Market experts say execution at Jubilant Foodworks will be critical in the current environment where discretionary spending is losing momentum as inflation increases.
The sudden departure of Pratik Pota from Jubilant Foodworks has taken the market by surprise. Pota, who was appointed CEO of the fast-paced restaurant chain in 2017, has been credited with turning the tide over the past five years. Analysts view Pota’s sudden departure from Jubilant as a setback for the company, which has been criticized in recent times for its capital allocation strategy.
The company’s capital investments in DP Eurasia and Barbecue Nation angered the market. According to HDFC Securities (Institutional Research), “In our view, investments in DP Eurasia and Barbeque Nation were not strategically aligned. That’s why we’ve highlighted execution risks along with under-capital allocation as our main reason for a negative stock image.”
While QSR brand growth in India is a secular story, market experts say execution at Jubilant Foodworks will be critical in the current environment where discretionary spending is losing momentum due to rising inflation.
PhillipCapital says a perfect storm is ahead for the company as near-term business challenges continue and uncertainty is at the helm. The company has already made double-digit gains in the past 18 months and will find it difficult to pass on further gains in the coming months without impacting demand.
In this context, the change in leadership is viewed negatively by analysts. According to Jefferies, the selection of the new CEO would be an important event, as history suggests, and the strategy and execution would be important for the next phase, which would affect the stock.
Over the past five years, Pota has taken several measures to improve same-store (SSG) sales growth by eliminating certain past practices that led to erratic store performance due to promotions on certain days. Domino’s offer buy one get one offer (BOGO) on Wednesday, which tended to demand because of the supply. Pota replaced this with daily affordability, which improved SSG growth, which rose to 9% CAGR over FY17-22 from the 1% growth seen in FY14-17.
Pota also curtailed rapid store expansion, impacting profitability metrics and leading to cannibalization. He also improved product and pricing, improving demand and customer friendliness. Pota temporarily halted store expansion and focused on improving the unit economy at the store level, analysts say.
According to HDFC Securities, aside from the fact that Pota’s execution expertise would be missed – very essential from a long-term growth perspective – the timing of his departure is also rather odd; it comes at a time when Jubilant has been leading the way for massive store expansion across brands/regions for the next 3-5 years. The stock fell 12.19% on the BSE on Monday, closing at Rs 2,515 on Monday.