Intl brands, food aggregators hurting: Jubilant Foodworks

Jubilant Foodworks' net profit slipped 17.6 percent to Rs 23.9 crore in the July-September quarter from Rs 29 crore in corresponding quarter last fiscal. Speaking to CNBC-TV18, Ravi Gupta, CFO of Jubilant Foodworks says that general consumer sentiment has been negative for the quarter and the expected recovery is taking time.While same-store-sales growth has remained negative, the core concern for the company is the margin dilution, he says. Incentives given to employees this quarter and increase in man power for the newly opened stores, has increased personnel costs by 240 basis points.The company has hiked prices of its products to offset higher costs, and the full impact of the price hikes will be visible in the December quarter earnings, he says.In addition, entry of international brands like Venky's, Burger King and many food aggregators like Zomato, Just Dial and Food Panda has taken the existing market away as these offer more variety to the customers, he adds. However, he believes that the company’s delivery business is growing more than the dine-in business and maintains his earlier target of opening 150 new Domino's Pizza restaurants and 30 Dunkin Doughnuts outlets. Below is the verbatim transcript of Ravi Gupta’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: This has been a disappointing set of numbers. Margins has come off as well your same stores sales that came as a big shock. Is this trend looking like changing in October at least?A: We will not be able to give a colour for the October but when you look at the consumer sentiments for last couple of quarters we have not seen any change in the consumer sentiments. I am saying change in the consumers sentiments I mean the positive uptick in the consumer sentiment. The discussion which was going while back also is pointing out the same saying that the kind of the recovery which everybody was accepting in the market that has got protracted. As a result the consumer sentiment also is not improving. As a result you can say our growth is 3.2 percent which is there.When you look all around also you look at the position what kind of same store growth they have; almost all of them are in negative territory. I agree, on the back of it we have a positive same store growth that is appreciable but I think that the core concern which you have and quite a lot of investors have is the margin dilution which is there in this quarter specifically. When you look at the margin dilution they are various cost lined items and one specific cost lined items which has created the dilution in the margin is a personal cost. The personal cost has increased about 240 basis points versus Q2 last year to Q2 this year and there are reasons for it. First and foremost the reason is that the inflation in the payroll is higher than the inflation which we have taken or the price increase we have taken in the product prices. This will be continued pattern even going forward. This has been the pattern in the past as well as. Second factor is last year Q2 we had a negative same store growth minus 5.3 and this year we are positive. Level of incentive earnings for the employees were almost negligible last quarter in the previous year but this year people want incentives, so we have to make provision for those expenses. The third factor is that we have opened three new commissaries in Guwahati, Nagpur and Hyderabad. There is a manpower cost developed for that also. If you just leave out the personal cost we have moderation in the raw material prices which is a big positive. All other costs are arising in line with in tandem with the growth in the business. Going forward what we expect is that there will be recovery but the recovery may be protracted as predecessor has also said that growth may be protracted and may be some recovery will be seen in FY17 now. That is what I would like to say about it.Sonia: You said that the consumer demand is weak. Is it that people are consuming lesser pizzas or is it that people are moving away from your brand to the other brands in the market?A: It is interesting one, let me say that in last three – four years while the consumer sentiments has been weaker there are all sort of brands which have entered. All the international brand practically have entered India be it a Starbuck, Wendy\\'s, Burger King or Dunkin\\' Donuts so you name the brand practically they have entered the Indian market. There is another phenomenon also we have seen is the food aggregators have entered in the market whether Foodpanda, TinyOwl, Swiggy, Zomato and Just Dial have also entered. All of this is a positive and negative.When you look at short-term basis typically it is said that they will take the existing market away because all this brands will take away existing consumer. However, on longer term basis they are very good for the market because what happens is there is more variety available for the consumers, consumers will come forward and eat out of home food more often. Second is the competition by way of food aggregator also gives more value to the consumers as a result the overall market expands fasters. Let me share on fact with you – food aggregators are in the space of delivery and we are the leaders in delivery. Typically it will perceived that we will be losing the delivery business to the food aggregators but the fact is our delivery business is growing faster than the takeaway and dining business at this point of time.Latha: In any case if you can tell us when the pressure on margins might recede because you are going to open new outlets. Give us an ideas of how many outlets in the second half and therefore likely how much more pressure on your margins? A: Let me first address the question on the margin. We have delayed our increase in our prices. We typically take in increase in the prices in the Q1 - June we typically take the price increase. This time we are doing some pricing trial around the same time and as a result our price increase in fact got delayed to September. We will have full impact of the price increase which will be visible in the Q3. As a result whatever the dilution impact on EBITDA has been on the Q2 will get fully neutralised or I can say almost neutralised in Q3. The second part of the question is how many restaurants we are going to open. We are staying with the same outlook which we have given earlier that we will open 150 new restaurants for the Domino's Pizza and about 30 new restaurants for Dunkin\\' Donuts. We are fairly upbeat for the long-term growth story of the India. It is only we have not shown as to what is the exact timing when this segment recovery will happen.