kind of see if the changing mix had any risk or on how that has impact gross margin. Now I'm clear on that. The second bit is essentially on the you know the operating restrictions that we've seen because of this new COVID wave. Could you give us any color over there on how the customer response has been from this disruption? More importantly, I know it's crystal ball gazing to some extent, but any expectations that you might have on by when do you expect dine-in to kind of get back to normal?
Thank you, Avi. If you reflect on what's just globally happening, right? There are markets now opening up. U.K. is one of those markets that substantially opened up. We are seeing here, for example, in Karnataka, just recently, they kind of opened up and removed the weekend curfews. Those kind of hit very hard to the business when there's a curfew on the weekend there. We do a lot of business. Those are slowly, you know, kind of being taken off. Now, you're absolutely right, we don't have a crystal ball or we don't claim to have a handle on how this is gonna progress.
All that we're seeing around is that, you know, while we had a kind of a restriction here in January as Omicron kind of came and set in, it is kind of, you know, from whatever we are seeing in terms of the markets opening up, kind of going into the rearview mirror slightly. I would say that cautiously because we have seen this go back and forth, and everyone on the call is aware of that. You know, for us, we are looking forward to a very, very strong next year, because see, the discipline is we have put the menu, the architecture, the business economics, and the way we have structured our restaurants in the last two years, well-planned, ready for the next year.
We dressed ourselves mentally and physically in our restaurants with all those initiatives we have taken. A good example is this app. You know, we launched our own app while we were doing, you know, transactions on delivery through aggregators, doing a fantastic job with that. We were spending, you know, way above the average in the industry in terms of daily sales through aggregators. But we bought the discipline of coming up with this app. We have gained 41% quarter-over-quarter transactions on our app. This is a very strong tool, and it's gonna help us understand our consumers better. It's also gonna give the last mile kind of experience, a strong experience, to our consumers. This is another, you know, tool that we prepared going into next year.
If you would look at the dress up, we have got Café ready to rock and roll for next year. We have got an app that is very strong and, you know, gaining momentum. We have got an entry-level menu Stunner, which we launched during COVID, which is gaining traction and gaining pace. You will see that this will be, you know, something that we will be mass advertising across the country, right? That's also in place. Finally, we have this, you know, the growth of our restaurants, which continue in the direction. We have not missed a beat after we came after the second wave. We haven't missed a beat. We have put our pipeline together. Today, we have 65 restaurants in our pipeline.
We have eight or nine restaurants on in construction as we speak. We are not skipping a beat. We are all planned, ready to rock and roll for next year. We feel very strongly about that year.
If I understand correctly, you're saying that as of now, it seems the consumers are taking it in their stride, and we should, I mean, given what we've done, it seems hopefully kind of if we could touch wood or fingers crossed, things should kind of fall in place in next year. Is that understanding? I just want to clarify that.
Yeah, Avi, as a company, what you do is you prepare yourself, right?
Yeah.
You prepare yourself. You know, if the business comes in next year, are you prepared for it? Are you prepared if there is gonna be restrictions? What I'm saying is this company has prepared itself from all ends, from technology, from the food side, the way we are constructing our restaurant, the way we are moving forward with our menu. We have prepared ourselves to actually go head on with the business next year. We expect and we feel strongly about next year, and we are prepared. We have put all our tools together to move forward next year.
Thank you, Mr. Mehta. I request you to join the queue for any follow-ups. The next question is from the line of Akshen Thakkar from Fidelity International. Please go ahead.
Yeah. Congratulations team, on a good set of numbers. I have two questions. One was a housekeeping question, and one was generally a strategic question. Housekeeping question first. On the call, you mentioned that your margins across, you know, delivery and dine-in, gross margins are same. Just wanted to double click on that a little bit. If you have higher prices and gross margins are same, does that mean that you are treating delivery charge net of from sales or as a part of cost? Or do you have it as other expenses? Because if it is part of other expenses, accounting would mean that gross margins on delivery are higher and then at the EBITDA level maybe you are similar. Just two questions on that. I'll get your answer and then ask my second question.
Sure. Akshen, one is that, yes, there is a price differential. There is also discounting that happens in order to be competitive on the platform. Hence, that's the offset that allows us to maintain or manage very similar margins between dine-in and delivery. To your question on the delivery charge or the cost that we incur, that is effectively kind of would sit as part of other expenses line on our P&L. The cost that we incur to do that business, this is part of other expenses line.
Okay. Is my understanding then correct that gross margins are similar for dine-in and sorry for delivery, that would mean that your EBITDA margins are lower today?
On the delivery side, yes, because there is a cost of incremental cost of doing that business. Yes, absolutely.
Okay. When you compare cost of delivery for self-delivery orders versus on platform, you know, do you get a difference today in terms of cost of orders?
At the moment, actually we just kind of starting to build that entire piece. Our intent is, really speaking strategic in nature when we are saying we want to do our delivery on our own. If I was to kind of just bucket that entire piece, the first part, you know, in one of the questions that I think Anish had asked. You know, we want to effectively just kind of make sure that we understand our customers better so that we can service them better. That's the first part that we want to kind of work towards. The second part is experience that the customer gets when he gets the food at home.
We want to make sure that experience is kind of far more superior when the order gets delivered through our current platform. The third piece, you know, Rajeev was just talking about the technology investments that we've done. You know, today our technology investments are done not from the perspective just in delivering or servicing the customer purely from delivery perspective. To engage with him on all different platforms or all different ways in which we service or connect with the customer. Be it delivery, be it dining, be it takeaway. It's a completely different perspective with which we are just building this entire environment. Of that environment, delivering or having our e-bikes is one piece. At this point in time, we are higher in terms of cost.
We would be higher than what we would incur with respect to aggregators as far as we are concerned. There also we've kind of very clearly laid out the path of how we would get in line with what we incur with respect to aggregator as compared to what we incur with aggregators originally. We see as we get scale, we would effectively be able to kind of get in line with those costs as well.
Okay. Got it. The second question is a little more, you know, prescriptive in it. I'm just looking at slide 11 in your slide deck, and I'm comparing margins from Q3 where your overheads seem to have grown more or less in line with sales. I'm talking about restaurant level overhead, and the margin improvement essentially comes from a little bit of gross margin improvement and corporate overhead improvement. You are, let's say, you know, 11.5% handle on company level basis. Anything which has to go through your teams, wherever, you know, it lands up happening. The part of that in your view will be better absorption of corporate overhead.
Do you see that, you know, there is some scope of operating leverage on employee or, you know, other expenses? Because it seems that, you know, we've seen recovery. But overhead absorption I would thought at an, you know, above, you know, corporate EBITDA level would have been slightly better, but that seems to be growing in line. Now, it could be possible that, you know, in Q1 and Q2 maybe you had costs which were lower and as business has come back to the ramp up their costs. Maybe future will be different. Just wanted to get your thoughts, you know. If you think about multi-million business, will it be, A, gross margin? Will it be, B, corporate overhead? Or will it be, C, you know, other restaurant level overhead? Thanks.
Maybe Akshen, I'll just kind of answer that and then maybe Raj can add to that actually. Very clearly one is gross margin, and we've been saying that we will work towards improving the gross margin through various efforts. Growth in scale to kind of bringing new categories. Cafe is a classic example of that, which we strongly believe should help in improving the gross margins from where we are. That's the first part. The second part that you know initially when you were talking about the recovery we spoke about saying the way we expect the business to kind of move towards more dine-in as a recovery channel.
We very clearly at the same time understand that, you know, the opportunity that we have with respect to the sales that we can achieve at the store level is not fully captured in, as we still are getting out of COVID. Effectively at the store level, we expect that as we continue to kind of improve our sales from the current levels, we will see the broader absorption of the costs. I think costs at the store level as well. One of the key would be on the rent side, and that's something which we expect that should kind of also help improve.
Largely, you know, we expect that the corporate costs in terms of growth will grow at a slower pace in terms of, as compared to the larger growth in revenue that we will see. You know, when we talk of larger revenue growth, it will be same store as well as new expansion. We do expect over a period of time, effectively, even the corporate costs should start kind of broad basing from the current levels that we have. It is very clearly defined into three buckets very clearly for us. Gross margin improvement, a broad basing of store level fixed costs largely on the rental side, and the broad basing of the corporate costs on an overall basis. That's how we will look at it. It's not going to be just one line. Sorry, Raj.
No, that's a comprehensive answer. Basically, I mean, you know, your rents, I mean, that's a big chunk over there, right? If you look at the number over there, that's a direct reflection of top line, right? As your top line grows, you move from, you know, MG or minimum guarantee rents towards, you know, percentage rents, right? As that change happens, as volumes increase, you will find that number shrink in the middle, the expense line. The corporate overheads, you can see between Q2 and Q3, you're seeing a significant decrease in overall corporate overheads. Those, you know, as the business grows, and that's why we call this a scale business, a scale cash business.
Because as that number of restaurants grow, the number of, you know, the sales grows through, you know, those restaurants, cafe sales gets added on and so forth, it does not add additional, you know, you know, corporate level kind of expenses. You will find that number kind of shrink, you know, as we continue to grow. That's a direct. Both those lines are actually a direct reflection of the sales numbers on top, both the existing restaurant sales as well as new restaurants coming in and adding new sales. Thank you for your question.
Thank you. Thank you, guys.
Thank you. The next question is from the line of Pratik Rangnekar from Credit Suisse. Please go ahead.
Hi, thank you for the opportunity. Congrats on a good quarters. I think in one of the earlier calls you had mentioned that, in the north region, some of the protests and all were having an impact on your revenues or your ability to capture sales. If I look at the jump between the quarterly average and the December exit, I would have probably expected a bit more sharper jump in the north area. Any thoughts on why that region is lagging?
Yeah. That's a good question. The answer is no different than what we gave before. You know, it is exactly the reason for it. We have a significant portion of our portfolio on metro stations. As you can look at the metro, especially in the NCR area, it is still not back, right? It's running a percentage of what it used to run pre-COVID. That's a significant impact because those stores, you know, we had, I think, between 18-20 stores in that market, in that metro market. Also, if you see that, you know, we have built, you know, basically half our portfolio up in the north, and many of these restaurants are in malls.
The number of malls also in the north is higher than what we see in west or what we see in south. You will find that, you know, as the malls completely open up, whether, you know, it's this policy of double vaccinated people going inside the mall, or today the malls are open, you can go to the food court, you can buy the products, but you cannot sit there and eat. Those things are still in place, right? They're still in place in several markets. As those things get removed and we come back to normalcy as whatever the new normal is, then you will find that these will effectively click very quickly. Very quickly you will find because it's a captive audience, right? Metro is a captive audience, and so are the malls.
As soon as the restrictions are removed, you will see a very immediate action on the other side with sales increasing. That's just direct correlation for that.
Got it. Thanks. So one question on the gross margin part. It's very encouraging to see the continuous progress that we have made here. Any more color that you can provide on how this has come across? Is there a pricing element here or maybe some breakup that you can provide between pricing and mix here? And also if you could quantify maybe broadly the impact of RM inflation that you are taking this quarter.
First to you know, I'll just quantify saying that we are supposed to hit 66% as we exit Q4. We have already done that. See, basically, if you look at gross margins, right? How do these gross margins improve as you go on? For example, I'll just make this simple. This is not as simple as it is, but I'll simplify this. You have a restaurant that is potentially a remote restaurant in a city where you're transferring your trucks for one restaurant. As you build two restaurants, the same truck is carrying food for two restaurants. When you go from two to five restaurants, the same truck's carrying you know food for five restaurants. So your transportation cost, which is secondary transportation cost, will continue to go down, right?
That has an impact on your total, you know, GP. Secondly, as you build a significant amount of portfolio in a certain market, then you are able to get local vendors. Whether it's vegetables or other products, you can get local vendors there, and that drives down even more the transportation costs as well as, you know, bringing in more vendors is always effective in terms of total buying, ability and the cost of buying. These things are cumulative. We have a very strong supply chain department, you know, led by Sandeep Dey. When we did this, you know, in 2014, we had set this, you know, travel journey. We had spoken about getting to 66. We had spoken about going from 66 to 68.
None of that has changed. All the work behind that, whether it's in transportation, whether it's in the way we, you know, get different new vendors to come in or whether it's, you know, basically engineering a product, whether it's going down to, you know, ingredient levels. We even negotiate ingredients on behalf of our, you know, suppliers that, you know, process our food. We go and negotiate the ingredients, so the ingredients purchased by them grow cheaper, and then that goes to get transferred directly to us. It's just hard work. It's not something that we are all brilliant people here. We're just hardworking group of people that continuously work hard every day to continue driving this number below. Sandeep and his team does do a great job doing that.
Thank you. Our next question is from the line of Pranav Tendulkar from Rare Enterprises. Please go ahead.
Hi, thanks a lot. Sir, just two questions. What are the long-term view on the royalties? I might have missed it in previous conversations. That is one. Second is what is the KPIs, top five KPIs and priorities for management? Thanks a lot.
Okay. Royalties, you know, we kind of, you know, have spoken about this several times, but I'll just kind of reiterate that. We started off, you know, in 2014 paying 2.5% royalties on restaurants we opened that year. The following year, the royalties went from 2.5% to 3%. When I say we had 2.5% for the ones we opened in 2014, those were for 10 years, right? For 10 years they will maintain 2.5%, and then they will go up to 5%. Those that we opened the following year were at 3%. They stay at 3% for 10 years, and then go up to 5%. The royalties are capped at 5%, right?
They're capped at 5%, and they don't go up from there. Our agreement, our master franchise agreement is until 2039, right? We have the luxury of a very good royalty rate, and that royalty rate is capped. That's good news for everyone investing in this business, certainly very good news for all of us over here. Now the KPIs you're talking about, you know, the first KPI of this business is the most important KPI, and that's traffic. How many people come into your restaurant on a daily basis? How many people place an order? You know, we call traffic as the blood of this business. The blood is what dictates every other number that happens in this business.
Traffic will be one of the biggest and strongest KPI of this business. Sales, obviously, with average check, ATC, you know, simple definition of sales, as I tell my team over here is, you know, how many people come in and how much do they buy? That's sales, basically, right? That's a major KPI. Our gross margin we have spoken about in a big way. It's a major KPI. Our growth is a KPI for us. We want to make sure that we are continuing to grow. When we say sales, you know, we not only take sales of existing restaurants and new restaurants, we also look at things like cafe coming in, adding sales during breakfast daypart. Cafe coming in and adding sales between lunch and dinner, right?
This is a very strong initiatives that we put in, whether it's a Stunner Menu, whether it's the Kings Collection, whether it's the cafe, whether it's our app. All these are to drive sales. That's a major KPI. Growth is obviously I just spoke about it, and obviously our restaurant level EBITDA margin and our company level EBITDA margin. This is how we run our business. These are the boxes that we put on our chart. If you come and see our MBOs, our management by objectives, all our people have these by objectives on their MBOs. Hope that answers. Thank you for your question.
Thank you. Ladies and gentlemen, due to the time, we'll be able to take one last question. That is from the line of Shirish Pardeshi from Centrum Capital. Please go ahead.
Hi, team. Good afternoon. Thanks for the opportunity. Just two questions. The first question is on if you can spend a minute or two how we should look at the BK Café business. Maybe if you can share some commercials. Just purely from the building our model perspective, next two to three years, maybe if you can outline what is the number which we are looking. Quickly a follow-up on that, what is your experience? I mean, it's too short. I mean, almost a month and a half you would have spent time on building this business. Any feedback on the customer traffic and things, how it is moving?
I'll turn it over to Kapil to give you know, what the customer reaction so far has been. It's been very positive. Just on the guidance and numbers, I think Prashant said it at the onset. Give us some time. We don't want to be sharing, you know, half numbers. We wanna understand it very well. You know, when we say we have 18 restaurants open, many of them are open only for a week, maybe a little more than a week. So we don't want to, you know, at this point, sit here and, kind of, you know, share the half numbers. So please give us some time. We are extremely delighted with what has happened with this cafe business. We are extremely delighted with the products that we have put forth.
Our objective and subjective, both qualitative and quantitative research, whatever we have done that Kapil will share, you know, share his thoughts on that. It has been overwhelmingly accepted as a very good rollout. We are extremely happy with it. That's why, you know, we pulled it up. We are supposed to do this in this quarter, we've done it in Q3. We are not, you know, taking a pause. We are going forward and continuing to build these cafes. It can tell you how strongly we feel about it. Kapil, you want to add anything?
Yeah, just to add to what Raj said. See, it's about how we have laid the foundation of this business and, you know, we continue to learn from all the experience that we're gaining from these cafes. First of all, good traction on the menu. We're getting good feedback, as I said in my slides, on beverages, both hot and cold, and also the food. You know, there is consumption of a lot of hot beverages in the north because it's very cold there. There's a lot of cold beverages in the west because of weather. That mix will shift as the weather changes. As I said, we keep learning from it. The food menu, good traction, and we keep optimizing it. We keep adding new products based on customer feedback.
You know, you will see that menu evolve over a period of time. In the next quarter, we will definitely have more to share with you on this business.
Okay. This last question on the Burger King Indonesia acquisition. Somewhere I read we have done the acquisition of 83%. While it also says that cash free and debt free basis of 100% acquisition. Slightly confused. Is it that 100% acquisition or if it is not, who owns the balance 17%?
Sure. Yeah, I take that, Shirish. Currently, as you know, we explained the details in the call when we declared the bid for the Indonesia business. The balance is owned by the original franchisee in Indonesia. It's a retail group out of Indonesia, very large retail group called Mitra Adiperkasa Group. If you go back to those transcripts, you will realize that, you know, besides acquiring 83% of this business, one of the conditions we bid for this business was to infuse $40 million into the Indonesia business. Because the Indonesia business is likely to grow from where they are today, which is about 176 restaurants to about 350 over the next five years. If you look at that $183 million, that's the enterprise value.
Post all the adjustments in terms of lease liability, debt-related, normalized working capital. The equity value of this will come anywhere between $125 million-$130 million. We are currently acquiring 83.5%. Post the infusion of $40 million, the primary infusion into the Indonesia business for their expansion. We believe we will end up owning about 90% of the Burger King Indonesia and 10% will continue to be held by the partner, which is Mitra Adiperkasa. Thank you.
Thank you. Ladies and gentlemen, due to paucity of time, that will be our last question for today. I now hand the conference over to the management for the closing comments. Thank you, and over to you.
Okay, thank you. Thank you so much again. Really appreciate everyone joining the call. You know, your enthusiasm with the questions. Thank you for that as well. You know, we've had a good quarter, and we're not sitting on it. As a team, we are, you know, continuing to address the business, address the tools of the business, continue to plan around the business, getting ready for next year. I think this acquisition of our business in Indonesia and continuing to grow that business over there, growing the business over here, building cafes here in India, building cafes in Indonesia, will become part of what we will be doing going into next year. We feel strongly about next year.
We feel that you know as things come back to normalcy that the economic model that we have put together in the last two years is becoming even stronger. We feel that this will be a driving force to what we will do in the next year. Thank you again for joining the call. I really appreciate it. Please stay safe and have a good evening. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of Edelweiss Financial Services, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
Thank you.