Master franchisee for McDonald's restaurants across west and south India and a subsidiary of the BSE-listed Westlife Development Ltd, Hardcastle Restaurants, is redefining the dining experience for consumers in the Indian quick-service restaurants (QSR) space. The company is on track to double the restaurant count to 500 over the next five to seven years and will fund the expansion through internal accruals. Amit Jatia, vice-chairman, Westlife Development Ltd, in conversation with Ashish K Tiwari, speaks about the overall business scenario, new initiatives, competition etc. Edited excerpts.

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What has been your analysis of the post note ban scenario in the QSR space?

Post demonetization, market sentiments got stagnated. But month-on-month there has been an improvement. My view was that it will take 90 days for things to settle down. We are almost there considering it happened in November and we are now in March. I don't see tons of footfall into the malls but it's the same as it was in October. All I'm trying to say is that the knee jerk reaction of demonetization is gone. But even before demonetization footfalls were under pressure and we currently are at that point.

The futuristic experience restaurant concept you launched last week in Mumbai, is it something already available in the international markets?

The technological advancements have already been introduced in markets like the US, Europe and Australia. In fact, in the US it was announced just 3-4 months ago so we are quite confident with adopting it in India. Actually, the outlet launched at Hill Road, Bandra, last year—we call it 1.5 version—had incorporated some of the technological components. The one at CR2 Nariman Point is the first one to have all the features like self-ordering kiosks with customisable menu options, 'happy table' with interactive table-top games, sitting area with wireless charging facility, free Wi-Fi etc. This new format is very unique to McDonald's and redefines the experience of a QSR. This is the start of the next level of journey for McDonald's in India.

Would you be looking to sync all of these technological features with the mobile app as well?

Absolutely, it's work in progress in fact. That's going to be the 2.5 version when ready to launch. It's coming soon; we are building the capability and when the time is right, the features will be available with our delivery app as well. The foundation is there now, it's just a question of enabling and that we will do pretty soon.

Does the new experience store format pave way for smaller restaurants going forward?

Not really. We don't want to be a tiny snacking joint because then, the brand doesn't come alive and we can't deliver at our fullest strength by going below a certain size. The standard for a McDonald's restaurant is between 2,700 to 3,000 square feet. The new outlet at Nariman Point, Mumbai is the smallest at 2,400 square feet but the important thing is that we have made it work.

The news elements would have added to the per unit set up costs.

We typically spend between Rs 2.3 crore to Rs 2.5 crore in a restaurant. Stores with these features will cost us more by 10% to 15% of the overall cost. The reason being all the elements are imported in the initial phase. We slowly start working on local sourcing which will lead to reduced costs once we scale up. The additional cost, we feel, justifies in the form of higher sales and the premiumness of what we are trying to do. Having said that, we have also reduced costs through measures like complete LED lighting, more efficient air-conditioning systems, reduced carbon footprint, significant reduction in water usage, etc.

How much incremental sales are you expecting?

I wouldn't want to give out that information for competitive reasons. All I can say is that the initiatives definitely redefine the brand and that's where it will work very effectively.

The menu has also undergone significant changes over the years.

We have been leaders in the food area with separate vegetarian and non-vegetarian kitchens for our menu items while also introducing Indian flavours like aloo tikki and chicken kebab. We have focussed a lot on making dining at McDonald's healthy with a host of veggies. The fat content in our soft-serve is just 3.5% versus 10% in other ice-creams. Also, our soft-serve is milk-based as compared to those that are based on vegetable oil. A few years ago, we also brought down the oil content by 65% and reduced calories by 7% to 10% in the burger. Additionally, sodium content was reduced in french fries and nuggets. Zero preservatives in the patties and no use of artificial flavours. The coffee served at McCafe is made by a barista and are not machine-made. The arabica beans used for the coffee are sourced from Chikmagalur. The breakfast menu is all grilled and the recently introduced wraps are made of whole wheat. To top it all, we have added soups and salads to the menu as well. And if you'd have noticed there is proper disclosure of calorie content in the menu items which is a very bold move. The idea behind all these initiatives is to give the customer wholesome food with enough choices that can be based on their intake for a particular time of the day.

How has the market responded to these offerings?

Generally speaking, we have done well. In the last six quarters, we have demonstrated positive same-store-sales growth. Even during the demonetization quarter, we grew by 13.5% and same-store-sales increased by 5%. I think, all the new things that we are introducing at regular intervals are certainly working to our advantage. So overall it's been a decent scenario as far as business is concerned.

But has the average ticket price gone up?

It has, else we wouldn't have seen same-store sales growth. The incremental sales have also come because of McCafe and the new introductions to the menu. If you look at McDonald's, it is not discounted. But if you look at the industry, it certainly is. I think we created a differentiated brand by taking bold moves and not following what is being traditionally done by everybody else. When sales are down in the industry, businesses tend to cut costs but that's not been the case with us. Our strategy has led to incremental sales across our restaurants.

Other QSR brands like Burger King and KFC are chasing your locations and opening next door. How has it panned out?

We have sustained (this competition). If my business is delivering same-store sales growth of 5%, all my restaurants will have to perform. And that's possible because of the differentiation we created for the brand. Facing competition is a reality and that happens globally but India is a big market and I think everybody can succeed.

How have raw material costs behaved off late?

There has been some recent pressure as utilities, LPG and minimum wages have gone up and all of these happened in the ongoing quarter. Outside of this, I'd say it's a manageable situation. From a sales point of view, the first nine months have gone alright, margins have been sustainable. So overall it will be a decent fiscal for the business.

What's the update on McDonald's tussle with Vikram Bakshi?

It's not really my subject so wouldn't have any update to offer.