Jubilant FoodWorks is on a dream run. Even as most stocks struggled in 2011, Jubilant FoodWorks, which is the master franchisee of Domino’s Pizza International and Dunkin’ Donuts in India, returned 20.7 per cent in a year when the BSE Sensex fell 25 per cent and the BSE FMCG index grew 9.97 per cent. And as stocks recovered in 2012, the Jubilant stock jumped 34.20 per cent while the FMCG Index grew 4.14 per cent till February 27, 2012.
That’s not the only reason why the company founded by Shyam S Bhartia (chairman) and Hari S Bhartia (co-chairman), was selected SME of the Year by an eminent jury at the Business Standard Awards last month. Jubilant is valued by the market as much as the NYSE-listed Domino’s Pizza Inc, which owns the eponymous brand. Jubilant, which has 50 per cent of the organised pizza market and 70 per cent of the pizza home delivery segment in India, has seen robust sales and net profit growth at a CAGR of 42 per cent and 110 per cent, respectively.
The Bhartias, along with a professional CEO in Ajay Kaul, have created a food service company that commands a premium in the stock market (partly because it is the only listed food services company and FIIs have a 36 per cent shareholding), as it has scaled up by riding on India’s consumption story. But how long will it last? Many of Jubilant’s foreign investors believe the story will endure for many years to come.
“We firmly believe as a company that the consumption story in India in the foods space for low-ticket items will continue for a long time,” said Ajay Kaul, CEO, Jubilant FoodWorks in an interview with Business Standard last year. In China, brands have scaled up to 3,000-4,000 stores (Domino’s has 439 stores in 100 cities), and in the US, brands have 5,000-7,000 stores. But outside of the US, most have not been able to achieve such scale.
“We believe India is just about getting into that zone — the burgeoning middle class, the radical changes in discretionary spending patterns on items like low-ticket food, coupled with SEC factors like DINK, people working at younger ages, and increasing monies in people’s hands. All this is not going to stop, but continue,” said Kaul. “The consumption story of India is a long term story. It is going to continue and Domino’s is definitely going to ride on it, and so we are very upbeat about it,” added Kaul.
Investors like certainty; the continuity of the management has been a comfort. “The group of people running the business have hung around for some time. The bigger thing is that they seem to have managed to crack the model,” says the research head of an FII brokerage firm. A few changes in the business have helped it grow the category. First, it reinforced its delivery centric message in 2004 with an offer — delivery in 30 minutes or take your pizza free — which caught customers’ attention. To widen the market, it introduced entry-level pizzas in 2008 for Rs 39, which grew volumes 20-25 per cent.
Next, it tweaked its delivery-centric model to bring in a dine-in focus, more so in tier-II and tier-III cities where people prefer to eat out with families and real estate costs allow it to have bigger outlets. So, the last 200-300 stores that Domino’s has opened are bigger, which can take up to 100 people. Finally, it’s obsessed about its operations to ensure that the same processes are followed, transaction after transaction. “When you make a promise like delivery in 30 minutes, you are putting your entire operational set-up to test where you can go bankrupt also, if we don’t do our homework,” said Kaul.
As Jubilant tries to bring Dunkin’ Donuts to India, many will watch closely to see if it enjoys equal success in donuts.
