India proves to be tough dough for pizza players

Multinational pizza brands such as Australia’s Eagle Boys Pizza and South Africa’s Debonairs are slowly scaling down operations in India, hit by competition and discounting.

Two years ago, Nick Vincent, Global CEO of Eagle Boys Pizza, had decided to take up the store count from 18 to 350. However, the pizza chain is left with just a single store in Pune. Rakesh Nanda, Eagle Boys franchisee for the western region, is giving up the franchise.

“Eagle Boys did not invest beyond the initial funding in India. With bigger players like Domino’s giving us competition with large discounts, we could not sustain operations,” said Nanda, who is now taking up a franchise for another food brand.

Debonairs too initially had big plans for the Indian market but has wound up operations. It had entered the market twice in the past.

Another global major, Sbarro, recently closed its stores in Delhi-NCR.

Akhil Puri, CEO of Jyothy International, Sbarro’s master franchisee for North India, said: “We are in the process of shutting down since both local and international pizza players have made it difficult for us to survive. Competition is still stiff in the pizza category, with players taking market share from each other.

“Market leader Jubilant did some restructuring and took some HR measures in rationalising its outlets and workforce but there has been too much discounting in the pizza category, making its tough for players like us to sustain operations.”

Jubilant Foodworks is among the few that survived. The company made a strong turnaround with 11 per cent revenue growth and 6.5 per cent same store sales growth (SSSG) in its Domino’s Pizza outlets.

Yum Brands has also been witnessing growth in the pizza category for the past 10 months.

“We have 20 years of consumer learning and have realised that giving discounts does not help in building a brand,” said S Murugan Narayanaswamy, Senior Vice-President, Marketing, Domino’s Pizza.

“Post demonetisation we have taken efforts to create the concept of ‘everyday value’ (flat rate of ₹199 for two pizzas)...Growth will come from creating value, innovation in the core products and digital initiatives.”

Sustaining the ₹3,500-crore pizza market through discounts clearly does not work.

“It is price and value which works in India and even the big players like Domino’s and Pizza Hut have been doing that and at the same time shutting down their loss making outlets. Sustainability is always going to be an issue, even though the bigger players may have made a turn around temporarily,” observed Rashmi Balwani, Managing Director, Upper Crust Foods, Sbarro’s master franchisee in Maharashtra.

Domino’s and Pizza Hut, which have been here for about two decades, may have made the cut, but the rest of the smaller global brands are either exiting or trying to make a comeback through new franchisee arrangements.

“We have posted consistent positive SSSG for the past 10 months but when times were tough we did not cut corners and have seen our volumes grow, indicating that perhaps growth is back in the category, even if it is in single digits.

“Even across geographies there is seldom room for more than two big brands who tend to capture 80 per cent of the market,” said Unnat Varma, Managing Director, Pizza Hut, Indian Subcontinent.

But selling pizzas is not going to be easy in the long run.

“While Jubilant and Pizza Hut may have taken efforts to get the numbers, pizza as a category will be under pressure and there have to be continuous efforts towards controlling costs at the store level,” observed Naveen Trivedi, Analyst, HDFC Securities.