Westlife Foodworld Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Demand hit hard late in the quarter: A sharp September downturn dragged results after a decent July and August, and same-store-sales growth turned substantially negative.
• Gross margin hit an all-time high of 72.4%: Structural cost initiatives drove the expansion even after passing on the GST rate cut to consumers, and management calls the 70% range sustainable.
• McDelivery platform reset is a multi-year bet: A major overhaul with a global consultant is underway, targeting 3–5% incremental SSSG over 1–2 years, while the delivery business was flat this quarter as aggregators grew mid-teens.
• October showed substantial improvement over September: Management is optimistic but won't confirm whether October turned positive, and the quarter's outcome hinges on November and December.
• What to watch next quarter: Whether the October momentum holds through December, early signs from the McDelivery app overhaul, and any stabilization in South India where Bangalore remains a dampener.

Demand & Same-Store-Sales

• Quarter shaped by a late collapse: July and most of August were decent, but a downtrend in the last month of the quarter, which management called "quite a bad month," drove substantially negative SSSG.
• Macro pressure on discretionary eating out: The QSR and informal eating-out market contracted in growth terms, with expansion in the category over the last year further dragging growth. Muted real income growth and subdued discretionary spending have now pressured SSSG for two years.
• South India a persistent drag: Bangalore, where Westlife operates its second-highest store count, has been a dampener. Chicken initiatives showed positive traction in volume and customer reach, but footfalls remained soft, and trials in individual restaurants will play out over the next couple of quarters.
• October rebound, December is the crux: October showed substantial improvement over September, and management is optimistic. If the trend continues, positive numbers could come this quarter, but the outcome largely depends on November and December, with December being the crux.

Akshay Jatia: "we saw a pretty decent July and most of August, but there was a downtrend in the last month of the quarter, which negatively impacted our quarter."

Delivery Business & McDelivery Overhaul

• Delivery flat while the market grew: Westlife's delivery business was flat while aggregators grew mid-teens and some peers also grew mid-teens. Management attributes the gap to not participating in unsustainable discounting and says their market share in Western fast food on aggregator platforms is intact.
• Aggregator unpredictability driving own-platform push: Performance of third-party aggregators has been unpredictable in recent months, reinforcing the priority to strengthen the McDelivery platform. A lot of aggregator growth reportedly comes from new additions, not organic business.
• Major platform reset underway: A project with a marquee global consultant is halfway through, covering operations, app technology, data architecture and performance marketing. Pilots are showing promising results, and significant UI/UX upgrades are coming in the next few months.
• 20-minute delivery pilot rolling out: Piloted across select stores with a noticeable uptick in guest counts and repeat visits, now rolling out across markets.
• Ambitious targets set: Management aims to double McDelivery sales in the next 1 to 1.5 years, which is expected to unlock 3–5% incremental contribution to system-wide SSSG over 1–2 years. Upfront costs are already reflected in the current P&L or being absorbed over this quarter and the next few.
• Own-app share ambition: Management expects to improve or double own-app share in the next 1–2 years, though it declined to give a specific end-state target, noting historical ranges from low-single-digit to one-third in different markets.

Akshay Jatia: "we don't participate in any unsustainable discounting, which may be the case across the marketplace."

Margins & Cost Structure

• Gross margin at an all-time high: Expanded to 72.4%, driven by structural cost initiatives including distribution partnerships, BOM sourcing and commodity optimization, not product mix. This was achieved despite passing on 80–100 bps of the GST rate cut benefit to consumers.
• Restaurant operating margin improved: ROM grew 60 bps YoY to 19.2%, demonstrating operational excellence and enabling cash flow preservation through the cycle.
• Payroll stepped up QoQ: Rose from ₹93 cr to ₹102 cr partly due to upfront payments on cost initiatives, which should normalize as the year progresses, plus annual increments.
• Incremental cash flow pipeline: A robust pipeline of high-impact initiatives rolling out later this year and into 2026 is expected to generate ₹40–50 crores in incremental cash flow over the next year.
• No further gross margin guidance: Management's entire focus remains on operating margin. Some gross margin is left on the table to drive operating leverage when sales return.

Saurabh Kalra: "we feel these are sustainable numbers for sure, right from breakeven to be able to get the operating leverage when sales come back."

Store Expansion & Technology

• Vision 2027 on track: The target of 580–630 restaurants by December 2027 remains intact, with management optimistic about achieving it. Long-term potential is comfortably over 1,000 restaurants.
• New stores performing well: 70–80% of stores opened this year are already performing well, versus not the case last year. Eight new stores opened at system average as a basket, with some like Boisar Drive-Thru and Davangere performing far above system average.
• AI-powered location intelligence deployed: A state-of-the-art location intelligence platform powered by AI and machine learning is being implemented to predict new store performance with greater accuracy and identify high-potential white spaces. Management is working on the top 150 locations for the next 50–60 restaurants, with 30–40 stores already in the pipeline with signed leases.
• AI in kitchens: AI-powered video analytics deployed in kitchens to ensure product quality and packaging accuracy has led to a sharp decrease in complaint percentage.
• Digital ecosystem deepening: Digital sales contributed ~75% of revenue, up 300 bps YoY, supported by the loyalty program, mobile app engagement and self-order kiosks. Apps crossed 4.7 crore downloads with ~0.3 crore monthly active users.
• Funding discipline: Expansion will be funded primarily through internal accruals, with annual CapEx of ₹200–250 crores maintained. There is incremental investment in growth initiatives not fully covered in capex, and management will share more on investment and ROI over time.

Akshay Jatia: "We still have our own proprietary processes and knowledge in terms of how we've done real estate over the last 30 years, but this is just adding more science to the art."

Product & Innovation

• Protein Plus Slice launched: In collaboration with CFTRI, sold out in one day.
• Big Yummy Burgers launched: Initial consumer feedback very positive; more discussion promised next quarter.
• Bone-in chicken in South: Management believes it has cracked a process that gives a distinct advantage and a great quality product, with employees excited and proud of serving a uniquely McDonald's bone-in chicken. Trials are ongoing.
• Innovation pipeline: Management will continue to build on momentum with an exciting innovation pipeline, with plans to deepen connections with India's younger consumers in 2026.

Saurabh Kalra: "I think we have now finally been able to crack a process, which gives us a distinct advantage and a great quality product."

Guidance & Commitments

Key Metrics