Westlife Foodworld Limited (505533) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Westlife Development Limited Q2 FY '22 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Ms. Devanshi Dhruva, Manager, Investor Relations. Thank you, and over to you, ma'am.

Thanks, Vikram. Thank you for joining us on Westlife Development Limited Earnings Conference Call for the quarter ended September 30, 2021. We are joined here today by Mr. Amit Jatia, Vice Chairman; Ms. Smita Jatia, Director; Mr. Pankaj Roongta, CFO and VP Finance and Accounts for Westlife Development Limited. Please note that our financial results and investor presentation have been mailed across, and these are available on our website as well. I hope you had the opportunity to browse through the highlights of the performance. We shall commence today's call with key thoughts from Amit, who will provide a strategic overview, which shall be followed by Smita to take you through the key business initiatives with overall operational progress and the strategic imperatives that lie ahead. Pankaj will cover analysis of the financial performance and highlights during the review period. At the end of the management discussion, we will have a Q&A session. Before we start, I would like to remind you that some of the statements made or discussed on this call today may be forward-looking in nature, and must be viewed in conjunction with the risks and uncertainties we face. A detailed statement and explanation of these risks is available in this quarter's press release, investor presentation and in our annual report, which are available on our website. The company does update these forward-looking statements publicly. With that said, I would now like to turn over the call to Amit to share his views. Thank you, and over to you, Amit.

Thank you, Devanshi. Good evening, everyone. I hope you and your families are doing well. I'm happy to report a solid quarter with heartening trends across all parameters. After a turbulent year, I'm glad to share that a newer, stronger normal has emerged for us. We have been seeing business accelerate on the back of our efforts to create an omnichannel brand and a unique, compelling menu. This has been further aided by enhanced brand trust and movement from the unorganized to organized sector. Westlife is uniquely positioned to chart accelerated growth in the coming years. The biggest reason for this is that we not only -- we are the only QSR to have relevant offerings across all dayparts, including breakfast, snacks, coffee, lunch, dinner and dessert. This gives us a unique competitive advantage in terms of AUV, average unit volume, which has been a key strength for brand McDonald's globally as well. Secondly, our foray into the fried chicken market has been extremely encouraging. With this, we are already making inroads in the South market while also strengthening our meal proposition. The chicken burger and coffee platform together have the potential to further accelerate our AUV in the coming years. We have also taken a future forward view on our digital investments and transfers a strong journey to being a food tech company. Today, we have pivoted to become to be a truly omnichannel, convenient digital-driven brand that is helping us enhance revenue optimization of all restaurants. This month marked a significant milestone for us as we completed 25 years in the country. The journey thus far has been exhilarating and marked with many bold moves that have challenged the industry norms such as launch of McDelivery, McBreakfast, McCafe and Experience of the Future concept. Over the years, we focused on building a rock-solid foundation for the business and the brand and have chosen to run the marathon with an aim to grow consistently and sustainably. We are confident that this strong foundation will now help us expedite the pace of growth and achieve new milestones much faster. The eating out industry in India is at an inflection point for an orbital shift. As a forward -- as a positive aftermath of the pandemic, the organized food service market is expected to grow at healthy double-digit CAGR. Within the organized sector, the Western fast food category is bet to grow at an even faster pace. This presents a huge opportunity for us, especially as a brand that plays in all relevant categories. You will continue to see us make bold moves to reinforce our market leadership. In the coming months, we will be picking up the pace on store expansion, adding close to 30, 35 new stores in our core and emerging markets, thus increasing our penetration. While this will help us grow our top line, and upward trending AUV will help us boost both top line and profitability. We believe we've entered a truly exciting phase in our growth journey, and this quarter's results are a great preamble to this. I will now hand it over to Smita to take you through the details of quarter 2 FY '22 results.

Thank you, Amit, and good evening, everybody. I'm glad to share that we have delivered a strong set of numbers, setting the base for our new normal. Let me give you some highlights for the quarter. Both our revenues and same-store sales have surged by a solid 84% y-on-y. This growth has been driven by both our convenience channels that have continued to accelerate and dine-in that has built up strong and fast. Revenues from dine-in have almost doubled over same quarter last year. At the same time, convenience channels that include delivery, takeout, drive-through and On the Go have grown by a robust 77% over the last year. Even with dine-in opening up across most of the markets, delivery sales have grown by 107% as compared to quarter 2 FY '21, where there were strong restrictions and delivery was the primary channel operational. This once again corroborates the fact with our pivot to being an omnichannel brand, we have acquired new customers and created new use cases. This is driving incremental revenues without any business cannibalization. Let me now give you a perspective on our performance in September of this quarter, when most restrictions were eased, vis-a-vis September of 2019, which was pre-COVID. September 2021 clocked a 103% recovery versus September of 2019. We saw complete recovery across all markets despite continued restrictions on time and capacities in some cities. In fact, our delivery sales grew more than 50% over September 2019, again a testimony to the strong convenience proposition that we have built in the last 18 months. We also continue to hold strong on our margin performance despite all inflationary pressures. Our gross margins surged by 87.5% Y-on-Y, while restaurant operating margins jumped by 204%. This is a testimony to our new cost structure that has brought down our fixed costs and streamlined the variable cost to a large extent. As a result, our operating EBITDA surged 11x Y-on-Y to INR 457 million. Our performance has been steady and sustained, notwithstanding the volatility and restrictions. With further relaxations announced in Maharashtra in mid-August, we saw a significant quarter-on-quarter revenue jump of about 50%. This gives us immense confidence that once complete normalcy sets in and all use cases, including college and multiplexes, come back, we will create new benchmarks and charter accelerated growth. The key tenets of this accelerated growth will be menu innovation, led by burger and chicken leadership; to digital and omnichannel acceleration, led by owned and partner channels; and finally, expansion and reimaging of our stores. Menu innovation has always been at the heart of our strategy. We continue to dominate the burger market with close to 75% market share. While leadership is accelerating, the business in the West, with our new fried chicken platform, we are already trending to add INR 50 lakh per store per year in the South, with minimal CapEx investment. We can attribute this success to a truly outstanding and differentiated product that has resonated well with our customers and have been receiving phenomenal feedback. The product is well researched and is backed by a robust supply chain. It also strengthens our all-day path and new proposition, putting us firmly on track to become chicken leaders in the South market. Our brand association with the South superstar, Rashmika Mandanna, is further helping us build cultural resonance. Given this, we believe that even with INR 50 lakhs per store per year, we are just about scratching the surface and the potential to grow this platform is immense. We are confident that this platform will help us significantly enhance our AUV and hugely optimize the return on investment. This quarter, we also added new products to our McCafe and breakfast portfolio. You can now enjoy 2 immunity boosting beverages, Turmeric Latte & Masala Kadak Chai at our McCafe store. We also launched the Double Cheese McMuffin and Spicy Egg McMuffin to our exclusive McBreakfast menu. More and more customers are now adopting digital as a way of life, and a robust digital presence is imperative to serving and delighting them. As Amit mentioned earlier, we have been investing significantly to build a strong digital backbone. This will now be a foundation for our next phase of growth. The 2 key tenets of our digital strategy are convenience and personalization. We have 2 very strong apps, the McDelivery and the McDonald's app, which have a cumulative of 13 million downloads to drive these. McDelivery is helping customers order our food at the click of a button. And at the same time, our unique McDonald's app is helping build in-store GCs by giving customers personalized offers. Furthermore, these apps are giving us wealth of customer insights that are helping us drive meaningful CRM program to offer -- further deliver personalization and visit frequency. Finally, we are back on track with our expansion plan. This quarter, we opened 5 new stores and many more are under ground break. We also continue to reimage stores to the new EOTF platform and have also added 6 new McCafes. This said, I now hand it over to Pankaj to take you through the financial highlights of our results.

Thank you, Smita. Good evening, all. I hope you and your loved ones are keeping safe. I'm happy to report of your robust Q2 performance, a testimony of our strong foundation and resilience. We logged total sales of INR 385.4 crores, a solid 84% growth on a Y-o-Y, along with the same-store sales growth of 83.7%. Let me share some key highlights with you. We have been able to execute omnichannel strategy effectively. Our convenience channels have grown at 77% Y-o-Y, along with the dine-in recovery and growing at a rapid pace of 93% Y-o-Y. Within the convenience sales, delivery clocked an impressive 107% growth on Y-o-Y basis. It continued to outperform itself with an 8.5% growth over the previous quarter, and once again hit an all-time high revenue mark. Drive-throughs grew 91% Y-o-Y and On the Go continued to build consistently at a healthy pace. Dine-in saw a quicker recovery after the second wave as [indiscernible]. This is on back of upbeat consumer sentiment, which we believe will continue to be buoyant as we enter the festive season. While the revenue built up steady and strong, we kept a sharp eye on the past. We maximized our supply chain efficiency and rationalized food costs. Hence, despite inflationary trends among some of our commodities, we maintained a high gross margin of 54.7%, or 87.5% growth over last year. On the back of these operating efficiencies, we saw a 203.5% improvement in our restaurant operating margin that stood at 17.4% for the quarter, and our operating EBITDA stood at 11.9%, representing a solid 987 basis point improvement over the quarter last year, which is almost a 10-fold increase. This puts us in strong [ key ] to achieving our long-term margin objectives as outlined in Vision 2022. While the opening up of all our markets, channels and dayparts, September '21 month saw a healthy buildup of guest count, bolstered by an upward trending average check. This ended over 100% revenue recovery for the month. As a result, our gross margins for the month zoomed to 67% and restaurant operating margin at a robust 22.4%. Consequently, operating EBITDA moved northward to 16.4% for the month. The flow-through of this can be seen in our positive 2% PAT for the month. Going forward, we are very bullish on consumer demand is back -- coming back strongly. The external environment is also supportive for an increased share of wallet for eating out. We have aggressive growth for [indiscernible] 5 years. We believe our solid balance sheet will aid and fund this growth. With this, I will now hand it back to Amit to take you through the outlook for the coming quarter. Thank you.

Thank you, Pankaj. With the volatilities of the year gone by behind us, the new normal has brought many new opportunities for the industry as well as for Westlife. As we announced a few days back, we will be investing about INR 800 crores to INR 1,000 crores in the next 3 to 5 years to double our footprint and reimage all our stores to Experience of the Future. We will also focus on further strengthening our technology prowess and on driving cutting-edge menu innovation to further strengthen our all daypart proposition. At the same time, we will keep a sharp eye on the cost and make sure we continue to grow margins, boost profitability and deliver value to all our stakeholders. At 25 years, 310 restaurants, 10,000 employees and a rock-solid foundation, we believe we are just about getting started. The best is yet to come. Thank you. And with this, I open it up for Q&A.

[Operator Instructions] We have a first question from the line of Vicky Punjabi from JM Financial.

[indiscernible]

Sir, I'm sorry to interrupt, your voice is not very clear. Please use the handset.

Is it better now?

Yes, please go ahead.

Three parts to it, actually. Firstly, I just wanted to understand the recovery out here. If I see the average revenue per store, it's something like a 5% lower from -- on average in this quarter versus the Sept '19 quarter. And dine-in recovery, something like 60% to 65%. Now if I were to assume that dine-in fully recovers without really impacting the way that we're going to right now, it kind of implies that taking the dine-in share at 50%, it would still be around a 10% to 15% growth over the Sept '19 quarter. Is that the kind of growth we are looking at in terms of revenue per store going forward?

Yes. Yes, absolutely. I mean, even in my last earnings call, I had mentioned, I mean I'm kind of putting it at between 8% to 10%, just to be a bit conservative, because I have taken a small drop in something. But you're absolutely right. What we are seeing, even the slides on the earnings presentation talks about that. That essentially, even as dine-in has continued to come back in, convenience channels have stayed. And therefore, if you assume that dine-in will get to even 85%, 90%, yes, you will see 8% to 10% to 12% same-store sales growth.

And sir, just on the SG&A cost part. And I am actually looking at on a full rental cost basis. Now this overhead -- I mean there was a perception during the COVID period that there was some of those savings that would come through would be sustainable. If I just compare the overheads for 2Q FY '22 or 2Q FY '20, you're somewhere around that INR 220 crore mark and almost flattish. Are there any -- I mean was there no [ similar 2-0 ] savings as such during the quarter? Or were there some one-off charges that had impacted overhead?

Pankaj, you can take that. Essentially, if you look at the month of September, you have to look at July, August and September, and they were sequentially getting better because in July, again, things were quite difficult. And if you look at the exist September, I mean irrespective of individual line items, we were at a healthy 16.7% or so of operating EBITDA. So I feel that is really what I believe. But Pankaj, if you have any comments you can add to that.

No. Vicky, so on normalized volume, that's why we stated the September month margins where the gross margins were upwards of 67%, flowing down to ROM of upwards of 20% and the operating EBIT at 16.4%, right? So the cost initiatives backed with volume recoveries is definitely playing the role.

Sure, sure. Okay. And just lastly on the expansion part. If I look at it, we've talked about around 150 to 200 stores expansion over the next 3, 4 years at INR 800 crores to INR 1,000 crores. Is -- I mean generally, we were kind of building in a INR 3 crore per store CapEx and say, another 30% on for refurbishment and addition of McCafe. Now this looks like this INR 3 crores per store is actually moving on -- moving to around INR 5 crore per store. Are the CapEx intensity of store increasing? Or is there some investments that are being made into the old store? I mean I just wanted to understand what this kind of covers [ your working deck ].

Sure. No, that's a good question. I think the correct way to look at it is that within the next 3 to 5 years, we intend to double the base of our stores and the investment is about 800 to 1,000. So that's the correct way to look at it rather than just looking at what the media has reported. Point number one. Point number two, we maintain that the store investment will be around the INR 3 crore average mark, plus a little plus for drive-throughs, a little less for food courts. So that is as far as that is concerned. The additional incremental CapEx will be to convert all restaurants into further restaurants into modern Experience of the Future and McCafe. So that is how you can read that. The business model is not changing dramatically in these numbers.

We have next question from the line of Avi Mehta from Macquarie.

I just had a question following up on what Vicky has asked on the CapEx intensity. Now you correctly alluded that the per store CapEx is INR 3 crores only, but there is additional investment that goes into the existing stores. My question is does this -- how does this change the store level economics and more importantly, pay back return ratios? Because if you're going to do additional investments, you would expect some additional revenues. And if you could kind of run us through how do you see that situation panning out?

Sure. So as you might have seen, we have been consistent over the last as long as I can remember, including Vision 2022, which we've announced in FY '16. McDonald's' and Westlife's focus is to grow average unit sales, which is average unit volume per year, along with penetration. Okay? So the idea is to do both jobs. To be honest, whatever we've talked about does not change unit economics at all from whatever it was in the past. In fact, it's only getting better. So we alluded to the fact that just the chicken business alone, with almost minimal investment, has already added about INR 50 lakhs per restaurant per year. And we believe that as going to continue to rise, and we are going to expand that to more restaurants like we did with McCafe. So I mean even if I take INR 50 lakhs, right, and you take the 300 stores, that INR 150 crores on the top line without us having to put any other CapEx, the minute we do that in our business, right, the return is very good. It keeps pushing the return on capital employed higher and higher. So actually, the business is getting stronger and stronger, and that's why we kind of shared the September margin. We believe that Maharashtra started normalizing around April, August 15. So September, it was still not where it needed to be. And yet, with just some decent growth in sales, an operating EBITDA margin of 16.4%, I feel, is phenomenal. And September, by the way, is never -- across the 25 years that I've seen is never like a high month. It's a normal average month. So we believe that as we continue to grow our average unit volume through what we've done with gourmet burgers, with what we've done with chicken, McCafe is continuing to play out, Experience of the Future is giving us tremendous incremental sales. So every incremental dollar that we are putting in for every incremental activity is yielding 4 to 5x the sales to our investment. So to answer your question in short, we are looking good on return on capital employed.

Amit, let me kind of rephrase this and maybe kind of pinpoint this a little better. So let me -- maybe I was not clear. So you are adding 150 stores, that's INR 3 crore per store, that's INR 450 crores. That will generate INR 6 crores a year or INR 7 crores now with the chicken per store. I'm clear on that part. What I'm trying to understand is that remaining almost INR 350 crores that will go into the existing stores plus back in? And should we assume that also generates an additional income from the store? If that does, does the AUV now start moving upwards of INR 7 crores? Because you did allude, 6 will go -- you can probably add another INR 1 crore from chicken. That is where I was. That is where I was trying to kind of understand.

No, I get it. Obviously you missed my earlier points made to Vicky that rather than going by media reports, what we talked about today is that we are going to double the base of restaurants over the next 3 to 5 years with an investment of INR 800 crores to INR 1,000 crores, okay? So even if you take 300 into 3 on 3 is 900 and the rest, whatever. And if you take the lower base of even INR 200, INR 200 crore into 3 INR 600 crores and the other INR 200 crores would go into something else. So look at it from that point of view and the answers will be visibility.

Okay. So it's not INR 150, 200 crore, that is where the issue was. Okay.

I mean yes, just -- we have confidence where we are heading.

No, no, Amit. That's very helpful. And the second bit, essentially, Amit, I just wanted to have a small clarification. The royalty, it could kind of just help us understand how is that expected to change next quarter onwards? Or is there -- how is that kind of expected trend? Any changes over there?

Avi, we have declared that the entire year, I think it's 4% plus service tax. And then it's 4.5%. And that same schedule continues. There's no change except that this year, McDonald has maintaining the 4%, which was to become 4.5%.

Congratulations on a good performance, Amit.

We have next question from the line of Gaurav Jogani from Axis Capital.

Also, my question is with regards to the gross margin. You mentioned that the September quarter has registered 67% [indiscernible]. So why is the gross margin so high in September? And in addition to that, like how it is expected to trend further in the going times ahead?

So essentially, I must say that if you look at our history from 2013 until today, I think one of the things we've done extremely well is manage product mix. And while we wouldn't want to share more than that in terms of our real recipe for success, but we've been able to constantly manage inflation and gross margin movements by managing our product mix. So even in this quarter, month-on-month, we've been able to get benefits by playing around with some of our products, which has yielded this result. I think if Pankaj wants to add anything to that, please go ahead.

Yes. So along with product mix, there's also channel mix. We shared in our earlier calls about the entire geo-based cost approach that we have applied on the food sourcing, distribution logistics. And all of it seems to be when the business is coming to a healthy normalization, right? And that is leading to the gross margin being touching 66%, 67%. To your other part of the question, how do we see it moving forward, we are very confident that we will be able to deliver this kind of gross margin in the coming quarters as well.

So sir, just one clarification. When you say this kind of gross margin, would it be more at the 67% levels or the 65% levels?

Sorry, can you repeat that because your voice is -- there is an echo.

Pankaj, I got that. I think I wouldn't like to go with a hard number. It's always a range because things change. Product mix also changes. So I would say between 65% and 66%, I would be more comfortable.

Sure, sure. Got that, sir. And so my second question is with regards to the chicken initiative that you have taken, and it is really heartening to see that it's trending to the INR 50 lakh mark. But is it available still only the southern market? Or has it been extended to the other geographies as well? And what has been your experience so far with the southern market? If you can give some on that would be [ helpful ].

So far, it is largely in the southern market and the movement towards West has started.

And sir, any more details, I mean how it's been trending in some of the [indiscernible] stores? Like what kind of experience have you seen there? Any more details that you can help?

We'll come back as it pans out. In our view, we are extremely confident because it's a whole different set of customers, a different occasion. And we feel even in markets like Gujarat, the way we've executed it, when you enter the restaurant, we've ensured that the veg sentiment is still maintained quite well and the restaurant will not see any shift in either the fact that a product is being served like that in terms of the smell, in terms of everything else, we've ensured that it is done in a slightly different way which maintains that smell sanctity. And because it adds a new occasion, we are actually quite confident that this INR 50 lakh is only trending upwards.

Yes. Sure. And sir, just last question from my end. Is your comment -- with respect to the journey towards being a food tech company, so sir, if you can give it more detail, I'd like to take what you're seeing there.

Yes. So I personally think we don't share the breakup of our delivery sales. But if we were to, I think we are more food tech than most people who claim to be food tech, you see. And we do serious e-commerce from 2005 because when we launched delivery, it was on a tech platform. It was not where an order would come manually into every restaurant and the delivery would happen. It was all done on to a call center, and it was tech-enabled through a software. So our business is very, very serious. And I feel personally, we are a food tech company already. But Smita can add some comments to that.

Yes. So I would just kind of look at it that there is off-premise consumption and on-premise consumption. When I look at off-premise, as Amit mentioned, our delivery sales are strong. Along with that, as you saw in our earnings presentation, On the Go, which is, again, our digital platform, is doing very, very well. So off-premise, both On the Go as well as delivery, is already making us a food tech company. Also when you look at on-premise, which is dine-in and a large part of drive-through, so as again, what I mentioned in my commentary, the McDonald's app is already enabling us to be able to give the customized offers to the -- to our customers -- personalized offers to the customers. And by getting the data from the app of even our dine-in customers, we are being able to service them in a much, much better way. So eventually, we are looking at a huge shift of people actually using digital channels to be able to consume us. And currently, even in our restaurant, 20% of our orders come from the self-ordering kiosk, which is again a digital platform. So if I combine delivery, On the Go, the McDonald's app, and the self-ordering kiosks, together, there are a huge substantial part of our digital sales. And that is why we call ourselves a move from food to food tech.

And actually, just to last add on that. I feel omnichannel is the best way to describe our brand. I feel that the world is about omnichannel, and the world is not only about online, et cetera. I feel a brand needs off-line and online presence if you truly want to succeed and be a mass market brand.

Sure, sure, sir. I did see [indiscernible] loyalty card both on the coffee side as well as on the burger side. So is that part of this entire thing that you're alluding to?

Yes, absolutely, loyalty card would also be a part of the digital platform, which we are enhancing and strengthening.

Sure. And just one last bit from my end. These [indiscernible] that you mentioned, would that also include the digital investment that you will be making, or that will be excluding that?

No, it includes everything. Our entire CapEx is included in that.

We have next question from the line of Ashit Desai from Emkay Global.

Amit, I'm sorry to repeat this question, but just to clarify, this INR 800 crores, INR 1,000 crores CapEx is to double your store base that you have as of now? Instead of 150 stores, you are looking at addition of more than 300 stores?

Correct. Over 3 to 5 years, yes.

Okay. So this year will be 30 stores and thereafter, it will be like a 50 toward kind of a run rate?

It's moving towards that, yes.

Okay. And can you share how many of these will be in existing cities versus how many new cities we will target?

So one thing is there that when we say that this is what we are going to do, we've been able to build the reputation that we think very hard and it's very data-backed. So essentially, we do what is called a gap analysis. And essentially, we look at all existing and new markets, and we identify the spots where these next 300 stores are going to come. And it is -- our commitment is based on that because we can clearly see that. To answer your question, about 60%, 65% will continue to come from existing cities. Earlier, it used to be about 70%. But we do believe that we are seeing a lot of traction coming in what I would call Tier 2 cities as well. And therefore, we want to start pushing towards that direction also. So I would say about 40% -- 35% to 40% would be in newer cities and smaller cities, but the 60% will continue to come in what I call our existing core cities, East.

Got it. Got it. And any changes in the size of stores that you are looking at? And also if you can answer whether we could need additional external funding for this? Or this will all be virtually done internally?

Well, our plan is to manage this through internal funding and at best in gaps, we will cover that with our debt lines. We are pretty debt free, as you know. So there is no plan to raise additional capital or raise a lot of debt or anything. We are pushing ourselves, as I've said in 2016, where we had announced that we will come to -- we will grow the store base and we will triple our sales. We had said that it will all be through internal approvals, and I think we've kept our word on that, and that is the intention here as well. In terms of store sizes, no, we don't see any change because at least at Westlife and McDonald's, we are very focused on growing average store restaurant sales annually as well. And therefore, we do believe that in-store is going to come back. And as we continue to add new product lines like we did recently, we believe that we are at the right optimum size.

Got it. And lastly, if you could comment on the kind of RM inflation that you're looking at? And any pricing actions that you planned for?

Yes. Inflation has been strong, and the headwinds are pretty strong as well. As I have mentioned, if you look at pretty much any call from 2013, I have been saying that inflation in India is a reality. And there are times when inflation really become strong and then there are times it becomes a bit dormant. So our action around inflation never stops. While quarter-to-quarter, it is hard to manage, but year-on-year, we've been able to do a good job. So because we stayed ahead of the curve, even if you look at this quarter, we managed it quite well. Headwinds are there. They are strong, both in many of our key products. So maybe on a quarter basis, it might show up. But so far, we've been able to manage it quite well.

We have next question from the line of Latika Chopra from JPMorgan.

Amit and Smita, a few questions from my side. The first one is on the delivery part of your business. I know you don't give a split across the convenience channel, but you did mention that convenience channel grew 7% sequentially in Q2. Can you give a qualitative flavor on how the delivery growth behaved versus the 7% number? And also within the delivery mix, clearly, a lot of work has been done on the app and your presentation shows that continues to see increased number of downloads. How is the growth trending between orders placed by your app or versus the aggregators? Any qualitative flavor or would be appreciated there. So that's the first question.

Yes. I mean sequentially, the 7% delivery has been an important part of that. I don't know the exact breakup, maybe Pankaj can share that if possible. However, it's not that the 7% came on takeaway and drive-through, et cetera. Delivery was also a part of the 7% sequential growth. So that is part one. And Smita will take the other.

So on aggregators or our own app, we see it as 2 different journeys. What we have seen is that on the aggregators, the customers are coming more for discovery and therefore, it becomes more acquisition. Whereas on our own app, with exactly what you said with the better UI/UX and a customer experience, you are able to give more customization and personalization, leading to loyalty. So I think both have a very important role to play in delivery. And we are seeing, as we again mentioned in the presentation that in spite of dine-in coming back, quarter-on-quarter, month-on-month, we are still seeing delivery grow, which clearly shows that there is a new use case occasion and people have got into the habit of ordering at home irrespective of the occasion of going out. So I think this is -- and if I actually have to take global, global McDonald's was always a more convenience-led brand, where like in U.S., 70% of consumption is through drive-through and takeaway. I think it's only played out in India because pre-COVID we were still an occasion-led eating out brand, whereas now we are even more convenience-driven. So there's a whole shift in even the consumption pattern of customers.

Sure. I also noticed mix is something that Westlife has handled pretty well, right? You see any kind of index relatively that you could talk about over the last 4, 5 years, the premium, if it was 100 or x percentage, how much that would have gone up by? Is that something that you would like to comment on?

See, normally, Latika, what happens with premium, I mean it's not the case in the recent past. But normally, your rupee margin is strong, but the percentage margin normally is lower because on a INR 150 product, for you to maintain a 65%, 70% gross margin, the rupee number is very challenging. I can explain that to you separately on [ MAP ]. But fortunately for us, things like what we did with the wheat bun, et cetera, et cetera has really helped us not only grow our average check, but also, therefore, grow gross margin. McCafe has played a role. And more recently, again, the Gourmet Burgers have sort of helped us. So we've done a whole number of things which collectively, brick-by-brick, have kind of given us and yielded that result. But obviously, with the launch of Gourmet Burgers, it's evident that customers are looking for indulgence as well. So it's no more about our rupee key, it is also about indulging with products that they are trying, they want new ideas, new products, new sort of condiments, et cetera. So that shift is coming, Latika. We can see it.

That's helpful, Amit. And last bit, if I could. I know you have priced your product more affordably. But any spend from the market as operating environment has normalized, are you seeing any step-up in promotional intensity in the industry?

No, I don't think -- I think everybody is playing their game. And as we have always played a game on value for money. And over the 25 years, we've always believed even during the toughest of times, we've never gone into discounting or promotions. We've always built platforms, whether it was coffee, whether it was the premium burgers, now the gourmet burgers or the chicken platform. So I think this has always paid dividends to us. And I think we continue to be on the path of value for money.

We have next question from the line of Nihal Jham from Edelweiss.

Sir, a couple of questions from my side. First, on the chicken market specifically. I know you alluded, but just to understand better from the pilot that is happening in the southern market, are you seeing that it is basically existing customers who are coming in who are maybe adding on to a chicken or you're getting a totally new set of customers for your chicken offerings?

So I think it's a combination of both. Definitely for the existing customers, they are buying it along with their burger meal, or sometimes if they're not having a burger, they are buying the 6-piece-plus chicken offering. At the same time, as awareness is continuing to build that McDonald's has the best-in-class chicken offering, it's already started to attract new customers. And that's very evident in our GC growth, which we are also seeing. So I would say it's always a combination. Any new product will always be a combination of existing customers using it, at the same time, acquiring new customers.

That's helpful, Smita. But as I check, currently, I would assume that our chicken offerings or menu would be limited, say, compared to the other full-fledged chicken provider. So from that perspective, then what becomes the differentiator that we believe can keep driving customers? Because globally, I think the extension into chicken at least, say, for the likes of McDonald's may have not been that accretive, but at least our experience seems to be good. So what is it that we are doing incrementally to drive that?

No, no. First, I'll answer the second part. McDonald's sells more chicken than any brand in any part of the world, except in 1 or 2 countries like China. But essentially, we are a very, very, very strong chicken player globally, just to correct that part, as Smita can talk about.

And secondly, I don't think it's only one offering. If you look at our chicken offering, we've always had chicken McNuggets. We introduced also strips in the middle. Moreover, our chicken burgers, our spicy chicken burger, our American cheese, chicken burger. So I think we have a very, very strong offering in chicken. It's only that we've introduced the bone-in chicken, which was a new offering. And as we grow and we understand this more, there will be extensions, which we will also put in bone-in chicken. But for us, when we say chicken leadership, it's not about only bone-in chicken. It's across burgers, it's across sites and it is bone-in chicken together. So I think we have a very strong footing now in South there was a gap in the bone-in chicken market where we were not able to play it. And with this introduction, I think that gap also is what we've covered.

Sure. Amit, when you say globally, McDonald's is a leader, that includes basically the burger and the bone-in chicken offering that you're saying, right? And what is the contribution that, that has generally reached in some of the most successful countries for McDonald's?

No, we don't share that breakup and that's more global's prerogative to talk about. As far as I know, basically, in all of Asia, we do fried chicken, okay? So you go to Malaysia, Indonesia, Singapore, we do fried chicken, and we have a pretty strong offering. And if you go into the more developed markets, there are a whole range of chicken products. I mean if you Google, you will see there's a lot of work and talk that McDonald's has done globally around chicken as well. I mean at the end of the day, $1.8 billion in sales. So our chicken sales, if you were to just separate that out, it would probably be higher than most -- of most other place.

And even in our South markets already, we already do more than 50%, 60% sales from chicken. So it reflects that we already have a strong chicken offering. It's only that we have added bone-in chicken into offering.

Just one last question from my side. But generally for an upgrade for a normal store to become an EOTF, what is the kind of CapEx that goes in?

It's not -- we've been able to keep it very marginal now, and we don't share that breakup. But it's not a crazy number.

We have next question from the line of Percy Panthaki from IIFL.

So I was just looking at your last quarter's -- I was just sort of remembering what was discussed in our last quarter's call, and I recall there were some participants asking you why you're not accelerating your store addition, everyone else is doing it, et cetera. And you were explaining as to why you prefer to go slow and steady, increase throughput in each store, and that is the better way to progress. And then a month or 2 later, we saw this sort of release from your end saying that you're going to add 150 to 200 stores in 3 to 4 years. And now you're saying, actually, it is doubling the stores, so 300 stores plus in 3 to 5 years. So why this change in communication and also this slight of -- I mean a little bit of lack of clarity in exactly what you're trying to do. And why change from your original stance just 3 months ago that we would not like to accelerate the store openings?

See, that is because it's about your perception versus how we think about it. I mean you may perceive that we've been slow and steady. I feel we've been super aggressive, but sustainable. And essentially, what we are talking is a step-by-step approach. So first and foremost, in 2016, we talked about taking our store base from X to Y. And when we talked about that in 2016, people were, again, the same kind of question, that what is changing. So that is point number one. I don't think we've been slow and steady. I think we've focused on sustainable growth. We focused on good quality of real estate. We focused on building competitive advantage with drive-throughs, et cetera. The first important part is none of that is changing. That is point number one. Point number two, our Vision 2022 talks about 2022, right, which 2022 is coming. So I think it is time for us to now unveil our new vision. And as a part of our 25th year anniversary, I felt the company can talk about this new vision over the next 3 to 5 years, and this was in line of that conversation. So at Westlife, people who tracked us over the last 11, 12 years since we've been listed or maybe, sorry, 7 or 8 years have kind of seen that we don't make random, out-of-line answers, and we don't build strategy on the go. And we have nothing to do with anybody else. We follow our own path. So if you notice today's conversation, we have not suddenly said that AUV is something we don't want to work on. We believe that AUV is unique to us, and we continue to focus on that. And along with AUV, we will build penetration. If I hear some of the conversations I'm hearing around other big players in this category, I'm hearing of smaller stores with a large number of stores, and that is not our strategy. I think in the previous question, I answered that in a different way, right? So essentially, we will continue to build the size we've talked about. We will continue to build real estate competitive advantage. We will continue to take a portfolio approach with drive-throughs. And yet, we will continue to now increase the pace because we find a shift in the marketplace from unorganized to organized. And I've been saying that on call after call. Lastly, you see in the media, they picked it up in that manner. But if we -- in our vision statement also, even in 2016, we always talk of a 3- to 5-year window. And like I said, the lower end would be 200 but our endeavor is to try and double the base in the 3 to 5 years. I hope this kind of helps your question. The other thing is, of course, with the launch of our chicken platform, we are seeing very, very good traction in South India, which is giving us the confidence to go a bit more aggressive, including in Tier 2 and Tier 3 cities. So there are shifts that we've been watching, and it's all sort of a planned journey, except that the timing we felt is right now to talk about Vision 2025, '27. So that is the basis on our thinking.

Understood, sir. So for FY '23 in particular, how many store openings should we be factoring into our models?

In FY '23, obviously, the first quarter was a washout. And like I said, we don't like to sort of go -- for FY '23, so sorry I missed that. FY '23, you can assume between 30 to 40 stores.

Okay, sir. Okay, sir. Secondly, my second question is on the margins this quarter. They've come at 11.5% or so, which is lower than what we did in Q2, 2 years ago and also lower than what we saw in Q4. That is just a couple of quarters earlier. So despite us exceeding the pre-pandemic sale, just wanted to understand what particularly has brought down the margin. And you have given us some confidence saying that September has seen a revival, but September would also have witnessed a much better sales versus September of 2 years earlier. So with that healthy sales, yes, I mean margin has come back. And in context of all this, some guidance on whether the next year FY '23 margin pre-Ind-AS, which you said you will target a low-teens kind of margin, so 13%, 14% of margin. Are we still maintaining that kind of a target?

So first and foremost, we don't change our vision expectation, as I have maintained. So essentially, our low teens to mid-teens will continue to stay. And that guidance stays. We don't give guidance, but that's our vision. Now you've got to understand that in July, the dine-in in Maharashtra was 0, multiplexes were not on, it was a different day. When you are looking at that back in October when things are pretty open, yes, it all looks pretty good, but you have to understand that our business, in 1 month, if you are low and in 1 month, you are high, it doesn't work like that. That cost that was incurred in the month of July has been incurred, and that is in the P&L. The reason we -- September, as I told you in one of the other questions, is not like the top-of-the-line month. It's a very average month for us. Our top-of-the-line months are coming, which is October, November, December and so on. So essentially, the reason we separated out September was because dine-in has started coming back in Maharashtra. If you recollect, even in all of -- only in October, Maharashtra allowed dine-in still about 10:00. In fact, that till recently. Malls were still wanting to see certificates and multiplexes were still closed. So our food court business was still very, very impacted. So my point is that from 2 years ago, I think we've done quite well. And from the December ago, there is a seasonality in our business. You can check some of my earlier previous comments made in earnings calls that our business is seasonal and the cost structure also therefore changes. It cannot -- you cannot compare the October, November, December quarter to a quarter of July, August, September. So those are the sort of differences and therefore, you have to look at the September number as your best benchmark because by then, dine-in had almost opened in Maharashtra; the real opening happened in October.

Ladies and gentlemen, due to time constraint, that was last question. I would now like to hand the conference over to Mr. Amit Jatia for closing comments. Over to you, sir.

Yes. Well, I would like to thank everybody for joining the call today, and appreciate your engagement. I would like to wish you all a very happy Diwali and a prosperous new year ahead. Thank you, and have a lovely weekend. Bye.

Thank you very much, sir. Ladies and gentlemen, on behalf of Westlife Development Limited, that concludes this conference. Thank you for joining with us, and you may now disconnect your lines.