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BW Businessworld

Pizza For Thought

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It's 9.30 am, and the shutters are up at a Domino's Pizza outlet in Noida's Sector 110. As the floors are mopped clean, a team of eight workers shouts in chorus: "Who are we? Domino's Pizza. What are we? No. 1. What's our goal? Sell more Pizzas, have more fun." It is not a patch on the All Blacks Haka, but the passion is right there. Outside, two dozen Domino delivery bikes are lined; they face off with the Pizza Hut nearby. At 10.55 am, the first order trickles in; it is not your typical "pizza consuming" time for the country. But over the past 15 years, Dominos has altered the way India consumes pizzas.

The mid-1990s saw Domino's, McDonald's and Pizza Hut walk in. Says Ajay Kaul, CEO, Jubilant Foodworks, which operates Domino's Pizza in India: "Pizza was considered a snack by many consumers... out here, there was no organised pizza or burger company." Jubilant roped in AC Nielsen. "The first thing we realised was the consumer didn't consider pizzas and burgers as an alternative to daal-roti even though 70 per cent of the consumption was happening at dinner or lunch time." Dominos pushed hard. "In 2004, it came out with a campaign called ‘Hungry kya'. It signalled pizza as a fulfilling meal". It paid off, and pizzas were out of the alcove.

In 2010, Domino's sold 35 million pizzas, up from 21.74 million a year ago, and 8.99 million in 2007. The Bhartia brothers — Hari and Shyam — promoters of the $3-billion Jubilant Bhartia Group, hit pay dirt with the master franchisee rights for Domino's in India, Sri Lanka, Bangladesh and Nepal they bagged in 1996. In 2010, Jubilant became the first food and beverage (F&B) company in the country to go public with a Rs 392-crore initial float. In January this year, it teamed up with Dunkin' Donuts (DD); the first store is expected to open by mid-2012. The Bhartias hope to do an encore. "They (DD) have a large portfolio of drinks and savories. India is mature enough to accept the product range," says Hari Bhatia. His brother, Shyam, adds: "We took 15 years before bringing in a second brand. The idea was to bring success to Domino's, make it pan-India and then move towards other brands."

Hunger For Growth
Technopak Consultants puts India's overall food services retail market at Rs 36,400 crore (both organised and unorganised). Year-on-year growth is seen at 11-12 per cent, and by 2015, it will be Rs 55,000 crore. Says Pratichee Kapoor, associate director, F&B, at Technopak: "Five years ago, there were not many quality suppliers, and out-of-home consumption was once or twice a week, more so as a family outing. But the dynamics of demand have changed dramatically." Technopak estimates that the organised market will grow at 25-27 per cent a year to reach Rs 15,000 crore in 2014-15.

Domino's wants to get more than a foot in the door. It has a 90-plus cover outlet in Bhopal. Globally, Domino's thrives on home delivery; about 30 per cent is dine-in; while in India, it is a 50:50 split. But you have be smart to get your costs right. In Delhi, the average seating would be about 30, but in cities such as Bangalore or Pune, where real estate costs are lower, it would be 60. Domino's has also built upon a side-meal portfolio; it accounts for a sizeable 15-20 per cent of sales — a mix of pastas, chicken wings and desserts. It also stands out in sharp contrast to competition — share of the pizza delivery space stands close to 70 per cent, while in the overall pizza market, it is 50 per cent.

A quick comparison with competition gives a sense of Domino's scale of operations. Papa John's has 30 outlets; it plans to add another 30 by fiscal-end. Chicago's Pizza remains a niche take-away format player; Sbarro (with 13 outlets) premium-priced pizza slices didn't appeal to the Indian market; it has seen a few closures over the past few months. Yum Brands' Pizza Hut, with its dine-in and delivery format, has 124 and 59 outlets, respectively. Kaul keeps a close eye: "Any company that goes back and forth is not sure where it belongs. The consumer will get confused if you offer 50 other things." He takes a dig at Pizza Hut.

"In FY06, Domino's operated 106 stores, and has today touched 400 leaving competition far behind. Over the next two years, we anticipate the number to touch 540 easily," says Sunil Sehwani, analyst at GEPL Capital.

Even though international chains have shown growth, Domino's has expanded rapidly, "If you look at chains, such as Mc Donald's Pizza Hut and even KFC, same-store growth remains equally strong, but expansion of Domino's has been more aggressive," says Deepak Laxmi, director (research) at Mumbai-based Mape Securities.

But the firm has not escaped inflationary pressures. Over the past few months, milk prices have risen by Rs 3-4; it impacts the cost of cheese. Costs have gone up across the menu.

At the time of its entry, Domino's relied on imported raw material. But over the past few years, it has been sourcing locally. "Earlier, we used to import a lot of stuff like cheese and pepperoni; now everything is indigenous, which has brought the cost down", explains Kaul. For its logistics, Dominos works with Snowman, RKHS, Gati, among others. So at any given point, there are at least 25 trucks carrying supplies for Domino's.

The 30-minute Magic
The entry of the nano-pizza in the form of Pizza Mania in 2008 is touted as great price-point success. "At Rs 35, it was a perfect door-opener especially in Tier 2-3 cities where discretionary spends are low," explains Kaul.

(BW Pic By Ritesh Sharma)

In line with the global "30 minutes or free" campaign, Domino's launched the same in India. "The 30-minute delivery format has been a big hit, which other players have not been able to replicate," says Laxmi. But ensuring the delivery is a challenge. It takes 1-2 minutes to "dress up" a pizza, another six to bake, and a further minute to pack; and 19-22 minutes to deliver. "We scientifically map out all the routes which help us figure peak hours, rush time and short cuts. The team drives on mobikes to check out the time and speed required to get to a certain point. That's how we define the lakshman-rekha around the store", explains Kaul. But such critical time constraints comes with its own challenges. "When a store gets bigger (in terms of volume of orders), we realise that the service starts to drop as well as our commitment on time, especially on weekends." On one side is the free-pizza and on the other is the experience of the customer. "We don't lose sleep over the free pizza. It is less than 1 per cent of orders. We are more concerned about the customer experience," says Kaul. As a precaution, Domino's shrinks delivery areas, and opens a new store.

India And Beyond
Earlier this year, Jubilant opened its first 90-cover outlet in Sri Lanka through a fully-owned arm, Jubilant Foodworks Lanka. In Bangladesh, it tied-up with a local partner to start operations by 2012. Kaul rules out sub-franchising, because "not all of them will be like-minded and there might be conflict of interests".

Jubilant has a busy year ahead: the first DD store will be up in the first half of 2012 and plans to have 100-120 stores over the next five years. Sehwani puts Domino's growth at 40 per cent, against industry average of 15-20 per cent.

DD holds the franchisee rights for Baskin Robbins globally. Baskin Robbins has a local presence since 1993 through Graviss Foods, which is the master-franchisee for the Saarc region. But can the Bhartias do a Domino's with DD?  "There will be synergies at all levels that we will leverage even though they will be run as two separate businesses. We might use common suppliers and logistics partners that we have been working with," says Hari Bhartia.

But listen to what Kaul says: "We are building an all-day dining as a third vertical, that's where the big bucks are. If you look at the US, beverage to food mix is 60:40, but this mix reverses outside the US. In India, the focus initially will be on food. We're spending a lot of energy on R&D. From the retail factor we'll target high-footfall areas, part will be on-the-go, and part sit-in."

Jubilant Foodworks lost rights for Starbucks to the Tata's earlier this year. "We are in infant stage of discussions with a lot of brands, but nothing has been finalised," says Kaul. He does not rule out opening Jubilant's own branded chain of restaurants. For now, Kaul is a happy man. Ask him how often he eats out a Dominos, and he says: "Almost every day."


(This story was published in Businessworld Issue Dated 19-12-2011)