30 minutes or Free?

If you haven’t guessed it by now, this reference is to Domino’s Pizza.

Almost 16 years back, Paresh Rawal was symbolized as the typical middle class Indian who wanted to seek an undue advantage of rainy weather to avail a contingent condition –

Get your pizza for free if it doesn’t arrive in 30 minutes!

He places the order on the phone and keeps dancing around his house singing the classic jingle “tana na na na ji, o pizza ayo free” which went on to be etched in every 90s kids brains!

What was the point here?

An American brand that has just entered the country is telling you to test their service excellence at the most extreme conditions and yet give you the most delightful experience – a hot and fresh pizza in 30 minutes!

And we are talking about a time where mobile internet was a luxury, Google Maps had not evolved into the household name we know it of and people never thought of pizza as a meal or a snack. It was a luxury.

But this is not about 16 years ago, let’s cut to today.

While the unicorns of the food delivery space are everywhere – GoJek in Indonesia, Zomato & Swiggy back home, DoorDash in USA et all but there’s a stark difference between how they operate and how Jubilant Foodworks has been operating in the country.

Let’s focus on India.

Today if you fire up your food delivery app, you can see 100+ pizza chains trying to deliver pizza to your place. But Domino’s is not competing with these folks.

Domino’s owns their customer data. Aggregators don’t share customer data with their restaurant partners – it’s like operating in a volume game.

If you don’t know who your customer is, it is as good as throwing darts in the dark. No matter what CRM you’re running, there’s only a limit to which it can be effective.

While food ordering and deliveries have just come a few years back, Domino’s has already been playing this game for 25+ years. In fact, they have also piloted 20-minute deliveries in a few cities.

Competitive advantage. Check. Innovation. Check.

While the objective of this article is not to bore you with numbers and financial performance of JFW, but here’s a primer that can help you de-clutter some thinking.

Any restaurant chain in this country has two metrics when you look at the chain strength.

  • Number of Stores Opened
  • Same Store Sales Growth (SSSG)

Finding an adequate balance between the two is like walking on a tightrope with a precarious balance on both sides.

There was a time when Domino’s would open store after store and then struggle with SSSG. On the other hand, they would ace SSSG and fail to perform on Metric 1 but they seem to have found a way now to balance the two.

Looking Ahead

Today JFW is not just associated with Domino’s Pizza but also Dunkin Donuts and two in-house brands – Hong’s Kitchen and Ekdum Biryani.

 A lot of chains have now got into the bandwagon of running oriental cuisine chains after seeing the success of Wow Momo. Will Hong’s Kitchen see a runaway success? Time will tell.

Biryani as a category is doing phenomenally well across various cities and when one really thinks about it, it does make sense for a case to curate a brand in the Indian – Mughlai cuisine space. There are multiple brands that are already operating in this space. Apart from traditional niche city famous chains, I can think of one – Biryani By Kilo (BBK) which has a pretty unique offering and charges a premium for its line of products.

JFW has also launched it’s own app for ordering pizzas and owing to the catalyst of people staying at home, it is almost at 33.1 mn cumulative downloads as on March, ’20 and is rated higher than Swiggy and Zomato on the play store.

I once had the opportunity to listen to Mr. Pratik Pota talk about his company at a closed event and was fascinated with all the insights I gathered. They’ve also put up a small data analytics team to ensure that the CRM is effective and business is steadfast and ahead in getting relevant insights.

In the past, we have seen JFW course correct when things didn’t turn out well – optimize store size and leases to ensure better payback, roll back Dunkin Donuts outlets and change their menu to make sure it is catering to the Indian audience and not until recently launched two new brands that can give them a next fillip in growth.

People talk a lot about how cinema chains have glorified selling popcorn at 200-300 price points, what people often miss is how a small condiment pack (cheese dip / cheese jalapeno dip) has ended up making crores for the chain. The next bit of innovation that can aid bottom line growth  – delivery charges!

At 253 times price to earnings, no valuation model can make sense for you to arrive at a true intrinsic value for Domino’s Pizza. You can reverse engineer the DCF to arrive at a justified growth rate but chances are you’ll not be able to truly realize the potential of future growth rates.

What can you do then?

Well, in such a scenario – you have to ascribe a premium to each of these factors and truly ask yourself a compelling question –

Does it make sense?

It could be something like

  • Competitive Advantage – 2x
  • Track record of Delivering bottom line growth – 2x
  • New chains take off – 3x
  • New chains tank and don’t do well – (-5x)

Once you have a combination of these factors and multiples ascribed to them, you compare it with the intrinsic value and see if you’re comfortable with the numbers.

That is one approach to going for it.

Do you have something that you would like to add?

Do let me know in the comments section.

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About the author

Saket Mehrotra

Number cruncher, avid reader, coffee connoisseur, book store hopper & Metallica fan. An active follower of Sensex since 2009. CA, CS by profession.
Senior Associate - Equities at Tusk Investments. Ex - PMI, ITC.

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