MANAGEMENT DISCUSSION & ANALYSIS
While economic growth picked-up in Financial Year (FY) 2015, it still fell short of expectations. Despite a stable government at the Centre, companies and consumers brferred to adopt the wait-and-watch approach. Investments failed to pick up significantly and consumer demand showed only a gradual recovery rather than a sharp upturn. As per the Central Statistical Office (CSO), based on the new series, real GDP growth rate for FY 2015 is 7.4% as against the revised FY 2014 GDP growth of 6.9% (from 4.7% as per the old series).
However, there were plenty of bright spots during the year, auguring well for the future. Current account deficit and elevated inflation, both impediments to higher growth, have declined considerably. Falling oil prices, coupled with implementation of deregulations and reforms to boost investor confidence are welcome changes and are expected to provide a further impetus to growth. Increasing monetary easing, facilitated by ongoing moderation in inflation, is also likely to improve market sentiments.
Based on the new methodology, as per the CSO estimates, real GDP growth rate is expected to be in the region of 8-8.5% in FY 2016. The International Monetary Fund (IMF) brdicts that India will emerge as the fastest growing major economy in the world, with growth expected to rise to 7.5% in FY 2016.
This boost in economic growth is expected to usher a new wave of consumers with considerable spending power, reviving demand. JFL, a consumer-driven Company with a strong focus on innovation and a pan India brsence, is optimistic of tapping this increase in consumerism across the country.
Industry Structure & Overview
Food Services Industry
The Indian Food Services Industry (FSI) is worth Rs. 6,27,245 Crore. It offers promising opportunities for both the chained and independent sectors, with the market projected to grow to Rs. 10,10,416 Crore by Calender Year (CY) 2019.
Challenging economic environment and tepid consumer sentiment impacted the propensity to spend, thereby limiting the growth of the Indian FSI during the year under review. Same Store Sales Growth (SSG) remained subdued across the industry, a reflection of the demand slowdown in the market.
Driven by an improving economy, and with inflation being under control, the FSI is expected to return to a reasonable growth momentum in the near term. The total outlets in the Consumer Food Industry increased to 2,149,206 in CY 2014 from 2,073,212 in CY 2013, resulting in an increase of 3.7%. Further, in CY 2014, chained outlets increased to 11,829 from 10,845 in CY 2013, resulting in an increase of 9.1%.
In CY 2014, total revenue generated by Consumer Food Industry increased to Rs. 6,27,245 Crore from Rs. 5,61,520 Crore in CY 2013, resulting in an increase of 12%. Further, in CY 2014, revenue generated by chained outlets increased to Rs. 14,916 Crore from Rs. 13,095 Crore in CY 2013, resulting in an increase of 14%.
(Source of Statistics: Euromonitor Consumer Food Services Report 2015)
Quick Service Restaurant (QSR) market
Affordable and competitive pricing, innovative food products with strong focus on quality and hygiene, and providing a higher level of consumer convenience has led to the rapid rise of the QSR segment in India. In fact, QSRs have become the fastest growing segment in the eating out market, along with the casual dining segment.
The QSR growth is further fuelled by customisation efforts, with most QSRs tailoring their offerings in terms of flavours, pricing, services, etc. to meet Indian consumers' evolving brferences. By tapping the digital medium, the QSRs are continuously expanding their consumer base. QSRs are also investing significantly in strengthening their back-end, which facilitates expansion.
Domino's Pizza was the largest QSR brand by revenue figures and also as per market share in CY 2014.
Growth Drivers of the organised FSI
The Indian consumer is driven by special occasions to indulge in dining out or ordering in. Further "Eating Out" has become an occasion /behaviour driver in itself. Multiple factors spur the "Eating Out" culture and correspondingly, the growth of the organised FSI in India. These include:
JFL Business Overview
Jubilant FoodWorks Limited (JFL/Company) is part of the Jubilant Bhartia Group and the largest Food Service Company in India. The Company has a master franchise agreement with Domino's Pizza USA, the recognised world leader in pizza delivery, for exclusive rights to develop and operate Domino's Pizza Restaurants in India, Sri Lanka, Bangladesh and Nepal. The Company currently operates in India and, through its subsidiary in Sri Lanka. Having surpassed the UK restaurant count in the Domino's Pizza network during FY 2015, Domino's Pizza India has now become the brand's largest market outside USA. The Company also has exclusive rights from Dunkin' Donuts USA, the world's leading baked foods and coffee chain, for operating Dunkin' Donuts Restaurants in India.
Powered by the passion of its people and its intrinsic cultural strengths, JFL continued to leverage the unfolding opportunities in the Indian FSI during the year. This helped the Company to drive expansion of its Restaurant network, strengthen its infrastructure facilities and deepen consumer engagement.
With its passionate focus on sustained investments, the Company dynamically navigated the challenging scenario that brvailed during the year, and delivered better performance in comparison to its peers in the industry.
Domino's Pizza India
Domino's Pizza India (DPI), since its inception, has completely revolutionised the organised pizza market in India. With its overwhelming focus on consumer centricity, the brand has successfully resonated with people across all age segments and regions - be it metros or smaller cities. Its deep engagement with Indian consumers can be gauged from the fact that around 58 million orders were placed during the last year.
In the chained pizza market, moving from strength to strength, the Company has increased its market share from ~70% in CY 2013 to ~72% in CY 2014 for its Domino's brand. (As per Euromonitor Consumer Food Services Report 2015)
The strategic practices which collectively help DPI to deliver better value proposition for its consumers and redefine its consumer-centric culture are discussed below:
Powering the way to greater accessibility
DPI is consistently enhancing accessibility across consumer segments pan India, as evident by its Restaurant network, which is more than double than any of its peers in the industry. With a new India emerging in small towns and cities, the intrinsic passion driving the Company's growth has received a new direction and a strong regional impetus. In recent years, efforts have been concentrated on aggressive expansion into these new geographies, while strengthening DPI's position in existing markets.
During FY 2015, the Company broadened accessibility by launching 150 Restaurants. The Company has pursued steady expansion in 46 new cities during the year in a focused move aimed at countering the high level of cannibalisation in the major cities. As per its strategic approach, the Company continued to invest in expansion even in big cities and metros, considering it prudent to set up new Restaurants to fortify the area against future competition. The Company's focus on penetrating into untapped markets is another success story. Its foray into smaller cities has received an overwhelming response from local consumers. For instance, in the year under review, DPI's entry into Gorakhpur (UP), Bhagalpur (Bihar) & Udaipur (Rajasthan) created a major buzz, with record sales in the opening month.
This far-sighted strategic thinking is also manifest in the Company's decision to leverage the macro-environment sentiment to its advantage by entering favourable rental deals across the country.
Major operational highlights
The DPI Pizza network in the country comprised 876 Restaurants as on March 31, 2015 (726 restaurants as on March 31, 2014).
• The Company achieved its target of opening 150 new restaurants in the year.
• The DPI restaurant brsence spanned 196 cities as on March 31, 2015.
• The number of new cities where DPI extended its footprint during the year stood at 46.
• This translates into brsence across 25 States and 4 Union Territories as on March 31, 2015.
Driving innovation in products
Broadening the product portfolio through innovation remains central to the Company's efforts towards providing consumer-centric propositions and enhancing brand loyalty. During FY 2015, the Company launched the highest number of products in its history, creating more occasions for ordering from Domino's Pizza.
Every DPI product is developed based on rigorous research into consumer insights. While developing new products all efforts are made to ensure diverse choice of offerings across different price points. The result is happy, satisfied consumers and profitable operations despite external challenges.
• After launching new crusts, side products and desserts over the past several years, this year DPI introduced 10 new varieties of pizzas through innovation of new toppings and combinations. This resulted in a refreshing change in the product menu.
• South India being an important market for DPI, the Company launched two super-spicy and cheesy pizzas - South Zesty Veggie and Southern Chilli Chicken, keeping in mind the taste brferences of the consumers in South India.
• The Cheesy Wonder Pizza Crust captured consumers' interest and market through a combination of creamy chilli cheese sbrad and liquid cheese filled inside a buttery crust.
• The hugely popular Cheese Burst Pizza Crust and Fresh Pan Pizza, based on feedback from consumers, were launched in regular size too, in addition to the existing medium size offering.
• Oven-baked Subwich was another interesting offering launched during the year, specifically aimed at providing a refreshing option suitable for lunch time.
• Based on insights that consumers are eager to experience new tastes, DPI launched Taco Mexicana, a spicy and exotic Mexican Wrap. Through its unique stuffing and Mexican flavour, the innovative side product offers a completely new experience for food lovers.
• Crispy Chicken Strips with Oriental flavour was another creative addition to DPI's basket of side products.
• Zingy Parcel - an anytime, anywhere snack with delicious paneer/BBQ chicken topping rolled over a layer of exotic harissa sauce inside a yummy buttery crust topped with basil and parsley seasoning - was launched at a very attractive price point of Rs. 29 (For Veg).
Powering deeper consumer connect
At JFL, marketing strategies are driven by the sole objective of reaching out to more consumers and creating an unassailable mindshare through powerful brand recall initiatives. The Company has been successful in achieving its goal by focussing on innovative marketing, as well as impactful advertising and promotional campaigns.
The various campaigns launched during the year to strengthen consumer connect resonated with the brand positioning of 'Yeh hai rishton ka time' - every Domino's Pizza experience is an experience in building relationships. Notable among them were the media promotions for Taco Mexicana, Oven Baked Subwich and the much acclaimed Domino's Pizza winter campaign "Cheesy Happy Feeling". A sales promotion campaign revolving around the Cricket World Cup was launched to coincide with this sports extravaganza.
With regional focus high on the Company's strategic agenda, targeted marketing was aggressively pursued during the year.
DPI's regional marketing strategy helped enhance performance in the South Indian market, while its customised marketing collaterals designed to local requirements helped boost consumer engagement in smaller and emerging cities.
The E-connect power - With aspirations of consumers constantly evolving, DPI is continually relooking its marketing strategy to ensure that it remains ahead of the curve. During the year, the Company augmented its digital engagement capabilities by launching a new mobile ordering application which eases the process of ordering and also enhances consumer experience through a user friendly interface. Also, the availability of mobile applications on multiple platforms enables easy access to consumers for ordering online. The Online Ordering (OLO) system proved to be a success as inferred from the following notable achievements:
• Mobile ordering apps have seen over 2.6 Million downloads since inception.
• Online Ordering platforms contributed around 28% to the overall delivery sales (Q4).
• Mobile ordering sales contribution to overall OLO of was around 24% (Q4).
• Additionally, DPI provides online consumers the option of saving their favourite order and, through social media, keeps them informed and updated on new products and promotions, thus paving the way for greater brand affinity
The ingenuity in marketing, as in other operations, is based on a scientific approach, which helps the Company reap the maximum returns and sustain its leadership position in the QSR segment. Its extensive market surveys are second to none in the industry. And its store catchment analysis remains an important scientific tool to not only identify the feasibility of a new Restaurant but also to identify the potential consumer base. Better understanding of consumer aspirations is of particular significance in the brvailing scenario as the Company is now reaching out to Tier III and Tier IV cities, where consumer sentiments and expectations differ from those in the larger cities.
Powering better consumer experience
The Company is continuously striving to maximise consumer experience through diversified initiatives - from serving innovative, high quality products, to embracing advanced processes, and translating consumer feedback into changes in the organisation for bridging the gap between consumers and the Company.
The Pizza Theatre restaurant format, which embraces the open kitchen concept and was adopted in FY 2014, is another important initiative by DPI to bring modern international practices closer home. Building on this evolved business format, all DPI restaurants opened during the year were in the Pizza Theatre format except those opened at food courts.
While pizzas are the hot favourite item on the DPI menu, the various side products are also becoming increasingly popular among the consumers. Seeing their huge acceptance and demand, the Company changed its home delivery policy during the year to allow home delivery of only side products too. This innovative rethink now enables consumers to experience any of the food products from the DPI menu, irrespective of whether they are dining in or ordering for the food.
The Company recognises that in FSI, quality of services rendered will be a key differentiator between the leader and average performers. While the front-end team members have built a remarkable reputation of going beyond the call of duty to serve consumers, the back-end support works closely in sync with the needs of the front-end team to ensure the highest level of consumer satisfaction.
Domino's Pizza - Sri Lanka
JFL continued with its steady efforts to strengthen the Domino's Pizza brand in Sri Lanka. The number of Restaurants opened during the year stood at 4, thereby taking the total Restaurant count to 15. As a result of the ongoing, aggressive marketing communication and promotion strategy, brand awareness has improved. The Pizza Theatre design concept was launched with all the 4 new restaurants carrying the new design. Pizza Mania was launched in the market and the first TV commercial for Domino's Pizza was aired promoting Pizza Mania in Sri Lanka. The winter promotion campaign of Cheese Burst Pizza and Choco Lava cake is a great success. After the awe-inspiring success of the OLO in India, the Company is in the process of launching OLO in Sri Lanka.
Dunkin' Donuts, branded in India as Dunkin' Donuts & More, provides an all-day part food and beverage option. Occupying a sweet spot between QSR and Cafe markets, Dunkin' Donuts is targeted at the discerning urban youth, who find the QSRs infantile while the coffee shops somewhat formal and not an ideal option for food occasions. Through its unique brand positioning of 'Get Your Mojo Back', which reflects the desire to reactivate the lives of the urban youth through innovative products and exciting Restaurant designs to bring alive this campaign - Dunkin' Donuts is gaining positive traction in the market as a differentiated, adult QSR brand.
The focussed initiatives which enabled Dunkin' Donuts to help delight its target consumer group and facilitate growth are discussed below:
Powering expansion with vigour
Expanding brsence provides Dunkin' Donuts with more opportunities to connect with consumers and build on the attractiveness of the brand.
The year under review saw Dunkin' Donuts embark on steady expansion across the geographical expanse of the country. After foraying into Mumbai, where two restaurants were launched on the same day, Dunkin' Donuts expanded its brsence into
Bengaluru, Ghaziabad, Kanpur, Jaipur, Ahmedabad, Pune, Panaji and Faridabad. With this strategic foray, Dunkin' Donuts is now brsent in South, West and North India across 19 cities.
Concurrently, the Company also broadened the accessibility of the brand through the addition of new restaurants in existing markets. With this network expansion, the total number of restaurants stands at 54 as on March 31, 2015, as against 26 on the same date in the brvious fiscal. The response to new restaurant launches has been extremely encouraging and reflects the brcision in the strategy of reaching out aggressively to consumers.
With the existing commissaries catering to the raw material and supply chain needs of Domino's Pizza and Dunkin' Donuts, both brands are committed to continue their expansion strategy across new and existing cities in the coming quarters.
Driving delight through distinctive offerings
Resonating with the brand positioning of 'Get Your Mojo Back', Dunkin' Donuts launched several innovative products that can best - fulfil the evolving and emerging needs of the urban youth. The Crunchy Joe Burger, Tough Guy Brute Burger, Wicked Wraps and Not So Wicked Wraps, Naughty Lucy Burger and a new range of Donuts are among the new products launched during the year to bring alive the distinct brand positioning.
Dunkin' Donuts also extended the range of Dunkaccino Coffee with new flavours such as Mocha Chip, Jamaican Rum and Almonds Dunkaccino. The beverage menu also saw the addition of two new - Green Iced Teas - Spiked Iced Tea and Green Iced Tea to beat the summer heat.
To tap into India's rising demand for sugary sweets during Diwali, donuts with traditional Indian flavours were specially brpared for the occasion. Unique gifting packs consisting of Diwali Donuts in Motichoor, Kaju Katli and four other festive avatars were also launched to add to the traditional spirit.
The refurbished menu not only expanded base sales but also increased the frequency of consumer visits. Going ahead, Dunkin' Donuts will continue to innovate and develop products that meet the needs of the new-age urban youth and thus increase brand connect and appeal among the target group.
Powering best-in-class consumer experience
Dunkin' Donuts is not simply about offering better diverse product; rather it is about creating a unique experience for the discerning adult consumers. The focus is therefore on ensuring that the products, restaurant design and ambience are in complete sync with each other, as also with consumer aspirations and taste.
Contemporary seating arrangement, trendy decor and wall design, signature products and indulgent backdrop collectively create a mature atmosphere enjoyed by young adults. During the year, Restaurant image and functionality were further improved upon to deliver a more relevant experience to the new age consumers.
JFL-Driven by Infrastructure Excellence
JFL is one of the most integrated food service companies and has consciously focussed on building scale and efficiency across its infrastructure. The solid, quality driven nationwide manufacturing capabilities, known as commissaries/centralised food production facilities, are among the best-in-class in the industry. Adopting six sigma and lean manufacturing across these facilities, the Company is able to leverage better value for its operations.
Apart from ramping up existing facilities, the Company had also commissioned the setting up of new manufacturing facilities to meet expected growth prospects. The new facilities at Nagpur, Guwahati and Hyderabad have become operational in FY 2015.
Apart from these new facilities, the Company has commissaries in Mumbai, Noida, Mohali, Kolkata and Bengaluru, with Noida having two (2) commissaries. This takes the total number of commissaries to nine (9). Driven by adequate infrastructure facilities, the Company is well-positioned to expand the restaurant network of Domino's Pizza and Dunkin' Donuts with optimal investments, making growth opportunities value-accretive.
By aligning the infrastructural strengths of the business to meet future demand, the Company has commenced the groundwork for relocation of the existing Noida commissary to a larger area in Greater Noida.
Powered by Technological Prowess
In today's fast-paced world, technology absorption and its effective utilisation is a critical growth driver. JFL leverages advanced technology across its processes to improve time and cost efficiencies internally, and ensure better experience and convenience for consumers externally.
IT tools and solutions are being used across the Company to enhance productivity and drive greater efficiencies. JFL is among a select few companies in India to invest in Learning Management System (LMS). This technology helps in delivery of the training programme over web-based interfaces, thus enabling the Company to get more value from human resources while empowering individuals with additional tools for self-improvement.
Investments in IT infrastructure have also been institutionalised to collaborate better with suppliers, increase automation and support rapid business growth. This year, to drive greater operational excellence across its supply chain, the Company introduced 'Oracle Transport Management' for its transportation system across the country. This initiative will lead to automation and standardisation of the transportation process, greater visibility in operations and optimisation of costs. Further, to reinforce data security, JFL Corporate and Regional offices were upgraded and recertified on ISO 27001:2013, the latest version of the internationally acclaimed Information Security Standard.
The Company continues to invest in capabilities that will help it reach out better to consumers. JFL is among the first in the industry to foray into digital marketing. Impactful digital marketing strategies have enabled the Company to widen its audience base and make its products easily accessible to e-commerce savvy consumers. Partnering with big aggregators like Zomato, Foodpanda, etc. and introducing a pizza tracker in mobile ordering are among the new initiatives launched in this area.
To maintain its competitive edge in a highly dynamic industry, the Company recognises the importance of having a work force which is highly consumer-focussed, performance-driven and future-capable. The Human Resource (HR) function seeks to achieve this objective through strong focus on attracting, nurturing and retaining talent.
The following major developmental initiatives were launched during the year:
• Strategy Leaders Programme
• Operations Leadership Development Programme for employees in retail operations
• Executive Certification Business Management Programme
• Shift Manager Development Programme
• Executive Coaching for the Next Level managers
• Gender Sensitisation Programmes
• 200+ Workshops and Seminars
• E-learning module on 'No Gifts Policy' and 'Prevention of Sexual Harassment' (POSH) touching 20000+ employees and covering 15000+ Man hours through Learning Management System
Aligned to its vision of creating an organisation anchored in the culture of excellence, the Company gives due recognition to good performance through its Reward & Recognition Programme. This year, 'Spot Awards' and 'Esprit De Corps' were introduced for the support functions. Besides recognising role models, a more progressive work environment is also built by offering employees the choice of professional advancement courses in IMT Ghaziabad, a brmier management institute. Training programmes were also conducted online to reach out to more employees during the year.
Employee engagement was kept high by inculcating a culture of fun through 400+ Fun@Work activities across the country Popular among them was the national level dance competition (Dance Domino's 'Dunkin' Dance), running successfully for the third year. The "Mera Domino's" campaign continued to strengthen employee bonding. Also, a new and vibrant intranet portal with many more user-friendly features was launched during the year for enhancing networking experience.
By embracing well thought out HR development practices, JFL has been able to build a productive, innovative and engaging workplace. Significantly, the Company has been consistently rated as one of the "best employers" in the country, validating the success of its HR function.
Driving Quality Assurance
Quality consciousness is a value ingrained within the culture of the organisation, making each and every team member a custodian of quality assurance
To create and maintain the highest quality and safety standards, the Company stays upto date with new regulations and industry best practices by participating in various seminars and forums on Food Safety and Quality. Having global brands in its portfolio, the Company also follows the strict guidelines determined by the respective international franchisors. All food business partners are Food Safety Management System certified.
Passionate Performance Recognised
JFL's exemplary performance is a tribute to the committed and passionate efforts of its employees and its vision to be among the most admired and respected Companies in India. The company's pursuit of excellence has won it several awards during the year.
Jubilant FoodWorks Limited
- Winner of the brstigious 'Images Most Admired Food Service Group of the Year' at the Coca Cola Golden Spoon Awards 2015 for the second consecutive year
- Three finalists at Effie's 2014, India's most Prestigious Marketing Effectiveness Award, amongst 467 contenders, placing JFL in the list of top 30 Marketers in India.
- Awarded the 'Genius HR Excellence Awards 2014' for Best HR Practices hosted in collaboration with The Times of India.
- Awarded in 4 brstigious categories at World HRD Congress 2015:
• "Dream Companies to Work for" in Retail Category
• Organisation with Innovative HR Practices
• Diversity Impact Award
• Fun at Work Award
Ranked 7th in the "Great Place to Work" India survey in retail sector
- Winner of 5 CII National Awards for Food Safety, 2014.
- Gold winner at the Public Relations Society of India (PRSI) National Awards 2014 in the Annual Report category
- Awarded the CSR Initiative of the year award at the Annual Indian Retail Awards organised by Franchisee India.
- Awarded with the "Exceptional Position" in the Supply Chain & Logistics Excellence (SCALE) Awards 2013, instituted by CII.
Domino's Pizza India
- In the Asia Pacific Region, Domino's Pizza Inc. recognised DPI with the following awards:
s Trainer of the year
s Rookie Manager of the year
- Domino's Pizza Winter campaign 'Cheesy Happy Feeling' was declared as one of the best campaigns for the month of December 2014 by Brand Equity (Economic Times).
- Awarded as one among the Top 4 winners of coveted BML Munjal Awards (2015) for Business Excellence through Learning & Development, under Private-Service Category.
- Won the 'Golden Peacock National Training Award' by the Institute of Directors (IOD) - India at the 25th World Congress on Leadership for Business Excellence & Innovation.
- Awarded the 'Customer Service Excellence' Award at the Annual Indian Retail Awards organised by Franchisee India.
- Adjudged winner in 2 categories at the brstigious Indian Retail and e-Retail awards;
s Best advertisement/Marketing campaign of the year-Pizza Mania "Pehli Kamai"
s Best Home Delivery
- Recognised as the "Most Admired Retailer of the Year: Food Services - Domino's Pizza by Images Retail
- Best Digital Integrated campaign 2014 in India at Digital Awards brsented by IAMAI (Internet and Mobile Association of India)
- Conferred the title 'Images Most Admired Food Service Chain ' at Coca Cola Golden Spoon Awards 2015
- Conferred with Coca Cola Golden Spoon Awards 2015 in two categories:
s Most Admired Food Service Chain of The Year - Cafe & Juice Bars
s Most Admired Food Service Retail Innovation of The Year
- Recognized as the "Most Admired Retailer of the Year" Marketing & Promotions - Dunkin Donuts by Images Retail.
- Mr. Ravi Shanker Gupta (President & CFO) has been recognised amongst the 'CFO100 League of Excellence 2015' for his excellence in the field of Corporate Finance. He has also been awarded "The Best performing CFO in the FMCG Sector" at the 8th edition of the CNBC-TV18 CFO Awards 2013.
- Mr. Arvind Vats (Senior Vice President - MACP, Admin & Corp Affairs) has been recognised and awarded as "the top 100 upcoming finance leaders of India Inc." at the Third Annual CFONEXT100 awards and also won the "CFO100 Roll of HONOR 2015" award under the category Strategy and Growth.
- Mr. Harneet Singh Rajpal (Senior Vice President -Marketing) has been recognised and awarded as one of India's Top 20 Marketing Master Minds which, is brsented by WCRC (World Consulting and Research Corporation) and Brands illustrated magazine.
- Mr. Rahul Puri (Vice President - Information Technology) has been recognised as the Top 100 Information Security Professionals in the county by CISO 100 Platform and as one of the most promising CISO by Infosec Maestro.
The Company's sustained performance during a challenging year underlines the resilience of its business model and strategy. Across both brands, expansion of Restaurant network and innovation in menu continued, which enabled the Company to increase revenue from operations. Consumer focussed marketing and a thrust on enhancing digital capabilities also drove higher sales for the Company. The total income for the 12-month period ending March 31, 2015 stood at Rs. 20,745 Million as against Rs. 17,235 Million for the same period in FY 2014, which rebrsents a growth of 20.4%, though marginally lower than the growth of 22.4% registered in FY 2014.
The restrained external environment dampened Domino's Pizza Same Store Sales Growth (SSG), which remained flat at 0.05% in FY 2015 as against 1.6% in FY 2014. The SSG moved into positive territory from Q3 FY 2015, after being in the negative space for the brvious four (4) quarters. The Company's differentiating efforts of expansion and innovation are important growth drivers, making it upbeat about achieving higher sales growth.
Operational expenses mainly include raw material costs, rentals, personnel cost, advertising and promotion costs, administrative expenses, power and fuel costs and other costs. Total Expenditure for FY 2015 stood at x 18,117 Million as against x 14,685 Million in the brvious year. The increase in expenditure is reflective of the expenses incurred for business growth and the general price escalation due to overall inflation.
Expansion of the scale of operations for both Domino's Pizza and Dunkin' Donuts resulted in higher raw material costs in first half of the year. However, the low inflationary trend in the economy, especially in the last few months of FY 2015, helped to keep these costs under control. The total raw material and provisions consumed, which includes basic ingredients such as cheese, chicken and other raw material used in product brparation, was 25.12% of net sales in FY 2015 as against 26.04% in FY 2014. The decline in raw material cost was primarily due to comparatively lower discounts in FY 2015.
Expenditure on rentals increased with addition of new restaurants and higher rentals for existing restaurants. Cost incurred on rentals increased to x 2,050 Million in FY 2015, up from x 1,549 Million in FY 2014.
The Personnel expenses stood at Rs. 4,388 Million for the year ended FY 2015 as against Rs. 3,369 Million in FY 2014. Employee costs were higher due to an increase in wages and performance-linked incentives over an augmented employee base. Recruitment of new employees was necessary to meet the higher resource requirement due to expansion of business. The Company's total employee strength, working in restaurants, manufacturing locations/commissaries and offices, stood at 27,122 as on March 31, 2015, up from 24,969 as on March 31, 2014.
The Company pursued its policy of aggressive marketing and advertising to strengthen consumer connect, sustain brand positioning and create awareness for its new launches of products, offers and restaurants, thus resulting in a higher expenditure on this account.
EBITDA for FY 2015 moderated to Rs. 2,628 Million as against Rs.2,551 Million in the corresponding period last year. EBITDA margin was recorded at 12.7% as against 14.8% in FY 2014. Decline in SSG coupled with inflation in costs impacted the margins. Also, new Restaurants are margin dilutive as newer restaurants generally operate with sales levels lower than the system average. With restaurants being added to the network for both Domino's Pizza and Dunkin' Donuts brands, this was reflected in the overall EBITDA margin
Owing to the continued stress in the external economic environment and consumer sentiment, discretionary spending slowed down, impacting SSG and profitability of restaurants. Profit before Tax (PBT) for FY 2015 was Rs. 1,721 Million as compared to Rs.1,877 Million in FY 2014, rebrsenting a decline of 8.3% over the brvious fiscal. Profit after Tax (PAT) for FY 2015 was x 1,233 Million as against Rs. 1,258 Million for the same period in FY 2014, reflecting a de-growth of 2.0%. manage them, while safeguarding business opportunities and strengthening profitability. The Company believes that risks that are well managed can create opportunities, whereas risks that are not managed or incorrectly managed could lead to financial and reputational loss.
Risk Management Policy Framework
The following are some of the key risks and related mitigation plans as perceived by the Company:
The Company continues to maintain a sharp focus on operational discipline for managing costs better and enhancing profitability. By extending Six Sigma to both internal functions and business partners, the Company has achieved better cost control. Also, the Company's business model is well positioned to enjoy the advantages of scale and capability.
Returns to Shareholders
The Board has recommended a maiden dividend of Rs. 2.50 (i.e. 25%) per equity share for the year ended March 31, 2015. The proposal reflects the Board's confidence in the Company's future and its commitment to manage business in the best interests of its shareholders.
The Company recognises the importance of identifying and actively managing the full range of financial and non-financial risks faced by the business. The Company follows a well-established risk assessment process wherein risk identification, designing mitigation plans, regular review mechanism and reporting to top management and Board is performed.
Internal Control Systems and their Adequacy
The Company continuously invests in strengthening its internal control processes. These systems provide a reasonable assurance of accuracy of financial and operational information, complying with applicable statutes and safeguarding of assets and ensuring compliance.
Financial policies, processes, standards and delegation of authority have been cascaded and periodically reinforced within various departments. Procedures to ensure conformance with the policies, standards and delegations of authority have been put in place through control self-assessment and internal audit procedures
To drive greater momentum in growth, the Company will strengthen focus on the following parameters of performance:
• Streamlining processes and systems for building cost efficiencies
• Expanding market brsence
• Imbibing advanced digital and online technology to connect better with consumers
• Further strengthening the supply chain to meet business expansion
• Leveraging marketing and innovation to build strong brands
• Augmenting infrastructure to meet future requirements
• Developing professional and skilled Human Resource
In conclusion, as economic indicators turn positive and consumer sentiments revive, the Company is powered for greater traction, going forward.
Domino's Pizza India
With India poised to attain high economic growth, there is considerable scope for geographic expansion and market penetration in existing cities for Domino's Pizza. In FY 2016, the Company plans to open 150 Restaurants, providing robust revenue growth visibility. The thrust will also be on enhancing the Company's Online Ordering systems to drive higher sales.
With infrastructure capabilities in place to expand the Restaurant base, a steady network rollout plan will form a key business strategy for taking Dunkin' Donuts to the next level in its growth trajectory. After the successful foray in West and South India, the thrust will be on expanding brand brsence in these regions as well as in the Northern markets. Going ahead, the plan is to launch 30 restaurants for broader consumer reach. Expanding the food and beverage menu based on consumer insights will be another core focus area to drive footfall and enhance profitability.
For and on behalf of the Board of Directors
Sd/- Shyam S. Bhartia
Chairman & Director
DIN No. 00010484
Sd/- Hari S. Bhartia
Co-Chairman & Director
DIN No. 00010499
Date: May 14, 2015