History Of Dominos Pizza Master Franchise Agreement Marketing Essay

 In January 1996, the company opened their first Domino’s pizza store. In September 14, 1996, the company was converted into a public limited company and the name was changed to Domino’s Pizza India Ltd. In the year 1998, they extended master franchise agreement with Domino’s International to whole of India and Nepal.  In the year 2004, they launched ’30 minutes or free’ campaign. In the year 2005, the company entered into master franchise agreement for Sri Lanka and Bangladesh.  

 In the year 2009, the company launched ‘Pizza Mania’. Also, they began to offer pasta and choco lava cake to their customers as a side item.

 In September 24, 2009, the company changed their name from Domino’s Pizza India Ltd to Jubilant Foodworks Ltd.

 The company’s Master Franchise Agreement with Domino’s International requires them to open 25 stores each, in 2011 and 2012 and they continue to evaluate various new locations for further expansion. They are also exploring the possibility of opening stores in the New Delhi and Mumbai airports on sub-franchise or sub-lease basis.

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Business Model

Company operates domino’s stores pursuant to a Master Franchise Agreement with Domino’s International, which provides them with the exclusive right to develop and operate Domino’s pizza delivery stores and the associated trademarks in the operation of stores in India, Nepal, Bangladesh and Sri Lanka. Among other strengths of the company the most prominent ones are the operations management and a robust supply chain.

Excellence in operations management

Domino’s operating discipline and standardized internal processes have contributed significantly to its sustainable growth. Its operational success is based on its employee training programs which cover every aspect of a store’s operations, including receiving an order, pizza preparation, baking, cutting, routing and delivery. As a result, it has been able to ensure that the average delivery time for an order is only 22.50 minutes. Domino’s operations have been ranked no. 1 in the Domino’s global operations among the countries with 100 or more stores in 2006 and 2007 and amongst the top three in 2008.

Robust supply chain

JFL operates four regional supply chain centres, or commissaries, located in Noida (Delhi NCR), Mumbai, Bangalore and Kolkata. These commissaries primarily manufacture dough (base of the pizza) and act as warehouse for most ingredients. The primary raw materials used in the preparation of pizzas, such as cheese, vegetables and meat are sourced and supplied to the stores by its commissaries, except for a few stores, which procure vegetables locally from vendors within their geographic proximity. This helps them to ensure consistent quality and ensure timely delivery of raw materials to the stores. The company has centralised purchasing, sourcing, warehousing and distribution of its raw materials enabling better

negotiation of prices with its suppliers and reducing the storage requirement at its stores. The company has a dedicated fleet of hired trucks at its disposal to ensure timely delivery of raw materials to its stores. These trucks are refrigerated to ensure the ingredients are supplied in a temperature controlled environment, which is monitored during transit to ensure quality and minimise wastage. Thus, the supply chain management enables the company to reduce costs and maintain the quality of its offerings.

Financials

The company incurred net losses up to FY05 and carried accumulated losses totaling Rs 73.3 crore at FY09. However, since FY06 the company registered revenue CAGR of 42.4% for FY06-09. The growth

in the revenues was mainly on account of opening of new stores across key cities in India. In FY09, the company reported net sales of Rs 280.6 crore, up 33% from last year’s sales of Rs.211.2 crore. A significant portion of growth in revenues was contributed by new stores opened in the year.

2007

2008

2009

6MFY10

2010E

2011E

2012E

Net Sales

Rs1,386.8 million

Rs2,111.6 million

Rs2,806.1 million

Rs1827.4 million

Rs3662 million

Rs4754 million

Rs6308 million

Net Profit

Rs55.8 million

Rs77.6 million

Rs67.4 million

Rs 121 million

Rs 169 million

Rs 361 million

Rs 500 million

Number of pizzas sold

9.0 million

15.6 million

21.7 million

.

The company managed to keep its operating margin at an average level of 12.8% despite the growth in numbers of outlets and in the last six months the same has improved by 400 bps due to emphasis on operation efficiency, cost consciousness and robust supply chain management. Net profit for FY09 was Rs 6.7 crore, down 13.7% due to higher interest costs due to significant debt funded capex. The sales are expected to grow by 30% in 2010 with net profit growth of 152% over the corresponding FY09

Rationale for choosing company

The food services industry in India is growing rapidly and offers opportunities across a variety of cuisines such as fast food restaurants, home delivery and food courts. The home delivery segment is fast gaining popularity with value sales increasing significantly over the last couple of years.

Monthly spends on food bought from outside or ordered in

Population Strata

Monthly Spends

Tier 1(Towns with 3 million+ population)

Tier 2 (Towns with 1-3 million population)

Avg (in Rs)

670.6

691

Upto 50

13

13

51-100

12

13

101-200

19

17

201-300

12

11

301-600

18

23

601+

26

23

Key Growth Drivers in the Food Service Industry

Set forth below are the key drivers of growth in the food services industry in India.

1. Changing demographic profile

The changing demographic profile of India has led to the growth of the food services industry. The food services industry not only serves as a meal option, but it has also become a lifestyle choice. The quick and convenient option that the food services sector, especially the QSR industry offers has been instrumental to the higher demand of the eating out or ordering-in food habits.

2. Rising income levels

Penetration of QSR industry is also improving due to growing income levels as well as aggressive marketing by the quick service restaurant chains in India. The average real per capita income growth in India rose from 3.3% during the Ninth Plan (1997-2002) to 6.1% during the Tenth Plan (2002-2007). (Source: Reserve Bank of India – Annual Report, 2008) This has led to a higher spending capacity which provides a huge opportunity for penetration for the food services sector. Considering the rising consumer spend and approximately 80% of the population eating out at least once in a month, the food services industry is anticipated to continue to grow at a fast rate. (Source: Technopak Report 2009)

3. Growth of middleclass

India has the presence of a strong 300 million middleclass population. (Source: Technopak Report 2009) As the middleclass has been the largest consumer of the food services industry, the increase in the middleclass would lead to higher growth in the food services industry.

4. Younger population

The growth of the QSR industry is also influenced by the higher younger population. Based on the Technopak Report 2009, over 65% of India’s population is below 35 years of age, which provides for a greater penetration opportunity. Further, the 21 to 40 year olds constitute the majority among those who eat out regularly. (Source: Technopak Report 2009) Set forth below is a breakdown of people who eat out, based on age.

Age group profile of those who eat out

Source: Technopark report 2009

5. Rising urbanisation

The proportion of households ordering in or eating out is more prevalent in the cities and towns than in the rural areas. Specifically, the average spends on ordering in the Tier 1 or Tier 2 towns is double the average spends in the Tier 3 towns. Around 29% of India’s population is in urban centres, and this statistics is expected to increase. (Source: Technopak Report 2009) This rising urbanisation is anticipated to lead to higher spending on the food services industry.

6. Increase in nuclear families

Going out and ordering in are more prevalent food habits among the nuclear families than the joint families in India. According to the Technopak Report 2009, approximately 1.5-2% of joint families give rise to nuclear families every year.

7. Increase in number of working women force

Participation of urban Indian woman in the workforce increased from 14% to 17% between 2000 and 2005. (Source: Technopak Report 2009) This would also help the growth of the food services and QSR industry. According to the Technopak Report 2009, 51% population among those who eat out at least once in a month belong to the female population of India.

Changing food habits and eating out

The changing demographics and its convenience has led to higher demand for the eating out and

ordering in services in India. Increased individual incomes and growth in middle class has impacted

greater demand for convenience foods. Eating out or ordering in meals for consummation at home has

become a popular trend. According to the Technopak Report 2009, ordering in or bringing in meals

from restaurants is a fairly common practice, with two out of three households in India having done so

in one month. In fact, most who have ordered in or brought food from outside have done it multiple

times.