Last week, India’s largest online food-ordering service, Swiggy, raised a mammoth $1 billion in fresh funding led by South African internet and media conglomerate Naspers. Swiggy plans to use the capital to grow its supply chain, apart from investing in new initiatives such as setting up cloud kitchens.
The rising scale of food aggregators (Swiggy and Zomato in particular) poses incremental competitive challenge for Domino's both in terms of revenue with more food options (delivered at home) and aggregators expanding to more cities at a fast pace, and costs (labor, advertising, promotions etc) if spending by food aggregators sustain at high levels for long.
“While Jubilant FoodWorks continues to invest in technology with improved quality of digital assets, Customer Relationship Management (CRM) program and leveraging AI and machine learning to provide customized buyer experience, we see scope for improvement as compared to its food tech counterparts. Further, we expect Jubilant FoodWorks to have a partnership approach with the leading food aggregators to participate and benefit from the rising online shift towards food ordering,” analysts at JP Morgan said in a report.
“Maintaining double digit Same Store Sales Growth (SSSG) in the forthcoming quarters will be a challenge but the company is not seeing significant gross margin pressure while it has tremendous execution capabilities in scaling up the business at the right costs,” analysts at Reliance Securities said in Q2FY19 result update.
“Apart from online-food-aggregators related competition, our earlier prognosis of Pizza Hut promotions (50% off on takeaways) not hurting Domino’s sales may not hold true. Most Pizza Hut’s store managers have started offering 50% discounts even on fine-dining orders (by marking them as ‘takeaways’) in order to meet aggressive monthly targets. Domino's pizza has significantly increased promotions in past one week to drive sales,” Phillip Capital said in a recent report.
However, analysts at brokerage firm believe Jubilant FoodWorks is poised to deliver strong Q3FY19 results. The company’s SSS growth in Oct-Nov 2018 was 15%+ based on the entire festive season falling in 3Q vs season split in the base quarter and deliveries to the railway station have started gaining momentum.
Despite recent correction, thus far in the calendar year 2018, the stock appreciated by 31% against a 2.8% rise in the benchmark index.