Jubilant Food still sees 8-10% FY14 same-store sales growth

Jubilant Foodworks says the overall economic slowdown has hurt its same-store sales growth, but it still expects 8-10 percent growth in the current financial year.

The company, which operates the Domino's Pizza and Dunkin' Donuts restaurants in India, is taking steps to encourage consumption amid the sliding same-store sales growth, Ravi Gupta, CFO, told CNBC-TV18 on Monday.

Same-store sales measure sales at stores that are open for at least one year and don't take into account any new stores that the company may have opened during the year.

Also Read: Godrej Consumer falls on slow Q1 profit growth, margins dip

Jubilant Foodworks last week reported a 5 percent year-on-year rise in first quarter net profit at Rs 34 crore. Its total income rose 26 percent to Rs 397 crore. However, same-store sales growth at Domino's, which now has 602 restaurants, rose just 6.3 percent in April-June, down sharply from the 22.3 percent growth in the year ago quarter.

"Last quarter, the biggest impact on same-store (sales) growth has been the economic slowdown in the country and the economic slowdown, which is resulting from non-creation of employment for the youth. India needs about 12-13 million jobs every year and if these kind of jobs are not getting created, youth is not getting employed. So there is an impact on the discretionary income and also the disposable income, which impacts the whole of the food service industry," Gupta said.

Below is the verbatim transcript of Ravi Gupta's interview on CNBC-TV18

Q: While numbers were in line with expectations, 6 percent same store sales growth number is causing a lot of scrutiny, what led to that? Do you see that continuing for some time of middling single digit same store sales growth?

A: Our same store growth has been sliding. Last quarter it was 7.7 percent and this quarter 6.3 percent. Last quarter also the biggest impact on the same store growth has been the economic slowdown in the country and the economic slowdown, which is resulting from non-creation of employment for the youth. India needs about 12-13 million jobs every year and if jobs will not be created, youth will not get employed. So there is an impact on the discretionary income and also the disposable income, which impacts the entire food service industries.

We have been doing better than the competition and in the overall food industry also we are running ahead but this economic slowdown is impacting us.

For the full year, we are still confident that we will have about 8-10 percent same store growth. We are expecting the economy to recover in the second half that economists have been saying and are also hoping that economy will recover.

Q: There is no economic metric telling us that at this point things are getting better. Do you think even this month things are improving or this 8-10 percent number is premised on the fact that the economy will turn around, which cannot be taken for certain today?

A: Yes, we have taken certain steps. Month-to-month when you look at our June sell is better than May and May sell is better than April. The economy is not supporting but we have taken steps on the ground. Like in July, we have launched buy1get1 free. We call it Wow Wednesday. So every Wednesday consumers can avail buy1get1 free on all the mediums and they do not require any kind of coupons or support. You can go to the store and avail buy1get1. So we are trying to encourage the consumers to keep on coming back to us.

In Dunkin' Donuts, we have launched new burgers. There are four vegetarian burgers and four non-vegetarian burgers. In Domino’s we have launched new products like Lebanese Rolls, spicy baked chicken. So we are creating occasions for the consumers to keep on coming back to us. We are encouraging them with all sorts of incentives that are possible within the game. We need little support from the economy but we are confident that with all these measures we should be able to have about 8-10 percent same store sales growth.

Q: Your margins came off about a 140 bps in the current quarter, what are the principle drivers of this margin compression?

A: About 20 bps is because of the Dunkin Donuts additional impact. Last year it was about 80-90 bps, so it is additional 20 bps. Rest is because of Domino’s Pizza itself. Same store growth is around 6.3 percent which is lower than inflation. It does not help us to grow the same stores margin.

Same stores margin will grow only when the same store growth has a certain level, which should be like higher than the inflation level. On top of it new stores are typically margin dilutive.

I am not saying that new stores are unprofitable, new stores are profitable like 92-95 percent stores are profitable from very first month of operation and their internal payback norm is like three years payback. They are meeting those internal payback norms. But as a percentage of the sales, the EBITDA margins are lower.

As the ratio of the new stores is increasing, that is the reason they are pulling down the margins a bit. Same store is not giving efficiency. On top of it, new stores are creating some inefficiency but margin per stores have only been increasing.

Q: Given the economic scenario and given that you are seeing some pressure on margins, will you go slow now on rollout of new stores if things don’t start materially picking up in the next couple of months?

A: Definitely not. Rather, this is an opportune moment for us to make a killing that when other erstwhile competition will be looking at slowdown, we know that this situation on the Indian economy is a temporary one and will not last forever. So, we are preparing ourselves and investing in the future.

This year we will open at least 125 Domino’s Pizza stores, at least 18 Dunkin Donuts stores and to support this we are starting work on four commissaries. Commissaries are the supply chain centers that supply all the ingredients to the stores. So we will start work on the four commissaries this year because these commissaries will help in the future growth for us for Domino’s Pizza and Dunkin Donuts.