Restaurant Brands Asia Limited (RBA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Restaurant Brand Asia Q4 FY '23 Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instructions] I now hand the conference over to Mr. Nihal Jham from Nuvama Institutional Equities. Thank you, and over to you, sir.

Yes. Thank you, Vikram. On behalf of Nuvama, I would like to welcome you all to the Q4 FY '23 and FY '23 Earnings Conference Call of Restaurant Brands Asia. From the management today, we have Mr. Rajeev Varman, Whole-Time Director and Group CEO; Mr. Sandeep Dey, Brand President, Indonesia; Mr. Sumit Zaveri, Group CFO and Chief Business Officer; Mr. Kapil Grover, Chief Marketing Officer; and Mr. Prashant Desai, Head of Strategy and IR. I would now like to hand over the call to Mr. Rajeev Varman for his opening remarks. Over to you, Raj.

Morning to everyone. So as promised, we got Sandeep joining in from Indonesia. Good morning to you, Sandeep as well.

Good morning, everybody.

Good afternoon, by this time, right? So welcome to the call. I will give you a very quick summary, first on India and then on Indonesia. And after that, we'll hand it over to Sumit to go over the finance, then over to Kapil to go over the marketing and then Sandeep to go over Indonesia. So with that said, let me just quickly get you on the India business. For India business, we had a good year. If you look at revenues, we were up both in total revenues as well as in SSSG. Gross profit margins, we were up. Restaurant level EBITDA, we were up. Company level EBITDA we were up. So we were basically a positive kind of P&L and a positive kind of a growth story for India. So let me start with first revenues. So FY '23, INR 14,397 million versus FY '22, which is INR 9,437 million, which is a growth of 52.6%. That included SSSG of 23.1%. And if you look at the Q4 numbers, Q4 FY '23, we had a INR 3,649 million, that was versus FY '22, which was INR 2,687 million. Again, a growth of 35.8%, which includes SSSG of 8.3%. Also, the net restaurant growth was 76, which included some closures and some openings and I'll come to that in a minute. Gross margin, again, FY '23, we went to 66.4%, that was against 65.8% from the previous year, which is a 60 basis points improvement, maintained 66.4% in Q4 in terms of quarter-over-quarter in gross margin. So that's despite all the inflation that was there in that quarter. And now we are happy that the inflation is going in the downwards direction. And you will find our outlook in the future today towards the end of the call. Going to restaurant level EBITDA, and I'm giving you post-Ind AS numbers and Sumit will then give you pre-Ind AS numbers when he goes into the P&L as well. So let's start with the FY '23 restaurant level EBITDA, which is INR 2,483 million, 17.3% versus FY '22, which is at INR 1,528 million, which is 16.2%. So another 110 basis point improvement on there. Q4 FY '23 INR 666 million. That is 18.3% versus Q4 of FY '22, which is at INR 478 million, 17.8%, another 50 basis point improvement here. And finally, the company EBITDA, again, post-Ind AS numbers here. FY '23, INR 1,654 million, which is 11.5% against FY '22, which is INR 902 million, which is 9.6%, 190 basis point improvement here. And then Q4, this ending quarter, FY '23, we are at INR 423 million, which is 11.6% against the Q4 FY '22, which is at INR 302 million, again, 11.3%, which is a 30 basis point improvement. So as I highlighted, improved revenues, improved gross margin, improved restaurant EBITDA and improved company EBITDA. Now just on the growth side. So we are -- we ended March 31 with 391 restaurants, great work done by our development team there. Opened 88 restaurants, and then we were optimizing the old portfolio, and we closed 12 restaurants that were not profitable and did not have a growth potential, giving us a net of 76. 15 restaurants are now under construction as we speak and 38 are in the pipeline. So the growth story continues. BK Cafe, which is a story we started towards the end of -- towards the beginning of FY '22, that we have built 275 BK Cafes that are operating. We continue to build BK Cafes as we build new restaurants where appropriate, where we see the potential to do those. We're kind of integrated into our development plan as we build restaurants. BK APP, again, Kapil will talk a little more about this, but a wonderful job. BK APP revenues grew 327% year-over-year. 6.2 million APP installs, 107& growth over the last years installs. So some progress on that side as well. And we continue to -- we believe that we will continue to spend on the app and we'll continue to build that business over time and continue to work with our aggregate partners as well to continue servicing our consumers, both on a dine-in as well as delivery. Now just a quick note on Indonesia business summary. Again, here, we had improvements in revenues. We had improvement in gross margins despite all the inflation in Indonesia in the past couple of quarters, we continue to improve on gross margins. We had a little sub result on our company EBITDA. And we will talk to that, I think Sumit will spend some time talking about the launch of Popeyes and how that kind of do some investment and also investment in what we call back to basics which Sandeep will speak about when he gets into his section. But a lot of good investment was made in Indonesia. We are seeing some positive results. We continue to believe this is a very strong business, that the foundations have been laid and I'll talk to it in a moment. Store count, 186 over here as of 31st of March. Revenues, and these are in IDR, IDR is Indonesian rupiah. FY '23, we had IDR 1,153 billion and that was versus FY '22, which is IDR 1,052 billion and 9.5% improvement. Q4 FY '23 IDR 276 billion versus Q4 of FY '22, which is IDR 249 billion, grew another 10.5% on top of that. I don't -- we have the gross margin improvement number. Sumit will address that. There was a gross margin improvement as well.that we were able to achieve. Actually, I'll share that number with you. It's right over here. So we moved it to -- gross margin moved up to 58% versus the previous year of 56.3%. And I'm talking about the Burger King portion of the business, not including Popeyes, which is just [ launched ]. So with that said, let me just speak a little bit about our business in Indonesia. And then Sandeep, who will become the regular part of this conversation, this call, he will give you substantially a little more detail into the Indonesian business. So first of all, we shared with you last call that we had launched Popeyes in Indonesia. Today, in Indonesia, we have 10 very healthy stores which are doing fantastic sales almost 2.5 to 3x the volume of the Burger King business that we have over there, which we are getting back into par. Not only that, but again, as I told last time, this was a record launch for Popeyes globally. And Sandeep and his team have done a phenomenal job launching that brand over there. And we have 10 stores and we're going to build additional stores and move towards 25, 30 stores towards the end of this year. And this will become a significant profitable business, currently doing restaurant-level EBITDA in very high teens. So a good job there, Sandeep, and you will talk more about this on your section. Now just coming down to what the pillars, what are we doing in Indonesia or why are we're so excited about Indonesia? So first of all, we took this business. And when we took this business, we wanted to obviously lay the foundation for the next 5 to 10 years, how we are going to build this business, how we're going to move this business forward. So Burger King as the name says, Burger and King, right? So we wanted to make sure that we took the product line on the burgers, we tested the product line versus competition, we found gaps in those in terms of both affordability, likeness, taste and so forth. Sandeep, who is an expert in NPD as well, an expert on the supply chain as well, did a fantastic job over the last 6 to 8 months in establishing each and every product line, was taken from scores and we can share those scores with you. But tremendous improvement on our burger line. Tremendous taste improvement, tremendous consideration and affordability and likability of these products. So we have now finished that process. It was completed between October and February of this year, all products have been completed, all products have been tested, all products are now rolled into our restaurants. Second, we spoke about this I think about 8 months ago, 9 months ago, when we were on the phone with you guys that there was a significant gap between our business over there and the industry standard, which is chicken. We were not offering chicken or we were not building that portion of the business which is a strong business in Indonesia. In fact, I think it's a staple food over there, rice and chicken, and we were offering 1 chicken offering, which also in our test showed that there was a gap between what the industry standard was and where we were. So that, again, just completed this month. In fact, Sandeep will talk to you about how we are taking that into the market. We have completed. We have got now 2 versions of the chicken. We have a classic version and a spicy version of the chicken. This is standard. All other players have it. We think that about 60% to 70% of the industry sales is in this chicken area. And so we will start building this. In fact, Sandeep will share with you the excitement about our rollout of this product. It's already rolled out, by the way, but the communication portion of this will come in at a future date. So I spoke about burgers, chicken, which is done by May '23, then we had a gap in desserts. And this Indonesia is a major dessert market. There is a substantial amount of liking and purchase of desserts in the QSR space. And we have now built a substantial menu, thanks to all the work our CMO over there, Namita has done. And she has built a fantastic dessert menu as well, which in Feb '23 was put into the restaurant. By the way, guys, all these things initiatives, we have not started communication yet. We have just put these things in and we are seeing that 10%, the other numbers I shared with you is all coming off just local communication at the restaurant level. Media investment will start in June. And then we will start talking about all these improvements moving forward. The last piece, which is my favorite piece, which is a piece that is relevant, strong makes sense for both markets, which is India and Indonesia, which is value. Both countries are driven by value. both countries continue to have a very strong consumer following under the name value. We have fixed both quality taste of products there. And now we are going through to push this on to media investment where we will be communicating a value proposition to bring people in to start trying the product. So this is basically the strategy that we communicated to you months ago, quarters ago. Today, I'm happy to say that 80% of this strategy is already in place. The media event and media communications will start, and we will start building this business, and we'll share our exciting results in quarters to come. With that said, I will turn it now over to Sumit who will carry you through the India first and then the Indonesia financials and how we have performed in all the areas. So over to you, Sumit.

Thank you, Raj. The way we will -- I'll try and do is to kind of cover through some of the strategies that we've always been following and how we've actually performed through this year and the way we see each of these emerging in the coming year as well. We were always focused on growth part of our business and keeping that very strongly as one of our pillars, we've grown and opened 88 new stores. At the same time, we want to be mindful that we don't carry stores that are underperforming eventually we have to shut down them and net opening of 76 and ended the year at 391. We would continue on this growth journey, and we intend to get to around 450 stores as we get towards the end of fiscal FY '24. So that journey of growth continues. And obviously, it will be a responsible growth so that our P/L remains -- does not get added. As far as revenue is concerned, I'm on Slide 10 of our presentation, we grew from INR 940 crores to almost close to INR 1,440 crores, a growth of 53%, led by a strong portfolio level ADS moving up from 100,000 to 118,000 for the year. And then as I explained, the balanced part of the growth is coming for on account of the new stores that we added during the year and the annualization of the stores that we opened in the previous year. And between the 2 years now, we've almost added 125 stores-plus to this portfolio. The second part of the pillar, which we've always been talking, and I'm on the -- I'm still on Slide 10, talking about dine-in PMIX. We've always been saying that our focus is going to improve the dine-in share of the business because that's where we believe the customer experience is at its best. We've been able to move the needle by 9% which is a potential shift that we've done from 49% to 58%. When Kapil talks about some of the initiatives that we are working on, we believe that we'll be able to further shift this needle more towards dine-in as we go along. So that journey that we have embarked upon with a very strong confidence on it seems to now starting to play out for us. As far as store level EBITDA is concerned for the full year, we moved from by 3% points from 5.2% to 8.3%. Part of it was led by gross profit at 66.4%. We have been able to kind of throughout these years, all of you who is tracking us on a quarter-on-quarter basis, you would realize that we've been able to maintain the gross profit margins at a very steady state of 66.4%, 66.5% point range throughout the year by various initiatives that we took and could offset the impact of inflation that we've seen to make sure that there is no variability that comes to our margin play. So that is something which we've been able to do that. Having said that, with all the challenges that we have seen in the past, we strongly believe that we should be able to improve on to this number as we get into FY '24. And we have -- and as we get to the guidance part later, you would see that we've taken an improvement on that part of the portfolio. Apart from gross profit, some of the initiatives that we continue to work to improve efficiencies, did see some results in quarter 3 and quarter 4 and if you really look at the kind of spends that we have been incurring on per store per month basis or quarter basis, if you see there is a very clear shift in some of the fixed cost lines like labor, utilities and all that you would see. And as we are able to improve the sales going forward, we should start seeing the benefits of that going forward flowing down into our store EBITDA as well. So for the year, at the company EBITDA level, we were at 2.5% with cash [ engagement ] of INR 26 crores. Having said that, and I'm going on to Slide #14 and talk a little bit about Indonesia. Indonesia, we did an ADS of IDR 17 million in Burger King as again IDR 16 million, a marginal improvement. We've kept the portfolio at 176 stores as far as Indonesia is concerned. On the BK side, our focus is going to be to kind of get the business back to its -- back to cash breakeven, which is what we are going to work towards. Now through the year, we have made certain investments, which obviously are reflecting in our company EBITDA and the number does seem large. But there are good amount of investments that we've already done through the year. And I'll just kind of call it out -- call out some of the investments that are getting reflected in our numbers as we see. One is, we launched the brand Popeyes in Indonesia towards the later part of the year and spends in order to launch the brand, which stands at almost around INR 6 crores to INR 7 crores, it's something which we've kind of put there. And we've had a very strong successful brand launch, and Sandeep will talk about it. We expect that, that brand should do high-teens in terms of store level EBITDA as we go towards -- as we kind of see the performance in FY '24 and start seeing meaningful numbers coming out of that brand. Apart from that, we've got we had made sure that the stores look -- start looking better and inviting as far as the customer is concerned. So we have put money behind getting the stores back in shape. We've kind of worked off making sure that the stores are operational for the customer wants us to be operational and hence, effectively also took calls in terms of the availability of people to service the customer throughout the period. So these are some of the big things that we've kind of already put in place. Product development, which Sandeep will talk about. So we've literally got through the year to make sure that we are ready to roar into FY '24 with all the things that we've already put money behind, taken the beating, if I may say, but ready to kind of make sure that from here, to be able to get to cash sequent in FY '24. So that's where we stand as far as Indonesia is concerned. Obviously, because we are still working towards getting to cash breakeven, the consolidated company EBITDA did have -- did see a negative INR 60 crore, which we have kind of put as money that we required to put in Indonesia to bring that market back to ship. As Raj said, we still -- we strongly feel that that's a very strong market with a very strong consumer base on the burger side as well as on the chicken side, which -- and with those 2 brands, we should be able to achieve and to report very strong performance in India as well as in Indonesia. So over to Kapil to take us through the marketing update there and talk about a little bit of -- some of the things that we are working on for next year as well.

Thanks. Thanks, Sumit, and good morning, everyone. I'll start to Slide #17. Slide #17, as Raj mentioned and Sumit mentioned, it talks about our continuous focus on growing top line and specifically dine-in traffic on the back of value programs. So we shared with you in the past the Stunner campaign with an affordable veg and nonveg menu. We continue to drive that while we started testing an extension of the same items with a new meal proposition starting at INR 99. Now this program was tested at about 80-odd stores. We saw some very good early reads on dine-in traffic, and our consumers really like the idea of getting a full affordable filling meal at a very attractive price point. So since then scaled up the promotion. Early days, but we're seeing very good traction on the sale. On Slide #18, while we've taken -- spoken to you about the Stunner value menu. And we told you about the campaign that went viral, very happy to share that the social media campaign has won a silver award at the Clio International Awards, which is [indiscernible] and this is our first win on the global platform. Slide #19 talks about how we continue to balance the Barbell strategy on our menu. Last year, we launched the Kings collection menu with some very craveable products built on a basis very strong consumer insights and it has ingredients with like very high-quality paneer, cheese, which are premium for our vegetarian guests and also grilled and fried chicken burgers for our nonvegetarian guests. And we will continue to innovate at all ends of the menu and offer great value for money to our guests. Slide 20 talks about Whopper, our flagship product. So we continue to strengthen it with a string of limited time products. Last quarter was an Indian inspired variant called the Indie Tikka Whopper, which did very well for us. And Indian business with the veg, chicken and the mutton Whopper, the 3 variants, which are designed specifically for Indian guests, continues to be amongst the highest Whopper selling markets in the Burger King world. The next slide is an initiative that we are very happy and humbled to share that we are one of the first brands to recognize how important it is for our guests to get options of 100% veg, no onion, no garlic menu in certain religious towns or during their pilgrimages. And I've just shared some pictures of our 100% veg restaurants that serves no onion, no garlic menu in Katra, the Vaishno Devi pilgrimage. Slide 22 talks about our continuous efforts to build a youthful brand, which talks and engages with Gen Z and millennials. So we make sure we are part of topical conversations like cricket, whether it is any event that's happening in India or international. Indian festivals like Diwali, international events like Halloween, moments like big movie releases and other events like Mother's Day and so on. And we continue to engage and talk the language that is our guests understand and they connect with it. The BK Cafe on Slide 23 is one of our most recent additions to the business on the menu. It continues to expand in footprint and is now available at 275 locations. Now obviously, the task is to build awareness, and we have been engaging a lot of social media influencers to help get the word out. And as of last quarter, we had reached out to almost 15 million of the followers by a very targeted store-based content, building awareness about the fact that we now have cafe options available. Lastly, in addition to the Clio Award, the brand has won about 20-plus other marketing product innovation and digital recognitions in India. So in a nutshell, a strong value strategy, a lot of innovations across the menu, especially the premium end with Kings Collections and limited time Whoppers, a new cafe expansion and a brand that's continuing to build relevance in India with the Gen Z consumers. Now I'll hand it over to Sandeep to talk you through some of the key initiatives in Indonesia.

Thank you, Kapil. And once again, a very, very good morning to all of you. So you heard Raj talking about our single-minded objective, right? The single-minded objective of building back this business into a profitable company. And he also spoke about the amount of ground we covered in the last few quarters on our key strategic growth pillars. So in the next few minutes, I'm going to share a little bit details about some of those strategic pillars. But before I do that, let me share the work we have done in strengthening our foundation so that we could deliver consistently a best-in-class guest experience every single day. I am on Slide 27. See, what we have done is we looked into every single aspect of our business, which impacts guest experience and launched a company-wide cross-functional project called Back to Basics. The first thing we did was rationalize a lot of products, which we're not selling at all. So it helps us not only eliminate a lot of SKUs, but also made the supply chain and operations much more efficient. By the way, in that process, we also made our menu board completely uncluttered and it kind of helps our guests navigate through the menu boards and make their choices much more conveniently. Then we took most of our core products, as Raj said, took it to consumers, got them taste it, capture their feedback, identify those improvement areas and recreated then based on those feedbacks and got them validated once again through the extensive consumer research process. And through that process, we created our winning products, we created our winning menu. Also as a part of Back to Basics, we have gone from store to store and checked every single piece of equipment to ensure that they are all fully calibrated, are in perfect working conditions. We also carried out an extensive training program for 100% of operators, 100% of all crew members to make sure that they are retrained on product builds, ops procedures and so on and so forth so that they are fully ready to deliver great customer experience, right? Now once we strengthened our foundation, we then started implementing all our strategic initiatives. So I'm moving on to the next slide now. So our first priority was to build burger leadership and build that burger leadership through taste credibility, through flavor innovations and build that equity through Whopper. We actually took our Whopper, took it to consumer and developed a new Whopper build based on Indonesian consumers preference, based on [ their talent ], right? And I'm happy to share that the top 2 taste scores are significantly better than the previous Whopper. In fact, in terms of product preference or product ranking, it scored 77% compared to 23% of the old flappy Whopper base. We also, at the same time, developed a premium layer called gold collection, which to me probably is undoubtedly the best cheese burger we sell in our chain here. These are pure taste indulgence and at the same time, quite affordable pricing. They also, by the way, not only got great taste scores but also fantastic value for money scores. And over a period of time, we believe strongly that this gold collection layer will also help us in building our burger superiority in the overall QSR landscape. Now I'm moving to the next slide, which is Slide #29. See, while we were studying the market, we also understood and Raj also mentioned that this is a market where fried chicken is kind of a staple food and there are 2 kinds of fried chicken consumers, a classic non-spicy consumers like kids and people who can't handle too much of spice, and then there are spicy levels as well. And all brands, by the way, offer 2 kinds of chicken, spicy and the nonspicy. But BK, we had only 1 type of chicken and that came out as a big opportunity area to bridge that gap and build a comprehensive bone-in chicken menu. So again, we followed the process, we did a lot of work, created multiple options, multiple iterations and followed the same exhaustive process of consumer validation and eventually came up with 2 winning products, the spicy and the nonspicy, both these products scored great taste scores, great purchase intent scores and also performed better than the competition products. We are quite satisfied with this product we've created and we want as many guests to try about products and hence, we actually launched just about a week back these 2 products at an extremely attractive price of IDR 25,000 for a piece of chicken, rice and a drink. Just for the perspective, it's almost about 30% cheaper than the next available pricing in the market. We also have an extremely strong 360-degree marketing campaign in place, which includes TV, it includes social, digital, mall branding, outdoor, basically a comprehensive plan in place, and that will be live and kicking in the next few days' time. The last strategic pillar I'm going to talk about is building a strong dessert portfolio. Also, when you are selling in the market, we learned that Indonesia is a market where consumption of dessert is very high. And there are many brands, by the way, local as well as chain international brands who are doing fantastic business on this particular category. And that became an opportunity area for us to build innovative, tasty, yet affordable desserts. So we partner with our dessert partner, Nestle, and launched our first branded dessert called KitKat Fusion. And by the we launched at quite an affordable pricing of IDR 16,000 and then it did phenomenal business. We sold almost 3x of volumes and a very high incidence. And as a part of our ongoing strategy, we have a very strong pipeline to launch innovative and affordable desserts throughout the year. So that's all from my side on the Indonesia business, and I now hand it back to Sumit.

Thank you, Sandeep. I'll just quickly share the outlook and then open up for questions from the participants. As we've continued our store growth journey, we intend to get to 450 by FY '24. And then as we've always been talking about 700 stores by December '26 is now our FY '27 target stance. As far as SSSG is concerned on the back of all initiatives that Kapil spoke about, we are taking a target of 10% SSSG growth from where we stand or where we end at FY '24 to be. And then we believe that with the initiatives that we have, we should be able to get to an SSSG growth of 8% thereafter year-on-year. Gross profit on the back of really strong performance and being able to sustain the gross margins at 66.5% range through the year. We are taking a target of 67% of gross profit for the year and then improve it by further 2% over the next few years. Indonesia, our target for FY '24, effectively, is to get to cash breakeven. We would not look at growth as far as Burger King is concerned, but we will continue to invest behind Popeyes, and we intend to get to around 35 stores by March -- or in '23 as far as Popeyes is concerned. And then as we get to 700 stores in India, Indonesia, between both the brands, we should be able to get to 325 stores, and that's when we would be crossing the number of 1,000 stores at the business level over next 3 years there. And these are basically the broad guidelines that we are working towards as a team. I would now open up for questions from the participants.

Prashant here. I would request Chorus Call guys to extend the call by about 15 minutes given that we are already 35 minutes into the call, that will give you guys more time to ask us questions. Thank you.

[Operator Instructions] We'll take our first question from the line of Shirish Pardeshi from Centrum Broking.

Heartly congratulations for walking the talk. Two things. If I note from the India perspective, you mentioned that on Slide 11, the cost is one of the elements which you are working very closely, would you be able to help us to say that these all initiatives, despite the inflation, which is hitting very hard, and we still see that inflation is not completely subsided, though we see that milk inflation will subside. But in FY '23, what is the cost element has driven in terms of efficiency extraction in terms of gross margin? Maybe if you can elaborate a little more? And what is that target you are holding for -- in FY '24?

Yes. Thank you for your question. I'm going to give you a brief outlook, and then I'll turn it over to Sumit. See, we just shared with you or Kapil shared with you a very aggressive promotion that we're going forward with, which is now on television, it's pasted all across the country, which is the INR 99 meal, right? Despite that INR 99 meal, our outlook, which was just shared by Sumit, for next year is to improve gross margin to 67%, right? So how are we going to do this? So as you recall, we just shared with you that we build net 76 new restaurants this last year, we continue to get that total up to 450 this year. So we have 2 elements that will be just automatic. One is buying because our buying quantities continue to increase and hence, we continue to drive prices down as the buying quantities increase because this is a substantial growth in our portfolio. And second is our transportation cost continues to decrease as we put more and more stores into existing markets where there's maybe 2 or 3 stores today and go to 5 or 6 stores and transportation costs over there goes down. The -- on the company level side, you will find that we have kind of put the structure in place, which is now long term for the next 5 to 10 years is a stable structure. We don't see adding any additional department or any additional leadership role. There will be small -- under the leadership, some changes here and there in terms of G&A. But we see that G&A is kind of a fixed cost that's going to kind of stay there and probably go towards somewhere between 4% to 5% in the future. So those are the advantages you will start seeing in the P&L. you'll also see a massive impact -- positive impact on rent line because as you -- as the volumes go up, so there's 2 components to rent, there's a fixed component and a variable component. The variable component of rent will continue to kind of be whatever percentage towards their total top line growth. But the fixed rents in this -- there's several restaurants with just fixed rents, that fixed percentage keeps going down as the volumes increase, and that will also add on to the P&L volumes. So those are the major kind of strings, and I'll turn it over to Sumit, if he wants to add anything to this.

No. Just a couple of points I would add to that. So Raj has already covered the gross margin and the rental piece. There are 2 other lines which we are very actively working on to kind of make sure that we are able to bring efficiencies. One is the utility line, a line which sees the maximum inflation. And that is where we have now kind of started working with internally as well as taking support from some external consultants as well to be able to identify opportunity to bring the reduction in consumption. And the early results have shown positive signs. So we should be able to kind of work towards building -- kind of beating the inflation there as we kind of build efficiency of that line. And the second one is where we made some investments on the application side, on the back end to be able to very closely monitor the way we budget or plan our people cost at the store level, and that's where we will also see some efficiencies to come in as compared to what we've seen last year. Secondly, last year, in quarter 2, you would remember that we made some investments. Now that has now started to stabilize, and we've seen the per month cost per labor to stabilize downwards on a quarter-on-quarter basis. So if you just plot that number, you would realize that we've only been spending lower in quarter 3 and quarter 4 as compared to the previous quarter. So -- and this will -- we will now take the benefits into the subsequent year into FY '24.

That's really helpful, Sumit. Two follow-up here. When you say that we will reach to about 67% gross margin. I see that there is a lot of stress across India and even in Indonesia, we have spoken that there is a media investment, which is there. So would you be able to help me with the 2 questions? One is what is the FY '23, the media and ad spends we have incurred and maybe that number, how it look like in '24? And second, would you be able to help us to say that from 11.5%, 11.6% EBITDA, can we build a 12.5%, 13% or we should look at, in the medium term, about 11% and then build 11.7%, 11.8%? So maybe some color if you can add?

So Shirish, Prashant here. Our media spend marketing is governed by our MFDA, which has been at 5% and it will continue to remain at 5%. That's true for most of the QSRs in the country. As far as your second question is concerned, you may see a little bit of a higher media spend in Indonesia. But otherwise, we will try to kind of keep this at about 5%. Shirish, as you know, from the time that we've gone public, we've refrained from giving kind of a guidance in terms of our restaurant level EBITDA and company level EBITDA. But if you are looking for a direction, I think Raj kind of alluded this. And it's -- if you broadly look at it, and this is something that we've been consistently communicating in our one-on-one meeting with our investors and analysts alike. Some part of our business and the costs are very directly linked to our ADS. Unfortunately, for the sector as a whole, this quarter was a softer quarter in terms of the ADS. We are seeing grass shoots of recovery. The quarter also met with a lot of inflationary pressure, which also we are now seeing signs of that abating. So if you put all these things into perspective, assuming that Sumit is talking about 10% same-store guidance, we ended FY '23 at about 118,000 of ADS, you add 10% to this. And if you then do your math, you will see directionally, we will be north of where you are. But as I said, we don't like to guide this. But directionally, you will see a significantly improved FY '24, Shirish.

And just to add to what Prashant just said, see, while we continue to spend 5%, if you appreciate in FY '22, our total sales was around INR 9,437 million. Now that's gone up by 51%. And this year, it will go further up as we continue to build restaurants. So the media money, while it's only 5% of the total revenues, the total money available continues to grow. And that's why you will find a company that did only maybe 4 or 5 weeks in advertisement on television grew to 20 weeks, grew to 30 weeks, continue to be able to do more and more of advertisement, whether it's on television or out of home. So this thing will continue to grow. In terms of volume of communication, the impact to the P&L will be exactly the same because we don't go beyond that 5%. We have gone in the past when we were not public. But as a company today, we have a substantial amount of money within that 5% to continue promoting our restaurants. So I hope between myself and Prashant, I think we addressed both those questions of yours. But thank you very much for your questions.

Yes. I just have a last question. Thank you, Rajeev, for the retail exploration. When I look at the competition and primarily from McDonald because they have -- McDonald is also putting a lot of focus on the India market and they have revived the Northern business also. And everybody is talking about getting the piece of sales in the market. Now that's one part. The national competition is evolving. And second, the local competition is always there, not from direct from the burgers or pizzas or KFCs, but there is also a new development which is happening from the likes of chicken sandwich and other things. So I'm just trying to draw your attention. Do you think this competition is remain benign or stable or is increasing? Or do you expect any some disruptions from the -- not directly from the chicken or burger format, but indirect formats?

Shirish, I'll quickly answer that and then we'll move on to the next questioner. Ever since we started business, Raj and the teams have always been -- we viewed as every single cuisine as competition, not just competition from a category standpoint. From a category standpoint, it's as of now, duopoly kind of an environment, people will try to get in because it's an attractive proposition. But every guidance that we've given has been given keeping in mind all the factors that you mentioned.

We'll take our next question from the line of Harsh Shah from Dimensional Securities.

I just wanted to understand that the ADS has been lingering at around 115,000, 118,000 [ BB ] peaked at 127,000 a couple of quarters back, and we are down back to 110,000, 112,000. So just wanted to understand what will drive this incremental ADS? Because we are taking a lot of initiatives with our standard and value menus, and we are also adding a lot of cafes. And 1 year down the line, we will have nearly 250 cafes which will be 1 year old. So just wanted to understand that how will this ADS pan out over the next couple of years?

This is Kapil. I'll take this question. See, part of what you see in the trend is seasonality, yes? The 127,000 quarter is all the school holidays, middle of the year, which is very high seasonality. So that helps us sort of increase sales along with the promotions that we're running. And the future programs, I shared a little bit of that in my commentary that we're now rolling out the INR 99 meals program. And we're seeing some good early reads. We piloted that in about 80-odd stores and we saw some good growth in dine-in traffic. And now we are expanding that to national promotion. We are spending money on media, traditional digital billboards, outdoor mall branding, and we are expecting good growth on the back of this promotion.

I'll just add, Harsh, to what Kapil mentioned. One of the things that you will have to understand the nature of our business is every time we open a restaurant, it takes a restaurant to reach a certain degree of maturity over the next 24 months, 36 months. if you just see today the 391 restaurants that we have and if you just do the simple math, the number of restaurants that we've opened over the last 2.5, 3 years, you will see that close to about 40%, 45% of the restaurants -- of the total restaurants that we have opened over the last 2, 3 years. As you move forward, as these restaurants as these locations mature, there is a natural tendency of traffic coming into this and which is the whole genesis behind the kind of 8% same-store growth guidance that we've given from FY '25 to '27. So it's a combination of almost everything that you mentioned, not one specific factor. Product, marketing, restaurants maturing, new product introduction. It's a combination of all of that, Harsh.

And on the Indonesia side, if I look at the ADS, it was around 89,000 this quarter, and then you say that you had 10 stores of Popeyes, which are doing almost 2 to 3x higher ADS than Burger King than -- would it be fair to assume that the ADS for BK was even much lower than what it used to be in previous quarter, then what will be the strategy? I mean are we looking at rationalizing some of the stores here and add more of Popeyes? How do you see this business?

So Harsh, let me -- before I hand it over to Sandeep, but I'll just correct you, the Indonesian ADS that Sumit mentioned, 117,000 was purely on the burger side of the business. When you look at the Popeyes ADS, where we said that we are doing almost 2x, 2.5x of the burger that separate the restaurants have just started, the impact of that you will feel in the next year. One big thing that I still want to reiterate with Sumit and I've mentioned, if you look at the numbers that we have shared, we are currently guiding that next year, the Indonesian business will achieve a cash breakeven which is a very, very big milestone from where the business that we acquired. And if we just do the math itself, that swing is close to about INR 100 crores swing right? And this encompasses everything that Sandeep mentioned, everything that Raj mentioned, all the initiatives, including opening of Popeyes, all the work that he has done to improve the burger ADS to probably where we acquired a pre-COVID levels.

Sandeep, do you want to add anything else or...

No. I think, Prashant, you have covered pretty well. In the last quarter, practically all the improvement in ADS we have seen is from the burger side of the business itself. And as both Raj as well as I mentioned that, we have covered a lot of groundwork in terms of strengthening the foundation and then started putting in all of our strategic pillars. So you will see a lot of improvement on our ADS on the burger side of the business as well.

Just a last follow-up on this. We have reduced our gross margin guidance from 68% to 67%. So is it fair to assume that we won't be taking any price hike this year? And what would be the thought process behind lowering this guidance?

Yes. So we just shared with you this INR 99 promotion that is going out, which is out now in the restaurants and so forth. So we have adjusted -- we -- our goal this year is to drive traffic and specifically dine-in traffic. And you will see that, that's the focus area and we have shifted -- again, by the way, we are showing improvement in gross margin as well, right? We are moving from our ending 66.4% towards 67%. So we continue to drive that because that -- those efficiencies come because of all the transportation, the buying and so forth that I mentioned earlier. So we'll continue driving that. But we're kind of a little mitigated because of the fact that we are on aggressive promotion to drive traffic, and you will see the results of that. The impact of traffic and volumes has a complete impact on the P&L, whether it's the labor line, whether it's the rental line, the utility line, you will find all the leverages coming in all those lines and then henceforth on the restaurant-level EBITDA.

We take the next question from the line of Nihal Jham from Nuvama Institutional Equities.

Yes. A couple of clarifications. One was when you're targeting the 8% SSSG for FY '24, is it, in a way, factoring some improvement in the macro given you just highlighted about the [ regions ] or this is something that we believe will play out given the initiatives looking?

First of all, it is 10% that we have kind of put in the guidance. It's not 8%. Remember it was 8%, someone just pointed out on the gross margin. So let me take the liberty to find out also on the SSSG. It used to be 8%. But we have moved that guidance to 10%. And it's on the back of the aggressive year that we are planning in terms of driving dine-in traffic, getting people back into our restaurants at the dining level. And you will find that that's the impact that we are showing positive on 10%. It is all those programs and we kind of consider everything in the previous inquiry was on all their competition coming in. So all that is taken into perspective before we give that guidance and that guidance stands at about 10%.

Just to add what Raj is saying, the guidance is where things stand today in terms of the environment. As we mentioned, right, we've seen some form of first level of recovery starting in May. If the environment were to get better, we come back every quarter, we'll probably up the guidance. If the environment for some reason were to worsen, we'll also have a platform to be transparent and honest about it and share with you guys. But from where we stand and what we see, this is where we believe is where we want to guide you guys.

That is helpful. Just one final question was on the corporate overhead bit. I think Raj highlighted that there is a target to keep it to 4% to 5% for the India business. Is that as a number that more or less plays out, we are looking at maybe being flat versus where it was in FY '23? So just your comments on this.

Yes, it's true. We are -- if you look at my FY '23 corporate [ GN ] as a percentage of revenue, it's roughly about 5.8% and what Raj is saying, our endeavor will be to bring this down to 5% going forward. And then the operating leverage kicks in, right? As you keep scaling and we have to scale to 700 by FY '27. So you will see further improvement there. But yes, the endeavor is to bring it to closer to 5% next year.

We take our next question from the line of Prateek Poddar from Nippon India Mutual Fund.

Just 2 questions. One is, what are the kind of assumptions behind the Indonesia breakeven, which you're guiding for? So if you could give us some flavor in terms of what kind of ADS are you looking at and the gross margins?

So Prateek, simply put -- to answer your question shortly, at almost IDR 21 million, we breakeven.

And that is how much of India rupee [indiscernible] okay.

105,000...

105,000 to 110,000.

105,000 to 110,000.

Got it. Got it. And that is what you're aiming for in FY '24, right?

Yes, yes. As we mentioned this, right, even on our -- is generally that Indonesia, we collectively want to stabilize the business first before we put the accelerator and which is why you will see the guidance for only 15 incremental stores of Popeyes for the current year. We will do some rationalization with respect to the Burger King stores. A lot of efforts, Sandeep and team have put both on the product side. Now we are beginning to spend money on the marketing side and which is where we believe that this should be -- we should be able to deliver a breakeven ADS during the year and get that swing of INR 100 crores in this year. If this goes as per plan, we'll have a very different FY '25.

And if I were to go back to pre COVID, I think that ADS was 135,000. Yes, besides doing a back to basics kind of program, you still are targeting 105,000 at least in stage 1. I would have thought at least you should have gone very close to 135,000, isn't it? With the amount of portfolio rationalization you have done, the amount out of retraining, which I've just talked about, the new dessert portfolio, which we have introduced?

So Prateek -- this is Raj. Thanks for your question, by the way. It's been a while since we've had. Look here, Prateek, we are kind of treading slowly in Indonesia, right? We have had losses this last year. And we -- our objective is to not -- we have got all these programs that we invested this last year. The last P&L, we've invested severely on whether it's the product side, whether it's the equipment readiness, whether it's introducing new products. All these things, we have invested significantly, right? As we go into the new year, we are going to turn up. You cannot communicate all the 5 pillars on day 1, right? You're signing out with chicken communication, it's going to come out. So we'll start communicating chicken. It will drive a lot of people into our restaurants. When those people come into our restaurants, they'll also see the burger menu, they'll also see the menu on our desserts. So we're going to thread this slowly, and it's going to come back slowly. It does not come back immediately as you go on television. It builds up. And that's the important thing is we are now set up a machine that's going to be cumulative moving forward versus doing coupons and getting someone in with a coupon and then until you drop the next coupon, no ones coming in, but this is a cumulative machine, which is the right way to run a long-term kind of a gain program. Yes, I'm very gung ho on this Indonesia business. I think this business it generates, when it does IDR of about 26 million, 27 million, it throws high double-digit restaurant level EBITDA. And it is because of the rent structure, it's because of the cost structure over there. It is just a very, very [ corporate ] business. We need to get this idea back, kind of sitting where we are at about '17, '18. We have started moving in the north direction. We have given you the '21 number as a breakeven number, but that breakeven number would also be some cost control. There could be some higher EBITDA, higher revenues, a combination of various things, right? But the objective is basically to be cash neutral in Indonesia and then move into the next year to start building. And by the way, at the same time, we're putting in new Popeyes restaurants, which generate 3x -- 2x to 3x the volume of Burger King business there. So we'll continue to build that business. We'll continue to put back the Burger King business on the right track and then start building them together in the year following that. So that is the majority of the plan. Thank you again. Good question.

Sure. Sure. The experience of 2x to 3x ADS, are we seeing on -- it on all the 10, 11 stores, which have opened till now? Or...

Sorry, couldn't get your question.