Domino's Pizza is a boon for McDonald's in India

A bane for quick service restaurant (QSR) chain Domino's Pizza is a boon for McDonald's in India.

The operator of the global pizza chain in India, Jubilant FoodWorks, faces the heat of competitive intensity from third-party food delivery aggregators. But Westlife Development, which is a franchise partner for the burger giant, feels there is no threat to their business from the likes of Zomato, Swiggy, Foodpanda and Uber Eats.

Food delivery aggregator platforms have intensified marketing and promotional activities over the past couple of months. This has not only led to a shortage of delivery manpower but also an increase in the cost of delivery expenses, leading to cost pressures for Jubilant FoodWorks, which operates 1,167 Domino's Pizza (as on September 30, 2018) outlets across the country.

In response to the increased competitive intensity, Jubilant FoodWorks's management decided to pull out of all the third-party food delivery aggregator platforms after September 2018. When contacted, Jubilant Foodworks did not respond to DNA Money queries on the topic.

However, during a recent earnings call, the top company management said it has decided not to outsource delivery of its pizzas (to third-party food delivery aggregators). The reason behind this move was to take full control of the end-to-end pizza delivery experience for its customers.

"Accordingly, pizza delivery has been gradually moved in-house in the September quarter and has been reduced to nil in the current quarter starting from October," a senior executive had said during the call.

While the company claims it has pulled out of food delivery platforms, Zomato and Swiggy continue to show Domino's outlets in their search results.

Amit Jatia, vice-chairman, Westlife Development Ltd (WDL), has a contrary view. "We have not experienced anything (impact on operating cost due to increased competitive intensity) as such. See, they (Domino's Pizza) are a delivery business. It's like giving a core away, and I am only presuming, I have no idea. For us, delivery is a brand extension. It doesn't mean my experience should be bad or anything but it's not been an issue for us so far," the master franchisee for McDonald's QSR chain across West and South India said in response to DNA Money queries.

According to Jatia, McDonald's offers both dine-in as well as the delivery option to its customers. It also has its own mobile and web platform to take direct delivery orders in addition to a presence on all the major food delivery aggregator platforms. Besides, delivery is an additional revenue stream for the company that has witnessed significant growth over the past few quarters.

"We have our own platform. We are pushing that very hard. It's like we are in a mall. It's the destination in the mall which is making us work. We are saying there's no downside in not being there. For us finally, it's our brand."

"There could be thousands of consumers on the (third-party) platforms and there could be five more burger players. But people are coming to McDonald's because we have built that value. Why should I cut out the distributors? He has also got customers, so a customer is going to distributor's platform, so why should I lose that business is my take," Jatia added.

He said WDL has no concerns working with third-party food delivery aggregator platforms and the company has no plans on changing anything for now.

According to analysts tracking Jubilant's business, the company's margins are continuing to hold but the cost structure is also rising. In a recent note on Jubilant FoodWorks, Naveen Kulkarni, head of research, Reliance Securities, said Jubilant's earnings before interest, depreciation, tax and amortisation (Ebitda) grew 44.4% on-year to Rs 148 crore and Ebitda margins were at healthy 16.7%.

"While Ebitda growth was quite strong, certain key costs like employee expenses are rising fast because of competitive intensity. Employee expenses are likely to rise much faster with acceleration in store opening and higher wage inflation. Gross margins were quite strong at 74.6% as food inflation was benign. The management does not see challenges in managing gross margins but other expenses are likely to rise which will pose challenges to Ebitda margins," Kulkarni said in the company note.

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Food delivery aggregator platforms have intensified marketing and promotional activities over the past couple of months.

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This has not only led to a shortage of delivery manpower but also an increase in the cost of delivery expenses, leading to cost pressures for Jubilant FoodWorks  According to analysts tracking Jubilant's business, the company's margins are continuing to hold but the cost structure is also rising.

This story first appeared in DNA Money: McDonald's clicks on delivery apps, Domino's deletes them