McDonald’s Indian Franchisee Hopes To Turn Profitable In 18 Months

Customers walk past a statue of Ronald McDonald as they exit a McDonald’s Corp. restaurant, in Bangalore, India, (Photographer: Dhiraj Singh/Bloomberg)

Westlife Development Ltd., the company which runs McDonald's outlets in the western and southern parts of the country, aims to turn profitable over the next 10-18 months. The outlook for this financial year is rather dim though, with Amit Jatia, the vice chairman of the franchisee describing it as a period of ‘flattish growth with a negative bias.'

Westlife Development's second quarter earnings corroborate this caution with the company posting a net loss of Rs 3.30 crore compared to a net profit of Rs 13.99 crore in the corresponding period last year.

Since last year, we have seen a significant shift in our profitability, and in the whole year we were profitable, and moved our cash flow up to almost to Rs 67-70 crores. We expect this year to be flattish or a little negative, but in the next 10-18 months, we hope to start moving in the positive profitability direction.

Amit Jatia, Vice Chairman, Westlife Development

The company, which is one of the two franchisees of McDonald's in India, plans to nearly double its presence in the western and southern region taking the total store count to 500 by 2022 from the current figure of 245 stores. This will translate to an overall investment of around Rs 750 crore over the next five years.

McCafe, which is a higher margin format under the McDonald's banner, is posting a 40-50 percent same store sales growth every year, says Jatia.

Competition Galore

McDonald's may have been one of the first global fast food chains to enter the Indian market, but with new players like Burger King and Dunkin Donuts trying to make their presence felt, the fight for supremacy is now getting tougher with every passing day. Westlife Development is betting on brand recognition to win this battle.

Just because a new burger player comes right next to us, doesn't mean that customers who love the McAloo Tikki or for that matter the Chicken McGrill or the McChicken or the McVeggie, or our McSpicy, will forget the taste and they are all brands within a McDonald's. We feel consumers like those flavours and as you can see in our results over the last five quarters, that even with the advent of competition, we have been able to lead the industry in same store sales growth.

Amit Jatia, Vice Chairman, Westlife Development

Demonetisation A Dampener

The government's latest move to fight black money has definitely come as an unpleasant surprise with a sharp dip in footfalls at McDonald's stores. Jatia agrees its bound to reflect in the company's third quarter earnings, but refrains from assessing the impact, just yet.

It's hard to say because it depends on how long this is going to last, but obviously there is going to be some impact. But, if we recover quickly enough then it will be a blip. But if it takes, 90 days, 60 days, then off course there might be some impact,” Jatia added.