Sapphire Foods:Slow Demand & Competition Impacted Q4,Company’s Plan To Tackle With Their Competitors

Summary

In an interview, Sanjiv Purohit, the full-time director and group CEO at Safire Foods India, discusses the company's performance amidst soft consumer demand and heightened competition. He acknowledges a decline in same-store sales growth but remains optimistic about future improvements, attributing the current situation to economic cycles. Purohit highlights the company's strong full-year performance, with significant growth in revenue, EBITDA, and new restaurant additions. He outlines strategies for growth, including innovation, marketing, and cautious expansion, particularly for KFC and Pizza Hut brands, expressing confidence in overcoming current challenges and maintaining long-term growth aspirations.

Takeaways

• 📉 Sanjay Purohit, the Full-time Director and Group CEO at Safire Foods India, discusses the decline in same-store sales growth due to soft consumer demand and heightened competition.
• 📈 Despite the challenges, Safire Foods has had a decent full year with revenue scale growth, EBITDA margin percentage growth, and new restaurant additions, outperforming other QSR companies.
• 🎯 The aspiration for same-store sales growth is between 5% and 7%, which has not been met in the last five or six quarters, prompting internal reviews and strategies for improvement.
• 💡 Sanjay emphasizes the importance of investing in innovation, marketing, and improving customer and operational metrics to drive growth, especially in the KFC brand.
• 🏫 KFC is set to continue its pace of expansion, while Pizza Hut's growth strategy involves being more cautious in new store expansion due to current market conditions.
• 📊 Sanjay mentions that the company's performance in the last quarter of 2021 was strong, with 23 new KFC stores opened, but no new Pizza Hut stores in India and one closure in Sri Lanka.
• 🔮 The company aims to double its KFC store count by the end of the year, a goal that is closer to being achieved in three years rather than the initially projected four.
• 🚫 The economic indicators are strong in sectors like travel and tourism, but the QSR sector is facing a rough patch, which Sanjay attributes to muted consumer expenditures and heightened competition.
• 💼 Sanjay's background in consumer FMCG suggests a deep understanding of the consumer market, which he applies to the strategic planning of Safire Foods.
• 🌐 The company is focusing on taking matters into their own hands by enhancing innovation and marketing efforts, exemplified by Pizza Hut's launch of a new product, 'Melts', a foldable pizza concept.
• 📉 Sanjay acknowledges the current turbulence in the market but maintains a long-term optimistic view for both KFC and Pizza Hut, expecting a multi-decade opportunity for growth.

Q & A

What is the current status of Safire Foods India's same store sales growth?

Safire Foods India has experienced a decline in same store sales growth over the last three to four quarters due to soft consumer demand and heightened competition.

How does Sanjay Purohit, the CEO of Safire Foods India, describe the consumer demand conditions over the past few quarters?

Sanjay Purohit describes the consumer demand conditions as soft, with the private final consumer expenditure metric being the most constrained since 2003-2004.

What is Safire Foods India's strategy to improve same store sales growth for KFC?

The strategy includes investing in innovation, increasing marketing efforts, improving customer and operational metrics, and being cautious with new store expansion where the brand is doing well.

What was the overall performance of Safire Foods India in the full year according to Sanjay Purohit?

According to Sanjay Purohit, Safire Foods India had a decent full year with good revenue scale growth, EBITDA margin percentage growth, and new restaurant additions, making it the best year among all the QSR companies.

What is the aspirational same store sales growth rate for KFC according to Safire Foods India?

Safire Foods India aims to grow same store sales for KFC by between 5% and 7%.

How many stores did KFC open in the fourth quarter according to the transcript?

In the fourth quarter, KFC opened 23 stores.

What is the plan for new store expansion for Pizza Hut in India over the next six to twelve months?

Safire Foods India plans to be cautious with new store expansion for Pizza Hut in India, focusing on getting the brand back on a growth track before discussing further expansion.

Why is the QSR sector experiencing a rough patch despite strong economic indicators in other sectors?

The QSR sector is experiencing a rough patch due to muted consumer expenditures and heightened competition, despite other sectors like travel and hospitality showing growth.

What innovation did Pizza Hut introduce in response to the soft demand conditions?

Pizza Hut introduced 'Melts,' a unique foldable pizza concept, as part of their innovation strategy to boost sales.

What is Sanjay Purohit's outlook for the long-term growth of KFC and Pizza Hut?

Sanjay Purohit sees a multi-decade opportunity for both KFC and Pizza Hut, despite the need to weather current market turbulence.

What was the three-year plan for sales and EBITDA growth as stated by Safire Foods India in December 2021?

The three-year plan stated in December 2021 was for sales to grow by 25-30% and EBITDA to grow by 30%.

Has there been any significant change in the ownership structure of Safire Foods India recently?

No, the ownership structure has achieved a level of stability with the promoter stake at about 31%, foreign institutional investor stake at about 30%, domestic investor ratio at about 30%, and the rest being public and employees.

Outlines

00:00

📉 Declining Sales and Future Growth Strategies

Sanjay Purohit, the full-time director and group CEO at Safire Foods India, discusses the challenges faced in the recent quarters due to soft consumer demand and heightened competition, which have led to a decline in same-store sales growth. He mentions that this situation has persisted for about three to four quarters and could continue for another one or two quarters. Despite this, Safire Foods has had a decent full year with good performance in revenue scale growth, EBITDA margin percentage growth, and new restaurant additions. The company aims to grow same-store sales by 5-7% and is focusing on innovation, marketing, and operational improvements to boost growth. Sanjay also outlines a cautious approach to new store expansion, especially for KFC and Pizza Hut, with plans to double KFC's store count by the end of the year.

05:01

🚀 Innovation and Marketing to Revive QSR Performance

In the second paragraph, Sanjay Purohit emphasizes the importance of innovation and marketing in reviving the performance of Safire Foods' QSR brands, particularly Pizza Hut, which experienced a downturn after a period of strong growth. He highlights the launch of a new product, 'Melts,' a unique foldable pizza concept, and the company's commitment to increasing marketing investments. Sanjay expresses confidence in the company's ability to overcome current challenges through internal efforts, rather than relying on macroeconomic factors. He also addresses the company's three-year plan, stating that they have exceeded the initial guidances and remain committed to growing revenue by 25% and EBITDA by 30%. Regarding the ownership structure, he confirms stability with a balanced distribution of shares among promoters, foreign institutional investors, domestic investors, and the public.

Keywords

💡Sanji Purohit

Sanji Purohit is the Full-time Director and Group CEO at Sappire Foods India. He is a key figure in the company and his insights are central to understanding the company's performance and strategies discussed in the video script.

💡Sappire Foods India

Sappire Foods India is the company in focus within the video script, operating in the quick service restaurant (QSR) sector. The company's performance, challenges, and strategies are the main themes of the discussion.

💡Same Store Sales Growth

Same Store Sales Growth refers to the measure of sales growth of existing stores within a retail company, excluding the impact of new store openings. In the script, it is mentioned that Sappire Foods India has seen a decline in this metric, indicating a softening in consumer demand.

💡Consumer Demand

Consumer Demand is the desire and ability of consumers to purchase goods and services. The script discusses a softness in consumer demand affecting Sappire Foods India's performance, with a comparison to historical data since 2003-2004.

💡Private Final Consumer Expenditure

Private Final Consumer Expenditure is an economic metric that measures the total spending by households on goods and services. The script mentions that this metric has been constrained, reflecting the current economic conditions affecting consumer behavior.

💡Competition

Competition refers to the rivalry among businesses for market share. The script highlights heightened competition in the QSR sector as one of the factors impacting Sappire Foods India's performance.

💡Innovation

Innovation in the context of the script refers to the development of new products or services to improve a company's market position. Sappire Foods India is focusing on innovation to drive growth and counteract the current market challenges.

💡Marketing

Marketing is the promotion and selling of products or services. The script discusses the importance of investing in marketing to stimulate growth, especially in the face of muted consumer demand and increased competition.

💡Customer and Operational Metrics

Customer and Operational Metrics are measures used to assess the performance of a business in terms of customer satisfaction and operational efficiency. The script mentions the need for improvement in these metrics as part of Sappire Foods India's strategy.

💡Expansion

Expansion refers to the growth of a business, often through the opening of new stores or entering new markets. The script discusses a cautious approach to expansion for Pizza Hut due to current market conditions.

💡Discretionary Spend

Discretionary Spend is the portion of a consumer's income that is spent on non-essential items or experiences. The script contrasts the booming sectors like travel and tourism with the current challenges faced by the QSR sector, which is also part of discretionary spending.

💡Economic Indicators

Economic Indicators are quantifiable measures that help assess the economic performance of a country or region. The script mentions strong economic indicators in India, yet the QSR sector is experiencing a rough patch, creating a dichotomy.

💡Multi-Decade Opportunity

Multi-Decade Opportunity refers to a long-term perspective of growth and potential in a market or industry. Sanji Purohit expresses optimism for the long-term prospects of both KFC and Pizza Hut, despite the current challenges.

💡Investor Presentation

An Investor Presentation is a report or meeting where a company shares its performance, strategies, and future outlook with investors. The script refers to a three-year scorecard presented to investors, indicating the company's past achievements and future aspirations.

Highlights

Sanji Purohit, the full-time director and group CEO at Safire Foods India, discusses the company's performance in the face of rising competition and a decline in same-store sales growth.

The company has experienced softness in consumer demand for about three to four quarters, which is the most constrained since 2003-2004.

Safire Foods has had a decent full year with growth in revenue scale, EBITDA margin, and new restaurant additions, despite the challenges.

The aspiration for KFC's same-store sales growth is between 5% and 7%, but the last five to six quarters have fallen short of this target.

Internal strategies include investing in innovation, marketing, and improving customer and operational metrics to boost growth.

A cautious approach is being taken with new store expansion for Pizza Hut due to current market conditions.

KFC opened 23 stores in Q4, while Pizza Hut did not open any new stores, reflecting a strategic focus on brand performance over expansion.

The company aims to double KFC's store count by the end of the year, a goal that is closer to being achieved in three years rather than four.

Discretionary spending in the QSR sector is being affected by broader economic trends, despite other sectors like travel and tourism booming.

Economic indicators are strong, but the QSR sector is facing a rough patch due to muted consumer expenditures and heightened competition.

Long-term optimism for KFC and Pizza Hut remains, with a view to weather the current market turbulence.

Confidence in the market recovery is based on internal efforts such as innovation and marketing, rather than macroeconomic factors.

Pizza Hut's experience shows a strong performance in the first half of 2022-23, followed by a softening in the last four to five quarters.

Innovations like Pizza Hut's 'Melts', a foldable pizza concept, are part of the strategy to improve same-store sales growth.

The company's three-year scorecard has exceeded initial guidances, with revenue growth of 37% and strong EBITDA growth.

The long-term aspiration for revenue growth is around 25%, and for EBITDA growth, around 30%, despite potential fluctuations.

The ownership structure has achieved stability with a balanced distribution of shares among promoters, foreign institutional investors, and domestic investors.

Transcripts

Sanji purohit the fulltime director and

group CEO at safire Foods India joins in

to talk about how their quarter has been

Sanjay hi morning uh with the rising

competition your same store sales growth

has seen a bit of a decline when is it

that you see it um you know

recovering so good morning Aisha good to

speak to you uh it has been about three

four quarters when we've seen softness

in consumer demand I if you look at the

private final consumer expenditure

metric that the government puts out it's

been the last couple of quarters has

been perhaps the most constrained over

uh or since uh 2003 2004 So Soft demand

conditions and heightened competition is

what um makes this quarter also a little

constrained I think uh we might see this

for perhaps another one or two quarters

and then we will see

um an improvement in overall uh uh

demand conditions having said that all

in all sappire foods has had we think a

really decent full year uh are when you

look at all around performance and I

look at Revenue scale growth eida margin

percentage growth and new restaurant

additions we perhaps have had the best

year of all the qsr companies

but is there a level that you're working

with specifically for KFC for your same

store sales

growth so our aspiration is that we've

got to grow same store sales growth by

anywhere between five and 7% this last

five or six quarters has been nowhere

near that and hence we're looking

internally saying uh while demand

conditions might be muted what can we do

to um you know to improve uh growth on

each of the brands and really it comes

down to two three things one is invest

in Innovation invest in uh greater

marketing and get further Improvement on

our customer and operational metrics and

then be uh cautious on um on our new

store expansion on KFC where the brand

is really doing well we'll continue at

the pace of expansion that we have had

on Pizza Hut a little more

cautious deal that out for us Sanjay

because I think in Q4 the overall store

Edition was 22 uh you talked about how

you're going a bit cautious in a certain

segment but give us the numbers what's

the plan for the next six to n months so

typically don't like to give a 6 to n

month uh uh uh a forecast uh but what

we've said is KFC so if I just look at

quarter 4 KFC we opened 23 stores we

didn't open a store um in Pizza Hut

India um and we had one closure in Sri

Lanka but and that we will make up as we

go forward I think that we will if you

look at December 21 we said we should be

able to double our store count in 3 to

four years in KFC now it is closer to

three years so we should be able to

double our store count by the end of the

year on pizza

given that we are at about 5% restaurant

iida the conditions are not really

conducive for expansion and that's where

we are going cautious give us two or

three quarters let's get the brand back

on track on the growth track and then um

we will talk about

expansion let's say discretionary

spends and going out and qsr is also

part of discretionary spend I look at

car sales I look at Travel I look at

tourism all these sectors are booming

because India is doing well qsr in a

sense is perhaps the first go to space

because you want to experience and you

want to eat out you want to dine out why

is the sector going through a rough

patch when in general the economic

indicators are so strong yeah so I guess

uh that's the little dichotomy that we

are seeing um when you see some sectors

doing well uh for for example as you

said travel and hospitality and perhaps

Airlines and looking at the cues that

the airline counters seem to be doing

well but a large part of

consumer uh expenditures actually muted

uh if I look at the results that most

other consumer product companies have

put out they've been uh and I've got a

background in consumer fmcg they've been

really really poor I think qsr postco

saw incredibly good uh bump up for about

18 months we are cooling off from those

Highs but uh and there's been a little

amount of heightened competition also

perhaps so I think these are all cycles

that we go through from a long-term

perspective I would still see a

multi-decade opportunity in both KFC as

well as Pizza heart but we've got to

weather the

Uh current turbulence a little bit when

you say you expect things to improve

that is how you started the your opening

remarks Pi what is giving you confidence

that in the second half of this year it

things will look up yeah so um really

internally I speak very little about

what will happen on the macro side uh

because that's not something that is in

our hands I think what we are doing

however is putting are best out in the

market and I'll give you Pizza Hut's

experience I think if you've seen Pizza

Hut in uh the first half of 2223 the

brand was flying we were U our same

store sales growth was really good

margins were good and then the last four

five quarters have been soft what we

what we have said consistently is what

how can we take matters into our own

hands and I'm repeating what I said

earlier heighten the pace of innovation

put greater levels of marketing

investment uh further improve our

customer and operating metrics and then

be cautious on expansion and uh in the

last quarter I had called out saying

that our Innovation you should be able

to see in the next one or two quarters

in March we launched melts which is

really a unique Pizza concept it's a

foldable concept and if if uh the if you

any of you have not tried I urge you to

try it it's a brilliant product sure

further investment in marketing I think

this gives me the confidence that we

will come back not the uh not the macros

the macros will be the icing on the cake

okay clearly their Innovation is going

to do the trick just quickly last couple

of questions s Before I Let You Go you

talked about the long-term medium-term

Outlook and I remember in December 21

you had laid out that threeyear plan

that sales and the bid Sr is going to be

25 30% it looks like a tall task right

right now do you stick with that and

secondly I think last year there was

that large deal also happened with P

your P partner trimming down stake is

there something else which is likely to

happen over the next five to six months

yeah so first I'll just address your

first question actually if you see our

three years scorecard which we've put in

our investor presentation we've beaten

uh these um guidances by a mile so we've

grown Revenue by 37% we've grown iida

also really strong

um on KFC instead of three four years

doubling the store count we've been able

to grow it in we should be able to grow

it in three years

so truly that's so what we articulated

in December 21 we've been able to beat

by a mile that's our aspiration even

going forward that Revenue should grow

in the region of

25% iida should grow in the region of

30% you'll have quarters and years when

it might be a little up and down but I

think that's the uh longer term

aspiration undoubtedly from a uh from a

ownership structure perspective I think

we've achieved a certain level of

stability our promoter stake is about

31% our P our foreign Institutional

Investor stake is about 30% again

domestic investor uh ratio is about 30%

and then rest is uh public and employees

so if you look at our shareholder cap

table perhaps again it's among the best

in or among the best if not the best in

the

industry okay San on that note we let

you go appreciate you making time and

speaking with us so