Battle of the fast food brands: How Domino’s is cashing-in on McDonald’s weak position

• A 50:50 joint venture between Connaught Plaza Restaurants Pvt. Ltd (CPRL) and McDonald's India runs 169 outlets in North and East India.
• In August 2017, McDonald’s terminated its agreement with CPRL, but the Indian venture is still operating while the dispute is being examined by the courts.
  
• Domino’s Pizza operator Jubilant FoodWorks Ltd. profits more than tripled to 660 million rupees in the quarter ending December 2017.
  
• Domino’s Pizza is slated to open up at least 30 additional outlets to add to its 1,127-strong network across 265 cities this year.
  
• The market for fast-food in India is expected to expand 5.8 percent to $21.2 billion this year.

While the world is veering towards healthy foods, Indians have not deterred from their dedication to their Domino’s chicken tikka pizza - a point made amply clear by the fact that parent company Jubilant FoodWorks’ profit more than tripled to 660 million rupees in the quarter ending December 2017. This may be because Indians prefer pizzas to burgers, but the more plausible reason could be that Domino’s is profiting off the bitter legal battle that McDonald’s franchise operator in India is embroiled in.

The McDonald’s Downfall

Led by Vikram Bakshi, Connaught Plaza Restaurants Pvt. Ltd (CPRL), a 50:50 joint venture between him and McDonald's India, runs 169 outlets in North and East India. A nasty legal battle ensued when McDonald's proposed to buy out Vikram Bakshi’s (MD, Connaught Plaza Restaurants Pvt. Ltd.) stake in 2008. They offered him $5 to 7 million but Bakshi wanted $100 million after Grant Thornton valued CPRL at $331million.

In August 2013, McDonald’s ousted Bakshi as managing director of CPRL over alleged financial irregularities. Bakshi in-turn filed a complaint with the Company Law Board (now the National Company Law Tribunal or NCLT) in September 2013 claiming that McDonald’s was trying to strong-arm him into selling his share to them at a lower valuation.

In July 2014, NCLT reinstated Vikram Bakshi as MD of CRPL. In June 2017, 43 outlets of the fast-food chain were closed in the capital following the expiry of its eating house licences.

In August 2017, McDonald’s terminated its agreement with CPRL, though the Indian venture has kept running its 169 outlets while the dispute is being examined by the courts. In the middle of all this, in December 2017, burger-loving Indians woke up to a rude shock when 84 McDonald’s in North and East India were shut down after its supply chain partner Radhakrishna Foodland discontinued supplies due to the alleged non-payment of dues. Most of the outlets subsequently reopened a month later. “Our growth has completely petered off,” Vikram Bakshi told The Economic Times.

However, not all is bleak for McDonald’s. Westlife Development Ltd., the other McDonald’s franchise partner that runs 271 stores in the Southern and Western parts of India plans to expand to as many as 500 outlets by 2022, according to a company spokeswoman.

Domino’s Jubilant Story

With all this unfolding, it is but natural that rivals like Domino’s, KFC, Burger King and Subway have been able to make hay while McDonald's sun has dimmed. In 2013, while Bakshi was busy fighting McDonald’s, Domino’s conveniently overtook McDonald’s as India’s largest fast-food brand.

According to the Economic Times, shares of India’s Domino’s Pizza operator Jubilant FoodWorks Ltd. have more than doubled in the past year. And this year, it is slated to open up at least 30 additional outlets to add to its 1,127-strong network across 265 cities. According to a transcript of a conference call between analysts and investors and Chief Financial Officer (CFO) of Jubilant FoodWorks, Pratik Pota, the CFO said, “There is significant potential for the pizza business in the country, and we are committed to leveraging that potential.”

As a result of India’s growing economy and its youth population, the market for fast-food in India is expected to expand 5.8 percent to $21.2 billion this year -- a 50 percent jump since 2008 -- according to Euromonitor International, a market research firm. Until McDonald’s promoters in India can resolve their dispute, which looks unlikely at the moment, its competitors can continue to forge ahead.