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Westlife Development

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Chairman's Speech (Westlife Development) Year : Mar '18

There was a growing feeling then that when it came to Quick Service Restaurants (OSR), the story generally ended with taste and price. The menu tasted good and the price was affordable. However, when it came to the central question of whether the menu was nutritious enough, one normally drew a blank. The general conclusion was that tasty and nutritious food could never be reconciled: if the restaurant menu tasted great then the next thing one needed to do was assess the damage on the weighting machine. As a result, the QSR sector always became defensive when it came to this last frontier.

At West life, we saw this as one of the key perceptional challenges addressing our business. For a country with a population of about 1.35bn and growing, marked by an extensive under-penetration

in the incidence of eating out - the challenge was in reinventing this image. If we could succeed in doing so, we would not only address a large potential audience in a country increasingly concerned with its diet but would progressively account for a larger share of those entering the spending segment.

There were two options available to West life: wait for the QSR industry to reach critical mass opinion to emerge or be the first to walk into the challenge. I am pleased to report that West life is probably the first organized QSR company in the country to address this challenge head-on. Over the last few years, we re-engineered our menu: we looked at each ingredient that goes into our food and worked on making each one better.

I am pleased to report the effects of our painstaking

Wholesome and nutritious meal on the plate

At West life, we invested considerable energy and re-working of our business processes to re-engineer the menu to make it wholesome and nutritious. Over the last few years, we worked with our suppliers to improve our ingredients, while retaining the taste that our products are famous for!

This then is what we have to show for our reengineering. There are calorie counts on the

commitment to provide a more wholesome and nutritious menu for an increasingly health-driven nation: we have successfully re-engineered our menu; we have reconciled taste with nutrition; we have demonstrated that what is good for your tongue can also be concurrently good for your wallet and body.

At West life, this menu re-engineering is not just an alteration of our offerings menu. Our meals are more balanced; they contain a higher proportion of dietary fibres. There is lower oil in our mayonnaise. There are fewer calories in our burgers. There is less sodium in our menu than ever. The soft serve at our outlets are 96% fat-free. All our wraps are now made from whole grain. We extended our beverage menu from carbonated drinks to a wider range of non-carbonated beverages. We introduced steamed product options like McEgg.

portfolio in the expectation that we may reach out to a larger audience and generate higher footfalls.

It is a manifestation of our governance commitment; it addresses the subject of customer service from its deepest point; most importantly, we see it as the right thing to do.

We moderated fat in dairy products to less than 3%.

That we moderated costs following a reduction of salt, fat and oil is only a small part of the upside.

The result is that our menu re-engineering has emerged as a benchmark in the sector. The addressable market widened; footfalls increased; repeat footfalls strengthened.

I have had the occasion to speak to a number of our patrons in the last few months and the response that we are getting from them has been heart-warming. Some of the responses that I particularly remember are ‘This truly shows that McDonald’s cares’ and ‘By re-engineering the menu you have endeared yourself to your patrons’ and ‘This is a signal to the rest of the QSR sector in India to see the future.’

Providing the experience of the future

At West life, we believe there was one reason why, despite reservations about the success and impact of our menu-re-engineering initiative, we were able to prevail. The reason is derived from the fundamental reality of who we are. At West life, we see ourselves as a passionate organization.

We dare to do what most consider impossible. We embrace challenges as a part of our everyday existence.

We are positively provoked by external observers who consider what we may be working on as impossible. We get bored with the status quo; we seek to continuously find a new and better way of doing things.

The result is that over

The results are in our numbers

During the last few years, when we embarked on enhancing the investments in our business, there were a number of questions. One of the principal arguments was that at a time of economic slowdown when disposable spending would be muted, there was always a case to defer investments to a time when cash flows revived.

However, West life has always been a willing contrarian.

During the course of a slowdown in the QSR sector, we responded with brand investments instead. When faced with weak consumer loyalty, we invested in store re-imaging instead. When faced with consumer distraction, we enhanced the experiential quotient of our the last number of years, West life has been engaged in attempting initiatives that most considered foolhardy or ahead of the time. Over the last couple of years, the Company pleasantly surprised patrons through its Experience of the Future restaurants in Mumbai and Bengaluru, the next generation of ambience in India’s Quick Service Restaurant segment.

In EOTF, we provided a critical service differentiator: customer service with speed, smiles and sensitivity that positioned our stores as the friendliest. The credit of this change can be attributed to the SMEX training for the entire crew. We trained over 270 restaurant managers; we invested extensive person-hours higher in FY 2017-18.

outlets instead.

This was manifested a few years ago, when the growing industry for coffee inspired West life to extend to the specialty coffee market. The coupling of the McCafe product portfolio with strategic restaurant reimaging empowered the Company to carve out a McCafe niche without needing to lease additional space. This helped the Company create a brand within-a-brand at established points-of-sale and represented our commitment to provide Indians with the best experience at outstanding value.

During the course of the year under review, we increased the number of McCafe outlets from 111 to 149, strengthening our

That has led to a happier staff and even happier customers.

EOTF extended from three restaurant outlets at the close of 2016-17 to 10 in 2017-18, strengthening visibility and viability.

service coverage. We engaged in these investments because we believed that we would need to invest our way out of the slowdown. By providing a superior consumer experience, we would be able to draw footfalls faster, providing a launching pad for a quicker recovery. By making patient investments in sluggish markets, we created a positive trigger: we turned around faster and during the year under review, we strengthened revenues 21.9%, which was higher than the broad growth of the country’s organized QSR sector. I am pleased to report that we reported profitable growth: profit after tax surged 206.1%.

Cash flows increased by around 60% even though the discontinuation of the input tax credit from

November 2017 affected our margins. Our EBIDTA margin expanded from 5.3% in 201617 to 7.5% in 2017-18. Same store growth increased 15.8% during the year under review. EBIDTA have risen 480 bps in the last three years. The Company had H1.952.2mn of cash and cash equivalents on its books as on 31 March 2018. Same store sales growth was positive for 11 successive quarters. The cost of store rollout declined by 20%, accelerating the break-even point to 20 months, one of the lowest in our existence, creating a foundation for new stores to enhance cash flows faster.

At West life, we believe that the QSR business stands at an interesting point.

There has been a revival of discretionary spending and eating out starting from the third quarter of the last financial year and we believe that the trend will only accelerate. At West life, we intend to capitalize on this projected reality: we intend to increase the number of outlets by around 25-30 every year; we intend to widen the footprint of EOTF outlets; we intend to increase the number of McCafes by 30-40; we intend to enhance the McDelivery option from 60% of our restaurants to an estimated 65% with minimal capital expenditure in the year ahead.

With the economy beginning to look up, QSR spending gradually rising and with our business being ahead of the curve, I am optimistic that the current financial year promises to be even better and that West life will continue to enhance value for its employees, customers, shareholders and communities.

With my best wishes,

Amit Jatia,

Vice Chairman

Source : Dion Global Solutions Limited
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