Covid 2.0 has triggered lower discounting and higher delivery fees by aggregators, alongside a 10-15 per cent reduction in restaurant supply. The developments, analysts said, have improved the value proposition for western QSRs against cloud kitchens and restaurants that thrived on aggregator promotions, suggesting ease in competition for listed QSRs in coming months.
ICICI Securities, which analysed Devyani’s draft paper in detail, suggests
is the best-in-class QSR across categories. Others, who are tracking Covid 2.0 progress, agree.
Best-in-class
The brokerage said that pizza as a category does have superior margins than burger.
“We believe Jubilant’s superior margin profile is sometimes underappreciated on the pretext that pizza is a high gross margin product vs burgers. Jubilant’s two times throughput of Pizza Hut (Devyani) places it at the top in terms of store-level Ebitda margin. Jubilant has been able to double its store throughput in the past 10 years on the back of superior execution. Its less dependence on high-street locations, along with better capex efficiency, gives it the ability to make deeper inroads,” ICICI Securities said.
In case of burger outlets, KFC’s (Devyani) current store-level is 21 per cent lower than Westlife Development’s (Mc Donald’s) and 8 per cent lower than Burger King’s. Westlife had higher throughput than KFC even in 2014, when it was of similar size. The gross margins of all three burger chains are in the range of 64-65 per cent.
“Westlife has delivered well on gross margin expansion despite the overall value focus. Burger King ad spends are slightly higher possibly because they are late entrants while KFC is slightly efficient on other cost structures despite Westlife enjoying the best lease terms,” ICICI Securities said.
In case of coffee chains, while Costa Coffee (Devyani) has cut 23 stores in the past two years, reducing its footprint to 44 stores at the end of FY21, Starbucks has added 75 stores during the same timeframe and now has a network of 221 stores, the brokerage noted.
ICICI remains bullish on Jubilant’s resilient model and expects it to outperform the food service market. It also likes Westlife on similar grounds, while having ‘Add’ rating on both the stocks.
Others agree
Other brokerages also have a positive view on Jubilant FoodWorks.
CLSA, in a May 18 note, said Jubilant Foodworks has been able to leverage the consumer need for safe options. It has leveraged mass media to promote its contact-less delivery and safety precautions, which has helped consumers in reverting to out of home food options, it said.
“A host of brands and cuisines will help the company create a supper app for delivery and setting up food courts. Important to note, Jubilant has the best delivery execution in the country and the most efficient delivery fleet,” CLSA said.
QSR is likely to be the fastest growing channel, constituting 54 per cent of the total outlets and 34 per cent of the total food services sector in India. Over 2020-2025, the number of industry outlets are expected to grow at 4.5 per cent compounded annually, in which QSR outlets will grow at 6.5 per cent, various projections suggest.
“The pandemic has grown digital adoption, ordering-in habits and acceptance of delivery fees, and weakened tail-restaurant supply and eased competitive intensity. QSRs have used the crisis to improve economics by optimizing their cost structures, store networks and store designs. We expect western QSRs to accelerate store expansion while eating into the market share of unorganised players,” Kotak said in a May 8 note.
This brokerage also likes Jubilant FoodWorks and has initiated coverages on Westlife with ‘Add’ and Burger King with ‘Sell’ rating.
