A recent BoA-ML report stated that when there is a demand surge in quick service restaurants (QSR), it shows more people are eating pizzas. Ajay Kaul, CEO of Jubilant Foodworks says the case is not so on the ground. "The numbers in the previous quarters may have looked better, but the industry is seeing an insignificant rise statistically." While it appears that people are getting bored of pizzas, Kaul pointed out that the trend is prevalent across industry.
Speaking about poor growth in consumption demand, Kaul says big players are seeing competition from smaller regional players who have become active in the space. He gives example of Ammi's Biryani and the likes that are trying to fit into this space. But numbers are not at all positive for all players put together, Kaul explains.
Talking of costs, he said food inflation is giving a bit of relief, but rest all ingeredients like labour costs are skyrocketting. The state governments raise minimum wage rates suddenly, sometimes even twice a year, and "you just have to oblige," Kaul says.
Jubilant's growth stategy remains that of expansion. Kaul wants to open 150 new stores of Dominos and 70 Dunkin Donuts in this fiscal with a payback period of 3 years or less.
Excerpts from the interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy:
“While the last couple of years have been tough for the industry, many foreign players (Dunkin Donuts, Starbucks, Burger King, Wendy`s) have entered the market. Also there has been significant increase in the number of home grown brands (Faasos, Ammi`s Biriyani). All these at the aggregate level are taking up a bit of the consumption story. If you look at the dominant 5-6 players (Dominos, McDonalds, JFC Pizza Hut)....if you put together these big players who constitute 60-70 percent of the market today, the numbers are not at all positive. Some of the big names are in the negative territory as far as growth is concerned, -10%, -11%. I wish I could say that all these new entrants, whether domestic players or global brands, existing players, are taking aggregate demand forward. Unfortunately that is not the case.”
Margins too are under pressure says Kaul, despite some relief in food inflation.
"There is inflation which comes by virtue of (higher) labour, and utlities like power, fuel, and each of these are in the 8-10 percent zone. Unless your same store sales growth (SSSG) is not in the region of 8-9 percent, you are not going to cover your basic increase in costs.”
“If you look beyond the next quarter, the worst, as far as the industry is concerned, is behind us. Now as we come out of the woods, as an industry, how fast do we hit the road running, how fast do the customers respond to our stimuli and the economic environment stimuli thrown at them, only time will prove it. But we do believe, in two to four quarters from now, doing high single digits or almost knocking on the doors of double digit is possible.”
(Written for the web by Jhini Phira Sinha)
For entire interview, watch accompanying videos.
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