India’s consumption story remains strong but there are signs of slowdown despite the commodity price slump. Jubilant Foodworks, which runs Domino’s Pizza and Dunkin’ Donuts, has posted a decline in Q3 profits even though sales are holding up. Bloomberg TV India caught up with CEO Ajay Kaul to get a perspective.
The quarter has been a little subdued on the profitability front. So if you could start off with that and the highlights of the quarter? I think the third quarter for us went off reasonably well. I could look at it from three-four angles. Given the state of the market, which is the food market in general or extending it a bit outside of that into the FMCG space, it has not been too good. Given all that I think, opening 40 new restaurants, growing at a level of around 16 per cent at a same store basis at around 2 per cent, I believe it is a good performance. Given what Jubilant Foodworks has been delivering for over the last several years, it does not satisfy us because we believe that we can probably do that much more. As far as profitability is concerned, I think despite the tough conditions, the commodity price falls and as a result what happens on the food inflation index and so on, we have done pretty well. But it has got compensated a bit by personal expenses and a bit of rentals. If we talk about personal expenses in particular, there is a one off adjustment item in this quarter. And it has come from the implementation of Bonus Act—there is a 110 bps impact that has come retrospectively. If you want to backed that out, I think profitability numbers are fairly good.
Given the fact that you are expecting a slower momentum in sales from the same stores plus the fact that the continued pace of the restaurants expansions will go on; do you see the same sales growth from Domino’s as well as the existing one’s from Dunkin being a little subdued going ahead for a few quarters? We do not make any future guidance numbers for the same-store growth. But we did say a couple quarters back that we do believe that in 4-5 quarters we should be able to deliver a high single digit same-store growth number. But because the market has not delivered a change in consumer sentiments, we do not want to make any kind of statement on same-store growth looking forward. We believe this year for Domino’s Pizza, we should be able to deliver around 150 new stores, and for Dunkin’ Donuts around 20-22 new stores. As far as full potential of Domino’s, we believe there is potential to open 700-800 stores in India over the next so many years. And we are building the infrastructure to support that aim. We have opened nine factories in the last year and this year as we are speaking of building one in Greater Noida.
Are global headwinds affecting your margins? How do you cope up with it? All I can say is of the deployment of 6-Sigma initiatives within the company with strong focus on efficiency and productivity rather than cost-cutting, we do believe we will be able to manage our cost lines very well. Hopefully, with a bit of fillip from an improving consumer sentiment, I think the situation will improve going forward. Our belief in the consumption story, in middle of the pyramid, in the hinterland story of India, the Tier-II and Tier-III cities is still firmly intact. We want to be ready more than anyone else and hit the road running as soon as the upswing starts happening.