Sapphire Foods India Limited , the operator of KFC and Pizza Hut restaurants in India and Sri Lanka, reported mixed results for the first quarter. The company saw revenue growth but faced margin pressures due to investments in value campaigns and promotional activities.

Revenue Growth and Store Expansion

Sapphire Foods achieved a revenue of Rs 775.00 crores in Q1, representing an 8% year-on-year growth. The company continued its expansion strategy, adding 11 new restaurants during the quarter, bringing its total store count to 974 across all brands and regions.

KFC Performance

KFC, the company's flagship brand, delivered flat same-store sales growth (SSSG) but achieved positive transaction growth. The introduction of the 'Epic Savers' campaign, offering 9 items for Rs 299.00, contributed to this increase in customer transactions. However, the brand's restaurant EBITDA margin declined to 15.7%, primarily due to investments in value offers and promotions.

Pizza Hut Challenges

Pizza Hut faced headwinds with a 5% decline in revenue and negative 8% SSSG. However, the brand showed promising results in Tamil Nadu, where it implemented a targeted mass media advertising strategy. This approach led to positive single-digit SSSG in the state, outperforming other markets significantly.

Sri Lanka Operations

The company's Sri Lanka business continued to show robust performance with a 12% SSSG and 15% system growth. However, margins were impacted by recent minimum wage increases in the country. To mitigate this, Sapphire Foods has implemented a 3-5% price increase in Sri Lanka starting Q2.

Margin Pressure and Future Outlook

Consolidated restaurant EBITDA declined by 13% year-on-year, with margins contracting by 290 basis points to 12.2%. This decline was primarily attributed to investments in value campaigns, increased delivery mix, and operational deleverage due to flat SSSG in key markets.

Sanjay Purohit, Whole-time Director & Group CEO of Sapphire Foods, commented on the results: "We are encouraged by the positive transaction growth in KFC and the success of our targeted advertising strategy for Pizza Hut in Tamil Nadu. While margins have been impacted by our investments in value campaigns, we believe these initiatives will drive long-term growth and improve SSSG performance."

Financial Highlights

The company remains focused on its strategy of driving transaction growth through value offerings and expects this approach to translate into improved SSSG performance in the coming quarters. Sapphire Foods continues to invest in brand building and operational excellence across its portfolio to navigate the challenging market conditions and position itself for long-term growth.

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.