Westlife’s Ambitious Three-year Plan for McDonald’s Expansion

The management of Westlife Development Limited (NSE: WESTLIFE) is prioritizing the health and safety of the company’s clients and employees this year while focusing on the foundation of operational excellence and growing digital advantages. In the next three to four years, Westlife plans to expand by opening more than 200 McDonald’s restaurants.
Regarding the company’s financial performance, Smita Jatia, the Managing Director stated, “Our strong performance in the first quarter irrespective of macroeconomic and inflationary challenges was underpinned by highest ever quarterly sales and operating profit, reflecting broad based momentum across all segments.”

Price Performance

Westlife Development Limited announced the results for Q1 FY23 on July 28, 2022. The company’s share price elevated by more than 25% following the results. Due to the investors’ strong buy sentiment, the volumes also increased sharply.
Last 5 Days: 0.3%
Last 1 month: 8.2%
Last 6 months: 45.1%

Financial Performance

Westlife Development Limited has reported a highest ever quarterly Sales of ₹5.38 billion with a growth rate of 108% year on year. The Same-store Sales increased by 97% year over year as well. The growth in both Dine-in and convenience channels was the primary factor in the outcomes. Despite significant pressures from inflation in the food and paper industries, the restaurant operating margin for this quarter was 21.6%. The price hike and improving of the product mix helped to counteract the effects of inflation. The consolidated Profit After Tax stood at ₹231.5 million.

Business Basics

Westlife Development Limited is an Indian franchise partner of the McDonald’s brand, which is currently the market leader in burger category. The brand entered the Indian market through this partnership in 1996. Over the past few year, leveraging its menu innovation capability, the company has ventured into different categories like beverages by introducing McCafé. As the QSR industry is experiencing growth, the other players in this industry is relying on food aggregators to ride this wave, Westlife is developing McDonald’s online presence and delivery system to gain edge over the competition. The company is also focusing on Menu innovation, store growth and developments of omni channels for its rapid expansion in future.

Big Plan for McDonald’s Store Growth

As of Q1 FY23, the company operated 331 McDonald’s restaurants across 48 cities. Of which 267 stores have McCafés, 65 have drive-throughs, and 132 of them offer the EOTF (Experience of the Future). In this quarter, McDonald’s 5 new stores have been opened and 12 new stores are currently in ground break. To reach the goal of adding 35 to 40 new restaurants in FY23, the management aims to open 17 to 19 stores in the first half. Over 200 new stores will be opened by the management as part of ambitious expansion plans over the next 3 to 4 years.
Most stores are located in the 6 core cities which includes Mumbai, Pune, Ahmedabad, Bengaluru, Chennai, and Hyderabad. The company will focus on adding more openings in smaller cities along with the core cities. This should give them an opportunity to go into small underpenetrated towns. As the company has maintained good Restaurant level margins, this expansion of store should boost the top line and should increase the brand presence of McDonald’s in India.

Developments across Omni Channels

McDonald’s Dine-in and Convenience channels have both been steadily expanding. Both these channels has shown growth more than the pre covid levels. The growth of the Dine-in channels was 418% year over year and 14% over pre-Covid levels. Because of the family-centric advertising campaigns, families are returning to the restaurants. This resulted in a rise in frequency and average ticket size, which ultimately led to an improved in Dine-in sales.
However, Convenience channels, which include drive-throughs, delivery, and other modes, saw year-over-year growth of 13% and doubled growth of 112% over pre-Covid levels. More than 55% of system-wide sales were made through digital channels in the first quarter, including a mobile app, self-ordering kiosk, and delivery. One of the factors that helped the company increase QSR traffic in the majority of markets was its focus on accelerating these digital channels.
During this fiscal year, one of the management’s priorities is to enhance McDonald’s digital presence. As a result, we ought to observe an increment in convenience channel sales.

McDonald’s Menu Innovations & Business Initiatives

Through menu innovations like Make Minion Mischief and business initiatives like the Real Food Good Food campaigns, McDonald’s has been making an effort to develop and strengthen brand trust and business.
The introduction of gourmet burgers and fried chicken in South India has begun to have an impact on sales. As per the management, “In the south we saw that the eating out was dominated by bone-in-chicken and chicken. Hence, we took this insight and that is where we are playing with along with our burger leadership. Together we are confident that with burger and chicken as strong portfolios we will be able to get even higher leadership in the south market.”
In the entire nation, McDonald’s has by far been the market leader in the burger category. However, according to the management, the beverage category also presents a huge opportunity. They also see a chance to open 18 to 19 additional McCafé locations and predict that McCafé’s average annual sales will double in the future.

QSR Industry Challenges

Consumer preferences are constantly evolving and changing. But lately, consumers’ expectations of new things have become more frequent. In order to draw customers, the QSR player must constantly innovate its menus and introduce fresh promotions. In addition, the QSR players needed to enhance customer interaction to encourage repeat business. To keep customers from switching to other brands, businesses had to put in extra effort to improve the brand experience.
While every major industry is facing the heat from inflation, the QSR industry is no stranger to experience its side effects. Food prices and employee costs have increased as a result of inflation. Companies are experiencing pressure on their margins as they attempt to provide the ideal balance between profitability and affordability.

Conclusion

The McDonald’s brand is well-known brand throughout the country. The Westlife Development Limited has made the bold decision to open 200 stores in 3 to 4 years. The company’s top line should climb significantly as a result of this acceleration in the growth rate of store counts. The management’s efforts and recent developments in the Convenience channel should also increase sales. Additionally, McDonald’s is renowned for its continuous innovations in its core menu. These innovation also help to drive the customer frequency along with the revenue. It will be interesting to track the further progress in these three area for the upcoming quarters.