Our vision is to have 400-500 restaurants by 2022, says Amit Jatia

Hardcastle Restaurants, a McDonald's master franchisee in India since 1996 with rights to own and operate quick service restaurants (QSRs) across west and south markets, saw its total sales grew nearly 35% to Rs 1,131 crore in the March quarter of fiscal 2018. According to Amit Jatia, vice-chairman, Westlife Development Ltd (that owns Hardcastle Restaurants), total sales were at a five-year high. The company's same store sales growth (SSSG) jumped 25.1% thus doubling cash flow to Rs 28 crore. After reporting a loss of Rs 4.1 crore in fourth quarter of fiscal 2017, the company bounced back to reort a profit of Rs 6.6 crore in the March 2018 quarter. In an interview with Ashish K Tiwari, Jatia spoke about the current market scenario, challenges and how is the industry / company dealing with it. Edited excerpts...

Is the QSR industry completely out of the stressed business environment?

When the business goes up or down, it doesn't every time mean there is a structural change. Consumers behave differently and resist spending, especially in a volatile economic scenario. However, spending increases when consumers feel good. For instance, last April we did same store sales growth of 8.4% on the top of a solid quarter before that. That was more or less an indication of consumer sentiment turning around. I definitely think tailwinds is evident from the financial results announced by every player in the sector unlike in the past when everybody was struggling. Positive consumer sentiment in the QSR segment is here to stay at least in the foreseeable future.

What is the present input cost scenario?

Fiscal 2018 has been good with inflation a bit under control. This has helped to keep costs stable. However, crude oil prices are moving up and import duty on cooking oil has gone up a bit as well. I do worry a bit about some inflationary pressures moving forward but we have a very robust cost rationalisation plan and we generally try to shave-off 100 to 200 basis points (bps) every year in cost. I feel quite comfortable that even though these pressures appear like coming back, we are well-placed to deal with it.

Is there any room to still undertake cost rationalisation?

Definitely. The world and environment around us is changing and there are new technologies coming in to play. We are constantly striving to cut costs. Also, our volumes are rising and it helps our supply chain facilities. More throughput is coming from the same facility thus helping us bring down cost as well. A 35% topline growth in the last quarter basically means more agricultural output and all our suppliers are producing more. Other than that, as sales grow we hire more people. In fact, we are one brand that has been hiring 1,500 to 2,000 people every year despite ups and downs in the economy.

Every year you undertake 4-5% price hike. Will that continue?

It is normally 3-5%. The price hike will continue and we are quite consistent with it. When inflation works in our favour, we keep it lower at 2-3% and when it's higher wherein minimum wages go up etc, then we go to the higher bracket. Last year it remained at the lower end, due to overall economic environment and lower inflation.

60% of your delivery business is driven by own mobile application and online ordering system. So will it impact your physical store growth plans?

Not at all. In fact, I have always maintained that we are marathon runners and are here for the long term. We have been consistently opening 25-30 restaurants every year since the last 3-4 years. We never cut down and feel this is the right balance between aggressive and sensible growth. What delivery does is, I now have 277 kitchens that help us capture the city and the market. For instance, the 80 restaurants in Mumbai are available to deliver across the city.

As we open in each mini market, this 80 will become 100 and we will be able to serve more people. We can easily add another 80 restaurants to reach every single consumer in Mumbai. Besides, the quality of new restaurant openings is allowing us to serve new set of customers within Mumbai. I don't see a significant shift in the way we open restaurants / cafes but as the delivery business continues to grow it makes more and more restaurants viable. So, if the opportunity in Mumbai was 160 restaurants earlier it is now 180 to 200. My view is that as per capita income rises, what we see as 200 restaurants in Mumbai today can become 250 tomorrow. We have our job cut out to achieve the vision 2022 of 400-500 restaurants from 277 today.