Sapphire Foods India Limited , the franchisee operator for YUM! Brands in India, Sri Lanka, and the Maldives, is implementing a strategic multi-channel growth approach coupled with cost-saving initiatives to enhance its profit margins. The company, which operates KFC, Pizza Hut, and Taco Bell restaurants, is navigating short-term challenges while focusing on affordable growth across its operations.

Multi-Channel Growth Strategy

Sapphire Foods is adopting a multi-faceted approach to drive growth:

1. Smaller Location Expansion: The company is optimizing its restaurant sizes to improve efficiency and reduce costs. For KFC, the average restaurant size has been reduced by approximately 40% from 2,736 sq. ft. to about 1,600 sq. ft. Similarly, Pizza Hut has seen a 45% reduction in average restaurant size from 2,427 sq. ft. to around 1,200 sq. ft.

2. Omni-Channel Presence: Sapphire Foods is strengthening its omni-channel mix, with delivery accounting for 44% of sales, take-away at 23%, and dine-in at 34%.

3. Digital Integration: The company is rolling out digital kiosks across 50% of its KFC estate to enhance customer experience and streamline operations.

Cost Optimization Initiatives

To improve profit margins, Sapphire Foods is implementing several cost-saving measures:

1. Zero-Based Cost Budgeting: This approach is leading to permanent cost reductions across operations.

2. PACE SETTER Program: The company has introduced a benchmarking system to compare costs among restaurants, promoting efficiency.

3. Restaurant Size Optimization: By reducing the average restaurant size, Sapphire Foods aims to lower rental and operational costs while maintaining sales efficiency.

Financial Performance

Despite challenging market conditions, Sapphire Foods has shown resilience:

• Restaurant Sales: Increased by 8% year-over-year to ₹7,748.00 million.
• EBITDA: Reached ₹1,134.00 million, with a margin of 14.6%.
• Restaurant Count: As of June 30, the company operates 974 restaurants across its brands.

Brand-Wise Performance

KFC India

• 510 restaurants as of June 30
• Restaurant EBITDA at 15.7%
• Focus on premium offerings with the launch of KFC Gold range

Pizza Hut India

• 336 restaurants as of June 30
• Implementing a dine-in led omni-channel customer promise
• Launched the "Juicylicious" pizza range in April

Sri Lanka Operations

• 128 restaurants as of June 30
• Restaurant EBITDA at 12.7%
• Strong performance with 19% year-over-year revenue growth in INR terms

Future Outlook

Sapphire Foods is well-positioned to capture future opportunities through:

1. Organic growth by accelerating conversion from unorganized food services to KFC and Pizza Hut brands.
2. Exploring inorganic growth through potential acquisitions of high-quality and scalable QSR and food brands in existing and new geographies.

With a cash net of debt of ₹2,450.00 million as of March 31, Sapphire Foods has the financial capability to support its growth initiatives and navigate market challenges.

As Sapphire Foods continues to implement its multi-channel growth strategy and cost optimization measures, the company aims to strengthen its market position and improve profitability in the competitive quick-service restaurant sector.

Sapphire Foods India Limited , a leading franchisee operator for Yum! Brands in India, Sri Lanka, and the Maldives, has reported mixed financial results for the first quarter. The company, which operates popular fast-food chains including KFC, Pizza Hut, and Taco Bell, saw growth in revenue but experienced a decline in profitability.

Financial Performance

Sapphire Foods reported restaurant sales of ₹7,748.00 crore in Q1, representing an 8% year-over-year increase from ₹7,165.00 crore in the same quarter of the previous year. However, the company's EBITDA margin declined to 14.6% from 17.3% in the previous year's quarter, indicating pressure on profitability.

The adjusted EBITDA for Q1 fell by 22% to ₹548.00 crore, compared to the same period last year. This decline in profitability metrics suggests that the company faced challenges in managing costs amid its expansion efforts.

Restaurant Network Expansion

As of the end of the quarter, Sapphire Foods operates a total of 974 restaurants across India, Sri Lanka, and the Maldives. The company's portfolio includes:

• 510 KFC outlets
• 454 Pizza Hut restaurants
• 10 Taco Bell locations

During the quarter, Sapphire Foods added 11 new restaurants to its network, demonstrating its commitment to expansion despite the challenging economic environment.

Segmental Performance

KFC India

KFC India emerged as the strongest performer in Sapphire Foods' portfolio:

The robust performance of KFC India highlights the brand's popularity and operational efficiency in the Indian market.

Pizza Hut India

Pizza Hut India showed mixed results:

The negative EBITDA margin for Pizza Hut India indicates significant challenges in profitability for this segment, which may require strategic attention from management.

Sri Lanka Operations

Sapphire Foods' Sri Lanka business demonstrated strong growth:

The impressive performance in Sri Lanka suggests that the company's international operations are contributing positively to its overall results.

Corporate Developments

In a significant achievement, Sapphire Foods was recognized as the World's Best KFC Franchisee at the Yum Global Franchise Convention in April. This accolade underscores the company's operational excellence and brand stewardship.

Outlook

While Sapphire Foods continues to expand its restaurant network and drive revenue growth, the decline in EBITDA margin and adjusted EBITDA suggests that the company may need to focus on cost management and operational efficiencies in the coming quarters. The strong performance of KFC India and the Sri Lanka business provides a solid foundation for future growth, but addressing the challenges in the Pizza Hut India segment will be crucial for improving overall profitability.

Investors and analysts will likely be watching closely to see how Sapphire Foods navigates the balance between expansion and profitability in the competitive quick-service restaurant market.