For decades food served in QSRs has carried a stigma of not being wholesome ornutritious enough and that it contributed to obesity.
There was a growing feeling then that when it came to Quick Service Restaurants (OSR)the story generally ended with taste and price. The menu tasted good and the price wasaffordable. However when it came to the central question of whether the menu wasnutritious enough one normally drew a blank. The general conclusion was that tasty andnutritious food could never be reconciled: if the restaurant menu tasted great then thenext thing one needed to do was assess the damage on the weighting machine. As a resultthe QSR sector always became defensive when it came to this last frontier.
At Westlife we saw this as one of the key perceptional challenges addressing ourbusiness. For a country with a population of about 1.35bn and growing marked by anextensive under-penetration in the incidence of eating out the challenge was inreinventing this image. If we could succeed in doing so we would not only address a largepotential audience in a country increasingly concerned with its diet but wouldprogressively account for a larger share of those entering the spending segment.
There were two options available to Westlife: wait for the QSR industry to reachcritical mass opinion to emerge or be the first to walk into the challenge. I am pleasedto report that Westlife is probably the first organised
QSR company in the country to address this challenge head-on. Over the last few yearswe re-engineered our menu: we looked at each ingredient that goes into our food and workedon making each one better.
I am pleased to report the effects of our painstaking commitment to provide a morewholesome and nutritious menu for an increasingly health-driven nation: we havesuccessfully re-engineered our menu; we have reconciled taste with nutrition; we havedemonstrated that what is good for your tongue can also be concurrently good for yourwallet and body.
At Westlife this menu re-engineering is not just an alteration of our offeringsportfolio in the expectation that we may reach out to a larger audience and generatehigher footfalls. It is a manifestation of our governance commitment; it addresses thesubject of customer service from its deepest point; most importantly we see it as theright thing to do.
Projected market size and growth rates : 2017-22
Western Fast Food (WFF) has grown its share in IEO from 1% in 2014 to 1.3% in 2017.This is expected to grow to 1.6 % in 20221
1 Euromonitor International 2017 report - QSR Food Service Market
Wholesome and nutritious meal on the plate
At Westlife we invested considerable energy and re-working of our business processesto re-engineer the menu to make it wholesome and nutritious. Over the last few years weworked with our suppliers to improve our ingredients while retaining the taste that ourproducts are famous for!
This then is what we have to show for our re-engineering. There are calorie counts onthe menu. Our meals are more balanced; they contain a higher proportion of dietary fibres.There is lower oil in our mayonnaise. There are fewer calories in our burgers. There isless sodium in our menu than ever. The soft serve at our outlets are 96% fat-free. All ourwraps are now made from whole grain. We extended our beverage menu from carbonated drinksto a wider range of non-carbonated beverages. We introduced steamed product options likeMcEgg.
We moderated fat in dairy products to less than 3%. That we moderated costs following areduction of salt fat and oil is only a small part of the upside.
The result is that our menu re-engineering has emerged as a benchmark in the sector.The addressable market widened; footfalls increased; repeat footfalls strengthened. I havehad the occasion to speak to a number of our patrons in the last few months and theresponse that we are getting from them has been heart-warming. Some of the responses thatI particularly remember are This truly shows that McDonalds cares andBy re-engineering the menu you have endeared yourself to your patrons andThis is a signal to the rest of the QSR sector in India to see the future.
Providing the experience of the future
At Westlife we believe there was one reason why despite reservations about thesuccess and impact of our menu-re-engineering initiative we were able to prevail. Thereason is derived from the fundamental reality of who we are. At Westlife we seeourselves as a passionate organisation. We dare to do what most consider impossible. Weembrace challenges as a part of our everyday existence. We are positively provoked byexternal observers who consider what we may be working on as impossible. We get bored withthe status quo; we seek to continuously find a new and better way of doing things.
The result is that over the last number of years Westlife has been engaged inattempting initiatives that most considered foolhardy or ahead of the time. Over the lastcouple of years the Company pleasantly surprised patrons through its Experience of theFuture restaurants in Mumbai and Bengaluru the next generation of ambience inIndias Quick Service Restaurant segment.
In EOTF we provided a critical service differentiator: customer service with speedsmiles and sensitivity that positioned our stores as the friendliest. The credit of thischange can be attributed to the SMEX training for the entire crew. We trained over 270restaurant managers; we invested extensive person-hours higher in FY 2017-18.
That has led to a happier staff and even happier customers.
EOTF extended from three restaurant outlets at the close of 2016-17 to 10 in 2017-18strengthening visibility and viability.
The results are in our numbers
During the last few years when we embarked on enhancing the investments in ourbusiness there were a number of questions. One of the principal arguments was that at atime of economic slowdown when disposable spending would be muted there was always a caseto defer investments to a time when cash flows revived
However Westlife has always been a willing contrarian.
During the course of a slowdown in the QSR sector we responded with brand investmentsinstead. When faced with weak consumer loyalty we invested in store re-imaging instead.When faced with consumer distraction we enhanced the experiential quotient of our outletsinstead. This was manifested a few years ago when the growing industry for coffeeinspired Westlife to extend to the specialty coffee market. The coupling of the McCafproduct portfolio with strategic restaurant reimaging empowered the Company to carve out aMcCaf niche without needing to lease additional space. This helped the Companycreate a brand within-a-brand at established points-of-sale and represented our commitmentto provide Indians with the best experience at outstanding value.
During the course of the year under review we increased the number of McCaf outletsfrom 111 to 149 strengthening our service coverage. We engaged in these investmentsbecause we believed that we would need to invest our way out of the slowdown. By providinga superior consumer experience we would be able to draw footfalls faster providing alaunching pad for a quicker recovery. By making patient investments in sluggish marketswe created a positive trigger: we turned around faster and during the year under reviewwe strengthened revenues 21.9% which was higher than the broad growth of thecountrys organised QSR sector. I am pleased to report that we reported profitablegrowth: profit after tax surged 206.1%.
Cash flows increased by around 60% even though the discontinuation of the input taxcredit from
November 2017 affected our margins. Our EBIDTA margin expanded from 5.3% in 2016-17 to7.5% in 2017-18. Same store growth increased 15.8% during the year under review. EBIDTAhave risen 480 bps in the last three years. The Company had H1952.2mn of cash and cashequivalents on its books as on 31 March 2018. Same store sales growth was positive for 11successive quarters. The cost of store rollout declined by 20% accelerating thebreak-even point to 20 months one of the lowest in our existence creating a foundationfor new stores to enhance cash flows faster.
At Westlife we believe that the QSR business stands at an interesting point. There hasbeen a revival of discretionary spending and eating out starting from the third quarter ofthe last financial year and we believe that the trend will only accelerate. At Westlifewe intend to capitalise on this projected reality: we intend to increase the number ofoutlets by around 25-30 every year; we intend to widen the footprint of EOTF outlets; weintend to increase the number of McCafs by 30-40; we intend to enhance the McDeliveryoption from 60% of our restaurants to an estimated 65% with minimal capital expenditure inthe year ahead.
With the economy beginning to look up QSR spending gradually rising and with ourbusiness being ahead of the curve I am optimistic that the current financial yearpromises to be even better and that Westlife will continue to enhance value for itsemployees customers shareholders and communities.
With my best wishes