NOIDA, India (Reuters) - Jubilant Foodworks (JUBI.NS) is scouting for a third global brand to launch in India even as the fast food chain operator tries to grow its latest franchise with Dunkin’ Brands Group (DNKN.O) and convince Indians that doughnuts can be sweet too.
CEO Ajay Kaul declined to elaborate on the proposal, but adding another brand would indicate Jubilant had a change of heart within the last two months. The company already operates
Domino’s Pizza Inc (DPZ.N) stores in India.
“We are in discussions with a few known global brands and even if we sign on the dotted line today it will take us a year to launch,” Kaul said in an interview at his office in Noida, just outside New Delhi.
“Hopefully by then Dunkin’ will be off the ground,” he added. “Making Dunkin’ succeed here is a priority.”
Kaul declined to give specific figures for Dunkin’s performance but in a recent note, analysts at Credit Suisse said it was unlikely to break even in the next two to three years.
Jubilant’s roll out of Dunkin’ Donuts, which it brought to India 18 months ago, has so far been hampered by expensive real estate and fierce competition from established coffee chains such as Whitbread plc’s (WTB.L) Costa Coffee and local brand Cafe Coffee Day.
Slowing economic growth and a local preference for traditional sweets have not helped, and there is also the inevitable comparison with the breakfast staple mendu vada, a fried, savoury lentil cake which looks like a doughnut but tastes nothing like a Dunkin’ Donut.
With commercial real estate prices in India growing at one of the fastest paces in the world, Jubilant knows it will be costly to expand the brand beyond New Delhi, Noida and Gurgaon in the north where it has the most stores.
Kaul said the company plans to open 100 Dunkin’ Donut stores across the country over the next five years from 16 currently. In a bid to entice customers to grab a light meal as well as dessert, Jubilant tweaked the brand name to Dunkin’ Donuts & More and stores offer deli-style sandwiches.
“If you ask me whether we have got the real estate model for Dunkin’ right, I would say maybe by only 60 percent,” Kaul said. “We are now moving into different kinds of locations until we figure out what is the right size and how we can make it work.”
The success of Domino’s Pizza has boosted Jubilant’s share price 600 percent since its 2010 initial public offering but the weaker economy has pressured the company this year.
Domino’s saw same-store sales growth fall to 6 percent in the June-quarter from 20 percent in the same year-ago period, Kaul said.
Same-store sales growth is likely to average 11 percent for the rest of the year while high inflation and a weaker rupee are likely to shave a percentage point off margins this year to 16.5 percent, he added.
Jubilant, however, plans to add 125 Domino’s stores this year to the 600-store network, banking on next year’s general election to fuel a pick up in consumer spending and economic growth over the next two quarters.
“In a downturn, people retract but we are going all-out on expansion because it’s tough not to focus on the bigger picture here and that is the Indian consumption story cannot be ignored,” he said. “It’s irreversible.”
Editing by Miral Fahmy