Jubilant Foodworks feels margin pain

Jubilant Foodworks, the operator of Domino’s Pizza chain in the country, will take another price hike on its menu as rising input costs challenge margins.

Jubilant’s chief executive Ajay Kaul said after a price increase in April another one will happen shortly.

“Pressure (on margins) has been on for the last two years but we did not feel it till six months back,” Kaul said.

He said, prices of milk, which is a substantial input, have risen by Rs7-8 per litre in the last one-and-a-half year, “and that has started putting pressure on us”.

The fast-food operator said it could till now manage with small price increases of around 2% from time to time, but will need to go ahead with another nominal one, purely to safeguard margins.

Analysts said a 4-5% price hike across the food chain’s menu is in the offing. “If we take a nominal increase, we will have to take a hit on margins which means we have to bring efficiency somewhere else,” he said.

Kaul said the consumer sentiment remains robust with same-store sales (SSS) growth for the chain at over 30% in the last six quarters.

“We don’t want to change that equation because that drives a lot of profitability,” he said.

Jubilant is in discussions with various international brands to launch them in the country, Kaul said.

“We are in discussions with various brands. By virtue of having created arguably the best food brand in the country, everybody knocks at our door first. We are the first point of entry for every big name,” he said.

After Dunkin’ Donuts, the company could bring in another big international chain in little over a year, he said.

The company recently opened its first Domino’s store in Sri Lanka and plans to open 25 in five years. Kaul said the chain will also enter Bangladesh next year.

In the domestic market, the Domino’s chain has reached 390 outlets across 93 cities, and analysts estimate it to add 675 stores between fiscals 2012 and 2020.

Kaul said the company was confident of a full year growth of “better than 20%” this year and was starting a new facility in Chandigarh at an investment of Rs20 crore.

Analysts, however, are sceptical of Jubilant sustaining high SSS growth as the top five cities account for almost 57% of the chain’s share of sales, which is already starting to witness cut in discretionary spends.