Jubilant FoodWorks Limited (JUBLFOOD) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the session with Sameer Khetarpal, CEO of Jubilant FoodWorks Limited; and Ashish Goenka, the CFO. I'm Amit Sachdeva. I head India equity strategy and consumer retail research for HSBC, and I'll be your moderator for this session. First of all, thanks a lot, Sameer and Ashish, for making this time. [indiscernible]. I have broad 3 -- structured the discussion into 3,4 broad areas. First one, near-term demand and margin concerns, which probably [can have a lot of] questions about. Second is the competitive advantages that Jubilant brings to the table and how you deploy that in your battlefield. So what is the fine balance of both in profitability or after and again, capital allocation and sustainability. So that's broader, but we'll be open to questions from everyone as well. This is a Q&A format discussion, everyone. So please submit your questions in the Q&A bar, and we will take the questions as they come.

But let me start off by asking Sameer. He joined new, and he's looking things from all angles. Sameer, why don't you share with everyone of us with your background, what excites you and what unique perspectives and capabilities that you bring to the table and what are your key focus areas?

Wonderful. Thank you, Amit, and thank you investors for joining us today. I'm truly delighted to interact with you at least soon within the first 6 months of my joining, and we look forward to an engaging conversation today. So about me, I'm in my 25th year of professional life, 50th year of birth -- since birth and 25th year of this company, right? So I somehow feel that it's very opportune. I come from a very humble background, grew up in a little -- in a house shared by 16 families, therefore, feel very blessed. And I'm an eternal optimist. Professionally, 25 years, started with hardcore manufacturing of ice creams. I commissioned the ice cream plant in Nashik for Hindustan Unilever there to understand the full space back in 19 when there was no cold supply chain. I move to services business thereafter in GE where I built -- I was part of the big outsourcing offering base and ran a team of nearly 1,000 people across 4, 5 countries, learned the hard part of people management distributed teams. Then it was 9 years or nearly my 30s spent in McKinsey as a consultant where I worked on multiple topics of strategy, sales, account management, operations, but more importantly, driving performance. In last 7 years was, again, very unique with Amazon, which was building very tough businesses like food, grocery, health care, understanding the retail landscape, but the most important piece over there is how do you bring customer, customer back inside, data technology and hard execution. So I'm delighted that all of this is culminating right from what I learned in a small house when I shared a bathroom with 16 families to ride over here, building some ideas, probably most of technology company and now at Jubilant opportunities color. So very delighted to be here.

Thank you so much, Sameer, for sharing a very inspiring [indiscernible]. We obviously take notes from this as well on that later. But let me just ask you also that if you could narrate what you've seen so far. What are the 3 main targets that you have kept for yourself for the next 3 years?

So at Jubilant, I think, again, 6 months is not a long time, but time enough to start forming a path forward. My initial time was spent in visiting nearly 200 stores, sticking to nearly 1,000 customers and also, equally, our own frontline employees, which are the true [condominium] between or the closest to the customers. Having said that, I think my first task was to accelerate what we have, learn and accelerate. But when I look forward, Amit, this company is actually sitting on a gold mine. And I will talk about it as our conversation goes forward. There will be 4 pillars of acceleration that drives our strategic agenda in terms of having the industry-leading growth rates and industry-leading profitability. And these 4 pillars are customer first and -- customer and market first, where there is -- again, I will -- we can talk more about it. I think a little bit data technology just comes to life. Therefore, the second piece is data and technology forward. Third is we are in the business of delivering a great product fastest to the customer, which is precious partners. We are there to delight the customer. Therefore, operational excellence will always be our pillar. And fourth is that -- I know you will have questions on -- from the past, what's happened and where are we moving, but good-to-great journey is embedded and a deep-rooted culture and the people that manage the post. So these will be my 4 pillars. All my answer is, everything you will see I spent 90% of my time on these 4 pillars, and this will be the core part of my strategy.

Excellent. Sameer, thank you so much. That is brilliant. So wish you all the best as we execute the strategy. But let me come straight to the basket of issues that I also spoke about. And this is, again, come from these investors and just [ to remind you that] these are some of the issues which obviously in everybody's head. So let's just straight -- go to it. First is basically demand and margin issues. Like clearly, SSSG or like the [indiscernible] call it has decelerated very sharply in Q3. It is -- so one is that to sort of understand from you, what are the key issues underneath? Why it does happen? It's probably cyclical. But how soon you believe this would start to normalize? And as you -- as such, you want to take the growth to 5% to 6%, what will be the key drivers? And how you're addressing and mitigating the near-term demand challenge? And one you answer that, I'll probably plan into the margin issue as well. But why don't I just focus on the like-for-like growth and the issues underneath first and then we'll follow-up with that.

Sure. [Ashish through kitchen]. So as I see -- I think my understanding of the macroeconomic pieces, of course, they are indicated with high inflation rates. We have carefully and thoughtfully taken price increases, right? And with the -- and after COVID that has been structured servicing demand, right? So therefore, in the short run, we are seeing some of these patterns kind of playing out. But let me assure you that despite these headwinds, I see actually a tremendous opportunity on 3 dimensions. Number one, our loyalty is fine. It's working. So our high frequency and medium frequency customer basis, are working. Second is habits have shifted materially from ordering in home versus going out, though indoors is coming back, and I know I spoke about dine-in as a growth factor, too. But our credentials on delivery and moving from 30 to 20 will again -- I think we will stand out for our excellent delivery debentures. Number three is our store networks, right? And at extend of [17,661] stores, 387 towns, we have access to consumers in now versus the competition, which is proving truly, I think, we are the neighborhood stores. We've always look for value for money backed by our high throughput of our stores, commissaries that we have built and the logistics products that we have. So when I combine these 4, value for money, neighborhood store, loyalty, excellent delivery, I think it is up to us to kind of execute. I see, therefore, Amit, more internally how to tap this growth. We are still at a frequency of 3. That is the reality, right? And when you look at some of the Western geographies, even Southeastern geographies, they're far higher than this number. So I see it more as a natural expansion of store thoughtfully done, improvement in service led by digital and technology. That should increase the frequency.

And of course, value for money.

Value for money.

And that -- you also refer to [loyalty being fine]. Could you elaborate on that, please? What is the [contours] of that statement that you made?

So I think the -- we crossed INR 1 crore loyal members last quarter, right? And that's quite meaningful. And in fact, if -- our internal research also says that it is working very well with our consumers in terms of loyalty program that exists in the world of food, right? So the Cheesy rewards program is, just in 7 months of inception, is hitting the minds of the consumer. So I think -- and that is a great [book] in today's day and age when we are only present, right? There is a digital tool or digital product that we launched, has very quickly reached an adoption of INR 1 crore, right? And we are seeing more and more number of orders are being -- because you can order anywhere, but you have to [ burn ] on our app. So that client traffic that creates assets, and that's why I think loyalty is a core member. And this is also -- is [panning out] in U.S. also, you would see how Domino's U.S. has used this particular product and grow in a very competitive environment.

Also just to add also what Sameer said, i think they we're keen to an objective of us launching the program, one, how we like [indiscernible] up of our existing customer cohorts. And second was to reduce churn [indiscernible] category while frequency to the churn is also substantially is very high. So of course, initial base of the program with frequency to be out over a slightly longer term period term, but we have already seen an uptick in frequency, though in the margin, but and a reduction in churn. So the 2 key reasons why we launched the program already seem to be factoring well.

That's good to hear, Ashish. But then -- which means that you are -- we have some of the building blocks of going towards 5%, 6% that Sameer talked about as the demand started normalizes, inflation, et cetera, macro issues settle down, these are structural building blocks that you're building to serve to if I paraphase what you said correctly.

Yes. Amit. Some things are still are required like this, so $45 million market size to about $4.5 million, $5 million of QSR, I think the opportunity is just so immense, right, as movements happen from an organic to organize, right? And as we launch our INR 49, INR 50 products, right? I mean, Samosa, or a pav bhaji, right. I mean that's part of the space that we can compete with versus going [goodies], right? That's important. We'll not leave that segment. But really, we must -- we are here for. And therefore, growth in the category, improvement in penetration, and that is what we have already started taking steps towards that.

Excellent, Sameer. So we'll talk about the value addition innovation of your INR 49 in a bit, but let me come back to Ashish and to get on margin side because I think the near term demand appears to be challenging, and you are taking some steps to mitigate it through value offering. But input prices have increased further in Q4. Q3 there was, but I would gather that Q4, the trend has [ settled ]. So -- and while in absence of any price increases, well, one can and [indiscernible] demand again [fathom] that margins may not have bottomed out Q3 and the pressure will continue. And what should be the [indiscernible] different margins that would have play out? And if the 75% kind of margin, which we saw last quarter, it seems to -- if I were to take [indiscernible] the 78 was a normal high margin, but this is the new normal you are sort of comfortable. Is that how we should think about it? But if that's the case, I would probably argue that not just coming quarter, but next 3 quarters we'll continue to see margin being somewhat compressed at the cost level. I mean I'm sure you can mitigate towarnds [mean], but theoretically, the picture does seem a little bit challenging to margins. How would you react to that?

[indiscernible] right, I think you're seeing almost at the selected level of inflation. Any prognosis that we have in terms of when will and what time of the commodity cycle should play out have actually turned -- against us in that sense because quarter 4 is typically the quarter, and you will see softening of the cheese prices, but still not happen. There will be some operations, but not to the extent we would have expected. So if you see there are broadly 4 of those [indiscernible] pricing. And as you're rightly saying that given the constrained demand environment, I think pricing will be limited. But we are looking at mix very closely, which is the second [indiscernible]. And that's why, on one hand, we have [indiscernible] we have launched through with [indiscernible]. And within the portfolio, how we can drive up, take off high margin products. Though what I also want to clarify here is that despite launch of low-margin products, the margins across all our products have [indiscernible]. So the product mix does not impact us on the low end, but it also gives us a high revenue, higher [indiscernible]. So we'll continue to drive our CapEx. The third one, is how we are working on discounts because discounts [indiscernible]. So we have been, again, very, very selective in the way we deploy [indiscernible] more value, but that is an equation [indiscernible] to correct [indiscernible] over the next few quarters. How do we get more tighter, more digitally savvy in terms of the way we deploy discounts and in a more targeted manner. And the fourth, which is the joker in the card is how the commodity prices clear out. My sense is that commodity is, by and large, in terms of pricing would have almost peaked out right now. We have already seen some softening in oil prices, in box prices which is largely [indiscernible] prices. Oils have come off a bit. There is some hardening of flower, which is again for reasons we know, and cheese, which is the largest input that we have of course. So if we do not see any further hardening [indiscernible], we should be able to [indiscernible]. But yes, it remains [indiscernible].

Fair. So I think margin is something to watch out for. But again, retailers' margins are not just gross margins and how revenue would plan out as well. But I would also argue that as -- one thing is also arguable since you, in the last 3 years, we realized a lot of new costs, especially on the [indiscernible] side. Things have been a lot more variable, yes, which on the adverse effect in time like this, [indiscernible] catch. So you can optimize. It is already on a variable [indiscernible]. So in some sense, it's -- it leaves you very little wiggle room. So you should hope for many things to play out your way. but at least it all seems clear that nearer terms seems a little bit of rough patch. Is it a fair understanding?

So Amit i would just make a small correction to what Ashish said about or to counter a bit. I've been a consultant for 10 years. Nothing there is always a war on base, right? And we will get that war on base right, right? And we've already launched some initiative internally that as we get into 1 quarter, we want the initiatives to be rolled out in fresh start. So there is -- and I use this classical training that I've had on industrial analysis that if my bottom quarter is sourced, not only revenue, just some costs, adjusted for revenue were to move to the next quartile, that is itself is a large amount of money, right? And as you know -- so these cost is manpower, but it is variable, right? But are you matching demand and supply? Food costs, making sure that we have 0 wastages in our stores. LPG cost, electricity cost, right, the petrol cost for the bikes that we use. So again, there is -- what I get -- on the margin front, again, there is a lot of opportunity in terms of what we can do, in terms of recipe optimization, reducing wastages, using technology to pass on charter discounts, reducing our commission burns without impacting revenue. So there's a lot and lot of opportunity that we see in the [indiscernible].

But Jubilant probably sort to price to mitigate it. Is this something that you're ready to? That everything else will we try and hope that price is correct. But there's a bit of a fear or if i may say bit of a reservation. We will not just be industry wide whatever comment you've heard. Nobody want to seems to touch pricing. It's so price elastic that demand is that you would probably not touch pricing.

I would say, I mean, more than elasticity of demand, you always start to further value for money offering. So we would rather continue to pass on that value, especially there in times where they are reserves constrained because of high inflation. So I think in the long run, you would rather have customers who are on our platform engaging with the brand because the life style values that we can extract from a customer who is on our brand is far higher than the short-term value extraction that I can do to our price. I think that is the guiding philosophy and sameer can add to that.

Yes, I think the thing -- just to be clear, I think in the last 3 years or so, we did initiated the results, right? And that was one big move. We also took very calibrated almost 3 price increases in the last 12 to 15 months. So sorting, we are not afraid of doing that. It's just that it has to be calibrated with -- make sure that my overall customer base grows, the share of wallet shifts with us. And then -- and using that as, I would say, as a lever very surgically where we know this is the right time to do it. So we're constantly monitoring. We have the data models. We have the learnings from the past, how much goes in, how much doesn't. So we will be very thoughtful about it. And at the moment, at least in the next 2 to 3 months, I can say is I'm using more internal levers to get money out of the base than passing the pricing.

And one other thing, which played well for us is despite these price increases, in the last 3 quarters, we have actually seeing all other [indiscernible] as well that consumers have been calibrating and reducing or downgrading, but they haven't let that happen, but not their [indiscernible]. This is actually always differs in the longer, and that is why you see all the consumer metrics with the [indiscernible] that we have on our app. The engagement level remains very high.

Okay. Got it. Understood. So let me take you to now basically network rollout logic and competitive advantages, the mountain capture. So when I always wanted to ask this, to be honest, but since many people have asked this, so I'll not take question of mine but we have sort of answered the question. What is the key reason that network rollout target was so brought forward and compressed in a short period of time, we get very aggressive. Was it competitive responses that everybody is doing it and might as well do it before? Or as it happens at, if my SSG growth are slowing because we know the period of 2013- 2017 where growth came, but SSG decline and margins decline, the period of 4 year at 0 profit growth despite the revenue growth was [ 16% ] CAGR to remember the numbers correctly, the period. My sense is that, that fear comes that this aggressive network rollout, at least a lot of people will typically be set up spec and saying, is it because economics looked up, so let's just build them work. One, and it is clearly showing all your negativity drag because that shows that [indiscernible] is growing solely. Why grow so fast? Why don't go at a virtual space, which gives you not only this revenue growth in a structural sense the way but profit were also shown at the same time, and that looks much respectable framework for growth rather than having to lump CapEx or at least [indiscernible] in such a period of time? I don't know what's your reaction to that. In my sense, it's a little bit of issue in understanding how growth strategy is starting up or your sort of guidance, how your thinking about it is an old understanding whatever -- please [indiscernible].

Yes. So we've taken several learnings in the past, right? And I think the system has that muscle memory of not to make those mistakes. And let me [indiscernible] I say that. So firstly, we have -- we are not waiting to a number particularly, right? We are ready to ROI per store, payback periods and the EBITDA in bits, right? So those are the markers we keep. We have a very strong -- firstly, how do we identify a store? We have an inside model, which predicts the sales of -- for the region that we want to open a store. And then there is a very rigorous process of looking at the site, evaluating it, negotiating, making sure we keep our CapEx control, having 3 rounds of discussions to prove [indiscernible], right? So one thing I want to assure you is that we evaluate every store stand-alone on its own merit, keeping payback period and EBITDA will generate as the 2 primary dimensions. And we are not ready to any particular numbers. And we'll, of course, evaluate it when the time is right in terms of [indiscernible] strategy session, we will built in change, we will come back. The second piece is the -- I think we have the back-end strength throughout commissaries, logistics, cost control, to serve these cities, be ahead of the competition, serve these cities or new towns and still have the same level of capital efficiency and the P&L EBITDA that we generate. So these stores may lower around throughput, but then lower in terms of manpower costs. There, we get leverage of our marketing costs, the [tail] campaigns we do. So it brings a lot of goodness to us. And of course, we are building these stores for 10, 11 years, right? And the payback periods are still very, very little. And we have, in fact our [tablet] remained constant of marginally improved in the last couple of years.

That explains why revenue per store looks stubbornly resilient because the marginal stores may bring lower revenue by probably [indiscernible] ROI basis. There's no difference. So there's a value capture happening. Optically, it gives you a sense that store is resilient on or atleast stubbornly stuck at that number of -- it is -- is this the character. [indiscernible] something that there are 2 factor we must consider when we look at. One, of course, is that by we're making deeper inroads into Tier 3 [indiscernible] towns, which again in terms of ROI and profitability are at par with the stores in the Tier 1. And the second is the fact that we have been splitting stores in Tier 1 and that -- and not for fortification [indiscernible] reasons, which also optimally reduces the [indiscernible]. And that's why we started reporting [indiscernible]. That should give you a little more better color in terms of [indiscernible].

So thank you for summarizing what Sameer said that one is that the lessons from the past have been well documented, and there's a rigorous evaluation that post these stores standalone business opportunity, which is evaluated as if it's a standalone business opportunity. And then all the aggressive [indiscernible] before anybody [indiscernible] just in the store. And it has multiple rounds of evaluations and then fund. So that process takes and something. And then one more very important lesson that is, I think, embedded in the DNA is never take your eyes off [indiscernible].

Sure. I think anyone in the company is non technical. Revenue growth is an output of the work we do but i think meeting targets leads to revenue growth, because that is, I think absolutely a lesson that we learned from that phase. You could not just [indiscernible].

Understood. This was, I think, a bit of confusion of many. But I would also probably now we talk to CapEx store, but Sameer mentioned currency, but I think let me just relate it back [indiscernible] CapEx, which -- it's a very [indiscernible] CapEx that has the background, and I would probably say that some people manage without that CapEx. So I would only ask Sameer is that some competitive advantages that massive CapEx brings to you that is not applicable or managed by others, how much -- when you put this cost-specific analysis, make or buy, what sort of advantages that you drive through that CapEx that you believe that it is -- why don't spend that CapEx in Jubilant centricity, build more stores or do some product quality, whatever? Why go build the back end, which is such CapEx [indiscernible]? What -- how do you justify that cost benefit and -- could you share some anecdotal evidences that this is money well spent something.

Sure. I can start, and then, Ashish, please chime in. So I think we made the same margin at INR 49 pizza as the gross margin, right, in terms of INR 49 when we launch a INR 49 pizza gross margins. And the reason is because we have a very solid back end, right? And when I say solid back end, it is the process of sourcing. It is also the process of conversion and forward logistics from there. So it brings in those efficiencies, right? And versus if we were sourcing for different places asking somebody who will have more number of trucks coming into the store, we've been spending into consolidation, we will -- and equally, our [indiscernible] rates are about 99%, right, which is, in fact, the best that i think i have known in India. And so we have like 0 store closures or 0 stores turned down because the material was not there. So I think it gives us that advantage of opening stores and forgetting in terms of we'd be able to supply some liabilities like to that. It keeps a very high bar around our safety standards -- food safety standards of quality and temperature control that we're able to do. It also helps us play on our ESG commitments, right, because we source from [antibiotics] that is coming from. In processor in-house, we make sure we are not using any artificial colors or preservatives. So it just brings the whole story together for us. When we're deploying CapEx, again, the rules of the game are the same. What is the ROI? What is the payback period, right? And then what other expects to be? And what is it giving to the customer and what it is adding strategically to the -- to our business? I think again, having visited to some of these factories, and I would encourage some of you to go or see these factories, I think you just seeing is believing and you get convinced. Was in India at this scale, the supply chain is growing. Therefore, all big companies, they invest in their own capacity. And again, we have taken very thoughtful decisions there what we will outsource, what we will buy, also what we will do. There, a very careful evaluation is done. And these assets pay for themselves.

Got it. Got it. I think thanks so much, you have highlighted many competitive advantages, whether it's everything from scale, delivery capabilities, digital assets and brand obviously, which brings in the trust of the consumer. But I also recently noticed that you went out and launched a 20-minute delivery across various of your markets, not probably entire India, but some selected markets. Now interesting thing is, is a push on capabilities that deliver in 20 minutes. It has implications for delivery staff, has an implication for kitchens and the process and everything. One, how do you manage it? And how scalable that is? Would you be able to roll it out to the entire market? And where it has been implemented already? Can you quantify? Has that resulted in some change in customer behavior? Or you start seeing revenues stream -- throughput being better in those markets, because another observation is should the consumer rely in willingness to buy and pay. So when you see that change, it's like a marketing innovation, but is -- it needs to sort of reflect on how a consumer franchise is building on it. So any reaction to that?

So it is not a marketing campaign. It's a hard consumer [indiscernible]. And we have been preparing for it for the last 3 years. The whole fortification, densification strategy was done to give a better service because greater -- fresher pizza, tastier pizza are fastest to the customer. And this program is places where we have the network where we can do, which is in top 6, top 7 cities. That is where the consumers are looking for more convenience. 30 min delivery has been democratized by aggregators. This allow us to really, I think, what are the more [indiscernible] aggregators versus to fought in favor of our consumers where the pizza box never leaves our hand, right, right from the start to consumers door, it allows us to wow the consumers. And I can -- and I commute from Gurgaon and when I joined the stores were struggling more than in terms of their delivery capability. The moment we started pushing on this dimensional, growth rate raised up. So I clearly see that if consumers -- consumers will come back when you offer them a great services. And given our reliance like 2/3 of orders online are delivered, right, and this is a chance to wow the customers. Backed by loyalty, that becomes like a flywheel in itself, great service, value for money, deliver in 20 minutes, it becomes like a flywheel to [indiscernible].

So a bit of like all scenarios will be placed in [indiscernible]

Absolutely. And therefore, at the long term, it becomes a competitive advantage. And I think that's why I want to see this. In isolation, you must do [indiscernible] deliveries. So what, right? But you see loyalty, 20-minute delivery, store densification, value for money, then it starts playing like a [indiscernible].

20 minutes is a lot of time in delivery because food gets older by 10 minutes is much less eatable and freshness. We'll try see that as a bit of an advantage here. So i see that as a bit of an advantage here but given the scale so far, do you see it is scaling up to a larger footprint? Or it is still in a pilot stage? Or how you see over 1 year it would be like a national phenomenon? How one should see that service? Or it's still macro-centric.

I think it will be [indiscernible] consumers wanted it, think about more macro-centric. And I think our dine-in mix is different from top 6, top 7 cities versus Tier 3, Tier 4 cities, right? So their consumers, where we are in the first QSR, they must want to go dine-in and take the family versus their -- in metros, we have a known brand and consumer open the app and order it. So I think we will -- I mean it is, like I said, it's part of our fortification, densification program. And wherever the catchment allows us, we will offer it to consumers. And when consumers want it, we will -- again, we'll give it to the consumer. So I think it's not a national program that way. It is to give us the competitive advantage in the regions we are [indiscernible].

Understood. Understood. So that's very-- are we seeing promotions as well. So I would probably ask I think there are couple of more, and then we go to the live questions as well as addressed we have done. But one thing I want to distract you a little bit to a very abstract this. And this is abstract the way that, I guess, every product has a value proposition. Every takes structure quality, aspiration, to is convenience or when I trade for it. When I get [indiscernible] value proposition pizza being on top of that. But we've seen a like-for-like growth also coming down a bit, if not this quarter, but it has been a bit of a trend, which is still -- and COVID had a tailwind. It was a trusted quality food, and everybody finds -- very easy to order. Is the value proposition somewhat challenged if lack of a better word weighed? How do you see it? Do you see that when you slice the markets, top 10 cities, 4 metros, Tier 2, Tier 3 towns and some cohorts like, for example, IT, which are facing some challenges of job losses or at least salary [indiscernible], there would be variety of reasons. Do you see some cohort wise, some interesting trends that you would point out for us? And how we do find conviction that the growth is here to stay while top numbers of 10% of 45 billion is a great opportunity. Theoretically, if you look at U.S. market of the last 70 years, 50 years, it continuously fall. So one can find the vision in this market will grow for a very long time. But in the near term, do you feel that -- do you feel some category headwind as such? Or do you feel very cyclical and inflation-linked? And we've been not worry about nothing structural about it.

Actually I don't see any structural aspect for near-term headwinds which will be there largely on account of inflation, right? Where consumers are making sharper choices to protect their wallet and looking for some entry-level price points. I mean again, I think, Domino's being always a value-centered brand, I think it presents opportunity to that extent. It is just kind of ours to capture it. In terms of category, here of food, beverage and food business, right? Even if my mother cooks the same thing every day, I would want a refresh. But having said that, we have a team -- we have a team of great chefs. We have a team of great culinary Science. We have all the kitchens. You're sitting in our office, you can see above the kind of infrastructure that we've built, right? And therefore, when I say customer end market first, one of the themes in that is many India. We launched Paratha Pizza. We launched INR 49 [ desi ] in desi . We also launched a INR 600 Gourmet Pizza from the same kitchen, same oven using the same ingredients. We will innovate for East, North, West and South, right, and bringing local flavors because in South, people love to eat, have more spicier non-veg, right? So our -- I think our network allows us to have, like, a unique -- for 150 to 200 odd stores in a particular state, we can launch a Gongura chicken in Andhra Pradesh and Telangana, because we have a store density, unit economics work for us, and that is what the group will tell us. So I think -- so there is -- what I'm saying is consumers moving towards value, we are there. We will innovate on the menu. And we are on all 3 formats of our channels to be consumed.

Let me -- what you're essentially saying is that value proposition creation is on us to excite consumers, and you are expert in that. You have the resources and the scale to affect that chain, point taken. Let me go back to the web questions because my site -- so one question I would like to read is from -- for Popeyes, with a network rollout story is similar to that of Domino's ? What elements of the latest model are you looking to replicate in the chicken brand? Also any comments in the fried chicken opportunity, given it's a lesser crowded market than pizza?

Indeed, it is a great opportunity. That's why we are there. We carefully chose Popeyes. And we have seen Popeyes country after country kind of becoming the brand that consumers love. Its bold Cajun flavors actually work very well with Indian palate. And yes, it's a less crowded market. And in fact, I was speaking to one of my friend and I pointed out to him that when have we gone to even a fine or casual dining restaurant and eating fried chicken. So therefore, it is, in a sense, a unique opportunity. We have done 2 things very successfully up till now. One is to make sure our taste is consistent. We have great feedback on food quality, food product, we are sourcing the antibiotics-free chicken. We are bringing a lot of these processes in-house in terms of marination to control costs and to control taste and food safety. And I think we are ready to stay, right? It gives us the confidence. And you would have seen the lines outside whether we opened a store in Koramangala or just our layout recently in Market City Mall in Chennai, right? The response is tremendous. And so therefore, from that perspective, I think some of the hard work of building the category basics has been done. And the discussions I have internally with my own team is why are we not in opening stores fast enough. It shows less about the demand, more about the supply. Of course, we will always be very thoughtful in terms of where to open the store. And internally, we are chasing 250-odd stores and I think we should get there. And in terms of -- because the back-end [ hardware arts have been ] actually done to carry the momentum forward now.

Would you believe, Sameer, that the margin structure on a steady state will be as good as Domino's? Given probably it is a higher throughput, slightly lower margin category or how your initial hypothesis about the scaled up model? How did it apply?

I mean I think -- we know the category margins in this category. There is already a short [indiscernible]. So I think in the fullness of time, better margins, which should not be very different from way the Domino's doing. Of course, the gross margin profile, it would be different because the categories are little bit different by nature. But we believe that in the fullness of time, we should get to the category margin and then improve from there because we have the competitive advantage of having the scale, scale commissaries, scale supply chain network we have had across both the 2 brands. And I think just to add to what Sameer was saying and those competitive advantage [indiscernible] to Popeyes this time, [indiscernible]. Popeyes is the only brand in the world, wherever Popeyes are launched, it is launched with its own app on day #1 [indiscernible] Similarly, the execution, the brand development, the project speed. So the entire market is getting [ share ], and that gives us more confidence that we should be able to steer it much faster.

I've actually asked [ Lakshya ] to read other questions.

So we have the next question from Saurabh Vaidya. He's asking why is it important to move to a market ahead of competition in terms of either the customer traction, [indiscernible] the acquisition because we have always maintained a gap of almost [ 150 cities ] where we are the only investor present? So the question is largely, why it is important to move to that particular market first?

So I think these cities and I have visited a few and in the last quarter, we opened a store in Vidisha in Madhya Pradesh. And I was kind of skeptical when I was getting approvals for that store. But around I think 30th or 31st, I got a call from a customer at 11:30 p.m. in the night that I am waiting for 40 minutes, I'm not got in Vidisha, that can't even enter because there is a [ deadline ], right? So I think these are very encouraging signs. While If I would serve that customer, I was disappointed that the customer had to wait for -- to get inside the store. But this is the opportunity that these towns offer. And as there is more highways, as the income disparities reduce or rather, I would say, there is a flow of income and capital towards these cities, I think it is important for us we invent the right model, right cost structures for these cities and be ahead of the market. And it's not that we're going to open 5 stores in a town like Vidisha. We will open 1 store, and we'll stay put for a couple of years until the time we see that okay now the stores are bursting at the scenes. Right? I mean there are several such stories where be it Bulundshahr or Moradabad, where we give approvals to expand the number of stores because the other stores are bursting at the scenes. So again, the process is very rigid and tight? And that we always go like, okay this is a new town, our algorithms are telling us it will generate the revenue that we expect from a store that it should. Payback period is there. We do it, and then we see the results and then go to the next one. So I think it's very scientific in our approach.

Sure, sir. We have the next question of reimaging. The question is, what is the CapEx -- additional CapEx you would require for reimaging program? And what are those elements of changes which we have to meet like they are reimaging to [ Ace design ] within Domino's? So will it be a large additional CapEx, which will be needed for this? And what is the qualification of the stores?

I think in my assessment, the -- first, a part of it is always a part of the process, right? We relocate old stores where rentals have gone higher, and the customer or the dining proposition is weak, right? So it is not something that's new. But yes, if fair -- there are stores where the competition intensity has increased, and we have not spruced out our experience. And the changes -- these are not more than 10%, 15% of the store, by the way. It was a large part, like almost in the 2 years, whatever, 500 plus stores we would have opened, those are anyway new design, right? And we are looking at some of the older stores, which are lower in terms of percentages. And over there also, I think there are 4 sets of changes. One is only dining area changes, changes from internal. Then there are the next level, which is minor modifications where the change is of furniture and the walls. And then there are medium modifications where we [ resource up ] the AC and some of the dining area. And then finally, there is a full reimaging. So that number is in the tune of 10% to 15% as we look at the overall stores broken into all 4. But there's no additional CapEx. We'll manage within the CapEx guidance. It is just that doing that timely is more important than the CapEx part.

Just -- we have the next question on the growth within the pizza category. Is the pizza category very cluttered in terms of the network expansion, even by the competitors' and Domino's network expansion in the past? Given the high penetration of stores, is minting growth even possible for a company like Jubilant FoodWorks?

So I think I did allude to it, [ $45 ] billion market size, [ $4.5 ] billion of QSR category. So I think there's still a significant headroom, I would say. And I mean the reality is the -- I mean Domino's U.S. continues to grow, right? I think they have made far more number of stores per capita, right? And we are -- I think we are just touching the tip of the iceberg over here. I mean we have to be prudent in our expansion. So I don't think -- I see more about execution, tapping the opportunity, having the right CapEx model, inventing on behalf of customers in terms of menu choices, value for money, doing the delivery excellence, huge headroom, right? I mean I -- we have got 12 million monthly -- less than 12 million monthly active users. Swiggy, Zomato, and other combined are more than 150 million. So we are just too small in the overall scheme of things. That's how I see it. It's more about execution than the demand opportunity.

The next question is on house kitchen. Indeed, Chinese category is very popular, and it's -- the large part of the supply chain still remains fragmented. What are your views on Hong's Kitchen and what is your initiative?

Yes. I think I have to take a tough choice like when I -- when we did kind of move away from [indiscernible] right? And the answer was also partly in Hong's kitchen, which was going quite well right from a -- if you look at the -- you can open up Swiggy or Zomato and look at the customer rating and the feedback that it is receiving. So we work very hard on changing the recipes, making it more Indianized, fix -- again fixing the supply chain, going back to our commissaries, taking a lot of those back-end process or consolidating those lot of kitchen processes into our supply chain so that we can give a very consistent quality. Again, our store formats, store designs, we worked a lot on it to -- how do you do the right throughput in our 1,000 square feet store, have the right balance of dining plus delivery and takeaway, again using our own app. So those are the elements that -- core elements that we are building all businesses upon. And yes, I see it more as an opportunity. In some level, it can be even bigger than Chicken because at least in Chicken, you can name a competitor. In Chinese, you can't even name a competitor, right, which has crossed 100 stores, right? And as a food company and the largest [ U.S. ] company, I also see it as a -- I take it as a matter of challenge and also pride that we have to have one -- at least one home grown brand. So -- and here is our answer on home but we will be very prudent about it again. We will treat it as a start-up, do it in a sandbox of 14 to 15 stores, prove out the economics, get the food cost right, have an awesome lovable customer experience and then fire.

Sure, sir. We had the next question on loyalty program, which has partly been addressed. It has started well. What are your ambitions here? And I think we have covered that in the response.

Only double down. We will not give any -- it is a source of strategic advantage. So I will not comment on it, but the idea is to double down.

Next question is on the capital allocation going forward. In the last few years, we have seen Jubilant entering multiple cuisines beyond pizza, while pizza as a category offers large opportunities, all these categories also address larger audience, but we also have expanded in Sri Lanka, Bangladesh and have acquired stake in Eurasia. What is your thought on the capital allocation, and secondly, on geographic expansion? How do you see that happening?

Yes. So I think in terms of capital allocation, I think the priorities are very clear. First, all [indiscernible] could also be ruled out because we will not start Domino's [indiscernible]. Second, we've called out Popeyes as [indiscernible], therefore, [indiscernible] OpEx, bulk of the store expansion in CapEx [indiscernible]. As Sameer said, some of the other brands are in the sandbox, we can only invest if you find a model with a lot of difference [indiscernible]. The third level of the investment would [indiscernible] back in supply chain. And I said [indiscernible] I think they're getting to slightly higher CapEx as well as because the step investment, we have Bangalore commissaries [indiscernible] investment and probably Mumbai will follow up with that. So we have a bit of higher CapEx slightly coming in, in terms of our commissaries. And I think beyond that, it will be some very small strategic investment depending on whether the opportunity is attractive or not. But I think that is the basic framework that we follow. Domino's, Popeyes commissaries and some of the [indiscernible].

Sure, sir. We have last 5 minutes, so I'll take probably the last question and then hand it to Amit for closing. What happens when any competitor across categories in QSR opens a store near to your Domino store? Have you seen any adverse impact on your revenue throughput or anything which you can share?

If -- I mean -- I have been asked, we can add -- but in fact, it works the other way around. We always go to a [ catchments ], which has higher throughput, higher footfalls and where there's a concentration of QSR brand. So those places actually attract the highest level of -- so whenever competition or any other QSR is in close proximity, the throughput from the store over a period of time actually goes higher than actually going down. And that's the most QSR actually follow each other as a strategy in terms of the [indiscernible].

Yes. I think like-for-like in a mall where we have all the competitors, right? Domino's tend to do one of the best, right, in the mall -- so in the food court of the mall. So I think same logic works actually in our favor.

Prashant asks, "Domino's did the best when Pizza Hut was still open for dine-ins. While Domino's cracked the delivery opportunity." it seems that strategies are reversed now. How do we ensure that our focus on dine-in does not reverse those gains as Pizza Hut is expanding more off delivery outlets?

So I think they will accelerate delivery through [ container ] delivery, which is to [indiscernible] home delivery and match and our own app capabilities, which is all towards delivery and loyalty, of course. So I don't think there is any drop in focus in tying the investment capital on the delivery side of -- in fact, they're only going down even more, right? I mean in terms of the leadership bench strength I am creating, it is only large [indiscernible]. I think we have these stores, right, which is a neighborhood store, and [ COVID ] did kind of reset the base, it is only natural to get our humble right share in those neighborhood stores so that whether I'm coming back from office or school, right, within these stores, outside -- near every store has a school nearby, a little girl will bring her parent or mother, can I have a pizza, right? And those are the joyous moments that are created inside the store or somebody celebrating their birthday in that location. India is -- homes are small, and this gives us the opportunity to celebrate and be part of daily lives which is inside the dine-in unit.

We have paucity of time, I think you'll have a schedule on I am sure and I would be opposite of that. So it's 4:28. So I can just ask you about one common theme which we ask everyone. The sustainability things that we talk about is, what sort of material changes that you are making in Jubilant that you are proud of?

I think good thing is you have the ESG leader sitting in this room starting, this is very important, right? So how we view this. Each department is carrying a target on these three dimensions; one is sustainability of food, second is the use of electricity/solar power. In fact, we launched our big campaign internally on how to move quickly forward on that dimension. And third is emissions, right? And Popeyes, for example, is 100% of the bikes are e-bikes. And we have the same intent and commitment on the Domino's bikes. Like all new stores opened in any area, they all open with e-bikes. And if the capacity of e-bikes were there, we would have, in fact, converted all our bikes to e-bikes. So I think it is again the -- on all 3 dimensions; food sustainability, energy and emissions, we will push forward, and it is part of my goals and the KRAs of my team. Want to add...

I think the way we do the sustainability is not a project, I think it pretty related to every part of the business. And that's how we approach the whole ESG area. Of course, we will be giving formal targets but it is already very well embedded in the business. So whether it's antibiotic-free chicken or [indiscernible] on e-bikes or reduction, energy-based management system across our stores. So it's pretty much part of the way we handle this.

Okay. Thank you so much, Sameer, Ashish, for generous time, sharing your thoughts with us. And I hope it gives us some clarity on how you are taking the business forward. I'm sure it's one of many interactions, which will have in future, and you'll continue to sort of update us how you make progress on the strategies. I also thank all the participants for being here, patiently being there in the webinar, while asking questions, we've tried to take as many as we could, but I'm sure some questions, due to the paucity of time, we are lagged off slightly as well sometimes. It's [ old age transit problem ]. But we will come back to you and forward all the questions to [ Lakshya ] and we'll reach out to you for your answers. So [indiscernible], we will reach for your answer. Thank you so much for answering.

Thank you, Amit. Thank you for moderating this very well. Really appreciate it. Time very well spent and I look forward to more of that.

Thank you so much, Amit. Thank you.

Thank you.