Ladies and gentlemen, good day and welcome to Sapphire Foods Q1 FY 2027 conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this 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. Sanjay Purohit from Sapphire Foods. Thank you, and over to you, Mr. Sanjay.
Welcome to the Sapphire Foods quarter one FY 2027 business performance highlights. Let me jump in. You should have the presentation already available with you. Quarter one FY 2027 was our second consecutive quarter of strong performance with 15% revenue growth, best in the last 11 quarters, and 37% adjusted EBITDA growth, best in the last 15 quarters. This was led by positive SSSG across all three brand verticals, KFC India, Pizza Hut India, and Sri Lanka businesses. Our quarter one revenue was INR 888 crores, up 15%, as I said. We added 16 KFC restaurants, five Pizza Hut in India, one Pizza Hut in Sri Lanka. Our total restaurant count was 1,074 as of 30th June 2026. Consolidated restaurant EBITDA was up 23% year-on-year. Margin was 13%, up 80 basis points. Consolidated adjusted EBITDA came in at INR 75 crores, up 37% year-on-year, and margin was 8.4%.
Consolidated EBITDA, which is post-Ind AS, was INR 140.6 crores or 15.8%, up by 24% year-on-year or up by 120 basis points. Consolidated adjusted PBT was INR 27.3 crores or 3.1%, and consolidated PBT was INR 16.2 crores or 1.8%, up 200 basis points. Let me now take you straight to the KFC highlights. KFC delivered 5% SSSG and 17% system growth with very strong dine-in and takeaway contribution, largely because of our two-pronged strategy to drive consumer recruitment. I have called this out in my last investor presentation also. At one level, we've got strong everyday value, the INR 99 chicken crisper burger meal, accompanied by advertising that enables new consumer recruitment. We had also shared a YouTube clip of the new advertising.
We believe that it's a combination of advertising and this everyday value that is driving change of consumer behavior and moving new consumers to start considering KFC as part of their repertoire. Apart from that, in more evolved chicken markets, we also have a disruptive abundant value strategy on select days, ideally perhaps once a month, where we offer buy one get one on our hot and crispy buckets backed by localized advertising. These offers are only present on the dine-in and takeaway channels, and this has enabled very strong growth on these channels. Our innovations for the quarter include KFC Shawarma. This is slide number 21. The Double Chicken Dynamite. Both products are fantastic products. Double Chicken Dynamite is two fillets of chicken, and in between, you've got a layer of noodles and cheese. Our digital kiosks are implemented in about 75% of stores.
We launched 16 new stores last year. Vijay, could you take the numbers, please?
Yep. I'm on slide number 24, channel-wide sales mix. Dining and takeaway sales for KFC improved from 57% to 59%. This is on basis of the strong dining takeaway value campaign. KFC SSSG came at 5% for the quarter. The overall revenue grew by 17%. Gross margin improved by 160 basis points over last quarter. This was a combination of lower discounts compared to last year, as well as price increase of 2% during the quarter. This, combined with improved dining and takeaway mix, better operating leverage, meant that the restaurant EBITDA improved by 120 basis points over last year. This is despite the challenges and the pricing pressures which we faced on the energy cost, especially in terms of gas cost. The overall restaurant EBITDA came at a very healthy 16.9%. Slide number 27 gives you the full year and five-quarter trend.
As can be seen from the last three quarters, the performance on the brand is improving, and this is quite encouraging as we move into the next quarter.
From a Pizza Hut perspective, we had 1% SSSG after five quarters. Both dine-in and delivery channels were similar SSSG. We launched new products, the new Crafted Flatzz product, baked chicken wings, a new line of masala beverages, and our [TN] continues to do well, especially the dine-in business. Really, I've said this now for the last eight quarters at least, that this gives us the template, that clear strategy that is differentiated from the number one. From first, the customer experience rooted in dine-in with strong omni-channel execution, great product backed by innovations, and then heightened marketing spends allow us to be a strong number two in the market and for the brand to do well.
Slide number 34, channel-wide sales mix. Dine-in and takeaway mix remained same as the previous year at 50%. Pizza Hut had a SSSG of 1%, as mentioned by Sanjay, after five quarters of negative SSSG. In terms of revenue growth, overall 3%, and gross margin improved by 80 basis points. Again, here as well on basis of lower discount and a price increase of 2% taken towards the end of the quarter. However, higher energy cost impacted the restaurant EBITDA, which came at loss of 3.6%, down by 110 basis points. Slide 37 gives you full year and five-quarter trend. Positive 1% SSSG, including, more importantly, dine-in and takeaway positive SSSG, is encouraging as we move forward.
Our Sri Lanka business had another quarter of strong SSSG. However, profitability remained an issue because of inflationary pressures and all around inflationary pressures. Cost of sales because of the depreciation of the Sri Lankan rupee, minimum wage increase, and cost of utilities and fuel increasing because of the geopolitical crisis in the Middle East.
Slide number 42 gives channel-wide sales mix. The dine-in and takeaway mix came in at 60%, almost similar to last year. SSSG was very healthy at 9%, and overall revenue grew by 15% in LKR terms. Gross margin improved by 220 basis points. While gross margin improved, as mentioned by Sanjay, the higher energy cost, wage inflation impacted the overall restaurant EBITDA, which came in at 12%. Slide 46 gives full year and five-quarter trend. The current quarter has been challenging in terms of profitability. However, just like previous challenges, whether in terms of COVID or the political turmoil experienced by the country, our business has been resilient and we have always bounced back strongly. We expect this impact to also be short-term in nature and in the long term, we remain quite positive about the business.
Finally, we had our annual general body meeting on the 21st, a couple of days ago, and we are happy to release our annual report for FY 2025/2026. I would urge you to go through the same. That's it from Vijay and me, now we'll open it up for questions.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on the touchtone telephone. 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 Avi Mehta from Macquarie Capital. Please go ahead.
Yeah. Hi, team. I just wanted to check two things. One, wanted to get your thoughts on how should we look at the demand environment. As we know, we've seen in KFC, same-store sales growth is similar-ish. We saw 6% in last quarter, if I remember it, adjusted for the festive in 4 Q, and now we've seen 5%, while Pizza Hut has moved to positive. Wanted to get your thoughts on how things are, how do you see demand in the last quarter and trending as we speak. Would be useful to get your comments on that.
Yeah. I don't think there's been any material improvement in the demand environment. I would say it remains similar. Some of the KFC upside that we are seeing is as a direct outcome of the work that we have done to improve beta. I think the same thing is with Pizza Hut. Pizza Hut, as dine-in sales has improved, the overall brand has done well.
Okay. Has this changed as we exited the quarter? Any kind of comments that you'd like to make about how things are trending as we speak?
It's really tough to trend on a month-on-month basis. April, May were good. June was not so good. July is good because of the difference of Shravan starting in north earlier last year to this year. I think it's a little tough to say.
Okay. Got it. Second bit was, I understand the profitability performance, and it's kind of kudos to you on that. On Sri Lanka, how should we look at the equation now? What measures can be taken to move that up? That would be the only thing, because on the other businesses, I think you're on the path to improving profitability or maintaining profitability. Here I'm not very clear. Any clarity on that would be helpful.
Yeah. Again, first of all, on India, if SSSG comes, then profitability improves. That's the simple adage. On KFC, SSSG improved. We were able to deliver better profitability, even in spite of pressures on fuel costs, which actually hit everyone quite hard. In Sri Lanka, I think it's a little more susceptible to shocks. Having said that, our business there is absolutely incredibly strong. Our team there is incredibly strong. The way that we execute is head and shoulders above everyone else. Through COVID, through when the earlier protests had happened in the country, I think we put our head down and we said we've got to continue to drive transaction growth, and if we do that, over a period of time, we will get back profitability because we'll be able to either take pricing or input costs will come down, and so on and so forth.
That continues to remain our focus, that drive transactions. If there is a short-term impact on, say, because of cost of sales, grin and bear it, but don't lose out on momentum in driving sales and revenue, because everything else we can recover.
Got it. Sanjay, would it be fair to say that the movement to normalization in Sri Lanka might be a few quarters away? Is that how I should read this? Sorry.
At least a couple of quarters away, yeah.
Got it. I'll get back in the queue for the other question. Thank you very much.
Thank you.
Thank you. Reminder, anyone who wishes to ask a question may press star and one on the touchtone telephone. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on the touchtone telephone. The next question is from the line of Shubhi Gupta from Trinetra Asset Managers. Please go ahead.
Good afternoon, sir. My question is that we are seeing some operating leverage in play with the numbers. Wanted to understand at what SSSG threshold does this leverage kick in, specifically with brand like Pizza Hut, which is struggling.
Irrespective of the brand, typically at a 3%-5% SSSG, when you start comparing with the last year's number, it takes care of the inflation in terms of the wage cost, the other cost in the P&L. That's normally neutral for the P&L. Having said that, because we were able to get efficiencies this year on various cost lines, that has helped us create leverage even at 3%-5% SSSG. The general match mark is in the range of 3%-5%. If you are below that, you will typically end up losing restaurant percentage margin, and if you are above that, you will start gaining the percentage margin. I think what has helped us over last one year in terms of generating leverage is also on the gross margin front.
The reduction in the discounts, which happened especially starting October of last year, has helped us greatly, and we have taken a small amount of price increase in this particular quarter, which has helped gross margin and thereby it has helped bottom line as well.
Okay, sir. Thank you.
Thank you. Reminder, anyone who wishes to ask a question may press star and one on the touchtone telephone. Ladies and gentlemen, anyone who wishes to ask a question may press star and one on the touchtone telephone.
Yeah.
The next question is from the line of Manjit Bhura from Samaya Advisors LLP. Please go ahead.
Hi, this is Manjit. Thanks for taking my question. Sir, I had three questions. One was, with Yum! looking to sell Pizza Hut globally, how does that impact our master franchise agreement with Yum! related to Pizza Hut? If you could share some light there.
Yeah, go ahead.
Okay. Second question was, you alluded to SSSG being a key driver for margins, and that's quite intuitive. If you could also give us some sense on where the ADS needs to be
For us to come back to that about 18%-20% restaurant level margins because we had two and a half years of soft SSSG. I'm not able to sort of reconcile the SSSG and ADS both at what levels they need to be. The final question again was, from your perspective, despite driving a strong value sort of offering, our SSSG at 5%, seems low in context of two and a half years of very low base quarters. If you could share some light on whether, why is that the case? Or maybe that is what you had expected when you launched the value offering. Thank you. Those were my questions.
On the first part, we mentioned in the previous call as well that the global sale at a parent level of the Pizza Hut brand doesn't really impact us. Our current agreements in terms of the franchise arrangement continues. In fact, if anything, we consider this as positive because the new brand owner who comes in will come with a renewed focus because that person is putting money on the table, and I'm sure they would work towards the upliftment of the brand and it augurs only well for the brand as we move forward. On the second question on ADS levels for KFC. In actually a typical year, the ADS level would actually remain constant.
How does it work is when you're trying to grow restaurants by 10% - 15% in terms of new store count, those new restaurants come in at 80%, 85% of ADS levels of the brand average. At the same time, we are looking for a 5%, 6% SSSG, which will improve the ADS level by 5% - 6%. These two lines actually neutralize each other. What has happened over the last two and a half years is that we kept adding new restaurants, which brought the ADS levels down. Unfortunately, at the same time, we were not getting positive SSSG. That is what has happened. Currently, the focus is not to get back to right now on an immediate basis, the 18%, 17%, 19% margin. I think the entire focus over the last few quarters has been to get the SSSG back.
As long as we're able to get the SSSG back, the first thing it helps is not help us slip further on terms of restaurant EBITDA margin. Even a 16% margin right now for the brand or a 16.9% margin is a very strong and healthy margin. The focus in the near term would be to drive SSSG and not try and take the margin towards 18%. The third point was on the value offering. That value offering in terms of giving you still a SSSG of 5%. I think SSSG of a 5% in a really tough conditions, we are quite happy with. Of course, we would love to have a higher SSSG, but it's a start. Three quarters ago, we were not able to generate SSSG. In fact, we were on negative SSSG. We tried various campaigns, but things were not clicking.
I think we have finally found a solution where using a two-pronged strategy, in terms of value, both on everyday value and selective day disruptive value, we are able to drive SSSG. Even currently, the inflationary pressure continues. We don't really think the external or macro environment is favoring demand or from a consumer sentiment point of view. We are barely out of our negative SSSG over those last two quarters. I think getting a 5% SSSG is quite positive, and if we are able to hold on to that in coming quarters, we'll be quite happy.
Got it. Sir, can I ask one follow-up question, please?
Go ahead.
Sir, if you could also give some sense of whether the recovery on SSSG is broad-based across all our geographies or are there certain states which are lagging meaningfully from demand perspective?
Over the last two quarters, we have seen a broad-based recovery. Having said that, we called out even in the previous quarter, we believe the SSSG is a combination of two things. Certainly, some amount of consumer sentiment recovery, which we saw in the last two quarters. Having said that, I think we are able to generate higher SSSG for the specific measures and the reasons. The measures which we took, which is again what I called out the two-pronged strategy in case of Pizza Hut, even in case of KFC. Even in case of Pizza Hut, our four-course meal, buy one get one, has helped us really drive dining and takeaway transaction, and that's the most heartening part. It's a combination of, I think, slight improvement in the external factors, but a lot of work which we have done over the last few quarters.
Okay. Thank you, sir, for taking my questions.
Thank you. The next question is from the line of Anuj from Antique Stock Broking. Please go ahead.
Hi, team. Good afternoon. Just two questions from my end. Firstly, how are you looking at, say, the KFC network expansion for the full year? Secondly, given that we are starting to see inflationary pressure and our operating cost, you have mentioned about price hikes that are starting to be taken. How is probably the on ground, I mean, sensitivity to these price hikes? Are we seeing any sort of depression in terms of SSSG on account of the price hikes or, I mean, transaction growth? How is that faring? These are the two questions from my side.
I was not able to clearly understand your first query. If you can come again. The voice was echoing.
The first question is on how are you looking at KFC store expansion for the full year? I think earlier guidance was around 60-80 stores. What is the plan for the full year in KFC?
Remains the same. The earlier guidance for KFC in terms of 60-80 stores in a year remains the same. That continues. No change in that particular guidance. On Pizza Hut, we have called out that we will be quite cautious in terms of store expansion. That was the case for calendar year 2025. That will remain the case for even calendar year 2026. I'm calling out calendar year because that's how we operate with Yum! in terms of store expansion plans. That's on calendar year basis. The second query in terms of price hike and how that's impacting the on-ground customer sentiment and the demand. We have been quite careful in terms of how we have approached this particular price hike. We have taken it over two installments. 1% was taken in April, 0.5%-1% was taken in June. Same thing for Pizza Hut.
It was taken across 1% in two installments. We have been quite cautious on how to approach the price hike. Again, when we do a price hike, it's not a flat price hike across the entire menu. We try and see which are the lines where the demand will be slightly more inelastic in terms of price hike. So far, we have not seen any major impact because of the price hike on our customer, on our SSSG or the consumer demand. Does that answer it?
Great. Thank you.
Thank you.
Yeah, it answers my question. Thank you.
Thank you. The next question is from the line of Pratik. Pratik from M3 Investment. Please go ahead.
Hi. I just wanted to understand how the demand environment is in the new stores of KFC, the ones that you may have opened in the smaller cities in India. You and Devyani together would be having around 1,300 KFC stores. You would have expanded into some of the smaller cities. Could you give us an idea how the unit economics work in the smaller cities?
From a profitability point of view, the smaller city stores versus, let's say, a Tier 1 metro stores and the payback point of view, it works similarly. However, what's different is the ADS levels and the cost of operating that store. While the ADS are lower, let's say the ADS will be 20% lower in a smaller town compared to a Tier 1 metro, but the cost will also be significantly lower. As a result, from a profitability perspective, as well as the payback perspective, it works similar to my Tier 1 stores. There is no difference. And in terms of the performance, over the last one year, the stores which we have opened continues to perform reasonably well, and that's the reason we continue with our expansion plan of 60 - 80 stores.
We have always called out that our expansion is based on looking at the metrics in terms of how the new store performs on a continuous basis. If we feel those run rates are dropping, we would immediately drop our store expansion or reduce our store expansion plan. The last two years, three years for KFC, we continue to perform reasonably well. As a result, we continue to expand 60-80 stores per year.
Thank you. Also, would like to understand if you think that KFC in India has the potential to have about 4,000-5,000 stores in a very long period of time, maybe let's say 10-15 years or so. Does that depend on how the smaller cities are doing and if you think that those cities can absorb so many stores?
Actually, we would try and right now look at a three-year or five-year horizon, and we have always called out from a five-year horizon, we would love to double our store count. Looking at a 4,000-5,000 stores in India, eventually, of course possible because we have always called out both KFC and Pizza Hut, and in terms of QSR, is a multi-decade opportunity. In terms of KFC, there are two things going in its favor. First, it's a protein, and the second, once the per capita income increases, of course, that kind of opportunity is possible, but it will be very foolish right now to think of 4,000-5,000 stores in the near future. I think we'll keep our focus on the next five years where we plan to double the store count.
Sure. My last question, please. I would just like to know what steps you have taken in Pizza Hut recently, and if you saw any changes in demand environment for Pizza Hut due to the steps that you took, or how the response has been and how you and Devyani maybe are looking to change, turn this brand around.
I think there are no new steps taken for Pizza Hut. What we have been doing over last, I think two years, and Sapphire in particular, where we believe in dining forward omni-channel strategy, that continues for us. Tamil Nadu being an exclusive territory is where the focus has been for last one year, where we have been able to put additional money behind the brand, and the results have been quite encouraging and significantly different compared to the rest of India. Last year, we called out that while Pizza Hut as a brand struggled, the Tamil Nadu territory delivered double-digit delta performance in terms of SSSG, in terms of restaurant EBITDA as well. Even in the current quarter, the Tamil Nadu performance continues. The dining performance in Tamil Nadu, dining takeaway, even currently delivers significantly superior performance compared to rest of India.
We believe that we have a blueprint ready. It's just that once, I guess, the CCI approval comes in, both the franchisee will be able to sit across the table and decide on a common way forward for Pizza Hut brand. Until then, I think we continue to focus on the brand in Tamil Nadu in particular and dining and takeaway channel as well.
Sure. Thank you so much.
Thank you.
Thank you. The next question is from the line of Harish Advani from Axis Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. I just wanted you to give a breakdown of the SSG number in terms of how was the transaction growth versus ticket growth, if you could share that.
We don't really give out those numbers, to be fair. Having said that, the SSG is positive for KFC, it's positive for Pizza Hut, in particular, it's positive for dining and takeaway. Dining and takeaway is running ahead of delivery.
Got it. Just to get a sense on the dynamics between the two aggregators that you work with, are they calling out any increased competition on that side, or that has been relatively benign this time in terms of the discounting that some of the other brands might be doing on those platforms?
We haven't heard about any heightened competition on these two categories, at least for the last few quarters.
Perfect, sir. Last question from my side. Given the way the RM situation is kind of evolving, are we left with any more price hikes that we may need to take, or we are able to manage it with the current level of price hikes that we have taken?
Right now, quite happy with the current price hikes. Again, just to refresh the strategy on price hikes, we have always called out that we never take price hikes, which is exactly same as inflation. We would typically restrict our price hikes to 50%-60% of the inflation and the rest of the impact we would try and manage through efficiencies on our supply chain and efficiencies through other lines on the P&L. Even if we are not able to manage, we might as well like to take the impact on the restaurant EBITDA, we would never take price hike in line with the inflation because in the long run, that would impact the customer sentiment and the transactions thereby.
Perfect, sir. Thank you.
Currently, this is good enough, but we really never know with the wars coming back, what will be the scenario in the next two quarters, but currently quite happy with the price hike we have taken.
Perfect, sir. Thank you. Those are my questions. All the best.
Thank you. The next question is from the line of Gautam Rathi from CWC. Please go ahead.
Hey. Hi. Thanks for taking my question. Sir, I wanted to understand two things. One, when you said you have reduced some discounts on the Pizza Hut side as well as taken up 2% of price hike. Can you help me? What would be the total impact at the customer bill value combined for these two changes?
The price hike has been taken is in the range of 2%-3%, as I called out Pizza Hut, and that too in branches. KFC is 2% or slightly lesser than that. Typically, when the price hike happens, in the immediate term, what happens is the customer readjusts the bill. You really never see the price hike coming through in terms of increase in APC. That's what happens. Price hikes are a way to manage gross margins. It's not really a way to get revenue going up by 2% or 3%. The customer bills have remained largely similar pre and post price hikes because-
The discount would have been reduced. If you can help me with that. I understand the ticket value because a customer would have down-traded, but approximately what was the kind of reduction in discount plus like this 2%, 3%? I'm just trying to understand that part.
Ladies and gentlemen, stay connected. The management line is disconnected. Ladies and gentlemen, the management line is connected. Please go ahead.
Gautam, you're still there on the line. Can you hear me?
Yep.
Yeah. Between the price hike where we said 2%-3%, and in terms of discount reduction, it could be anywhere between 50 basis points to 1%. That's the total impact you can see that would have on the consumer. As I said, finally, the APC does not go up by that kind of amount. The APC remains in the same range. Finally, the customer balances the basket.
Understood. The second thing was, just wanted to understand something fundamentally for this industry, specifically on the Pizza category side. For the last two, three years, we have been seeing that broadly, pricing in this industry has become damn difficult. Like across the two top players, which I'm talking about, both of you and Domino's have been talking about not taking price hike, giving more and more value. Has something structurally changed for this industry or this category, which is leading to this kind of strain? I understand the strain on the consumer. How long would you subsidize from your P&L the customer? Because I understand if it's transitory, it's three months, six months, 12 months. For last two to three years, we have been hearing this thing again and again. It's just difficult to take commensurate price hike to match the kind of inflation.
Just your thoughts will be very helpful, how you think about it.
Again, for the journey for Pizza Hut has been quite different in terms of the pricing. I think several years ago, we were considered quite expensive when we compared our prices to Domino's especially. 2020, 2021, we said, finally, we have to tick mark that value bucket, we were considerably behind. Hence we took a call that in terms of price hikes, we won't take too many or large price hikes. Also we introduced a Flavour Fun range of pizzas, I think today we have reduced our gap vis-à-vis Domino's considerably. In fact, we are probably as competitive as Domino's is in terms of our pricing. That was a strategy to make sure that your customer proposition goes strong. It was not a strategy that we were trying to subsidize or do anything of that sort.
While doing that in the process, we were anyway giving discounts to the customers. Those discounts to the customers were in form of a day-wise discount on a particular day or a particular channel. All those discounts got rolled and actually were baked into the everyday low pricing. That was a strategy. We didn't really lose on our gross margin. If you look at our gross margin percentage over the year, they still remain quite healthy. I think the challenge is to drive transactions, and if you're able to drive transactions, especially dining and takeaway transactions, the business would come back. I don't think really the challenge is in terms of not being able to pass on the inflation.
In fact, if anything, our value strategy is finally helping us drive the customers back in, and after a very long period of time, both dining and takeaway transactions across both the brands, we are able to grow the transaction vis-a-vis delivery. The problem is not the pricing. The problem is, are you able to generate enough demand out there, and are you able to get enough customers in your store to get the SSSG to get the desired unit economics?
Understood. That's quite helpful. If I may follow up just this one on this. Structurally, is it just that it has become quite more difficult to get the customers to the store? Delivery, I understand there are two players who are pushing the throttle there, right? The aggregators. Is it also structurally become difficult to get the customer to the store?
I think now both KFC and Pizza Hut has been demonstrating now, especially over last two, three quarters, that if we are able to deliver the right value to the customer, backed by a right marketing message to drive customer recruitment, it's not impossible to get customers back into the stores. Now, it's now the last three quarters we have been able to drive transactions in our dining and takeaway channel. Also, initially the delivery had a great run in terms of the benefit. The convenience which customer used to get also came at a greatly discounted prices. I think over the period of time, finally the pricing has caught up. Today, the convenience does not come at a really great discounted prices. I think today and increasingly, we are getting a level playing field between dining, takeaway, and delivery.
With the right value proposition backed by marketing, we have already shown that we can get dining and takeaway transactions.
Very interesting. Thanks a lot. All the best.
Thank you.
Thank you. The next question is from the line of Avi Mehta from Macquarie Capital. Please go ahead.
Hi. Thanks for the follow-up opportunity. I just wanted to check with you on one conceptual bit. For this quarter and for the last few quarters, we've seen a divergence emerge between your headline sales growth and that of aggregators. You've obviously taken measures for some time to rekindle the dine-in and takeaway formats. How would you, Sanjay, look at this, that is this growth rate, the divergence likely to continue given the way the number of restaurants are or the industry growth is likely to be? Your thoughts on that would be very useful.
Just for clarification, when you say divergence, you're looking at the two different growth numbers, what Sapphire is delivering versus the growth delivered by the aggregators? That's what you're referring to divergence?
That is correct, Vijay. I'm just essentially looking at headline order value growth for one versus your headline. Even if I take any of the formats.
Yeah
I'm trying to. That is where I'm coming from.
Yeah.
Just to kind of connect it.
If I look at the last year, where the KFC struggled in terms of SSSG, I think last year we delivered 11% growth and the SSSG was quite challenging for last year. If I just strip out that last year, prior to that, I think the KFC growth was growing almost in hand in hand with the aggregator growth, delivery growth as well, the food service business, which was in the range of 18%-20%. I think KFC was growing at 17%-18%. We are back to 17% growth on KFC because the SSSG is back. Also, a component of a growth which aggregator has been seeing over last three, four years has been also in terms of the take rates. Take rates not just on the commission, I think the various charges, platform charges, which has been increasing.
If you strip that off, as long as we get the SSSG of 5%-6%, I think KFC should be able to match that kind of a growth rate, which will be anywhere between 15%-20%. Pizza Hut, the challenge has been different. Pizza Hut, we are not expanding, and unless we are able to finally fix the overall brand challenge and the brand proposition and have a unified strategy between both the franchisees, and that happens, we cannot expand. Until that expansion happens, it will be difficult to drive the double-digit growth or 15% growth. I think those are two different issues for KFC and Pizza Hut. KFC can be right up there in terms of the matching the growth, which could be in the range of 15%-20%.
Got it. Very clear. Just a follow-up, again, strategy question in a way, but looking at just the KFC format or looking at both the formats, from a demand point of view, which we've seen a period where growth momentum has been more or less flattish. Now at least it's flattish. It was declining for some time.
Yep.
Would that entail a different thought process in terms of either store additions, in terms of what you focus on at the store, any thoughts on that? Clearly then you're essentially looking at a shrinking pie, you would like to conserve your bullets to some extent. How do you look at this demand environment and responding based on that in terms of the therapies?
Undoubtedly, the SSSG is a factor which would always be there in the back of mind and in our calculation when it comes to store expansion. If you see, we have slightly moderated, if you compare our numbers with, let's say, two years ago, three years ago, when we were even added 80 stores, 90 stores in a year, compared to that 60-80 on a higher base, there's some amount of moderation. This moderation takes into account the slow or negative SSSG which we had over last one or two years. Having said that, we have also called out that our new store expansion is based on a metrics or strike rates which we track internally.
One is whenever we launch, let's say, x number of stores in a year, at the end of one year What level of ADS they are delivering, what are the strike rates compared to what we have taken in payback. If that's healthy, that's a tick mark for us. Within that cohort of stores, we try and see whether 75%, 80% of stores are actually achieving those strike rates or not. Even if that's there, that's another second tick mark for us. As long as we have those two ticks, we are quite comfortable to go out there and open stores. SSSG is undoubtedly a benchmark, that will automatically reflect in our poorer strike rates.
If the strike rate goes poor, we are happy to moderate our store expansion even further, as has been demonstrated in case of Pizza Hut, where we were opening 50 stores, 60 stores at one period of time, which came down to 30, 20, and now last calendar year, it was next to zero or actually zero. Those strike rates will be the guiding factor for us. SSSG is one of the factor, but primarily the strike rates.
Okay. Got it. Perfectly. Very clear. Thank you very much for this. That's all from my side.
Thank you. The next question is from the line of Ashutosh from MIT. Please go ahead.
Thanks for the opportunity. Just a couple of questions. First would be, since this quarter we have seen the trending dining improving. Just wanted to get some color on how has the new customer acquisition been. Typically, when you see this number accelerating, what's the kind of order frequency do these customers have, given the context of a very attractive value offers that we are currently having? Any color on that? Secondly, on Sri Lanka, given the inflationary pressure currently, would there be any change in the guidance of high single digit store addition 8 - 10 that we target?
It's tough to give you quarter-on-quarter absolute numbers on new consumer acquisition. Suffice to say, one proxy metric that we use is that our transaction's growing and, again, our same-store transaction growth has been higher than our same-store sales growth. That's the positive part. On Sri Lanka, we should be in that same region.
High single digits.
High single digits.
We won't react. We have said this previously also. A quarter's performance, whether good performance or bad performance, that's not good enough for us to react in terms of the store opening plan for the immediate future. One quarter of challenging performance on profitability. Just mind you, we still had a really good quarter in terms of the SSSG for the brand. The guidance remains for this particular year.
Got it. Thanks.
Thank you so much.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Sanjay Purohit for closing comments.
Thank you everybody for your patience and participation in the quarter one business performance highlights. Want to emphasize this was a really strong quarter for us. KFC SSSG growth, KFC EBITDA growth, 15% consolidated growth, which was the best in our 11 quarters, 37% adjusted EBITDA growth, which is the best in our last 15 quarters. A really good quarter. The fact that SSSG on KFC, Pizza Hut, and Sri Lanka, all three were positive is the heartening part, is the reason why both growth and EBITDA have come the way that they are. Thank you so much. We will see you another in a quarter's time. Good day. Have a good weekend.
On behalf of Sapphire Foods, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.