Westlife Foodworld Ltd Q3 FY2025 Concall Summary

Key Takeaways

• SSSG turned positive at 3%: Guest count-led growth broke a four-quarter negative streak, the shortest negative run in the company's retail history, though the last 10 days of December underperformed.
• Margins squeezed by deleverage: Restaurant operating margin fell ~200 bps Y-o-Y as suppressed AUV created negative leverage, but gross margin improved ~40 bps sequentially to 70.1% despite commodity inflation.
• Value strategy is working: Affordability perception scores rose, driving footfall without sacrificing average check, and management sees the 3% SSSG as quantitative proof of the strategy's traction.
• Record store openings, long-term bet: 46 new restaurants opened in CY2024, taking the network to 421 stores across 67 cities; all sites are underwritten on a 25-30 year view.
• What to watch next quarter: Whether SSSG momentum builds beyond 3%, the pace of sequential margin recovery toward Vision 2027 targets, and any evidence that 15-minute delivery is moving the needle.

Demand & Same-Store Sales Recovery

• SSSG broke negative in four quarters: The 3% Y-o-Y growth was guest count-led, with average check remaining stable, indicating the value proposition is working across entry, core, and premium price points.
• December tail-off, January recovery: The quarter was "pretty much at par" overall, but the last 10 days of December underperformed expectations; January has seen a recovery.
• Industry backdrop remains muted: Informal eating out growth was flattish sequentially, while Western fast food grew ~9% overall, suggesting Westlife is gaining within a sluggish category.
• Geopolitical overhang treated as history: Management considers last year's geopolitical impact a new baseline, though some stores still carry overhang; the focus is on building momentum through value levers.
• Transaction-driven growth is the goal: Management wants SSSG to remain largely transaction-driven without impacting average customer bill value, drawing an analogy to the 2004 Happy Price Menu launch that took three quarters to turn positive and then generated five years of strong numbers.

Saurabh Kalra: "Last time when this had happened, it had taken us 2.5 years to get out of the negative momentum. This year we have been able to do this in four quarters."

Value Strategy & Pricing

• Value defined broadly, not just price: The strategy communicates value across entry-level McSaver meals, core menu items, and affordable premium offerings, with management cautioning against equating value solely with low price.
• Affordability scores rose: Value scores and affordability perception scores increased significantly, which management links directly to increased customer footfall and brand trust.
• 50-bps price increase taken in November: Management considers this sustainable and consistent with the internal norm of taking at least 50% of inflation as a price increase each year, typically 2-4% annually.
• Pricing ladder norms maintained: Internal ratios govern entry-level, mid-tier, and premium pricing to ensure broad-based growth across the menu.

Akshay Jatia: "I do not want you all to get caught up in the thought that value is just price."

Margins & Profitability

• Restaurant margin down ~200 bps Y-o-Y: The decline is largely from negative operating leverage due to suppressed AUV, partially offset by sequential improvement from better scale and cost management.
• Gross margin improved sequentially: Rose ~40 bps to 70.1% despite heightened inflation in oil, coffee, and cocoa, mitigated through supply chain initiatives and the 50-bps price increase.
• Breakeven sales improved 2-2.5%: Systematic cost governance drove the improvement, enhancing like-for-like profitability sequentially.
• Sequential EBITDA improvement promised: Management intends to deliver sequentially improving profitability for several quarters to regain the baseline, with multiple paths including product mix, pricing strategy, and cost governance.
• Vision 2027 EBITDA commitment stands: Management remains committed to reaching Vision 2027 EBITDA targets over the next two years, though the path was not quantified.
• Royalty reconciliation flattered Q3: Annual reconciliation of incentives from McDonald's Corporation made royalty as a percentage of sales appear lower in Q3, a recurring annual pattern.

Saurabh Kalra: "Exactly how we have always thought about pricing. That you cannot fall way below inflation for multiple years for sure. So, every year we take small, small price, do not be shy of taking small price increases. And taking at least 50% of what the inflation is running as price increase would remain a norm."

Store Network & Expansion

• Record 46 new stores in CY2024: Total network reached 421 stores across 67 cities, and the company is on track for the FY25 target of 45-50 new restaurants.
• New stores depress total AUV: Total AUV is lower than comparable-store AUV because new additions and a few closures create a "transitionary blip"; new stores are expected to reach system-level AUV in the next couple of years.
• 25-30 year underwriting: All locations are projected over a 25-30 year timeline, with management asserting that "in the long run, all of them will be cash cows."
• Development process unchanged: Site selection uses multiple factors, not just one variable like city demographics, and the real-estate process spans over nine months from identification to opening.

Akshay Jatia: "Nothing changes overnight. And again, like we have always maintained, we are invested for the long term. And all of the locations that we are opening are projected over a 25 to 30 years' timeline. So, in the long run, I mean, all of them will be cash cows."

Product & Channel Initiatives

• McCrispy platform launched: The fried chicken platform now spans McSpicy, McCrispy, wings, bone-in, burger chicken, and chicken sides, available in 160 restaurants with "largely stable" ADS salience over six months.
• Chicken seen as multi-year growth lever: Management is "very bullish" on the South market and views chicken as an added lever to build occasions and category leadership for years to come.
• Digital sales at ~70% of top line: Over 0.3 crore monthly active users on the mobile app; self-ordering kiosks deployed across all restaurants; the strategy is described as "phygital."
• Delivery growth broad-based: Growth is coming from Swiggy, Zomato, and the company's own app, with the owned app not lagging on percentage growth. Off-premise contribution held consistent at 42%.
• 15-minute delivery still unproven: Trials expanded from a few restaurants last quarter, but management sees no evidence yet that the 15-minute offering is moving the needle; most burgers already deliver in 20-25 minutes via third-party partners.
• McCafe still early: Management views the coffee journey as just beginning, with the consumption story yet to play out; growth will come from increasing both trials and frequency.

Guidance & Commitments

Key Metrics