Domino's is Jubilant in India

The pizza chain has a franchise deal with an Indian company that's dominating the market. This rapid expansion could also be good news for Dunkin' Brands.

Jul 19, 2014 at 9:00AM

In a recent investor presentation, Domino's Pizza (NYSE:DPZ) explained that it gets 53% of its revenue from outside of the US, and this percentage is likely to rise even further. The pizza chain has averaged 5.6% same-store sales growth abroad over a 20-year period, and as more people join the middle class around the world this looks set to continue. Domino's franchisees help it accomplish this growth, and one of them has been rapidly building out its footprint in India and neighboring countries. This move in particular will have major repercussions for Domino's shareholders, here's why. 

The market opportunity
In the presentation, Domino's listed the number of stores it has in each country where it operates and forecast the store count that each market could eventually support. India shows up quite high on the list here. While the country comes in third overall on total stores behind the United States and the United Kingdom, it tops the list of emerging markets with 715 stores. In addition to this, this market offers a great deal of growth potential as Domino's thinks it can eventually get to 1,200 stores in India. This is much more growth in store count than Domino's expects from most of its international markets, except for France. A deal with a company called Jubilant FoodWorks makes this possible.

Jubilant FoodWorks has been growing very rapidly
The Domino's franchise holder in India, Jubilant FoodWorks, trades on the Indian exchanges. It was originally called Domino's Pizza India Limited, but it changed its name in 2009. Even back then, the company had put up some huge growth numbers; in 2010 it said it had grown at an annualized rate of 42% over the last five years. In that release, Jubilant announced that it had just opened up its 300th store. Now, four years later, this franchise holder has more than doubled its store count. After adding 150 stores in fiscal 2014 alone (its year ended on March 31, 2014), it reported that it had 749 stores in May 2014. If it keeps up this pace, it could hit 1,200 stores in 2017.

Competitive position
Jubilant FoodWorks has been more than holding its own against other major pizza chains. In 2010 it said it had a market share of 65% in organized pizza delivery and it announced that this had risen to 67% in 2014. This is impressive, but it also suggests that Pizza Hut of Yum! Brands (NYSE:YUM) and Papa John's (NASDAQ:PZZA) have expanded in India as well, albeit from smaller bases.

Yum! Brands just confirmed this in its latest earnings release. Its KFC and Pizza Hut footprints both showed dramatic year-over-year growth. Yum!'s KFC count rose 29% to 341 in India, while its dine-in Pizza Hut concept saw its store count rise 6% to 182 locations. The Pizza Hut delivery concept was the star of the show, as its store count expanded 44% to 186 locations.

Papa John's didn't break down the results from its operations in India in its latest earnings release, but its local site provides some detail about its current footprint and expansion plans. It lists five stores in the North Zone, five in the West Zone, and ten in the South Zone -- so it currently has a much smaller footprint in India than Domino's or Pizza Hut. It also has an upcoming stores section, but that's blank for now. It looks like this pizza chain might not be the best way to invest in growth in the Indian market.

The risks
Recent results from Jubilant FoodWorks and Yum! Brands do show a slowdown, though. Yum! Brands reported that its comps for India, which include KFC locations, fell 2% from the year-ago quarter, while Jubilant FoodWorks reported a steeper decline of 3.4% in its release for the fourth quarter of 2014. A tough comparison may have played a part in this, since Jubilant FoodWorks was up against a quarter with 7.7% comps growth, but this data does show that Domino's and Pizza Hut might be expanding too quickly in India. However, the rapid expansion does show that both companies have confidence in the long-term potential of the market.

Possible upside for Dunkin' Brands
Jubilant FoodWorks doesn't just have a deal with Domino's, it is a franchisee of Dunkin' Brands (NASDAQ:DNKN) as well. Right now, it doesn't operate enough Dunkin' Donuts stores in India to move the numbers much, as it has 29 stores there while Dunkin has 11,000 stores around the world. However, in 2012 the company did highlight the potential of India with its plan to open 80-100 stores in the country within five years. While this expansion plan doesn't meaningfully affect Dunkin's results right now, Jubilant FoodWorks has shown that it can build out a concept very quickly if it catches on.

Foolish takeaway
With its lead in market share, Domino's looks like the best way to invest in the growth of the pizza business in India. The chain also has global strengths which will help it in this market such as its mobile ordering capabilities -- its franchisee reported that 18% of its orders in India come in through the Internet. The comps decline is a negative, but from a longer-term perspective Domino's has shown strong growth so this may just be a bad quarter. If Domino's can get to 1,200 locations in India, that would be good news for its shareholders.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Eric Novinson has no position in any stocks mentioned. The Motley Fool owns shares of Papa John's International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information