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Leveraging agile supply chain and centralized distribution for rapid retail expansion

We attended supply chain familiarisation event conducted by WESTLIFE and met with the top management of Vista Processed Foods Pvt Ltd (produces frozen products for McDonald’s; McD) and Radhakrishna Foodland (distributes key raw materials required at McD stores). We were impressed by the high-quality and hitech-focused capabilities of both the companies to handle backend support for WESTLIFE. This enables WESTLIFE to rapidly scale store expansion while enjoying the benefits of scale and cost-efficiencies simultaneously. We like supply-chain partner’s incremental efforts towards optimization of distribution cost by (1) reducing food-miles through opening more distribution centers while optimizing frequency of supply as per store/catchment requirement (2) healthy capacity utilization of the food trucks (at 95% levels) by liasoning with delivery requirements of other brands (3) timely delivery (record of 95% on-time delivery). We believe, this shall aid WESTLIFE to drive operating margin expansion

We maintain our constructive thesis on WESTLIFE and remain longstanding believers in it. Incremental focus towards McCafe, gourmet burgers, fried chicken (in south market), scale-up of convenience channel (one of the best executions), experience of the future (EOTF) stores are driving big gains. Maintain ADD. TP Rs790.

* Vista Processed Foods (VPF): This company is a primary supplier of frozen products (patty, nuggets, etc.) for McD globally including India. VPF is 100% owned by the OSI group, one of the largest private companies in United Sates. In fact, OSI was one of the first suppliers of fresh beef patties to McDonald's when it first began serving hamburgers in the 1950s.

VPF sources chicken from Venky’s (located in vicinity) and the meat is processed at VPF site (mashed, coated, par-fried, chilled and packed). Mass scale production enables: (1) consistent supply of raw material to McD stores; (2) higher cost efficiency – food processing requires heavy capex into factory and equipment (bone detection x-ray machines, grinders, blenders, chillers, conveyor belt, etc.); (3) better business economics (superior back-end support enables McD to rapidly scale frontend operation and thereby enjoy operating leverage benefits)

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