Seeing no major shift in consumer sentiment: Jubilant Food

A: I wish I could say that very openly but while a 2 percent same store growth does look good compared to the last four quarters we have had where we have shown negative same store growth, it looks good but I must admit that it is only cosmetic.

We haven’t seen any statistically significant shifts in terms of the way the needle would move or at a qualitative level, the way consumer is sending us signals that there are some significant shifts in consumption pattern.

Early days still, 2 percent looks good, it is coming out of a quarter last year where we had done a negative same store growth. So it may cosmetically look good but I wish I could with a lot of confidence say that no, we are seeing significant shifts in consumer confidence and sentiment.

Q: You did indicate in your conference call that a benign raw material outlook increase improves your visibility on margins, now your operating margins stand at 13.1 percent, your gross margins are also closer to that 74.8 percent mark, what can we expect from your margins, how will they trend?

A: Without throwing numbers, I must admit that compared to what we saw for most of last year that there was an immense pressure on commodities and especially coming out of milk prices, cheese and so on which is so integral to a pizza.

We are seeing clear trends which are coming down other than vegetables, right now which is very peculiar because normally in these kind of months, the vegetable prices are at the lowest but somehow there are some reasons for the veggie prices to be a bit higher than they normally are but otherwise, we would believe that inflationary pressures now and in future will be lesser than previous periods and that is going to help us a bit.

I will not allude or point in a direction of what will it do to our margins, how much will they improve.

Q: Will there therefore be any scope for you to pass on some price cuts in the expectation that volume will grow?

A: As we said in our investor call yesterday, price increases are the last resort which a consumer company would want to go to.

Q: I am asking for price decreases.

A: Price decrease is probably out of question but not taking the usual price increases that we do is not something which will be ruled out. We normally take 2-3 percent price increases twice in a year. But I must also admit that last couple of years, there has been as high as around 20 percent increase in the overall prices of not only Domino’s Pizza or Dunkin Donut but across the industry and which is not great.

The consumer is telling us that eating out is becoming a bit expensive, value for money index is coming down and that is clearly at the top of our radar screen. So going forward we are seeing whether there are ways in which we can curtail price increases but to answer your question, price reduction probably no.

Q: You have also refrained from giving any guidance on your FY16 store additions as of now, any particular reason for that and given the slowdown, would you consider toning down the aggressive rate at which you were adding stores earlier on?

A: We have always maintained a very straight answer on a question like this. Right now, we are in the midst of firming up our numbers for next year so I cannot divulge any numbers but let me give you a statement, which we have always maintained. This year we are confident that by March 31, we should be able to open altogether 150 Domino’s stores and 30 Dunkin Donut stores in India.

We have also said it in the past that unless something really untoward happens on the economy, we will progressively improve from hereon although signals are not very visible right now as we speak but opening around 150 Domino’s stores and similar numbers for Dunkin, which is what is doable, is possible but I am not going to tell you exactly the number for next year right now.

Q: Are the losses from Dunkin Donuts decreasing?

A: It is still in a phase where it is consuming some of our money but we believe that as we reach a figure of around 125-150 stores our business will start breaking even at a business level.

We are sitting at 50 stores as we speak today and so, it is two-three years away but progressively, the losses per year on an absolute basis should start coming down as we move into the next year and so on.

Q: What would be the same store sales growth at Dunkin Donuts and how is that trending?

A: It is a very small base so any number will throw things out of context. What we need to understand is that only once a business is a bit mature does same store growth comparisons make sense because there are various product launches that happened.

Last year for example in the same quarter, we had 60 percent rise in sale in Dunkin Donuts so when you have those kinds of increases, a number, which is small may not look very exciting. So I think that is not the right way to look at the business.

However, the business is going almost as per track. Some of the key accesses on which any new start-up, any new food venture could be judged on, the overall positioning, the way the stores are in terms of their design, layouts, localities, sizes, the pricing strategy, the menu mix, the people strategy and so on, I think we have almost cracked on most of these accesses 80-90 percent. So we are pretty confident that the brand is moving as per our plan.