Things are beginning to look up in India for American pizza chain Domino’s, months after its local partner, Jubilant FoodWorks, overhauled its business.
In May this year, Jubilant announced that it had stepped up measures to slash costs by shutting down loss-making stores. Subsequently, it launched its biggest product upgrade to drive up profitability across its 1,176 stores.
The rationalisation had been triggered by sluggish sales growth over the last three years.
These efforts now seem to be showing results. In its earnings for the quarter ended September 30, Jubilant, which also operates Dunkin’ Donuts in India, registered a net profit of Rs 48.5 crore, a 124.7% jump over the same period last year. Revenue was up 9.2% at Rs 726.6 crore, the company said in a filing to the stock exchange on October 26.
Jubilant’s financials reflect a marked shift from the fourth quarter of the last financial year when it reported a 75.6% drop in profit. Last financial year, same-store sales growth – a measure of yearly growth in sales for restaurants open for at least two years – dropped to negative 7.5%. This quarter, the number stood at 5.5%.
In an earnings call on October 26 the company further lowered its store-opening guidance to between 30 and 40 this year, down from between 40 and 50 earlier. That’s significantly lower than the 130 stores it has been opening annually over the last three years. For the September quarter, for instance, it shut one Domino’s store and added another, resulting in no net new store additions. In the same period last year, it had added 32 new outlets.
Meanwhile, the company has closed down 13 Dunkin’ Donuts stores, apart from eight of Domino’s Pizza outlets, since the fourth quarter of the last financial year. It also plans to halve the losses at Dunkin’ Donuts during the current financial year.
Domino’s 2.0
Jubilant’s move to rationalise costs and have fewer store openings follows an aggressive expansion over the past few years, which strained profitability.
It hasn’t helped that growth in India’s fast-food market has also been lacklustre.
Over the last four years, consumers haven’t exactly been splurging on fast-food, thanks in part to increased competition from cafe-bars. The quick-service restaurant market has become crowded lately, with chains such as Johny Rocket, Carl’s Junior, and Burger King having expanded. Moreover, a growing local food-tech segment, including players such as Swiggy, has eaten into existing companies’ market share.
Cornered, Jubilant, which first introduced Domino’s in India in 1996, realised the need for revival.
“The results of these (business revamp and rationalising) will start reflecting progressively from Q1FY18,” Hari S Bhartia, co-chairman of Jubilant FoodWorks, said during the company’s fourth quarter earnings call on May 29.
Besides controlling costs on the opening of new stores, the company also announced its biggest product update in the last two decades. In August, it said it had invested Rs 100 crore in improving the quality of its pizzas to include more cheese and fresher toppings, along with new packaging.
This article first appeared on Quartz.
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