Jubilant Foodworks doubles its QSR target market with Popeyes tie-up

Profitability of recent initiatives hinges on cost synergies and pace of rollout

Jubilant Foodworks' latest tie-up to launch the Popeyes Restaurants in India will expand its food portfolio and increase the addressable market in the fast growing western quick service restaurant or QSR market.

Popeyes Restaurants is the world’s third largest QSR chicken brand. The QSR chicken market size run by larger chains is estimated at around Rs 3,000 crore, in which KFC dominates controlling about two thirds of the market, estimates Emkay Research. Westlife Development (McDonald’s) recently ventured into this space in South India. 

The company’s addressable market size also takes a leap with this exclusive tie up. Analysts at CLSA estimate the western QSR market at $2.3 billion, of which 34 per cent is accounted for by the pizza QSR while the share of chicken QSR is pegged at 25 per cent. With this move, Jubilant widens its play in the western QSR market and now caters to 60 per cent of the market, write Chirag Shah and Nitin Gupta of the firm. 

While the deal is to own and operate Popeye stores in India, Bangladesh, Nepal and Bhutan, the company has not divulged details of the master franchise agreement, royalty or the pace of store rollout. Kotak Institutional Equities expects the company to open 250 Popeyes stores in five years and believes that if the company is able to execute well in what is an under penetrated chicken QSR market, the business can fetch a valuation of about $1 bn in five years. 

Given that the brand is not as prominent as the other chicken QSRs such as KFC or Burger King, the company will have to spend aggressively to grow the brand. Profitability of the franchise could also depend on the ability to drive cost synergies with other food offerings. 

The latest move is part of the company’s portfolio approach and follows its foray into Hong’s Kitchen (Chinese cuisine) in 2019 and Ek Dum! (Biryani) last year. The company picked up a 33 per cent stake in DP Eurasia, a 10.8 per cent stake in Barbeque Nation (ongoing IPO) besides launching the sauce brand ChefBoss. DP Eurasia is the exclusive master franchisee of the Domino's Pizza brand in Turkey, Russia, Azerbaijan and Georgia.

Given the store expansion and strong same store sales growth, Edelweiss Research expects Jubilant to post 11-15 per cent revenue and operating profit growth over FY20-23. While prospects are good, given the valuations at 64 times FY23 earnings estimates and muted upside (target prices hover around the Rs 3,000 mark), investors can look at the stock on dips.