Despite slowdown Jubilant's investment plans intact

He is also hopeful of SSS growth reaching double-digits going forward.

Jubilant Foodworks, the master franchise for Domino's Pizza in India, disappointed street on every parameter with the third quarter (October-December) net profit falling 11 percent compared to same quarter last year, dented by weak operational performance.

Same-store-sales (SSS) growth saw a contraction of 2.6 percent as against 6.6 percent growth in previous quarter and 16.1 percent in a year ago period on account of tepid economic environment and consumers' constrained discretionary budgets.

The company inaugurated 47 new Domino’s Pizza restaurants during the quarter.

Below is the interview of  Ajay Kaul, CEO, Jubilant Foodworks with Sonia Shenoy and Latha Venkatesh on CNBC-TV18

Latha: Not so many pizzas to deliver, your same store sales has dipped, how worried would you be about this slowdown? Does it extend to this quarter as well?

A: Times are a bit tough but deliveries are still happening, customers are probably not at the same frequency as they were consuming before but they are still ordering pizzas. We are internally breaking still a lot of records. However, yes, there is a bit of slowness in the market. There is no doubt in that.

Latha: And you didn't see January giving you too much of a different texture in terms of demand?

A: Without give any data points for future, January included in the next quarter, the trend seems to be continuing. We do believe that till the point elections are over, whichever new government comes into play and they take time to stabilise, is when probably things will start turning around.

Having said that, the key thing is -- that is something which I want to focus upon as I have always done in the past as well -- our medium-term to long-term plan. I think that is thankfully is absolutely rock-solid intact. If you would have seen our guidance for new store openings, we have started the year at 125 and right now we believe we will open at least 145 new stores for Dominos alone and around 20 for Dunkin' and what gives us this confidence is the rates not only at the rate at which we are opening stores but the fact that our profitability norms, our payback periods all those norms are intact.

It means the consumption story of India in the medium-term and the long-term is still very much in place. That is the message I want to leave not only to our viewers but I think to consumer companies and to consumers in general that that story you cannot take it away from India. The middle class, the middle of the pyramid story and that is where we are building all our -- call it new restaurants, call it even infrastructure.

Just to give you some idea as we speak, we are investing in four new brand commissaries which is factories and investment over a year and a half would run into probably Rs 150 crore for all these put together.

There is a new factory in Hyderabad, there is one coming up in Nagpur, one coming up in Guwahati and a mammoth one state-of-art could serve up to 300-350 stores coming up in Noida. All this is going into our medium-term, long-term three-five-seven years plan. That story is still intact. We are trying to put 80-90 percent of our time, energy, money and efforts into that but yes, these short-term blips are kind of taking a focus back into the immediate as to what is happening today.

Sonia: When you say this is a short-term blip, do you believe that? The market or the country as a whole is moving towards healthier food option and that is a fact. For the first time in so many quarters we have seen a same store sales degrowth from Jubilant Foodworks, are you confident that this trend could be reversed anytime soon or do you think Jubilant may have to change its strategy a little bit to work with the changing times that is a move towards the healthier food option?

A: Health has got its place, it is so miniscule and small - and we have enough evidence coming from other countries where health probably has taken that much stronger force or place in the minds of people.

In India, if you look at per capita consumption of pizza and pasta as a category, if you look at the frequency with which our consumers -- one data point I would like to throw here is that almost 50 percent of our consumers in a year which means a calendar year are one-time consumers. This will tell you how under penetrated pizza and pasta as a category is.

So I think we are decades away from the point where consumers in large numbers where sales start significantly effecting consumption patterns and starts moving away from these kind of categories. There is enough evidence, we can go to China which is probably 5-7 years ahead of us. Even in markets like US, which you may argue is highly saturated, penetrated and all that, the consumer when he is indulging says, I want to indulge. On that one day in a year when I am eating a pizza or twice in a year, you cannot come and tell me that now there is a health angle to it and so on.

Having said that, we certainly believe that it is a short-term thing and it is going to come back. It may not climb back to the 30-35 percent same store growth numbers that we have done in the past but doing a double digit in healthy times is more certainly possible.

Sonia: Coming to the efforts that you would have to make in order to get back on track so that would mean higher marketing expenses, perhaps higher promotional expenses and that could also mean higher damage to your margins. Just give us an indication of whether the margins could slip below the 25 percent mark in the quarters to come because of both higher input costs and perhaps higher marketing expenses that you may have to incur?

A: Without trying to give any guidance, numbers about future as to where margins, what directions will they move in and so on, whatever you have said is right, there is pressure coming on the bottom-line by virtue of inflationary trends and honestly when I look forward I can clearly see especially coming from milk price which is the key ingredient cheese being a derivate of milk and that is playing a bit of a havoc. 

Other than that we believe other ingredients probably are not going to be as crazy as they were in the previous year. But overall still a pain point which we need to handle, our marketing promotional expenses will come under close scrutiny ourselves because yes in downturn times like these you tend to pump in a bit more, new product launches and so on.

But having said that even when we stopped our one-on-one Wednesday promotion somewhere in November, the idea was that to create an occasion in the middle of the week, one more reason for people to consume pizza in the middle of the week and then we tactically removed it. So we will have to play these tactical cards.

One of the key cards which we plan to play is through the online medium because nearly 18-20 percent of our business comes through online ordering. We want to go that route a bit more. That medium also doesn’t come as expensive as the conventional mediums are. So we will have to be very innovative, we are micro innovating even at the store, at the region, at the country level. Even small initiatives which led to cost efficiency, productivity gains and thereby margin enhancements are something which we are constantly working on. 

Latha: Will you be able to maintain a 20 percent growth rate for FY14 and FY15?

A: I can tell you one thing, if we are planning to open 145 Dominos stores and at least 20 Dunkin Donut stores this year, I think those numbers we should be at least able to repeat. In fact Dunkin Donuts should be more because they are in a growth phase in years to come. So at a systemic level we are going to add lot of stores. We believe that story is intact. If the same store sales climbs back to some reasonably good numbers, I think what you just said is doable.