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REGISTER NOW OR LOGINFounded in 1996, Jubilant Foodworks is a leading and growing food service company in India. It operates through two strong international food franchises - Domino’s Pizza and Dunkin’ Donuts. In addition, the company recently ventured into Chinese food with the launch of its first own restaurant brand Hong’s Kitchen.
Jubilant Foodworks operates Domino’s Pizza brand and has the exclusive rights for India, Nepal, Bangladesh, and Sri Lanka. It also launched Dunkin’ Donuts in India in April 2012. As at March 2018, JFL had 1,134 Domino’s Pizza restaurants across 270 cities and 37 Dunkin’ Donuts restaurants across 10 cities. A sound business model, efficient supply chain, extensive network and a large presence across India have favorably positioned Jubilant Foodworks to utilize potential growth opportunities in the evolving foodservice industry in India.
Jubilant Foodworks Positives
i) Wide Footprint - Jubilant Foodworks is the market leader in the pizza segment with a network of close to 1,200 Domino’s Pizza restaurants across 270 cities in India. It opened 35 new Domino’s Pizza stores during the latest quarter. The company is expanding its geographical footprint in Bangladesh, which offers huge potential for Domino’s Pizza. Jubilant also has a presence in Sri Lanka. Other than expanding its physical presence, Jubilant is also focusing on its digital growth. The company is investing aggressively in technology and leveraging AI and machine learning to provide better customer experience. Online sales grew strongly and stood at 73% of delivery sales in Q3.
ii) Broad Range of offering - Jubilant Foodworks offers a wide range of Donuts and coffee based beverages such as Cappuccino and Latte, Milkshakes, Smoothies, Iced Teas, Coolattas, as well as an array of bagels, breakfast sandwiches, and other baked goods. It addresses diversified segments of the foodservice industry as it operates in the pizza home delivery and the all-day food and beverage market. In addition, Jubilant also diversified into Chinese food through its third restaurant brand Hong’s Kitchen, very recently in March 2019. With more than two decades of rich industry experience, Jubilant is in a good position to understand its customers’ needs. It is launching new products as well as customizing its existing products to entice its customers’ taste buds. It launched its ‘All New Domino’s’, improving its pizza quality, and ‘Every Day Value’ offering pizzas at affordable price. Jubilant also launched a new range of signature donuts and beverages.
iii) Reputed brand and mass appeal - Customers prefer the Jubilant brand for its product quality, value for money products, and seamless customer experience. The company is always investing in these areas to stay at the top of its game. It partnered with Pepsico in the latest quarter to enhance customers experience and also introduced four new side dishes. In order to improve the customer experience, Jubilant Foodworks introduced new centralized call centers for taking orders and fulfilling them through consistent and timely deliveries. The company’s efforts are bearing fruits as is evident by improving customer experience scores both in delivery and dine-In. The company is leveraging technology to improve efficiencies across all parts of its operations.
iv) Should benefit from India’s growth story - The food service industry in India is poised to grow on strong fundamentals. India ranks amongst the world’s fastest-growing economies and is regarded as one of the most attractive markets for consumer sectors including the FSI. The organized food service segment has enough room for growth with just 34% of market share presently. In the organized market, the chain segment is expected to grow at a CAGR of 21% by 2022. Reduction in GST rates and convenience of ordering outside food have changed the entire demand landscape. Rising income levels, changing lifestyles and eating habits act as strong tailwinds for fast growing fast-food trend in India.
Challenges
Rising employee and real estate cost, and high rentals in attractive locations such as malls are major challenges for the food chain stores. Rising competition from a number of small restaurants who focus only on home deliveries and food aggregators (such as Zomato and Swiggy) has also intensified. Even though doing business has become relatively easier, still, a lot of regulatory hurdles, paperwork, licenses, etc are required for the opening and smooth operations of international chain restaurants in India.
Valuation
Jubilant Foodworks has a market capitalization value of Rs. 17,800 crores and is currently trading at more than 17 times its book value. The stock has been rallying and has gained by almost three times its price five years ago. It is trading just below 17% of its 52-week high at present. Jubilant is virtually debt free and has a high ROCE. The valuation might look expensive but is justified given Jubilant’s asset light model, strong brand recall and growing consumerism in India. The company has registered improving margins driven by greater efficiencies and increasing operating leverage. It also declared a bonus issue of one per share and has a healthy payout ratio of 18%.
Conclusion
Higher ordering frequency and new customer acquisition should drive Jubilant’s top line growth. Investments in physical and digital expansion, new products, and technology have already started bearing fruits in the form of increasing same-store sales, improved customer satisfaction, and operational efficiencies. Expansion in tier2 cities and benefits from automation could be the next big opportunities for Jubilant Foodworks. Excellent products, superior customer experience, and attractive prices are strong competitive advantages for Jubilant Foodworks. Investors could look at Jubilant Foodworks as one of the very few options to invest in the long term growth story of the foodservice industry in India.
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