To open 150 Domino's, 30 Dunkin' Donuts in FY15: Jubilant

Furthermore, company’s three new commissaries will start by end of this year, he adds.

Below is the edited transcript of the interview:

Q: Not very good news; it seems to be down on several parameters. EBTIDA is down and margins have taken a beating. Would you at least have the confidence to say that this was perhaps a truffing out quarter and third quarter looks better already?

A: We believe that second half definitely will be better than the first half in terms of the same store growth. However when we look at the consumer sentiment the discretionary spent we have not yet seen that it had been growing and consumers are not back in a inner hood saying and spending the money on discretionary spends right now. When we look at a Q1 versus Q2 the sale has been stable it has not been declining further. Although in terms of same store growth you are saying -2.4 to -5.4 but that was primarily because last year in Q2 we had a buy one get one scheme which was advertised on television and this buy one get one scheme was on every Wednesday.

This was the prime reason that in numerical terms the same store growths seem to be have declined but in absolute terms in Q2 the sales has not declined which is a good news that further decline has been arrested. However, we are not very hopeful saying that in immediately next second half the sales will climb up significantly. We believe that sale will grow slowly and may be in fourth to eight quarter we are confident that sale will be back in terms of high single digit same store growth or even could be a double digit same store growth.

Q: Is it next quarter you are talking about and not the current one?

A: We are not talking about next two quarters; we are saying next two quarters definitely should be better than in terms of same store growth than the first two quarters. But in four- eight quarters, we can definitely go back to high single-digit to a double-digit kind of same store sales growth.

Q: This time around, not only same store sales growth declined but margins too have gone down to about 12 percent. What’s the outlook on that as well?

A: Sales and margins are closely linked together. When I say the sales have stabilised in Q2, in the sense that it is not gone down vis-à-vis Q1 to Q2 margins had also almost stable. In Q1, we had a margin of 12.4 percent in Q2, it is marginally down to 12.2 percent. The reason for the marginal decrease in the margins were that minimum wages have gone up in several state and also our end annual increments in the salary also happens in the month of July.

This quarter there was an additional impact of the salary increase whether it is a team member or other people so there is a marginal decline. In next quarter, it will get absorbed and come back in the normal routine. Going forward, if sales gets stabilised, margins should also be stable, they should not decline any more further. But when we go back to the high digits same store sales growth, we believe that margins also should start increasing and start growing further.

Q: You have put in 37 stores against a promise 35 stores in the second quarter. How is the free cash flow situation and therefore, what are you looking at in terms of expansions?

A: We don’t give guidance about quarter wise how many stores we will open. However, we have given a guidance of over 150 stores we are going to open for Domino’s Pizza and in addition 25 stores we will open for Dunkin’ Donuts. In terms of Domino’s, we are very clear that we will definitely open 150 stores. In the first half, we opened already 71 so in the second half we need to open another 79 stores to meet the target of 150 restaurants.

In terms of Dunkin’ Donuts, we have given a guidance of 25 that we have revised yesterday to 30 restaurants. We are confident that Dunkin’ Donuts will do very well. We have already taken Dunkin’ Donuts to Mumbai and Bangalore both these launches have brought immense reclaim consumers are very happy there were queues outside both the restaurants when we launched in Mumbai and Bangalore. So we are confident that we can open more stores.

Your second part of the question was situation of the free cash flows. In the beginning of the year we had about Rs 100 crore lying in the banks or the mutual fund. At the September end also the similar amount has been lying. However, we believe by the end of the year we will be able to consume all of this cash and the primary reason is that we are growing very aggressively. In aggregate, we will open about 180 stores for both Domino’s and Dunkin’ Donuts.

In addition, we are expanding to 3 new commissaries one is Guwahati, one is Nagpur and Hyderabad. These three new commissaries will be ready by March; two commissaries may be ready within this quarter itself. The 4th commissaries is very large commissaries we are establishing in Greater Noida which will be relocation of Noida commissaries and for this we have already purchased a land and construction will start very soon.

Q: We have noticed that the competitive pressures in the industry have increased so given that do you think you will be able to take the price hikes in order to mitigate the raw material cost pressures?

A: It is right that competitive intensity has increased but when you look at across the categories the prices increase has been there across. When you look at any of the top five brands or even other brands, they have been price increases consistently. We have been seeing benign commodity price trends and we don’t know whether we need to continue to increases prices because we keep on continuously monitoring how much price increase we need to have in order to sustain the margins and in order to not to put the consumers away.

We believe that price increase we can still take. In past also we have consistently taken price increase as about 2.50 to 3 percent every six months or so. We believe that kind of price increase consumer absorbs and when inflation is coming down in the consumers mind we will have more discretionary money in the hand and consumers will not mind paying little higher money price on Pizzas.

Q: Would you see your margins have truffed out because the general inflation of the products you use appears to be falling?

A: In commodity prices, there has been falling but one area that we say will never fall is personal cost. We believe that the minimum wages and other salaries will continue to go up and this is the head we typically say we don’t expect any kind of leverage despite the productivity gains which happens all across.

Q: What are the promotional or advertisement expenses that you will have to incur? I understand that your buy one get one free promotion has been discontinued but anything else that’s currently underway and what would be the run rate of expenses on that front?

A: Overall, in advertising we spend about 5 to 6 percent of the sales so this is one of the costs second cost comes in the terms of discounting, how much we discount. While we have discontinued buy one get one which we had every Wednesday last year in Q2 and part of the Q3 in a limited way we still continue with the buy one get one. So one Friday we continue with the buy one get one and the reason that we say one Friday we continue is it is a Friday, which is not an announced Friday. It is announced in the morning so the consumers cannot plan its purchases.

The behaviour we have observed last year in Q2 was the consumer started planning its purchases so there used to be cannibalisation. Thursday sale use to come to Wednesday and Tuesday sale used to get postponed to Wednesday. Friday discount is a surprise to the consumers we always announce through SMS and Facebook that mechanism.