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Last Updated : Aug 14, 2015 01:54 PM IST | Source: CNBC-TV18

Double digit same store growth unlikely FY16: Jubilant Food

Ajay Kaul, CEO, Jubilant Foodworks explains how the psychological shift of consumers‘ preference from concept of dine-in to food deliverance is impacting the two businesses individually.


Higher labour costs largely offset benefits from the decline in food inflation during the June quarter, Ajay Kaul, CEO, Jubilant Foodworks, tells CNBC-TV18.

He says consumer sentiment is yet to improve, and coupled with fierce competition, there is pressure on margins and same-store sales growth, Kaul says.

He says the company's delivery business seems to be doing better than its dining.

"Sitting in the convenience of their home environment, with no incremental costs and food arriving exactly in 30 minutes or less, customers realise that that is something which as a discretionary spend, they do not want to rob themselves and their families of, " he says.

"However, stepping out going to a mall, having some other incremental costs also coming in, petrol cost, driving to the mall, parking and maybe some discretionary spend on a small t-shirt here or a small apparel for their kid, that segment is clearly slowing a differential in terms of performance," he says.

He sees a double digit or even a high single digit in same stor sales growth still being an year away.

"I would reckon at least four quarters from now, which is almost a year, it should take us to reach a high single digit, double digit which we can confidently say we can repeat quarter after quarter," he says.

On expansions, he says new towns and cities always do better than tier-I and metro cities and believes that the company will open at least 150 Dominoes and 30 Dunkin Donuts this calendar year.

Below is the transcript of Ajay Kaul’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.

Sonia: It has been a disappointing quarter, at least as far as the estimates are concerned and this 4.6 percent same store sales growth has not gone down very well with the street. Have things picked up at all or do you think that demand continues to be sluggish?

A: As far as we are concerned, the situation in the market is probably no different from what it was a quarter back. So, it may sound kind of clichéd because we say this every time.

Our performance compared to our honourable opposition and you know the names, it may still stand out, like 4.6 versus some people who have delivered minus 11, minus five and so on, may look good, but it is more cosmetic.

Honestly, at a consumer sentiment level and when you aggregate it across the industry, we are not seeing any changes at all as far as consumer sentiment is concerned. We believe 4.6 while compared to 6.6 which we did previous quarter and that probably is a bit of disappointment for the market. It is still not a bad number given the macro status, micro status of the environment and we believe that some good product launches that we did, some outstanding execution we believe that we did.

Obviously, supporting a more broad based strategy which we have been following for some time has still brought us to a number which is respectable, 4.6,. Though I do agree that because we did 1.9 percent two quarters back and last quarter we did 6.6 despite all conservative and statements like these which I make, the market, I do not know what they expect of us and that sometimes baffles us. But, we believe 4.6 is not a bad number. You cannot call it disappointing. Well, yes, it may not be as good as it was in the previous quarter.

Latha: The market in this studio expects affordable tasty pizzas. Is that too much to ask?

A: No, not all. I mean we continue delivering crores or several millions of tasty pizzas and that is why they keep coming back to us. And that is something which is always stress on, the emotional connect which we have with our customers when we do any survey, independently or even outside, our scores are always the highest.

Latha: What about margins? One would have thought that you would improve over there. Earnings before interest, taxes, depreciation and amortization (EBITDA) margins, are not costs more under control?

A: Indeed they are. Inflation I must admit, in a tough environment like this which used to be a worry last year, has come down in general. So, food inflation is in control and that should give us some positive points. However, when we look around as far as labour inflation is concerned, when we look around at some of the utilities and I am not talking of oil here, clearly there we are not getting the real benefits, at 4.6 percent same store growth, your aggregated weighted average inflation has to be 4.6 or lesser.

The moment it is more, it tends to eat away your margins. So, on one hand, food inflation has given us some positive, I would say, positive areas, but at the same time the general inflation on some of the other counts, especially labour and we have 25,000-30,000 employees, it off-sets and as a result, you probably do not see that getting leveraged on a profit and loss (P&L).

Our EBITDA margins still stand at around 12.3-12.4 percent which is a shade inferior to the previous quarter although it is similar to what we delivered exactly a year back.

Sonia: Just coming back to that same store sales growth, I agree that the worst for the company or the industry seems to be over, but demand revival is still pending. So, what is the sense you are getting about when you will be able to get back to double digit same store sales growth? How many quarters would it take, you think?

A: I would reckon at least four quarters from now, which is almost a year, it should take us to reach a high single digit, double digit which we can confidently say we can repeat quarter after quarter.

While 6.6 and 4.6 probably are tending in that direction and you may argue why not earlier than four quarters, we believe the sentiment which has to show a positive slow and a good slope that too, so that it hits a double digit and a high single digit numbers fast is not showing at all, is what I am saying regretfully.

And specially when we look around in the industry, if some of the other players who are our honourable opposition, they are also growing at 5-9 percent, then that would have told us that an aggregate level there is some buoyancy.

But when you see negative numbers and consistently coming quarter after quarter, does not augur well for the industry.

Latha: What I wanted to know was, is there inter-city differences? You are best placed to tell us. Is Bengaluru growing better than Mumbai? From there we can derive, probably the IT city and certain sectors like that are not as badly off as the traditional economy.

A: What we can say, we sometimes paralyse ourselves with analysis but honestly to cut a long story short, because I can go on on this subject for a long time. Unfortunately, each one of these hypotheses are, and we tested some 50 plus hypotheses in terms of metro versus metro, metro versus non-metro, Tier-I versus Tier-II versus Tier-III, aging of the store, we have tried it always, in all possible fashions. What we realised is that there isn’t statistically significant difference between each one of these test that we perform.

So, what I am saying in a nut shell is it seems to be almost a countrywide phenomena and not just in some pocket where maybe our execution is better or maybe our competition of execution is better and as a result, the numbers reflect that way. So, coming to the example of Bengaluru versus Mumbai, they are by and large the same.

However, what we are saying is that the delivery piece of our business seems to be doing better than our dining piece and they are equally large today in terms of their size.

So, what it tends to tell us that sitting at home in the convenience of their home environment, with no incremental costs and food arriving exactly in 30 minutes or less, I think customers realise that that is something which as a discretionary spend, they do not want to rob themselves and their families off.

However, stepping out going to a mall, having some other incremental costs also coming in, petrol cost, driving to the mall, parking and maybe some discretionary spend on a small t-shirt here or a small apparel for their kid, that segment is clearly slowing a differential in terms of performance. So, dine-in or call it consumed on premise business is doing a shade inferior than delivery business.

Sonia: So, how many stores do you plan to open say, in the next 3-6 months? And earlier I remember you mentioning that by the end of FY16, you plan to enter into 40 new cities. Will you continue with that target or because demand has softened, you may sort of hold back on that expansion?

A: Speaking as of today, as you have rightly said, by you, I think the worst is behind us, but the positives are not visible, but that is not deterring us from entering new cities. The reason is, we, like hawks, watch these return on investment payback period numbers, and so on and what we realise is that more often than not, our experiences in these new cities or call it towns actually, not cities, is very good.

So, this quarter for example, we have entered 12 new cities. So, that is not a small number. We believe that by the end of this financial year, as we have been saying in the past, we would open at least 150 Domino’s stores and at least 30 Dunkin’ Donuts Stores. And if you look at quarter one, we have opened 35 of Domino’s and five of Dunkin’ Donuts and we are on course.

So, by the end of the year, to answer your city question, we believe if not 40, we would definitely be entering upwards of 30 cities and towns in India.

Sonia: We are very interested to know if there are any Independence Day weekend offers that are coming up?

A: Most certainly, there are lots of offers which are in the market and what we do is, we micro segment and then we give the right stimuli to various groups of people. So, there are a lot of offers at the ground level which are on right now, nothing at a broadcast, at a national level.

But we do believe that Independence Day, while it is falling on a Saturday this time, which is not good even in terms of a extra holiday but for us also, an extra holiday means extra business. But there are offers. So, enjoy your Independence Day and wish you all a very Happy Independence Day too.



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First Published on Aug 14, 2015 10:42 am
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