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Yum! to turn profitable this year, says MD

Yum! to turn profitable this year, says MD
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First Published: Wed, Jan 26 2011. 11 12 PM IST
Updated: Wed, Jan 26 2011. 11 12 PM IST
Mumbai: Fifteen years after the first Pizza Hut and KFC outlets opened for business in India, the owner of the fast-food chains says it will turn profitable even as it readies to open new outlets to take on rivals such as McDonald’s and Domino’s.
US company Yum! Brands Inc has had to negotiate fussy Indian palates, stiff competition from global rivals and the recent spike in food prices.
A senior official at the restaurant company says it will turn in its first profit in its fiscal year ending November 2011 and then seek to grow its revenue by a factor of four in the next four years. “In the last three years we have doubled our business, and now in the next four years we will grow it four times over to have a topline of $1 billion,” said Niren Chaudhary, managing director, Indian subcontinent, Yum! Restaurants (India) Pvt. Ltd.
He refused to share details on revenues and profits.
Yum! introduced Taco Bell, its Mexican food chain, in 2010 and currently has three outlets in Bangalore.
The company hopes to open more restaurants. However, its current network is smaller than that of key business rivals.
Its 110 KFCs are pitted against burger chain McDonald’s 210 outlets across the country. Domino’s 360 stores easily outdo the 170 Pizza Huts.
By 2015, Yum! hopes to have a larger footprint in India than its global peers, with 500 KFCs against McDonald’s planned total of 410 stores, 400 Pizza Huts and close to 100 Taco Bells. By then, it hopes to be in 65 Indian cities that have a population of at least one million, from 35 today. “We want to be the No.1 restaurant company in every category we operate,” said Chaudhary.
McDonald’s Corp., too, has been in India for about 15 years. It operates through two franchises—Hardcastle Restaurants Pvt. Ltd and Connaught Plaza Restaurants Pvt. Ltd—that serve about 600,000 customers daily.
“McDonald’s (India) is now cash positive,” said Amit Jatia, vice-chairman (west and south).
Expansion spree
Yum! is aiming for 1,000 outlets in four years in the Indian subcontinent, which includes Sri Lanka, Nepal, Bangladesh and Mauritius. That’s about a three-fold increase from its existing 350 outlets. “We will invest $200 million over the next four years,” said Chaudhary.
According to industry experts, Yum! had a revenue of about Rs800 crore from its India operations in 2009-10.
“International businesses account for about 65% of the company’s operating profits at present, and we expect this figure to generally grow in coming years,” Mark Kalinowski, an analyst at Janney Montgomery Scott Llc. said in a December report.
Yum! has 37,000 restaurants across 110 countries.
The Wall Street Journal, in a December 2009 report, said Yum! had invested $100 million in restaurant development in India. Chaudhary said he did not have the latest investment numbers for India.
Over the next four years, McDonald’s plans to invest Rs650 crore to open 40 stores every year till 2015, said a spokesperson for two McDonald’s franchises at Connaught Plaza Restaurants. The investment will include Rs50 crore for its back-end operations.
Domino’s is on the race, too. Last February, Jubilant Foodworks Ltd, Domino’s franchise operator in India, raised Rs328.72 crore from the capital market to add stores.
The expansions are seen as necessary in a Rs4,500 crore food and beverage market that’s growing at 25-30% every year. Yum!, McDonald’s and Domino’s account for half of this industry, said Saloni Nangia, senior vice-president (retail), at retail consultancy Technopak Advisors Pvt. Ltd.
Battling attrition
Yum! has to increase its workforce in India from 10,000 to 50,000 over the next four years as it adds restaurants, said Chaudhary—a tough task for a company facing a high rate of employee exits. “Currently, attrition at 70% at the store front is much higher than we want,” admitted Chaudhary, who hopes to bring down the exits with people training and retention programmes.
This means Yum! is replacing 7,000 people every year and this has a cost as apart from salary, there is a cost for fresh recruitments, training and relieving employees. Typically an employee at the front end gets Rs6,000 a month.
Basic salaries are also on the rise. Domino’s, which has recruited 3,000 people since April for its 70 new restaurants, increased salaries at the store front by 20% in September and put in place a new incentive plan for retention, said Ajay Kaul, chief executive, Jubilant Foodworks.
Double-digit food inflation also puts pressure on the restaurants as they compete to draw new customers with entry-level prices. “We want to absorb as much as we can (of the rising prices) and pass on as little as possible,” Chaudhary said.
(The promoters of HT Media Ltd, which publishes Mint, and promoters of Jubilant FoodWorks are closely related.)
sapna a@livemint.com
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First Published: Wed, Jan 26 2011. 11 12 PM IST