Pizza Hut Vs Dominos - Business Model - Strategy Comparison in India

Jubilant Foods master franchise of Dominos operates on a business model significantly different from that of its closest competitor Pizza Hut (part of Yum! Brands), which operates through at least
eight franchisees in India including Devyani and Dodsal. The key differences between the two business models are as shown below.

Franchisee rights - Exclusive rights for the whole country. [Dominos]
Shared with other franchisees [Pizza Hut]

Marketing strategy - Jubilant decides and gets it approved by Domino's International.
Yum! provides significant support and Devyani executes it.

Interactions with Franchisor - Dominos International team visits once every 3-6months to evaluate business performance and strategy.
Yum! Brands has a separate office in India to manage marketing, real estate and other
operational parts of the business in India.

Vendor selection - Jubilant decides and gets it approved by Domino's International.
Yum! decides and Devyani executes it.

Dough preparations - Prepared dough distributed from commissaries to stores
under controlled temperatures – third party network of cold storage vehicles are used
Pizza Hut Dough is prepared fresh in the store kitchens.

Beverages Coca Cola for Dominos and Pepsi for Pizza Hut.
Domino's International has signed renewable agreements with Coca Cola for most countries around the world.
Yum! Brands business was owned by Pepsi Co until 1997 and now has a lifetime contract with Pepsi Co.

Real estate support for store openings - Jubilant's in-house team manages and executes the entire process.
Yum! Brands' real estate team carries out the process on behalf of their franchisees.

Can you think of Any other Difference in Business Model ? Do enlighten other readers here.

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Pizzas + Burgers + Fast Food Grows 25% YoY in India

We have already seen that Indian Organized Food Industry occupies a 15% market-share within the overall food services industry. The quick service restaurants (QSR) / Fast Food format has been one of the fastest growing ir-respective of the economy and global environment with a CAGR of 20%-22% over FY06-FY11 (around 25% more recently). The key factors driving growth of the QSR segment are as highlighted,

What is Contributing to the Rapid Growth of Quick Service Restaurants / Fast Food Chains in India?
Demand Side analysis

• Growing working population - The share of population between 15-59 years of age has increased from 55% in 1991 to 63% in 2011.
• Growing Disposable Income - Disposable income for over two-thirds of Indian households has shifted from US$1000-US$5000 in 2000 to US$2500-US$10000 in 2010, (in current value terms).
  
• Increasing number of working women 51% of those who eat out at least once in a month are females.
• Increase in nuclear families 1.5%-2.0% of joint families give rise to nuclear families in India each year.
  

Supply in QSR / Fast Food Remains Robust - Encouraging Market

• Diversification of cuisines - Restaurants have started serving multiple cuisines amidst the growing popularity of international food and styles.
• Improved restaurants experience - Focus of eating out is shifting from food being a necessity to entertainment including live performances, music and other entertainment activities.
• Entry of international players Global players are entering India and food franchising is gaining popularity.
• Improving retail infrastructure Development of malls and multiplexes has popularized kiosks and food courts as food centres
  

You can see How Various Branded Fast Foods Stack Against Each Other in Number of Stores, Sales and Growth Rate here.

What say ? Don't you think Fast Food has a Long Way to go ?

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Segments of Indian Food Services Market

Based on anecdotal evidence, the size of the Indian food services industry is estimated at US$250bn, and growing at 15%-20% CAGR over the past five years. The organized retail food industry occupies mere 15% of the overall food market and this is how various sections of the industry are stacked against each other in Tier-I & II Cities. As you go towards Tier-III cities, start discounting the average spend by X% depending on the location as it varies. However, Branded QSRs are likely to maintain the same price points across Indian Geography.

• Fine Dining - Full service restaurants with high quality decor and a price point / person varying between Rs 750-3000
• Casual Dining - Moderately priced restaurants price / person between Rs 250-750
• Bars and Lounges - Mainly alcohol and related beverages; e.g. F-Bar, Xtreme Sports Bar where an average bill per person is 500-3000
• Quick Service Restaurants - Fast food outlets; e.g. McDonald's, Nirula's, Domino's, Haldiram's, Pizza Hut with average individual billing between 100-400
• Food Courts - Shared spaces at airports, malls, hospital and offices have a price point of Rs 100-300
• Cafes - Coffee bars and parlors; e.g. Barista Lavazza, Cafe Coffee Day Rs 100-200 is average spend / footfall.

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Insight into Foreign Investment [FDI] in Retail

With the Government allowing foreign participation in retail, this opens up opportunities for local companies to access cheaper foreign capital which will allow them to simultaneously build front end retail space as well as back end infrastructure. While the proposal is cleared now, it will still take at least six-eight months more for companies to have foreign partners in place.

Excerpts from the Fine Print of the FDI in retail as follows,

1.Companies will have to invest a minimum of $100mn or more
2.At least 50% of the investment has to be in back end infrastructure – warehouses and cold chains
3. States will have the final say as stores have to comply with the local legislation
4. Permitted only in Cities with over 1 Mn Population as per 2011 census

This will be positive for the sector as a whole, where capital is severely constrained and companies have had to take on significant debt to put up front end stores as well as invest in back end infrastructure.

The current penetration of organized retail is 6-7% of overall retail trade in India, which can increase significantly once capital is available at cheaper rates over the next few years. Indian retail companies have already been in talks with interested foreign retailers, so this final clearance gives them the chance to finalize their partnerships.

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TTK Prestige Rides on Tier - 2 /3/4 Cities Boom

The Inflationary Pressure in the Indian Economy is taking its toll on the Consumption of Consumer Durables. For instance, consumer products like fans have seen a drop in sales momentum. In this context, we have tried to find out how the sales of small consumer products like cook-ware and kitchen appliances is holding up for certain brands like TTK Prestige.

Digging deeper into the TTK Retailing Magic, we have found that Sales volume appears to have dropped by 10-20% in Tier 1 cities like Mumbai. However, cities like Ahmedabad, Raipur and Indore have continued to see sales grow by 20-25% YoY over the past few months.

So what is Driving TTK Kitchenware Sales in these Tier-2/3 Cities ?
The launch of new products by players like TTK Prestige; b) penetration of branded products into tier 2/3/4 cities where increased purchasing power over the past few years and higher brand awareness is attracting customers towards brands like Prestige and Hawkins. Also you must note that increased penetration of distribution model of firms like TTK Prestige into Tier 3/4 cities where large format retail chains like Big Bazaar are not prevalent has added to the company's topline.

In the last 3 years, the TTK Prestige Stock has shot-up from Rs 100 to Rs 2500 levels and is ruling firm in this bear market as well.

So don't you think TTK Prestige is an ideal candidate for Retail Franchising if it is not in your town yet ?

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Titan Gets Favre Leuba on Time

Titan has signed a binding agreement with Spain’s Valfamily S.L. and Switzerland’s Maison Favre Leuba, S.A. for the acquisition for Favre Leuba for ~INR138mn with no royalty charges. The transaction will give Titan the global rights to trademarks of this brand. We believe this strategic move will complement and strengthen the existing watches brand portfolio that includes Titan, Fastrack, Sonata, Nebula, Raga, Regalia, Octane and Xylys and contributing ~19% of total revenues.

With flattering brand equity in international markets including India, Favre Leuba offers fashionable watches under the Mercury collection and Baselworld Bathy V2 - a diving watch equipped with a mechanical depth gauge. It also boasts of three exclusive innovative technologies, namely "Embedded Running Indicator", "Bi-directional/Crown Locking System" and the patented deployment buckle.

This acquisition is in line with the company's plan to launch new watch collections to infuse fresh enthusiasm into the division. Titan's previous launch, HTSE collection was well received with stores running out of stock.

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Best Price Modern Wholesale - Lucknow Sushant Golf City

Bharti-Walmart operating in India in the Cash & Carry Segment opened Best Price Modern Wholesale Store in Sushant Golf City, Lucknow.

This is Bharti-Walmart's first cash and carry store in Uttar Pradesh with a built-up area of ~65,000 sq.ft. The ‘Best Price Modern Wholesale store’ will stock more than 6,000 items with a range of fresh, frozen and chilled food, fruits and vegetables, dry groceries, personal and home care, hotel and restaurant supplies, clothing, office supplies and general merchandise items.

The Following Photograph was taken by RetailMantra Analyst at the Store,
With Bharti-Walmart entering Lucknow market, indicates that the city has huge growth potential with increasing population and income generation as Bharti-Walmart is expecting ~5000 visitors to this store every month.

You can register your Retail Complaints against Malls, and Stores here.

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Wine & Women in India Industry Outlook

In our last post we introduced you on how Wine Retailing has picked up in India. Today we will have a look on the emerging class of Wine Consumers [Purely Wine, not any other alcohol] - Women and Youth along with the outlook for the Industry.

Wine & Women in IndiaIndian Women are increasingly becoming financially independent with increased participation in social events and occasion. As they join Global Workforce their is an increasing preference by her due to international influence. They also indulge in wine due to its health benefits and the sophistication and elegance associated with it.

To attract the Women Consumer market, Companies have been trying hard by means of promotions, launch of very low alcohol content wines, introduction of new and premium brands, increased bandwidth in distribution channels.
Women and Youth have realized that wine has much lesser alcohol content than spirits and have initiated to separate it from other alcoholic beverages. They are also becoming aware of the health benefits from wine. Wine consumption in now regarded as a symbol of status, class, lifestyle and novelty.

Lifestyle Changes & Consumption of Wine:With increased preference of population to dine outside, people are experimental and curious to try out new beverages, flavors and varieties. This has influenced the growth in wine industry. Almost all new restaurants that commence in the major cities and metros offers wine.

Wine Industry Outlook:Wine industry can achieve a supernormal growth by increasing the quality and standard of wine produced, spreading awareness, proper positioning, improved branding and promotion and assistance from government and wine boards in the form of favorable policies and subsidies.

Social Acceptance of Wine - Increasing awareness level, western culture influence and urbanization have increased acceptance have made wine complimentary with the dining experience.

Growth Projections:Indian wine industry is further estimated to reach a consumption of 6.27 million cases consumption by FY-2015 by growing at a CAGR of 27.2%. Most of this Growth will come from Indian Women who are independent and socialistic prefer it over other drinks because of softer tone, subtlety and connotation.

Base Case projections for 2012, 2013, 2014 are 2.9, 3.7, 4.8 Million Cases. As more and more Youth join the Workforce, we believe that increasing personal disposable income will see more budget allocation for food and beverage industry leading to increased per capita consumption. What say ?

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State of Indian Wine Industry - Part -1

We'd like to cover the Indian Wine Industry [Not Alcohol] just 100% Wine - the Current State, Major Players, Consumers and the outlook for the same.

What has Wine got to do with Retailing in India ?
More than 30% of wine was sold via organized modern retail trade system in FY-2010. It is expected that retail trade will increase in the future as people will start gaining awareness and knowledge of wine types, brands and its food pairing attribute. Thus we thought we will enlighten you on the same.

Wine is yet at the transition point. With a marginal consumption of 1.8 million cases in FY-2010, the market presents compelling unexplored opportunities to grow, develop and improve in several aspects.
Regulations for Wine Industry:Increased cost of selling imported wine in the form of ex-bonding and customs duties, label registration and state duties, Trade margins, listing fees, and marketing expenses.

Every brand of wine produced or imported in India have to be registered with the excise department of each state with registration fees for transportation or consumption within that state.

Domestic vs Imported Wine:Domestic players will continue to lead the market, but imported ones will slowly catch up. Imported wines are expected to be consumed at a CAGR of around 33% during 2011 and 2012. Most of the International Wine imports are from France, Italy and Australia having an import share of approximately 42%, 14% and 12% respectively.

Wine Market and Segmentation:
Red wine is the most consumed wine in India accounting for 51.1% of the total wine consumption in India, followed by white wine with the market share of 40.6%. The following Pie-Chart Shows the Breakdown of Different Varieties of Wine Consumed in India and its Marketshare.
Wine Consumption in India:
Mumbai is the largest wine consuming place accounting for 38.5% of the total wine consumption in India, followed by Delhi with 23.1% and Bangalore 9.8% market share in FY-2010.

Wine ManufacturersPresently, there are over 35 Wineries and more than 1,500 acres of grapes which are cultivated for wine manufacturing. The leaders are Chateau Indage [0.79mn cases], Sula Vineyards [0.63mn cases] and Grover Vineyards 0.22mn cases]. Others sell insignificant.

In the next post, we will cover Wine & Women in India and the outlook for this industry. Any Questions and Comments are Welcome.

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Shoppers Stop - Expansion + First Citizen Members Big Shoppers

Govind Shirkhande-Customer care associate and MD of Shoppers Stop addressed a conference call on the state of its Retail Business at the end of Sept-2011. Here is an excerpt from the same for your Case Study / Information.

The company has operated in more than 3.93 million sq ft area across 20 cities as on 30 September 2011. Shoppers Stop currently has 43 stores with presence in 20 cities.
Home Stop (Home Décor) currently has 8 stores with a presence in 6 cities. Mother Care (Maternity, Infant) has 34 stores including 7 standalone stores with a presence in 11 cities. Crossword (Book stores) currently has 83 stores.

MAC (cosmetics) currently has 20 stores in 9 cities Estee Lauder currently has 5 stores (including 2 shop-in-shops), one each in Bengaluru, Mumbai and Delhi.
Clinique (cosmetics) currently has 10 stores including 2 standalone in Mumbai, Bengaluru, Delhi, Kolkatta and Hyderabad.

Hypercity currently has 10 stores one each in Amritsar, Bhopal, Jaipur, Navi Mumbai, Ludhiana and Hyderabad and 2 stores each in Mumbai and Bengaluru, spread over an area of 1.7 lakh sq ft.

First Citizen loyalty members club added about 1.15 lakh new members and now has more than 22 lakh members. Their contribution to the sales was 71% Private label sales increased by another 7%. This is the best in the Indian Retail Industry across any vertical. Anybody dare to challenge this ?

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