On track to double restaurants, expand margins by 2022: Westlife

Westlife Development envisages doubling the number of restaurants by 2022 and plans investment of Rs 150-200 crore every year on it, says Vice Chairman Amit Jatia.

Westlife, the master franchisee for US fast-food chain McDonald's in the west and south India, posted 15.6 percent year-on-year (YoY) increase in revenue for the second quarter to Rs 234 crore. The company also managed to narrow its loss narrowed loss to Rs 3.3 crore from Rs 9.4 crore in the same period last year.

In an interview to CNBC-TV18 Jatia notes it is critical for Westlife to expand its reach in terms of numbers of restaurants which meant burden on margins. However, it has now restructured costs such that margins on incremental sales can at least be retained. He expects EBITDA margins to inch up to mid-teens by 2022. 

West has also been consistent with price increasing keeping in mind customer’s price sensitivity. The last price increase was taken in January this year, he says, adding, usually about 3-6 percent of price increases is taken every year.Below is the verbatim transcript of Amit Jatia’s interview to Sumaira Abidi & Nigel D'Souza on CNBC-TV18.Nigel: Just wanted to understand your outlook on the new restaurant openings. You were looking to double your restaurant base, so could you tell us how much will that cost you, how will you fund that as well?A: We are pretty much on track to meet our targets for the new restaurant openings. We have given a vision that by 2022 we intend to double the restaurants. The total investment would be about Rs 700-750 crore and essentially roughly about Rs 100-150 crore a year. Fortunately, we are a net cash company and between internal accruals and some opportunity to sort of increase debt or take a little bit of debt we feel therefore for the next two years we are pretty good to fund our growth from internal accruals.Sumaira: You have spoken about your intention to actually increase your margins now. I was just looking from the entire FY16 as well as the first two quarters of FY17 they have trended pretty much between that 4-5 percent mark barring one spurt that you saw on the third quarter of last year. How exactly do you intend to scale up margins from here and what do you think, what is your internal target of what could be your sustainable level for you?A: In our vision 2022 document, we have sort of talked about getting to the mid teens in terms of EBITDA margin and we were there a few years ago. So, the best margins sort of we did in 2011-2012 was around 12.5 percent. What you have got to recognise is that we are a growth business and for us the fact of adding restaurants and doubling the base of restaurants to make ourselves more accessible is really critical. The important thing is to not loose margins as we are building new stores. When we last year reorganised the whole cost structure of building new restaurants that has given us the tremendous boost. So, for example the basket of new stores in this year is not dragging margins, but rather contributing to cash flow. So, we come a long way from where we used to be. Therefore we are on the right trajectory for growing margins, so for example if you look at rupee margins even in the last quarter firstly cash flow we grew by 60 percent and that we saw was pretty good work that we did. Also rupee margin in terms of EBITDA grew by about 16 percent inline with sales growth. That kind of shows that we are able to retain the margin of this incremental sales that is coming through unlike the past which gives us confidence that as we move forward and we improve our gross margins and our topline we should be able to grow our margins as well. Nigel: Could you tell us in this year that is FY15 have you taken any kind of price hikes, will you be taking any price hikes by how much you are likely to take price hikes and also could you give us breakup in terms of the topline? How much of that is delivery sales, how much of that is dining?A: Let me cover the price increase, the good news is we have been very consistent with price increases. Our philosophy is that McDonald\\'s uses its knowledge and its supply chain to be able to give everyday value to our customers rather than you use promotions to increase our same store sales growth. We typically take between 3-6 percent of price increases. This year the only price increase we really took was in January but yet you will notice that we improved our gross margin in both the quarters and we are trending very well over the last two years where gross margin has improved by 200-250 basis points. So, I think that strategy of ours is working quite well where we are using product mix, we are using engagement with consumer around brand and menu and McCafe to be able to grow our sales and to grow margins at the same time. So, we continue to stay with this pricing policy as we move forward and the theme being every day value for our customers. In terms of breakup of sales we don’t really share the breakup however what I can say is that McDonald\\'s same store sales have been built on platforms rather than one quarter promotions. McCafe delivery, our menu initiatives, value initiatives they are sort of the key contributors to this growth in volume basically.