Based on the transcripts, here are the key highlights about Barbeque Nation's business performance:
- Barbeque Nation has seen good revenue growth over the past few quarters, driven primarily by expansion of its restaurant network. It has been consistently adding new Barbeque Nation, Toscano and international restaurants every quarter.
- Same-store sales growth (SSSG) has been muted or negative in the last 2-3 quarters due to subdued demand environment. Dine-in SSSG has been marginally positive while delivery SSSG has been negative due to lower average order values.
- Gross margins have faced some pressure in recent quarters due to inflationary environment, but the company has taken measures like price hikes and cost optimization to protect margins. Margins are also impacted by higher share of new/immature restaurants.
- The company has strategically expanded into new brands like Toscano (Italian cuisine) and plans to launch more brands. Toscano business has seen strong growth.
- The company is also focused on building its delivery business through its brand UBQ and the recently launched biryani brand Dum Safar. UBQ revenues have stabilized after few quarters of decline. Initial response to Dum Safar has been encouraging.
- The company has reduced its FY24 expansion target from 40 to 20 restaurants, to focus on driving SSSG and profitability of existing restaurants. It remains confident of achieving pre-COVID margins over next few quarters as demand recovers.
- On profitability, core EBITDA margins have been around 10-11% in recent quarters. Mature restaurant level margins are around 19-20%. The company is targeting to get back to ~13-14% EBITDA margins in next 1-2 years.
So in summary, while recent performance has been impacted by demand pressures, expansion costs and inflationary environment, the company seems confident of a recovery on the back of its focus areas like SSSG growth, cost optimization and scaling up of new brands.
Question & Answers
Q. What's management's Commentary on Same-store sales growth (SSSG) trends - Analysts sought clarity on negative/subdued SSSG in recent quarters, outlook on recovery, performance across regions, factors impacting SSSG etc.
A. Here are some key comments from the management on same-store sales growth (SSSG) based on the earnings call transcripts:
- Attributed negative/subdued SSSG to overall weak demand environment and high inflation affecting discretionary spending on dining out.
- Dine-in SSSG has been marginally positive in the range of 1-3% in recent quarters, delivery SSSG has been negative due to lower average order values.
- SSSG weaker in Tier 2/3 cities compared to metros and Tier 1 cities. Also pointed some specific regions like East as being weak.
- Opening of new restaurants leading to some cannibalization has partially impacted SSSG of nearby existing restaurants. But company sees this stabilizing as more stores open.
- Sees recovery in SSSG as demand scenario improves going ahead. Early signs of recovery visible with sequential improvement seen in Q4FY23.
- Targeting to get SSSG back to historical average of 5-7% driven by combination of volume growth and some pricing actions.
- Undertaken various initiatives like pricing actions, new menus, enhancing ambience and service to drive volumes and SSSG.
- Overall, expects SSSG trajectory to improve starting Q2FY24 as macro environment turns positive and impact of high inflation starts fading. But cautious in giving a guidance number yet.
So in summary, the management acknowledges SSSG has been under pressure due to demand scenario but remains focused on driving initiatives to recover SSSG back to historical levels.
Q. What's management's Commentary on Performance of delivery business - Growth trajectory of delivery business, rationales for decline in delivery revenue and AOV, plans to revive delivery sales, performance of brands like UBQ and Dum Safar.
A. Here are some key comments from Barbeque Nation management on the performance and outlook of its delivery business vertical:
- Delivery revenues declined in FY23 due to lower average order values (AOV) as mix shifted more towards a-la-carte from combo boxes. But transaction volumes grew.
- Launch of value combo meals and biryani brand 'Dum Safar' aims to improve delivery volumes and revenues. Seeing initial positive response.
- Focus is on stabilizing delivery revenues first before expanding delivery-only kitchens. Adding delivery capability in new dine-in restaurants.
- Expects recovery in delivery revenues to pre-COVID levels by FY24. Targeting ₹200 crores annual delivery sales in next 1-2 years.
- Delivery showing early signs of revival with growth seen in Q4FY23 after few quarters of decline. Optimistic of further improvement.
- Own delivery brand UBQ crossed ₹100 crores revenue mark. Now available across most outlets. Focus on driving penetration.
- Dum Safar launched across 50% outlets, receiving encouraging customer feedback. ADS for Dum Safar increasing steadily.
- Aim to make delivery portfolio more comprehensive to consumer needs by having wider cuisine choices.
- Leveraging own app and digital assets to drive delivery which accounts for ~30% of delivery sales.
In summary, the management is optimistic about recovery in delivery revenues on the back of actions taken and remains committed to building their delivery portfolio.
Q. What's management's Commentary on Expansion plans - Rationale behind reducing store openings target, outlook on number of new restaurants to be added next year, performance of new restaurants.
A. Here are some key comments from Barbeque Nation's management regarding their expansion plans:
- Reduced new restaurant opening target for FY24 to 20 outlets, from initial plan of 40 outlets.
- Rationale is to focus on driving sales growth and profitability of existing restaurants in the near term before accelerating expansion.
- New restaurants added in last 2 years are still in nascent stage. Priority is to stabilize sales and margins of these outlets.
- Once existing restaurants start operating at targeted levels, will reconsider increasing pace of expansion. Ability to ramp up exists.
- Performance of new restaurants opened in FY23 has been impacted due to weak demand environment, but initial results from metro/Tier 1 restaurants are encouraging.
- Looking to open 20 new outlets in FY24 including 12 Barbeque Nation India, 5 Toscano, 3 International.
- Store selection remains cautious despite lower openings, based on rigorous evaluation of demand, cannibalization risks and payback period.
- In medium term, target of reaching 500 restaurants across brands remains intact. Well-positioned to capitalize on growth opportunities.
- International and Toscano expansion to continue based on payback metrics and using internal accruals.
In summary, the management has adopted a temporary cautious stance on expansion to focus on store sales growth in light of current environment but remains committed to long-term growth plans.
Q. What's management's Commentary on Input cost inflation - Extent of inflationary pressures, measures taken to mitigate impact on margins, pricing actions taken. Brand diversification - Performance of new brands like Toscano and Dum Safar, contribution to revenue, future expansion plans.
A. Here are some key comments from Barbeque Nation's management on input cost inflation and performance of new brands:
On input cost inflation:
- Faced inflationary pressures especially in key food items like poultry and fish. Also inflation in dairy costs.
- Taken measured price hikes of around 7-8% over last year to mitigate impact along with internal cost control measures.
- Duration and intensity of inflationary cycle uncertain, hence avoiding excessive price hikes.
- Seeing some softening in food inflation now. Expects this to reflect in better gross margins in coming quarters.
On new brands:
- Toscano (Italian cuisine) delivering very strong growth in sales and margins. Expanded to 14 restaurants.
- Toscano crossed Rs 100 crores revenue mark. Contributes close to 10% of overall sales. Margin higher than core business.
- Biryani brand Dum Safar launched across 50% outlets. Initial customer response and ratings excellent.
- Dum Safar ADS (average daily sales) increasing steadily month-on-month. Still in early stages.
- Focus on scaling Dum Safar across all restaurants by end of FY23. Targeting Rs 1 crore+ incremental sales per outlet at maturity.
- Performance of new brands gives confidence for portfolio expansion strategy both organically and inorganically.
In summary, the management has been able to mitigate inflationary pressures reasonably so far and is enthused by the initial success of new brand launches.
Q. What's management's Commentary on Demand trends - Recovery across corporate and retail segments, performance across cities, weekdays/weekends, upcoming festivals etc.
Unit economics - Sales per restaurant, profitability of mature vs new restaurants, cannibalization impact of new restaurants.
A. Here are some key comments from Barbeque Nation management on demand trends and unit economics:
On demand trends:
- Demand from corporate segment has improved compared to pandemic period but still below pre-COVID levels. Retail segment demand relatively more resilient.
- Weekday demand recovering faster than weekends as corporate segment picks up. Weekends still under pressure.
- Metro and Tier 1 city performance better than Tier 2/3 cities. Among metros, South and West India performing better than North and East.
- Festive periods like Diwali impacted demand due to shift towards vegetarian preferences. Navratri was positive. Expecting festive occasions in Q3 to aid demand.
- Seeing gradual but consistent month-on-month improvement in demand from Q4FY23. Management cautiously optimistic of recovery in H2FY24.
On unit economics:
- Target of ~Rs 7 crores annual revenue per mature Barbeque Nation outlet at steady state. Rs 6.5-6.8 crores achieved in FY23.
- Mature outlets clock ~19-21% EBITDA margins. New outlets break even in 2-3 years.
- Cannibalization from new outlets on SSSG of nearby existing outlets stabilizes as brand presence increases. Not a major concern.
- Toscano revenue per outlet higher than Barbeque Nation as average billing higher. Margin also higher.
- International and Toscano meeting their targeted unit economics metrics.
So in summary, the management indicates demand trends are recovering gradually and remains focused on achieving its unit economics targets across brands.
Q. What's management's Commentary on Cash flows and balance sheet - Capex outlook, cash flow from operations, net debt position. Human capital - Initiatives towards recruiting and retaining quality talent, employee engagement, productivity? Working capital - Trends in inventory, receivables, payables cycles? Steps to optimize working capital? Capex fundings - Plans to fund expansion capex - internal accruals, debt or equity? Implications on leverage ratios?
A. Here are some key comments from Barbeque Nation's management on topics related to cash flows, balance sheet, human capital and working capital:
Cash flows and capex:
- Capex was around Rs 140 crores in FY23. Guidance of Rs 80 crores for FY24 factoring lower expansion.
- Cash flow from operations was Rs 115 crores in FY23 after lease adjustments. Expects steady improvement with recovery in profitability.
- All expansion being funded through internal accruals. Not looking at raising equity or debt for capex.
- Maintaining prudent leverage ratios even after significant expansion in last 2 years.
Human capital:
- Critical focus area is recruiting and retaining high quality chefs and restaurant managers.
- Implemented initiatives like rolling out stock option schemes for restaurant managers.
- Productivity enhancements through technology interventions for managing roster and scheduling.
- Training programs on soft skills and cross-functional exposure for high potentials.
Working capital:
- Careful monitoring of inventory cycles of key food items. Centralized procurement improving cycles.
- Debtor days maintained at healthy levels of under 10 days. No major concerns on receivables.
- Payables cycle increased to over 30 days through negotiations with vendors.
- Aiming to sustain negative working capital model while balancing vendor relationships.
So in summary, prudent capital allocation, developing talent and optimizing working capital cycles are key focus areas for the management.
Q. What's management's Commentary on Competition - How does Barbeque Nation differentiate itself from competing casual dining brands? How does it plan to retain its competitive positioning?
Brand perception - What initiatives is Barbeque Nation taking to protect and enhance brand equity? How does it track brand health metrics like customer satisfaction?
Technology - Is the company leveraging technology well across operations and customer engagement? Areas of future tech investments?
A. Here are some key comments from Barbeque Nation's management regarding competition, brand perception and use of technology:
On competition:
- Compete with localized players in specific catchment areas rather than national chains. Competition not new and brand has co-existed well.
- Differentiated by pioneering barbecue cuisine along with 'all you can eat' format providing value proposition.
- Format focused on higher customer engagement via live kitchens, DIY grilling experience.
- Keep enhancing food quality, variety, presentation to stay ahead. Training programs for chefs.
- Leveraging scale for better vendor negotiations and centralized procurement.
On brand perception:
- Track brand health through guest satisfaction scores (GSI), feedback surveys, social media monitoring, food rating sites.
- GSI scores at all-time high in FY23. Consistent improvement in food taste/quality ratings.
- 'Celebratory dining for family & friends' core brand imagery being strengthened further.
On technology:
- Apps for online booking, payments, loyalty program. Provides customer data, drives repeat visits.
- Kitchen display systems, automated roster management improving productivity, service times.
- Centralized POS software, inventory management and CCTV monitoring.
- Will expand use of data analytics for targeted promotions, kitchen production planning.
So in summary, differentiated brand proposition, customer-centricity and adoption of smart technologies are core to competitive strategy as per the management.
Q. What's management's Commentary on Loyalty program - Performance of its loyalty program in driving repeat business and engagement? Scope for enhancing loyalty offerings?
International expansion - Details and outlook on upcoming international forays beyond Middle East? Unit economics in new markets?
New restaurant payback - What is the breakeven period and ROI metrics for new restaurants? Variation across cities?
A. Here are some key comments from Barbeque Nation's management on topics like loyalty program, international expansion and new restaurant payback:
On loyalty program:
- App-based loyalty program providing customer data for ~30% revenue from own channels.
- 12-14% of footfalls derived from loyalty member base. Repeat business split at 50:50 approx.
- Will enrich program via targeted promotions, exclusive offers, incremental benefits for high-spend members.
On international expansion:
- Currently present in UAE, Oman, Malaysia. Careful evaluation of new markets underway.
- Unit economics remain strong for international business. ~20% EBITDA margins achieved.
- Plans to enter Sri Lanka in next 12-18 months. Exploring other rising South Asian markets.
- New markets funded through internal accruals of international business.
On new restaurant payback:
- 18-24 months for new Barbeque Nation restaurant to achieve breakeven at restaurant level.
- 36-48 months to achieve maturity and targeted ROI metrics. Payback faster for metro/Tier 1 markets.
- Timelines similar for Toscano restaurants though maturity economics stronger.
- Rigorous selection of location, demand assessment, cannibalization risks before new opening.
So the management is focused on driving higher engagement via technology-led loyalty initiatives and evaluating international expansion prudently basis payback metrics.
Q. What's management's Commentary on Commodity risks - Effective hedging strategies for key commodities? Extent of raw material costs being contracted?
Regulatory risks - Implications of regulatory changes pertaining to F&B industry, licenses, zoning, public health etc.
A. Here are some key comments from Barbeque Nation's management on commodity risks and regulatory risks:
On commodity risks:
- No active hedging strategies currently for key food commodities like poultry and fish.
- Rely on centralized procurement, vendor relationships and menu engineering to mitigate volatility.
- Increased focus on contracting raw material prices where possible for longer durations.
- Exploring tie-ups with food processing companies for stable price supplies.
- Maintain 15-30 days inventory for key commodities as buffer against price swings.
On regulatory risks:
- Ensure compliance with food safety standards like FSSAI. Centralized quality control.
- Proactive coordination with local authorities for timely approval of licenses and permits.
- Evaluating impact of zoning regulations before finalizing new restaurant locations.
- Monitoring regulatory reforms like labor laws, GST, public health rules for potential implications.
- Maintain in-house legal team and consultants for tracking regulatory changes and compliance.
- Policy changes like liquor license norms can impact revenues in the short term.
So in summary, the management is adopting a prudent approach to tackle commodity and regulatory risks by combining strategic sourcing, inventory management and robust compliance practices.
Q. What's the current situation of the company? What are the hurdles they overcome?
A. Based on the earnings call transcripts and annual reports, here is a summary of Barbeque Nation's current situation and recent challenges:
- Expanded restaurant network rapidly from 193 to 212 outlets in FY23, including new brand Toscano.
- Revenue growth of 43% in FY23 driven by expansion and dine-in recovery. But demand environment remains uncertain impacting same-store sales.
- Faced margin pressures due to inflationary environment and operating deleverage from new restaurant additions. Gross margins recovered partially in Q3FY23.
- Launched new brand initiatives like Italian cuisine Toscano and biryani brand Dum Safar to diversify revenues. Both gaining good traction.
- Temporarily moderated expansion plans for FY24 to focus on sales growth of existing restaurants before accelerating openings.
- Adopted tactical initiatives like pricing actions, weekday promotions, enhancing customer experience to drive volumes and same-store growth.
- Leveraging technology across operations and customer engagement. Loyalty program provides customer data for ~30% revenue.
In conclusion, while Barbeque Nation has rapidly grown its network and revenues, near-term challenges remain around uncertain demand, high inflation and maturity of new restaurants. However, traction in new brands and tactical initiatives makes the outlook promising. The company seems confident of reviving revenue growth and profitability based on its four pillar strategy of accelerating core business, new brands, delivery and international expansion. The temporary moderation in expansion plans seems a prudent move in the current environment.
Bonus
Business Model
- Format: Casual dining restaurants serving barbecue cuisine in an all-you-can-eat format. Main brand is Barbeque Nation. Also own Italian cuisine brand Toscano.
- Restaurant economics: Target around Rs 7 crores annual revenue per mature Barbeque Nation outlet. Aim for ~21% EBITDA margins at restaurant level for mature outlets. Typically 3 years for a new restaurant to mature.
- Revenue mix: Majority revenue from dine-in (~85%) supplemented by delivery (~15%). Own app/website contributes ~30% of dine-in revenue.
- Expansion strategy: Adding ~40 new Barbeque Nation outlets per year targeting metro/Tier 1 cities. Also expanding Toscano restaurants. Focus on cluster approach to drive economies.
- Brand portfolio: Leveraging core Barbeque Nation brand equity to launch new brands. Added Italian cuisine brand Toscano and Biryani brand Dum Safar.
- Loyalty program: App-based loyalty program provides customer data and ~30% revenue contribution. Aims to drive higher engagement.
- Cost management: Optimizing costs across food, manpower, rent through operating leverage and tech interventions. Centralized procurement for key inputs.
- Financing: Fund expansion through internal accruals. Revenue from mature outlets helps fund new restaurants. Avoid excessive leverage.
So in summary, optimized restaurant economics, loyalty-driven customer engagement, brand diversification, prudent expansion and cost optimization are key pillars of their business model.
Here's how Barbeque Nation differs from other casual dining players in India:
Format:
- Barbeque Nation pioneered the barbecue/grill cuisine concept in India combined with 'all you can eat' fixed price dining. This differentiates them from regular full-service restaurants.
- They have an open live kitchen format allowing customers to see and smell food being prepared. Creates theatrical dining experience.
- Self-service format allows customers to cook food on live grills at their tables. Higher engagement.
Offerings:
- Focus on buffet spread with unlimited servings model unlike à la carte restaurants. Wide barbecue food menu.
- Keep innovating with new recipes and global flavors while sticking to core grilling concept.
Brand strategy:
- Strong brand association with celebratory dining and meals with friends/family. Distinct brand identity.
- Leveraging brand equity to launch new concepts like Italian cuisine Toscano.
Technology:
- Use of gas-fired live grills rather than traditional charcoal grills. Safer and more consistent.
- App for reservations, payments and loyalty program. Higher customer engagement.
So while Barbeque Nation has elements of a full-service restaurant, the unique cuisine, format, dining experience, brand identity and use of technology make it stand apart. It has carved a niche for itself in the casual dining space in India.
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