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We have spent a lot of capital in re-imaging our restaurants: Amit Jatia, VC, Westlife Development


In an interview, Amit Jatia, Vice Chairman, Westlife Development, underlines the strategy formulated for Indian market and how it constantly undergoes change

If I compare the same store sales which we have got from Jubilant Food Works which is a pizza company versus Westlife which is a burger company, it looks like Indians are eating more burgers than pizzas?

Well it is more to do with sort of our strategy and I have always maintained that we have been pretty consistent with the way we sort of developed the Indian market for the consumer. Obviously in an economy there are ups and downs but when the economy was a bit under pressure over the last three years I think we took really bold moves and that has probably yielded in a bit of a differentiation within the industry. So first and foremost you know rather than focussing on deep discounting to bring customers in we actually spent a lot of capital in re-imaging our restaurants and adding McCafé. And McCafé as worked really well for us because it added a new occasion for the consumer to use McDonalds and essentially this is Barista made coffee and other beverages and as the beverage market generically was taking off I think our timing and particularly the execution has worked really well for us. Second thing that really worked for us was delivers. So given that we established the delivery platform in 2005 consumers were reasonable aware of the fact that McDonald delivers. In 2014 we launched the new web platform and along with that the new app and then business just really took off. So in two years we have grown our delivery business by over 60% and more than 45% of our business now is coming through web and the app. Lastly, you know another thing that we are really proud of is brand and menu advertising. I think if you look at the menu today versus three years ago I feel far more confident on the menu and its resonation with our customers, with the McSpicy chicken, with the fries, with the Peri Peri and most recently the Mexican cheesy fries as well. So I think these steps have really differentiated us and if you look at FY17 actually we were 4% same store sales growth, especially in a category which was kind of stagnant in the last couple of years. So I think you know it has worked for us quite well and we have reset the foundation for our growth so we are quite excited about where we are heading.

If I look at the product offering and the proposition, you know the McDonald’s burger is a healthy cheap and affordable proposition, at a time when the Indian palettes are changing some would argue that if ordinary categories can grow in double digit why dining experience like McDonald’s with the delivery included is still struggling to grow in double digit?

We are double digit, if you look at total sales growth it is 12% for the last year and we continue to sort of do quite well in the quarters that we are in and is coming as well. I think you got to factor that the entire eating out frequency has become flat for the last two to three years and because eating out is delivered on impulse if the retail footfalls take a beating, if people are not going say out to shop it impacts eating out business immediately. So I do not think it has to do with McDonald’s or it has to do with anything else. In fact in a very difficult environment the fact that we have grown double digit and the fact that we have grown 4% same store sales growth is fantastic because if you look at the previous period over the last– between 2004 and 2013 we doubled the same store sales, that means if a restaurant was doing Rs 100 in 2004 that same restaurant was doing almost Rs 200. I think that is absolutely fantastic growth. And if you were to underlie why that happened it was primarily built around the frequency of eating out. So I am very-very certain that economies will have their ups and downs and as the consumer sentiment is coming back you will continuously see, in fact entire eating out business sort of take off and I am quite confident of that coming forward. The other thing is if you look at the menu, you know, we have a range of products it is not just that McDonald’s has value products, if fact our value burgers only do a small part of the business. In the last two to three years we have introduced the new Maharaja Mac both veggie and nonveg, we have introduced the spicy chicken and we have done many flavours around the spicy chicken. All of that has resonated really well with the consumer. The breakfast menu where we have done the dosa masala burger that has also really connected well. The masala omelette, now all of these egg products are very-very healthy, high in protein, they are basically steam products so obviously we are evolving with the changing needs of the consumer and any consumer business needs to do that to stay ahead. So I am quite confident about where we are and I am quite confident that in a difficult environment I think we have handled ourselves quite well and as the tailwinds in the economy turn you will see our business turn with that.

Everyone is just so caught up talking about GST and how GST is going to change their life. The tax has been fixed at 18% for AC restaurants and I understand that that is mildly higher for you. Do you sense that that could impact your business in any which way?

I think it is so significant change but I think it is so superb step in the right direction. So I am very excited about GST coming in. First and foremost in any business that is growing ease of doing business makes a significant difference especially if you are retail. So the fact that there is a single tax across all the states makes it really-really easy for us to manage and makes life quite different and easy for us. But the bigger advantage that we are going to get is in logistics management. Today every time we enter a new state, there is an entry tax and if goods are going to go from one state to the other, then there are problems of double taxation as well. I think with the single taxation and with the stream line process, those benefits are going to accrue to us over a period of time and I am therefore quite excited about the fact that there is a simplified single regime of GST. Obviously when you take such a big step, it takes time for it to settle down. I go back to when GST was implemented in Australia and I remember just from the McDonald’s business itself that it took about three to six months for it to settle down. But today four or five years later, I think the business has been very robust and growing very well. I also remember the implementation of VAT. When the government implemented VAT few years ago, I think we have read about it and at least from the business point of view that has worked extremely well for us. So I am quite positive and hopeful about GST and I agree that July one is tight deadline but we will rally around what our government wants and yes we may have some ups and downs but we will absolutely do our best to be fully prepared to implement it on July one so it is good for us overall.


What I am trying to understand is — are burgers going to become more expensive. Will have to dish out more for that breakfast menu at McDonald’s? Would you be tempering or changing your pricing policy in any which way post GST?


The thing is it is not that easy because there are different taxes in different states. In some states in fact it is coming down marginally. In some states it is going up marginally. I think overall it is quite neutral for us and we are trying to ensure that at McDonald’s I have always maintained that we maintain a 2% to 5% price increase in a year and therefore we want to ensure that we stay within that even through this particular year including the impact of GST. Obviously there are benefits around input credit as well and we are right now in the process of just assessing all the data to see what it really means. But I feel it is by and large neutral for us and over time I think we are going to see some benefits due to logistics. And as those benefits accrue, I think that will allow us to maintain or at least be remain affordable for our customers.


Keep it very simple, is GST going to be a margin boosting phenomenon for you are in the short term it is difficult to predict?


It is difficult to predict because we do not know the variables. Like I mentioned to you McDonald’s globally has examples of other countries like Australia that did GST maybe I think four or five years ago and in the short term because it is a significant change, there is pain involved with it. I do not think we can say that such a huge initiative and there would not be some ups and downs. I do feel, however, what I saw from VAT that was implemented five or seven years ago in India, now I do believe that long term it is a really beneficial thing to happen. So I feel for McDonald’s and for our customers it is by and large going to be neutral. Like I mentioned to you some states it might go up slightly, in some states it might come down. So at a company level we might be neutral. But, however, because state taxation for restaurants were different in different states, I do not have a universal answer for that. Like I said overall though from a company point of view it is going to be reasonably neutral in the short term but I think positive in the long term as we get efficiencies from logistics.


We almost through with Q1. Has growth in FSG been better than Q4?


The unfortunate part is that that is forward looking question so hard for me to say but all I can say is that we are very much in the trajectory that we have talked about. I think the resetting of foundation of our business a couple of years ago continues to yield result. I had said that in my last quarter’s earnings call that I feel month on month consumer sentiment should get better now that demonetisation  is behind us and with the added incentive of GST coming in. So I think we are beginning to see that from a consumer point of view. So I think month on month you will continue to see positive trends from consumer sentiment point of view. So overall FY18 should look pretty much in line with what we projected.
Source:  Economic Times

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