Focus: The world's cheapest Domino's pizza is in inflation-hit India. It costs $0.60

Sapphire Foods India

20/07/2023 24:30

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      Inflation in India sparks cheaper offers from global giant
    

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      Domino's and Pizza Hut tout world's cheapest pizza 
    

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      India is key growth market for global restaurant chains
    

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      Popularity of street food and local chains a big challenge
    

  
    By Praveen Paramasivam and Aditya Kalra
       CHENNAI/NEW DELHI, July 20 (Reuters) - Q: How does the
world's biggest pizza brand respond to high inflation in the
world's most populous nation? A: With the world's cheapest
Domino's pizza. 
    The 49-rupee ($0.60) pizza in India, Domino's No.1 market
outside America, is the tip of the spear in its fight against
rampant inflation that's squeezing profits and pricing out many
customers, according to the CEO of its franchisee there.
    The company wants to "own that price point", said Sameer
Khetarpal, confirming the stripped down, seven-inch cheese pizza
with a "sprinkle" of basil and parsley is Domino's cheapest
anywhere.
    "You are coming to the store or open the app, because there
is a 49-rupee callout," he said, adding that Domino's global
team supported the plans. "Customers are going to eat out less
because prices are higher everywhere - our existing consumers
should not go out to some competition."
    In Shanghai, by comparison, Domino's  DPZ.N  cheapest
savoury pizza is priced about $3.80, and in San Francisco about
$12, online menu prices show. Domino's global HQ referred
queries about India to its local franchisee.
    Reuters interviews with six executives and 12 store managers
revealed how Domino's and other global fast-food giants like
Pizza Hut and Burger King are being forced to change tactics to
weather rampant inflation in the market of 1.4 billion people. 
    The companies are striving to hold onto market share gained
over three decades of rapid growth in a nation critical to their
futures - and one where it's tough to compete with a street-food
culture and a sizzling samosa for as little as 10 rupees.
    Khetarpal, whose Jubilant FoodWorks  JUBI.NS  runs Domino's
1,816 outlets in the country, says he holds a staff meeting
first thing every Monday to brainstorm new ways to manage costs
and fight the "historic high inflation" that contributed to its
profits sliding 70% in the first three months of 2023.
    He gave new details of Domino's India pivot and its
financial gains; his company has removed lids from all boxes of
pizzas sold at stores starting December, saving 0.6 cents each
time. He said that amounts to a significant saving in packaging
costs because 37% of Domino's Indian business is dine-in. 
    Jubilant - whose Domino's business accounted for most of its
$635 million in revenues last year - also aims to secure rent
rebates from some store landlords by offering upfront payments,
Khetarpal said, declining to give further details about cost
benefits.
    
    CUSTOMERS EMPTY POCKETS
    Domino's is not alone in zeroing in on prices in India, a
highly price-sensitive market that is currently facing higher
inflation than many other markets including the U.S. The hope is
that low-price offers will draw people to stores and apps who
might order more add-ons or upgrade, the executives said. 
    Pizza Hut is aggressively promoting pizzas starting at 79
rupees ($0.96) that it launched last year and its India
franchisee, Sapphire Foods  SAPI.NS , said it was the brand's
lowest-priced globally. 
    Merrill Pereyra, managing director of Pizza Hut in the
Indian subcontinent, said the chain was developing products that
"make the brand relevant and easy to access" for price conscious
consumers in India, adding its budget pizzas were a hit with
young people.
    McDonald's  MCD.N  launched half-price meals in June.
They'll be the focus of promotion efforts in coming weeks,
according to Akshay Jatia, executive director at Westlife
Foodworld  WEST.NS , which runs 357 outlets in western and
southern India. He said the meals would bring in more customers
and boost sales and margins.
    The budget products are indeed being accompanied by a
digital and physical marketing blitz across the nation - with
stores, and even a posh New Delhi mall, plastered with banners,
according to Reuters visits to stores across four Indian states.
    Domino's flagship inflation-buster is the 49-rupee pizza,
which was launched in February. Khetarpal said it was
"re-engineered" by cutting price - and tomatoes - from its
earlier cheapest offering of 59 rupees.    
    Franchisee Jubilant said in May it witnessed a cheese price
surge of 40% during 2022-23, and a 30% rise in chicken and paper
boxes. There have been more shocks in recent weeks, with tomato
prices rising over 400% to record highs and households toiling
under rising rates of everything from milk to cereals and
spices, according to official data.
    The industry players described a tale of two consumers in a
country with yawning gaps between rich and poor. 
    Many low and middle-income earners who saw dining at foreign
chains as a lifestyle upgrade when the economy boomed are
tightening belts as inflation bites, while the wealthier
continue to spend on products like pricier smartphones, and SUV
cars whose sales are touching new highs.
    When Khetarpal visited Domino's stores in Chennai and other
cities, he said he saw customers emptying out their pockets and
only being able to scrape together 49 rupees. By contrast, he
added, Domino's new gourmet pizzas priced as high as $14 had
seen a sales jump in some affluent areas.         
    
    'A SMALL LAYER OF CHEESE'
    It's been a bleak year for Domino's, the Indian fast-food
restaurant leader with a market share of about 12.5%, as well as
for other companies. 
    Pre-tax profit at Pizza Hut's Sapphire Foods more than
halved in the March quarter. Burger King's India franchisee,
Restaurant Brands Asia  RESR.NS , saw its net loss widen by 9%. 
    It's not all doom and gloom, though. Euromonitor
International estimates India's nearly $5 billion market for
quick-service restaurants which serve fast food is a fraction of
United States' $341 billion and China's $137 billion.
    The narrower market for pizza, burger and chicken
restaurants, dominated by Western chains and worth $2.1 billion
in India, will grow, but at a slower pace. Its estimated growth
rate is around 15% a year until 2027, Euromonitor forecasts.
That compares with 21% growth in 2022 and 43% in 2021 largely
due to a post-COVID consumption spike.
    Pizza Hut owner Yum Brands  YUM.N  sounded a bullish tone in
June, comparing its 17,000 U.S. outlets to its over 2,000 in
India, where it sees a "tremendous growth opportunity".
    There are still daunting challenges in the near term.
    "For a population eating roadside, in the current
environment where inflation is hurting their pockets, (the new
offers) are still on the higher side," said Devanshu Bansal, a
consumer analyst at India's Emkay Global Financial Services.
    And many pizza-lovers like Kiran Raj will never contemplate
budget offerings. The 26-year-old bank employee said he was
prepared to pay a little more for a cheese-loaded product as he
devoured slices at Pizza Lounge, a local restaurant in Chennai.
    "I avoid buying the sub-100-rupee pizzas at stores operated
by big chains as they generally contain less toppings and a
small layer of cheese," he added. "It's just a rough crust."

 (Reporting by Praveen Paramasivam and Aditya Kalra; Additional
reporting by Saurabh Sharma in Lucknow, Jatindra Dash in
Bhubaneswar, Brenda Goh in Shanghai, Hilary Russ in New York,
Abhirup Roy in San Francisco and Miyoung Kim in Singapore;
Editing by Pravin Char)
 ((aditya.kalra@thomsonreuters.com;))