We were building 3k sq. ft KFCs. Now we have gone down to 1.7k to 2k sq. ft, on an average. As a result, kitchen size is same but capex is down, says Virag Joshi, CEO, Devyani International
NEW DELHI : On Wednesday, food services company Devyani International Ltd (DIL), a franchisee of Yum Brands, reported a 104% jump in the June quarter operating revenue to Rs. 634.49 crore, and standalone profit of Rs. 67.6 crore. Devyani operates 391 KFC stores, 436 Pizza Huts and 69 Costa Coffee outlets across India. In an interview, Virag Joshi, chief executive, Devyani International, said the company plans to double the number of stores from the current 1,000 within the next 4-5 years. Edited excerpts:
What changes did Devyani make in the last two years?
During the period of the pandemic, we went back to the drawing board. We were building 3,000 sq. ft KFCs. Now we have gone down to 1,750 to 2,000 sq. ft, on an average. As a result, the kitchen size is the same but capex is down. Revenues are the same, if not better, and throughput is better. The model has become far better for KFC and Pizza Hut. This is a post-covid shift. Pre-covid, our deliveries for KFC used to be 11%; now it is 35- 40% and it is not changing. Same with Pizza Hut. We used to be more of a dine-in store, today 50% is delivery, rest is dine-in. So, in Pizza Hut also, we have moved away from 1,800-2,000 sq. ft stores to 1,200- 1,000 sq. ft. We are doing the same format across India. However, where you want to build the brand, you open the bigger formats. And like we’ve said in our earnings calls, we are looking to add 200-250 stores annually.
Which brands will you be focussing on this year?
For us, KFC is the biggest, in terms of revenue (the brand crossed Rs. 1,000 crore in revenues in FY22; it added Rs. 425 crore in revenues in the June quarter). Pizza Hut is something we really look forward to growing as there is visibility for Jubilant Foodworks (which operates Domino’s), with many stores.
We see growth opportunities for Pizza Hut as long as we keep doing the right things. We launched Momo Mia pizza and Rs. 79 entry-level pizza. We had entry-level price point for Pizza Hut, but we never promoted it so much.
What about Costa Coffee?
Costa Coffee is also a very big opportunity. We can open marquee stores—highways, hospitals, offices, airports—you can be everywhere.
What explains the rapid store launches in 2021-22?
After the first wave (April-June quarter), we realized there is an opportunity to get real estate at lower rentals. We started signing up properties across our brands and grew faster than everyone else. There was an upside because of the covid lockdown. Since all the other small mom-and-pop shops were shut, branded QSRs revenue was picking up. In FY22, we opened 246 new stores, the highest ever for our company, because we had built a pipeline and it was just a matter of opening those stores.
Are you feeling any pressure on consumption or margins due to high inflation?
We are not feeling pressure on consumption. Margins, yes. We took price hikes across Pizza Hut and KFC in the March quarter. We believe it (inflation) will taper down. It has not impacted us so much, because we passed it on to the consumer. Volumes have not reduced for us, but we can’t say about the future. Today, customers are aware of inflation and people who want to choose a brand per se, for them, 3-4% price increase is not a concern.
What about cloud kitchens as a model for Devyani?
My personal view on cloud kitchens is it is very difficult to grow year-on-year, because there’s no dine-in and take-away, you just deliver. But your cost is the same; except the customer area, you’re putting up the full infrastructure. From a normal 1,700 sq. ft store if we can do delivery in the right way, it is better to use it and penetrate faster than opening a dark kitchen.
What happens if commissions by aggregators such as Zomato and Swiggy go up?
We want it (commission rates) to be better but we will keep working on that. On the delivery side, the two aggregators have 80-85% of the piece. So, we have our own ordering platforms for KFC and Pizza Hut. We are building it more and we are looking at putting up our own fleet but in a slow and planned way. It is not that we want to move away from Swiggy or Zomato, but there’s no harm in doing your own (fleet) in some places where they are not present.