It's been like 2.5 years since we have taken any price hikes. Now our SSG also has sort of stabilized over the last 2 to 3 quarters at a double-digit kind of a number. So what is really holding us back from taking a price hike now?
Yes. So Percy, good question. I think in a few calibrated places, we are taking price increases, firstly, right? And what you see over here is the -- our order book -- like our LFL growth in value terms is slightly ahead of order growth. That's what I mentioned. So it is happening, but I want all of our investors and analysts, friends to step back. We are here trying to build a 5,000 store franchise, right? I think this is the time where we penetrate more, we get the throughput per store and the leverage is coming in pre-Ind AS basis. It's very easy to take price hike at this stage, right? And I get like several proposals every day on my table. I am going in for growth, and I can see the profitability improving at a pre-Ind AS level, hopefully, at post-Ind AS and whatever gross margin decline we have, we are seeing actually the leverage coming in supply chain and multiple other places. So what you are saying, we will take it at the right time. We know where to take it. We have done the full analytics, but we'll pull the trigger when we have to.
On the loyalty plan - I understand you do share the number of customers and stuff like that. But what I'm really looking at is that for a customer who has enrolled in a loyalty plan, how has his behavior changed versus when he was not in the loyalty plan? Does his AOV increase, does his frequency increase?
So I will share three points over here, Percy. Firstly, our own assets are growing the fastest, right? So loyalty has a role to play over there. Second is frequency has begun to move up, right? So last year, we put free delivery, we acquired customers at an unprecedented pace. So when we calculate frequency, we calculate total number of orders divided by total number of customers, including new customers. So that number is beginning to go up. And third is the cohort, right? So -- like in the Cheesy Rewards loyalty program, after earning six pies, you get a free pizza. That cohort, four plus is seeing the fastest growth. So, I'm giving you an analytical but a qualitative answer Percy on all three accounts without revealing the numbers, loyalty program is genuinely working is one of the important components of driving our own digital asset growth.
Loyalty has two or three benefits - it can help recruit new customers, it can help increase the AOV of the existing customer, or it can help increase the frequency of ordering. If you were to rank these 3 benefits in terms of ascending order, which is giving you the most and which is contributing the lesser part?
The biggest benefit of the rewards program is the long-term value of loyal customers. So it is -- not AOV, it is AOV into frequency of the loyal customers. Somebody -- so our average frequency is about three, right? Cheesy Rewards kicks in at 6, right? So, it fundamentally attacks customers -- who love Domino's, right, who or who love pizza. And when they're making a choice, this is one of more factors -- one of additional factors other than delivery, innovation, the highest quality of cheese, etcetera, to come back to Domino's app, right? So, the way it is attacking is long-term value of customers who eat 4-plus times the pizza.
We started doing this double-digit LFL from Q3 last year. So we have one more quarter of relatively low base than we hit the high base of Q3. So when we do hit that Q3 high base, how do we think of the Y-o-Y LFL going from there on? Would you say that you would endeavor to maintain the high growth irrespective of base? Or do you think the base effect does matter?
Percy, I will give the same answer what I gave last quarter, right? Bases do matter, right? -- but I think, again, I will request you to step back. At 3 quarters of these double-digit like-for-like growth, we will be expanding to the seams of the store in terms of operations, right? And that's what we are seeing, right? And I think the teams have done a great job of sweating the asset, using the same -- doing lesser number of splits and growing the same store. So I think at some level, to me, splits will increase and will be obviously our payback period, ROIs, those will be intact, right? And from a base perspective, I think what is -- again, I will draw your attention to why are we growing, right? So it is not just a base effect. We have done 5 things, right? We expanded the pace of innovation. We invested heavily in digital assets. We did free delivery. In top metros, we are the best in terms of 20-minute delivery. And lastly, we have like expanded the teams on the ground to have daily rigor, right? Like this -- for example, this Raksha Bandhan, it was raining heavily. We exceeded all our expectations and yet delivery metrics came ahead of what we were internally anticipating on day like that. So, the combination of factors that is not just base and therefore, we are riding on the base. I'm very confident the measures we have taken should take us beyond the base also.
On the dine-in delivery divergence - the last quarter, fourth quarter, you almost came to 0% to 1% this quarter, 3%. Do we expect this to pick up as we go forward? And where do you think delivery plus takeaway settles in the medium term?
Yes. So I think the first question is, yes, I think we are working -- while we -- execution on delivery will be the key, try to service the demand, but shaping the demand on dining is something that we do very rigorously and a lot of efforts have gone in. I think you will continue to see the results in my opinion. So therefore, from neutralizing to plus 2.5%, 3% to 5%, 6% is what we are internally targeting, right? So it should improve. But the mix of -- there is a huge tailwind on delivery, Vivek. The more supply we are able to create on delivery side, there is enough and more demand with weather vagaries, with traffic, with consumers like habit changing with app, with bank offers, right? It just that this -- I think the growth momentum is there on the delivery side. So it is more -- we have to supply be ready at the right point at the right cost. I don't know the answer to the question number two, to be very honest. The way I look at it is I want the customer to have a great choice with us. We should be available in all channels. Our own app should offer the best, most immersive pizza eating or pizza ordering experience. And our stores, which are neighborhood stores, we will be like, what, maybe 60, 70 stores in Gurugram alone. So in that kind of a setup, if somebody wants to eat in, take away, that's how we are building the business. And we genuinely want to shape the demands towards dine-in because it is accretive to the P&L.
How is our brand relevance on aggregators now? That will be useful to understand how would it stick around when we reduce incentives or promotions?
Yes. I think firstly, the relevance of aggregators and our own digital assets is for the customers wanting reliable delivery, right, and options. So that is where we come in. And that is one big tailwind and operational advantage we carry in our business. So therefore, we work very well with both the aggregators. Overall, we believe as we do mark-to-market our own estimates, we believe we are gaining share. And we want to be there wherever customers are. So if the aggregators are launching new deals, properties, new separate delivery options, we want to be there. So we are looking at the customer where the customer is and following the customer versus trying to say customer should come to me on this channel with this kind of a proposition.
Would you have some data - how would our share stack, let's say, what it was, let's say, 12, 18 months back versus today?
See, internally, we do -- I don't want to share the numbers. But when you look at like even the listed QSRs and look at the growth, right, revenue growth, you will get it, right, yourself. So it's very easy to do, but we do have -- we have a more scientific approach where we also go to unlisted pizza players. We obviously get market share information from aggregators. We overlay our own internal data. So I think you will be very positively surprised. See 20% like-for-like growth in delivery alone will give you that we are gaining share, right? That should -- that is, I think, the single biggest data point.
You said most of the technology investments are now writing benefits or will start writing benefits in a short period of time. What would be an idealistic impact on the gross margin as such?
Okay. So okay, there are multiple areas where the technology is being deployed and you will see the implications. If you want to specifically understand because technology on store operations that we do will, of course, reflect in better employee cost productivity, so it will appear below the gross margin line. If you talk specifically of gross margin, where is technology being deployed. We have better conversions on our app, right? And because of the app interventions that we are doing in terms of consumer cohorting information that we get, in terms of ensuring that there's a good uptime for consumers, cross-selling that happens. If you go into our app today, you'll see multiple options where we have adjusted things to help cross-sell, upsell, more targeted discounting, which is done basis on where the consumer cohort sits in a particular location or in a particular region. So all of that helps us do better smart pricing, better discounting and better conversion of consumers. This is what we reflect in your gross margin line, right? But there's also technology investment going on behind store operations getting better behind our own delivery management system, which ensures that we get good delivery executives onto the portal, which ensures that we can deliver against our, DOT, Delivery On-Time promise. All of that will reflect into our below gross margin, but above EBITDA line. So that's the various kinds of technology. But specifically on gross margin, you will see it in better and more smart pricing, better and more targeted discounting and better conversion happening because of the app experience for the customer.
At a store capex level, how should one think about on a per store basis an average capex?
So we don't really comment out on how much we spend because again, that can vary depending on the size and place of the store, Latika. But let me just give you some numbers in terms of percentage. Over the last 3 years, consistently, we are seeing that number come down like almost every year, we see a 10% to 15% drop on the amount that we spend on the capex coming predominantly from scale and as we get better on what technologies we use. And the other vector that we really are looking at now is saying how much of the capex do we put in and how much can we get the landlords to invest behind, which also is a key area for us, it improves the ROI for us or the payback on our store and also brings down the amount of capex that we spend per store, which means we can open more stores with lesser amount of money, right? So I don't want to comment on a number because the numbers can vary, but that's the way.
On the delivery dine-in divergence that we are seeing. Even if I look at our dine-in channel, we've obviously launched the INR99 and the INR149 value meals. So there is a clear-cut case of value and all the other 5 aspects that you mentioned other than the delivery charge being very much a part of the dine-in channel also. So what is it that is driving such a big divergence in the 2 channels?
Firstly eating at your home from QSRs, whether through a carryout or through delivery is a worldwide trend, right? And aggregators have obviously accelerated it. COVID boosted it. And consumers are looking to eat at home more and more, the QSR food, which stands for value. So that trend is intact. So that is driving one of it. And then when it comes to delivery accuracy, delivery comfort, ease of ordering, value that we give that these are underlying factors that is fueling the delivery, right? So -- and if I want to -- if I'm pressed for time and which is happening more and more in our cities, right, we are becoming more urban, more nuclear, right, those trends, underlying demographic trends are there. That is what is fueling delivery. On dine-in, right, so the way I want to just correct the understanding over here, Nihal, in humility. See, our on-premise includes dine-in and takeaway, right? So a customer can come in, right? I want to eat there. Just eating at the restaurant is also growing at 20%. We don't disclose dine-in and carry out, right? It's the carryout business that is like because of free delivery has moved. Otherwise, there was an incentive for customer to save INR45 -- INR45, INR50, if you -- when the delivery charges were there, with free delivery. So I think the -- I did give a little bit of a positive undertone on dine-in. At least it is growing at a full system level. It is not declining.
Only addition of one store for Popeyes. Just thoughts on where that brand is in terms of -- I know you mentioned that 100 store is the threshold where you start giving more data, but maybe the pace of addition was slightly lower. Where do you expect the store addition to scale up for the next full year? And even on SSG, specifically highlighting South India, any comments on the rest of the country on the adoption of that brand?
So I think the location strategy, product strategy, leading with both dine-in and delivery, our own delivery, our own app, that strategy is very clear. I think the slower growth in the quarter is an aberration, right? We already entered Mumbai with three stores, right? And we are building two more stores in Mumbai. So you will see the right -- so we are -- we know where to open next 100, 150 stores. When we get the locations, we will open the stores. So nothing -- it is more about finding the location and negotiating on the rentals. And like I said, three stores in Mumbai are already opened, two are under construction. I am entering the quarter 2 with a reasonably healthy pipeline.
I just wanted to understand this GM decline a little bit better because you indicated that you are pushing the value agenda, but I thought that the free deliveries should be in the base. And even when I look at the free delivery, we are seeing the packing charge for example has gone up almost fully offsetting that free delivery amount. So I just want to understand this gross margin decline.
Yes. I think let me address profitability. I think you are seeing the effect of profitability in this like SSG in the profitability, PAT has grown 30% ahead of the revenue, right? So that is what we are also focusing on. And of course, the SSG has to flow into EBITDA and PAT, right? We are very clear about it. This is not a revenue business. So I hope that addresses -- I hope you looked at that number, right? And it should improve from here. We had given that in -- over a 3-year period, we should improve by at least 200 basis points on a stand-alone basis. So that guidance remains actually, to be very honest. Now the first question you had was on gross margin. So at least -- so I think the gross margin dilution is a result of 3 things. One is Big Big Pizza, which was we knew dilutive exceeded our expectation by almost 2x. And the IPL, it was supposed to be for a limited time in IPL. We extended it for the full IPL and also the IPL also got extended because of the border conflict. So there was that effect. Second is we had launched chicken. Chicken per se, we want to increase the salience of chicken. There, we have taken some calibrated price increases when we looked at the gross margin. And third is we want to grow lunch, right? And the INR 99 lunch is an outstanding proposition available only in dine-in. So these are all very strategic interventions, right? And we just sweating the assets. If lunch grows, we have to -- in dine-in, we have to do lesser splits. So it is very well calibrated. And you should look at pre-Ind AS results. The second thing which we -- at least we look at internally not only the recipe cost or the food cost, we also look at the supply chain cost that is to deliver to the store. That is where we have seen maximum advantage. It is, in fact, one of the all-time lows in the -- in our history. It is almost 50 basis points of tailwind that we are getting just from our commissary and logistics operation.
On PAT - if I look at net income or EBIT because the interest costs have gone up, so if I disregard interest cost, even the EBIT has declined at a CAGR of 11% on a 3-year basis, while our top line has grown 11% CAGR. So I'm just trying to understand what has led to this decline and how that will improve because 200 basis points still won't take it to what it was 3 years ago.
So let me answer that for you, Aditya. So you're absolutely right. And there are 2 points which I want to draw attention to here. One, at the point in time when the PAT was what it was, is the gross margin that we used to make. I think over a period of time in the last few quarters, we've also said about where and how price sensitive the Indian consumer is. And we are seeing that across the board, right? I mean, across not only the QSR industry, if you look at any consumer-facing industry and in the environment that we operate in -- in the competitive environment we operate in much more competition than there was there 3, 4 years ago, right? And when consumers are spoiled for choice, you have to be very, very efficient on your pricing. And hence, some of those margins of the past were not sustainable margins if you want to protect your consumer franchise and you want to look at the long-term value that you're creating as a brand. So that's one effect, which, of course, now we are saying once we rightsize it, we will improve the margins. We will see this coming through because we know it's an impact of mix, and we have invested, deliberately invested behind giving value back to the consumer, looked at customer acquisition, put value back in delivery. So that's one element which has impacted the PAT that you've seen in the historical 3 years back, if I compare it. The second one is the depreciation and we keep the interest cost out of it. But we have heavily invested behind capital investments on technology, on stores. And as we have called out, with a high investment cycle behind our supply chain assets, which are our commissaries to support the growth that we will see going forward. Some of the capacities we have invested in are going to last us for the next 2 to 3 years. right? Of course, the impact of that comes in the immediate in the depreciation line, which is what also you've seen a significant increase over. But in the long term, as the cycle we're getting off and we're getting off that cycle in FY '26, most of the investments now will be on ROIs, which are much better than manufacturing assets, right? This behind stores, which have a 2, 2.5-year payback. It's behind technology, which is a faster turnaround, which you are reflecting in the growth that we are seeing. We will see this improve, right? So there are 2 elements, just to summarize. One is, of course, the gross margins, which we will now start inching up, but we did take a sharp dip on it, which is, I think the industry -- across industry was important to do to get the consumer back to the fold. And the second is depreciation, which you will start seeing the leverage benefits flowing through if the growth momentum continues.
Deliveries today at about 73%, so if this number goes higher and higher, does that need any change in the way in which you are building stores, the way in which you are staffing stores?
So we are constantly monitoring, right? So the 73% is an average, right? So there will be stores with 100% also. There will be stores will be less than 10% also. So, there is a -- so in urban centers, when we especially split a store, we try to go with a delivery and carryout store. This is about 800 to 900 square feet store. in rural areas or in Tier 3, Tier 2, we are opening up 1,500 because there, the dine-in. Takeaway is like more than 50% or closer to 50%. So, we are already calibrating, and we are seeing what happened 2 years ago. So at the moment, for example, if any property which is there more than 1,500 square feet, we actually say no, right? So we don't want it. It doesn't add value. We know the business ultimately will shift towards or customer preferences will shift towards dine-in even in Tier 2, Tier 3 cities. So we are calibrating a lot of that and getting tighter on the property and the real estate that we ask. But we are not going to open that dark store, right?
On gross margins - do you think you are at the bottom on gross margins? And if you have to dissect the 200 basis point decline at stand-alone level, how much would you say will be because of promotion versus new products which are margin dilutive?
So I generally believe, again, I can be wrong, but I genuinely believe that this is an aberration, right? And I do see margins improve -- gross margins improve. And having said that, I also want you to notice that our supply chain cost has been lowest ever. So actually, the delivered food cost to the store is not as bad as what you are seeing just on the recipe cost. That's one. The second is the almost 75% of the loss is coming from the new products that I spoke about. So which -- and I think the sales exceeded our expectation on all 3 of them. And therefore, we have gone back in chicken, for example, taken price hikes, right? So we are calibrating that. I don't think they will go down any further in my opinion. They should ideally improve.
Why do you say Sameer there is an aberration in this line item?
Because some of the changes, I think, got together, like I said, like the Big Big Pizza exceeding our internal estimates, IPL getting extended, right? And it didn't -- like we were positively surprised by that, right? Chicken, for example, in South India exceeded our internal targets. So for example, in chicken, we have gone back and corrected the price. On Big, Big Pizza, we are now -- actually, we are reengineering the product to see can we get more gross margins, right? So that can we -- how do we make it more efficient? Can we do a few things in the factory, right? Can we make the store operations a little more leaner. So those things are under works. So that's why I feel more confident we know and then controlling like operations in stores, right, as the throughput increases. So we are using technology to map the stores, to map the inventory. So a lot of effort. In fact, I'm personally spending enormous amount of time in digitizing our supply chain. So those are the pieces where the wastage, delivery costs to stores, inventory excesses, those things I believe will come down, which is also sitting in the gross margin. Pricing, I'm very, right? I just don't want to go on record. Taking price increases is going to be very calibrated. I'm going for growth and growth should give me leverage in the EBITDA lines.
When you introduced Cheesy Volcano, it was at a very attractive introductory price. Then you did the same with Big Big pizza and the new Chicken Burst pizza. So when you actually roll back the introductory price or take price increases, do you see the same level of traction in these innovations or it tapers off?
I think you're right. I think it's a loaded question. So it's therefore, a very intelligent question. I think consumers today are very savvy. They know where -- how to compare the prices and AI is only helping them like get faster earlier, they used to take 7 minutes to compare across 5 apps and call the store. Now the AI is actually doing it for them. So price increases are going to be harder for the industry. And when we did take the price, we immediately saw the elasticity, so therefore the way we... Yes. So Jay, consumers are very smart. They have more tools to do price benchmarking. Price increases have to be very calibrated, right, very thoughtful, done in a scientific analytical manner with proper A/B testing over at least 13, 14 weeks. So that's what we do. In a few cases, like Volcano Pizza, we have taken price increases. In Big, Big Pizza, we did take price increase, but we saw massive elasticity against us. So we will roll back where we have to. We have to change. But then-- again, the focus on gross margin continues, right? And through more efficient use and smarter use of analytics to get more in the bank.
Is there any possibility for you to consider platform fees because food aggregators have now...?
I'm dead against that. I have seen this play out like almost 15 years of my life, right? You do get a bump in 1 quarter, 2 quarter, right? Our own app is growing for a reason, right, because we kept it simple. We've kept it unhidden price. It's very easy to do it, right? All of what you are suggesting, we can do it like tomorrow morning. It's hard to build long-term businesses that on customer trust, where you're tightening your own belt and not pass them to. So we are going in for that. That's a clear strategy. But all the levers you are suggesting, we have it in our back pocket and technology is ready, I can roll it from midnight tonight, but we are not doing it.
Could you give us an update of what progress Popeyes has made in the last 6 months? And how do you look at the expansion plans growth from the next 12 months perspective?
I think we've made tremendous progress in the last 6 months. Five things have happened over there. Firstly, we have relentlessly focused on building the team, right. In fact, I would say what Domino's team we did about 2, 3 years ago with splitting of regions, getting physical digital leaders, we have replicated the same playbook, even just with 60-odd stores. Second is ruthlessly focused on getting the delivery infrastructure, right? It's very hard to do for a 60 store network, which is with a patchy coverage even in a city, right? So we've gotten that piece, and we have combined it with the Domino's team, which does this like 40,000 riders in a day at scale. So -- and we are building more and more technology to combine it. So that is number 2 thing we have done. We have fixed delivery. Third is -- I personally spend time with the 60 restaurant managers every quarter, right, telling them what is important along with the leadership team. We train them. We are building the business in a very -- like a start-up mode. And fourth is getting the unit economics right. So a lot of effort has gone in on measurements, food cost, a lot of capex reduction, supply chain capacity buildup, automation in supply chain. So I feel very confident that -- and now we are beginning to invest in marketing. So take, for example, we were very under-indexed on buckets, and we've gone back and fixed that. We fixed the core value proposition, how will we differentiate as a brand in this cluttered market and stand for the most loved chicken. So those pieces, we have worked, and we will see a lot of compounding happening over there.
When you think about incentives, these are not higher margins to the aggregators, but more consumer incentives - more targeted advertising or targeted promotions which will reduce over time rather than negotiating harder with aggregators?
Gross margin has nothing to do with the aggregator channel or anything, right? So gross margin that you see is the price we get for an order and the food cost for that order, irrespective of where it comes from. So there's nothing to do with aggregator negotiation or anything. We work very well with aggregators. We want to deeply partner with them on all their programs. We believe they have built a strong franchise. And we continue to invest our own technology, our own stores. It's quite complementary in my opinion.
You mentioned that you are very cautious or you will only take calibrated price rises because of how the Indian consumer is. Are you doing any experiment on the big size pizza where you're reducing the size because these are highly margin dilutive?
So I think the -- firstly, the big pizzas come with big ticket size and therefore, give more leverage on the cost below gross margin lines, including delivery. So therefore, at a percentage terms, it may be dilutive, but absolute terms, it is accretive. So that's one piece to keep in mind, right? So second is, again, in this environment, we want consumers to get more food, get more satiated and come back. And we are seeing that consistently, right? It is -- I mean, just anecdotally, I'm just sharing you like my peers in the industry and many customers that I know will cash hold of me on a bus station or a rail station or -- and say the Big Big Pizza is such an outstanding innovation. So again, the idea is to grow the business, franchise it. At the same time, we are running almost 30 experiments as we speak on taking calibrated pricing. There are 30 initiatives being run to reduce cost, right? It is not about putting less cheese though. It is about can we get better at storage of cheese? Can we do better buying of cheese? Can we do better procurement of oil? Can we reduce localization of corn, right? So I think those are the initiatives we are focused on. And there are several such initiatives, and I am confident the opportunity continues to exist. Plus this top line growth is giving us leverage in rentals. It is giving us leverage in the G&A cost. So I remain very confident about the margin trajectory also, and I'm not too concerned about it. Again, on pricing, like I said, we are going in for growth. It's very easy to take whatever you are suggesting at convenience fees, increase pricing, increase packaging charges, but we are not doing it.
With respect to the competitive landscape - how are the trends and especially from the point of view of which are the areas where we have a lead on a lot of areas, be it tech, be it delivery, be it the whole innovation. Are we seeing any catch-up game being played by competition?
There's nothing, I think Sheela, we are more internally obsessed with our customers than looking at competition. Of course, we do benchmark our sales, our metrics, there are team to it so that the customers eating at Domino's or shopping at Domino's, they get the best value and the best experience. So those things we do. I think I will talk more internally that I think we have a huge pipeline of building product platforms, right? We continue to invest in cheesy platform, as we call it. So therefore be it Burst Pizza, non-vegetarian pizzas, you'll continue to see that growth, huge opportunity to capture lunch, right? Our late-night delivery has grown at a very fast. It has, in fact, doubled in last like 9 months. So we see great -- both customers looking for innovation in menu dayparts and occasions like Raksha Bandhan and Independence Day and Friendship Day, those we are like -- we are very, very bullish about the opportunity that exists with us.
You did mention you are not looking to open dark stores. But when I look at the delivery numbers, that is 73% of revenues now. So I just want to understand in metros and Tier 1 cities, is the delivery share much higher? And is there a case to have smaller sized stores?
Nothing is horses for courses in smaller -- in the larger cities like Mumbai and Gurugram and Delhi, we tend to open smaller stores, unless until it's a virgin area, which are very few in these cities or it's a mall, for example. So we do tend to open smaller stores in these cities, which are more delivery-centric, right? But if a customer walks in and wants to eat, right, should get a comfortable air conditioner and a table and a chair to sit very functional. So we don't penalize that somebody wanting to come in the store has to find the store. And I think Sheela, a lot about food is also seeing the food being made. So that generates trust in the brand, right, and versus doing 10 brands from a dark store. So we are very clear on that one. The ROIs have to work. And we look at -- when we look at -- when we give a store approval, it genuinely like validate how much dine-in and carryout sales will be there. On that basis, we decide the store. Store sizes have some smaller, I would say, have become smaller in large cities. That calibration is an ongoing one.
What is the store size number now from a square feet basis?
About 800 -- like see, mostly when we split a store in large or urban centers, we go in for 800, 850 stores, maximum 1,000, where we don't go definitely beyond 1,200, right? While in like I said, in Tier 3, Tier 4, we do want to give 40 to 50 covers because there is demand for dine-in in those cities. So our standard size is 1,200. It has actually gone a little lower than that between 1,100 and 1,200 in the last 24-odd months. So we are constantly calibrating that.
Just wanted to get a sense on capex for you in FY '26. I heard Suman mentioning much of the commissary-led capex is likely behind us. If you could give us some color on what kind of efficiencies are you building on the capex front?
Okay. So we are coming off a high cycle of supply chain commissary capexes like we said. But we do plan to accelerate our pace of increasing the number of stores that we open. If you recall from our Investor Day also, we said that -- the plan is because we believe there's potential in the country to open the next 1,000 stores in the next 3 years, right, which will mean that there will be a higher amount of capex, which will now swing towards store openings. We'll continue to invest behind the technology and of course, the operations on the ground to get the back-end infrastructure, be it in terms of our ERP systems, our processes, supply chain transformation, but more tech and store opening-related capexes will be where it will happen, which means your return on capital employed should typically go up because the payback cycles on these investments is better. So that's the way we are looking at our capex spend. So it will not be a dramatic recalibration or a significant decrease in the capex cycle that we see over the next 2, 3 years. But the portfolio -- or rather the profile of the capex, which will get spent will be different and will be more faster and higher revenue generating or return-generating capex.
Over the last 3 years on a stand-alone basis, I think you've spent on an annual basis, INR700 crores to INR800 crores per annum. So I'm just wondering if the heavy commissary capex is behind us and this absolute number on an annual basis could probably moderate.
Yes. It will moderate to some extent. But like I said, it won't be a material moderation because I'm just recalibrating it from supply chain commissaries to store. The supply chain capacity supply to new stores, right? So now I need to also generate the return -- generate the demand to ensure I can leverage the supply chain capex, which I think is the right thing to do in the medium to long term, yes.
In FY '25, I think if I recollect correctly, the drag from losses from emerging formats was about 200 basis points. And I saw you mentioned that Popeyes has seen sequential improvement in profitability. How should one think about this drag? How materially can it moderate in coming years?
So in the next -- I think, again, something we have mentioned in the next couple of years, we are looking clearly that this drag will come down substantially, at least half the drag in the next year or 12 to 18 months. That's the plan, right? While we continue to invest behind the Popeyes business. But on both the other two brands, we are materially bringing it down by improving unit economics. Expansion, as you can well see in the numbers we have come out with, have almost come down to a trickle or stopped, right? So that's the way we can calibrate it. We are looking at over the next 2 years to at least half the drag that we are currently seeing on the overall JFL margins.