WoW Industry

QSR Industry : Amongst highest Consumer growth + Top Quartile RoC

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QSR Industry : Offers highest terminal value, given demographically aligned

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Addressable population ~40-50crs of the total India amongst the highest population density in the world India has highest Population / Store, thus significant room for growth

QSR Industry : Build in Metros ; Scale & Cashflows beyond Metros

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Beyond Metros, Tier I – II III offer significant growth potential with much better unit economics

QSR Industry : Store density far from maturity

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QSR Industry : Significant distribution in the works

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Almost ~14% CAGR on store rollout next 3years itself highest in B2C Industry (struggling for double digit growth )

QSR Industry : Even within entrenched city, store density to increase

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All QSR’s roll out multiple store formats OR split stores within larger radius, to increase through put

DELIVERY Duo FRIEND OR FOE ! : Distribution vs Margins Food Aggregators

Restaurant Chain

Increasing Coverage

Improved Penetration

Higher Promotion

Recruited New Consumers

Higher Supply

Increased Competitive Intensity

Rise in orders

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Aggregators Commission 18-25%

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Differential Pricing

Restaurant Margin 10-20%

1. New Channel has opened up 2. Higher Cost for Consumer 3. Large QSR Chains are better off over smaller players

Rise of Food Aggregators, Negotiation tug-of-war

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2019

2020

2021

31 Mn

191 Mn

403 Mn

239 Mn

28K

94K

143K

148K

Monthly Transacting Users

1 Mn

5.6 Mn

10.6 Mn

6.8 Mn

AOV

Rs. 436

Rs.282

Rs.278

Rs.397

500+

R t s ue No. of orders

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V No. of cities Source: Zomato RHP

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Active Delivery Restaurants

QSR Industry : Food Delivery Duo, adding to demand Chinese + FF + Pizza + Burger = Zomato 30% & Swiggy 24%

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QSR Industry : Demand, Price vs Margins equation

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QSR Industry Ecosystem far complicated than visible, E.g. JFL Value chain

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QSR Industry Ecosystem : Key Building blocks (E.g. JFL)

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QSR Industry Ecosystem : Key Building blocks (E.g. JFL)

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QSR Industry Ecosystem : Key Building blocks (E.g. JFL)

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Jubilant Foodworks (Dominos) h c r – McDonald's of India ea

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EVOLUTION OF DOMINO’S IN INDIA 4,500

1600

4,000

3,500

Period

Revenue CAGR

2001-2020

28%

2010-2020

15%

Launch of Every Day Value

3,000

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2,500

2,000

1,500

1,000

Launch of Rs. 35 Pizza Mania

Launch of the ‘30 minutes or free’ campaign

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100 34

38

93 48

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Launch of Online ordering

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1,335 3,927 1,360

236

313

1,414

3,018

3,312

2,438

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2,583

2,093

800

1,736 600

1,019

400

678

476

200

0

1996 FY01 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Consolidation Source: Company

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Launch of BOGO 726

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Planned Growth

Aggressive Growth

Momentum Continues

DOMINOS – A FOOD TECH COMPANY!! ➢ Considerable upgradation in India app → Driving majority of orders through their app ➢ Retain last mile delivery edge even for orders emanating from aggregator platform ▪ Own customer’s delivery experience ▪ End up paying lower commissions to aggregators

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➢ No other QSR company has been able to achieve this level of success in digital which is the next big growth driver for the Industry

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App

Rating

Downloads

Domino’s

4.5

70 Mn+

Mc Donald’s

4.3

50 Mn+

Pizza Hut

4.2

1 Mn+

KFC

3.7

10 Mn+

Burger King

3.4

1 Mn+

Growth Variables I : High Growth Phase FY10-FY16 Stores 306 –to- 1,097, 3.6x ; No. of Cities 69 –to- 235, 3.4x 1,200crs of Capex, 12-14%/Sales ; Revenue per store increased from 1.2-1.4 –to- 2.3, 70%+ increase Outcome : Revenue 5.7x i.e. 34% CAGR

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Growth Variables II : Growth vs Operating Leverage Whatz noticeable is no major change in Gross Margins & decline in Ebitda Margins, due to growth cost & Inflation impact Yet 26% Ebitda CAGR vs Revenue CAGR 34% (Negative operating leverage)

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Growth Variables III : Business Mix Non-Pizza contribution has increased from 21% in FY11 to 27% While Gross Margins & Ebitda margins have inched up last 5yrs, yet no concrete evidence if Non-Pizza contribution was a source of increase

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Growth Variables IV : Cost Structure No major change , within tight bands across time periods

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Capital Efficiency I

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Capital Efficiency II

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Growth Variables V : Leadership vintage

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Most of the leadership team seems relatively new

10 > 8yrs ( Of which 5 nearly 20yrs at firm )

Product Innovation a constant treadmill..

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DOMINO’S – DIVERSIFICATION OR DIWORSIFICATION? ✓ Dominos India has achieved a decent scale and profitability.

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✓ It has become a strong cash throwing machine over the last 4 years. (Annual cashflow is ~400Cr and Capex requirement is ~200Cr)

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✓ Domino’s has strong unit economics in place with cash payback period well under 3 years – cashflow machine to enhance further !!

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✓ All new ventures have large market in place with no national player.

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✓ If executed well, these brands can really scale up fast.

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✓ WE BELIEVE, THIS IS A STEP IN THE RIGHT DIRECTION

QSR Frameworks

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Building blocks to evaluate

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Cuisine a key Building blocks to SCALE

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Royalty rates : Franchisee RoIC top quartile despite… Will no royalty be a competitive advantage for home-grown !

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Unmatched Trifecta :

Healthy Payback period + High Incremental RoIC + Ability to deploy large capital

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WHAT DO WE GATHER? ➢ Restaurant Industry is highly fragmented and largely unorganized in India.

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➢ Globally, we have seen that large QSR chains having more than 70+ yrs of history have grown consistently and continue to dominate the market. ➢ Rapid adoption of Western Fast-Food Culture, favorable demographics, urbanization and rising income levels provide QSR companies a huge runway for growth in India.

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➢ While it is easy and profitable to run few outlets in a city/region but very difficult to scale up the brand nationally given dynamics of India – varied food preferences, lack of standardization etc.

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➢ We’ve realized that QSR is a game of throughput per store. Throughput per store → Healthy unit economics → Reinvestment at a higher rate. Therefore, with healthy throughput & product value proposition in place, Scale has no limits.

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➢ QSR is a cash throwing business with negative working capital requirement. Due to strong cash flow generation, a company can easily support its own growth without hurting the balance sheet significantly.

QSR COMBINES BEST OF BOTH THE WORLDS A Retail Company’s RUNWAY for growth + FMCG Company’s NEGATIVE WORKING CAPITAL

h c r a e Globally Listed Restaurants / QSR s e R Only 77 listed cos >$500mn t s e u Q e u l a V

QSR Developed World

Despite QSR being a large Industry in West, mere 27 listed peers (>$500mn Market Cap)

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Dominos (4 listed cos, ~$22bn Market Cap.) Growth is scarce

Dominos clear grower ( USA, Australia & Britain ) Only 4 cos ~20% growers

QSR Emerging World

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Market Cap. China ~$46bn India ~$7.4 Thailand ~$4.4bn

India Returns ahead of the pack India & China > Avg. Valuation : Avg P/S 4.4x ; 30x EV/Ebitda ; 40x P/CF

Nasdaq vs QSR (Amongst the rare segment to match the former in returns)

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Change is gradual, then sudden I – Devyani Int. MCap. 25k crs

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Change is gradual, then sudden II – WestLife Foods MCap. 12k crs McD & Dominos both entered India 1996 ; McD lags at ~3k crs revenue vs Dominos ~4.4k crs

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Listed India QSR & Food Cos QSR Range : EV/Ebitda 25-35x

Food Range : EV/Ebitda 20-30x

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There is only one of a kind • McDonalds : Tried Pizza Late 80’s for 10years, gave up by late 90’s https://www.passionateinmarketing.com/case-study-mcdonalds-pizza-what-could-possibly-go-wrong/

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https://www.businessinsider.in/retail/news/the-rise-and-fall-of-mcdonalds-pizza-a-doomed-fast-food-icon/articleshow/79465817.cms https://bettermarketing.pub/what-led-to-the-failure-of-mcdonalds-pizza-75de0e7b1fbd

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