Domino's Dominant In India

Domino's Pizza has been one of the great success stories in India's food and drink industry over the past few years - making more headway in fast food than either McDonald's or YUM! Brands have managed. The Domino's Indian franchise is operated by Jubilant Foodworks and it is believed to account for more than half of all pizza sales in India, according to Euromonitor, and India is now the firm's third biggest international market behind the UK and Mexico, which speaks volumes for the success of its business model. Juibilant's success and affiliation with a strong Western fast food brand has made it one of the best ways to invest in the Indian middle class consumer story.

A telling story is the fact that foreign institutional investment holdings in Jubilant have grown considerably over the past few years, from about 20% total ownership in March 2010 to more than 40% today. Institutionals continued to accumulate even as Jubilant traded at exuberant forward price/earnings multiples as high as 50x future earnings. We note that it is often the case that successful emerging market subsidiaries of major multinational food companies (or, in this case, successful publicly traded franchise partners) often trade at considerable premiums in price/earnings terms. Foreign institutional investors very likely view the Domino's story favourably owing to the company's strong brand and because, compared with many other sectors, food and drink generally provides better visibility. For example, it is easier to imagine people getting richer and ordering more pizza over the next five to 10 years than trying to project what phones they might be using.

The success of Jubilant has proven that the Western fast-food/casual dining model can work very well in India under the right conditions. We believe India will be one of the main countries of interest for the global fast-food industry over the next few years, with Yum! Brands particularly keen for India to become one of its main markets. While India's road traffic and poor infrastructure might be seen as impediments to a company whose business model is centred on quick delivery, Domino's has arguably mastered pizza delivery in the country owing to a hands-on approach and driver training. Domino's has been so successful on this front in India that the company offers its pizza free if it is not delivered within 30 minutes. On the product side, a number of creative and promotional initiatives have also been key to Domino's strong performance. As an example, Domino's and Jubilant have adapted their menus to local tastes, offering spicy and vegetarian options to suit the Indian palate.

India Slowdown Might Impact Growth In Fast Food
India Real Private Final Consumption Growth (% Change y-o-y) - Historic & Forecast

Domino's Dominant In India

Domino's Pizza has been one of the great success stories in India's food and drink industry over the past few years - making more headway in fast food than either McDonald's or YUM! Brands have managed. The Domino's Indian franchise is operated by Jubilant Foodworks and it is believed to account for more than half of all pizza sales in India, according to Euromonitor, and India is now the firm's third biggest international market behind the UK and Mexico, which speaks volumes for the success of its business model. Juibilant's success and affiliation with a strong Western fast food brand has made it one of the best ways to invest in the Indian middle class consumer story.

A telling story is the fact that foreign institutional investment holdings in Jubilant have grown considerably over the past few years, from about 20% total ownership in March 2010 to more than 40% today. Institutionals continued to accumulate even as Jubilant traded at exuberant forward price/earnings multiples as high as 50x future earnings. We note that it is often the case that successful emerging market subsidiaries of major multinational food companies (or, in this case, successful publicly traded franchise partners) often trade at considerable premiums in price/earnings terms. Foreign institutional investors very likely view the Domino's story favourably owing to the company's strong brand and because, compared with many other sectors, food and drink generally provides better visibility. For example, it is easier to imagine people getting richer and ordering more pizza over the next five to 10 years than trying to project what phones they might be using.

India Slowdown Might Impact Growth In Fast Food
India Real Private Final Consumption Growth (% Change y-o-y) - Historic & Forecast

The success of Jubilant has proven that the Western fast-food/casual dining model can work very well in India under the right conditions. We believe India will be one of the main countries of interest for the global fast-food industry over the next few years, with Yum! Brands particularly keen for India to become one of its main markets. While India's road traffic and poor infrastructure might be seen as impediments to a company whose business model is centred on quick delivery, Domino's has arguably mastered pizza delivery in the country owing to a hands-on approach and driver training. Domino's has been so successful on this front in India that the company offers its pizza free if it is not delivered within 30 minutes. On the product side, a number of creative and promotional initiatives have also been key to Domino's strong performance. As an example, Domino's and Jubilant have adapted their menus to local tastes, offering spicy and vegetarian options to suit the Indian palate.

We believe India will be one of the main countries of interest for the global fast-food industry over the next few years. Jubilant's trailing 12-month annual sales are at about US$225mn at current exchange rates, which, given India's population of more than 1bn, suggests its business model is nowhere near maturing. Total sales for Domino's pizza in the US are at about US$1.6bn and in the UK they are about US$380mn. Jubilant now has the franchise rights for Dunkin' Donuts, which opens up another potentially exciting growth stream. Therefore, while the multiples it trades at may steadily come down over the next few years, the fundamental growth story is still exciting from our point of view.

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