Bhanwar Dua, 26, investment banker, a resident of Lajpat Nagar, Delhi, has such a busy lifestyle that he rarely eats at home. He leaves for work very early and returns late; most of his meals are at restaurants. But Dua has a problem. "For my lunch and dinner, I have plenty of choices," he says. "But breakfast is a different matter. I have no option but to go to neighbourhood eateries where both ambience, and more importantly hygiene, leave much to be desired."
Soon Dua will no longer face this problem. Jubilant FoodWorks, the same outfit that made Domino's Pizza a household name in India, has tied up with Dunkin' Donuts, one of the biggest baked foods and coffee retailers in the United States, to prepare and sell its products in this country. These include a range of breakfast foods - doughnuts, bagels, muffins - that yuppies like Dua will relish.
The first steps were taken in 2009, when the management of what was then still Domino's Pizza India Ltd, or DPIL, took a far reaching decision: it would change its name. As the master franchise of the US-based Domino's Pizza Inc in India, it was doing very well indeed with a compounded annual growth rate of over 30 per cent for the previous five years.
But it wanted to raise money from the market to expand further, as well as diversify beyond pizzas. Neither was possible given the name it sported then. "Not only would selling other brands under the Domino's name appear odd, the global chain would not have allowed us to go for an IPO," says Ajay Kaul, CEO of Jubilant FoodWorks, or JFL, the new name it took.
The decision proved wise. As planned, JFL became a listed company last year - the first food service company in the country to do so - and came out with an initial public offering, which was a tremendous success: it was oversubscribed 31 times, and raised Rs 329 crore.
Since listing in February 2010, the JFL share has jumped nearly 370 per cent - at a time the Bombay Stock Exchange's benchmark index, Sensex, climbed just 17 per cent. Greatly encouraged, the company has now moved ahead with its expansion plan, approached by three major international food retailers for tie-ups.
The deal that worked out, the one with Dunkin', had three big advantages. Dunkin' was ready to be flexible on menu options - JFL could offer Indian items too. So, along with Western snacks JFL will be selling using the Dunkin' brand, there could also be samosas. Dunkin' also offered a range of options in the breakfast segment, and finally with its coffees, would allow JFL to also enter the fast growing coffee and beverages market. "No player at present offers all-day food options - right from 8 am to 11 pm - not even Domino's," says Kaul. "Haldiram and Nathu may fit the category, but they sell largely traditional Indian snacks. No retailer provides Western snacks, or a combination of Western and Indian snacks. This is the gap Dunkin' Donuts will fill."
A blitzkrieg is on the cards - JFL plans to open 30 outlets across the country by the year end, and will expand even faster in coming years. "Our research team will tell us what our overall menu should be, and how much of local options we should include," Kaul adds.
But will it work? Will a sufficiently large number of Indians develop a taste for doughnuts? "Indians have a sweet tooth, so it's not as if people will be averse to doughnuts," says Dev Amritesh, President and Chief Operating Officer of JFL's Dunkin' Donuts division. "However, it will require field work. We need to create awareness."
"We will get our staff trained at Dunkin' in the US, who will then formulate operational and supply chain strategies," says Kaul. Initially, JFL will be importing most of the ingredients and the equipment required for the Dunkin' products, but its aim is to localise everything. "It's what we did with Domino's pizzas. We started with 100 per cent imports, but today we have zero imports," Kaul adds. Pizza power
The strongest argument in favour of JFL succeeding is its track record - how it has taken pizzas to the masses in India. It was not an easy task. When Domino's Pizza entered the country - in 1996, the same year McDonald's did - few people in India had even tasted a pizza; the item was only available in a few high-end restaurants. The first five years saw only 50 Domino's outlets set up across India, and that too only in the metros. "That was the discovery stage," says Amritesh. "There was minimum focus on growth. We spent our energies trying to understand the Indian consumer and create brand awareness."
Despite the preparation, the company had to take some hard knocks. In 2000, it embarked on its first big expansion spree, increasing the number of outlets to 100, moving into tier-II towns like Bhopal and Gwalior. Much went wrong and 40 outlets had to be closed in the next two years. Even in 2004/05, the then Domino's India Pvt Ltd was losing money - it posted a loss of Rs 57.8 lakh that year on a revenue of Rs 73.7 crore.
It was at this stage that Kaul, then based in Indonesia, was brought to head the Indian operations. "The mandate had been to create demand. We thought everything else would be taken care of," he says, with a candour that comes with hindsight. "We messed it up.
We went backwards by a couple of years." Another insider said the expansion had been undertaken without sufficient emphasis being given to front and back-end support systems, without adequate staff training and ensuring there was proper infrastructure in place.
But JFL bounced back. Soon after taking over, Kaul hired a number of top class professionals to turn the business around. He forged exclusive partnerships with ingredient suppliers, truck owners and cold chain warehousing firms. A masterstroke of marketing was the 'Delivery in 30 minutes or your pizza is free' offer, which caught consumers' attention in a big way. "Delivery on time was never a problem," says Kaul. "But the campaign did create a flutter."
Today, JFL dominates the Rs 1,000-crore pizza market with over 50 per cent market share, selling around four million pizzas every month. As of December 2010, it had 364 outlets nationwide, more than any of its international fast food competitors: McDonald's India has 211, Subway 200, and Pizza Hut 120. In 2011, it plans to open 70 more stores. In the nine-month period ending December 2010, JFL recorded an overall growth of 61 per cent and same-store growth or growth at outlets that were at least one year old was 38 per cent. It has also been steadily expanding its menu, having launched 20 new products in the last five years. "At any point in time, our new product development team is working on 30 products," says Amritesh. "Once the product is finalised for launch, we spend a huge amount on its promotion, almost Rs 8 crore."
Domino's has stooped to conquer the Indian palette by offering toppings unheard of in the West, like keema dopiaza or peppy paneer. Apart from such unconventional pizzas, it also offers garlic bread, choco lava cake, pasta and wraps.
Despite the 2000 misadventure, JFL in recent years has made a fresh, concerted effort to move beyond the big cities. It has opened outlets in 80 towns other than the seven metros. (However, sales in Delhi, Mumbai and Bangalore still contribute around 45 per cent to its revenues.) Though Domino's is known worldwide for its 'home delivery', it has modified its global strategy for Indian towns, finding that people preferred to dine in, or take away food, rather than have it delivered.
Thus, JFL has sought to make their outlets in these towns more spacious, providing more dine-in area than it does in big cities - the average store size in 1,600 square feet, against 1,000 square feet in metros. The fact that real estate is cheaper or rent in these places also makes it easier to do so. "The culture of ordering-in food has not developed among people in tier-II and III towns yet," says Kaul. "But for the first time ever, pizza and pasta have both emerged as a meal replacement option in these places." Around 40 per cent of JFL's revenue comes from dine-ins and takeaways.
But challenges remain as JFL seeks to replicate Domino's success with Dunkin' Donuts. Its attrition rate is very high, around 80 per cent annually, while inflation and competition, which are on the rise, are major concerns. "Soaring inflation could blow away profit margins by increasing the ingredients costs and affecting the purchasing power of customers," says Amnish Aggarwal, Senior Vice President, Motilal Oswal Securities.
Indeed, success is not guaranteed. "For most part of their existence, Domino's India has struggled to put up a good show," says Pratichee Kapoor, Associate Director at Technopak Advisors. "Only in the last six years, it has seen stupendous growth. It is not necessary that lessons learnt while selling Domino's pizzas will apply to Dunkin' products as well." A challenge for sure.