Dine-In Downturn Has Pizza Chains Scrambling For Slices

Remember the 2000s and early 2010s when celebrating small victories or simply getting together with friends or families for most of us meant one destination – the nearest ‘Pizza Place’, and where your hunger and taste buds resonated with famous phrases such as ‘Ek Plate Mein Party’ and ‘Ek Slice Aur’.

Blame it on the rising café and club culture or the rise in online food delivery apps; the dine-in in fast food chains, especially the pizza chains, have taken a backseat. India’s largest pizza chains seem to struggle to get footfall back into their stores.

Take, for instance, Jubilant Foodworks, which runs the Domino’s Pizza chain in India. The dine-in revenue has been on a declining path for the past year, registering 37.5 per cent in Q3FY23, 36.4 per cent in Q4FY23, 35.7 er cent in Q1FY24 and 34.5 per cent in Q2FY24.

The story is no different for its rival Pizza Hut – the pizza chain run in India by Sapphire Foods India and Devyani International.

Sapphire’s Pizza Hut’s dine-in declined to 35 per cent in Q1FY24 compared to 37 per cent in the same quarter last year. Devyani’s Pizza Hut’s dine-in fell to 43 per cent in Q1FY24 from 46 per cent in Q1FY23.

Online Delivery Becomes Revenue Driver
And while the struggle with dine-in persists for these chains, online deliveries have become their strongest revenue driver.

For Jubilant, the Q3FY23 revenue from the deliveries contributed 62.5 per cent of the total revenue and stayed on the path quarter-on-quarter.

In Q4FY23, Domino’s delivery revenue increased 63.6 per cent, followed by 64.3 per cent in Q1FY24 and 65.5 per cent in Q2FY24.

Pizza Hut, too, has shown similar trends, with delivery contributing 57 per cent towards total revenue in Q3FY23, followed by 58 per cent in Q4FY23. However, it fell to 57 per cent in the new fiscal year’s first quarter (Q1FY24), and the contribution of the delivery sales remained flat at 55 per cent in Q2FY24, which is precisely the same as the previous year in the same quarter.

Sameer Khetarpal, CEO & MD, Jubilant Foodworks acknowledged the aggressive strategy to push online deliveries.

“Three quarters ago, we pushed on the pedal to get to 20-minute delivery. We are beginning to see results. Our store densification strategy is leading to a higher share of delivery. And we have done several initiatives behind to get positive like-for-like growth in delivery,” said Khetarpal in a recent earnings call of the company.

Bringing The Footfall Back
But there’s still a big opportunity that these chains see in the dine-in segment, especially from the Tier three and four cities.

“India is still very young, and I keep telling my team that the story is yet to even begin in India. So, improving dine-in experiences and having more presence where customers congregate or go to will see continued improvement by us,” said Khetarpal.

“The customers gave the brand a lot of credit for its delivery credentials, but the company realised that when consumers are dining out, it is not their first choice, especially in tier one and tier two cities,” Khetarpal stated, adding that in tier three, tier four cities, they are probably the destination when it comes to dine-in.

Khetarpal implicitly also seemed to acknowledge the look and feel factor of the dine-in segment to suit it more towards GenZ.

“We will re-image 100+ stores this fiscal year, and wherever we are re-imaging the stores, we are also seeing the benefit,” Khetarpal said.

“When I looked at the root causes, it goes back to doing appropriate and timely re-imaging, upkeep, and sprucing up the store with the current times. With the competition coming in, opening newer stores, we were kind of saddled with older stores, and that is what we are correcting at a rapid pace,” he added.

In Q3FY23, Dominos invested in a new ace design. Stores that are not inviting, which are older, more than 7 or 8 years old, do need a refreshed look, Khetarpal stated.

Inflation Pinches The Pizza Category
Beyond the dine-in conundrum and the rising competition from regional players, it is inflation that has pinched the business performance of these chains in recent quarters.

Domino’s revenue from like-for-like (LFL) sales only grew 0.3 per cent, primarily order-driven in Q3FY23. In the next quarter (Q4), the growth became negative as the LFL sales declined by 0.6 per cent. The LFL sales stayed stagnant as it fell by 1.3 per cent for two consecutive quarters for the current fiscal year (FY2024).

Pizza Hut’s same-store sales growth (SSSG) declined by 3.2 per cent in Q4FY23, a 5.3 per cent slump in Q1FY24 and a 10.4 per cent fall in Q2FY24.

Industry observers largely see inflation pinching the pizza category and marginal consumer preference shifting in favour of the non-pizza category within the larger QSR space.

“This is being observed mainly because of the after-effects of inflation where the consumers have tried to balance their wallets and down trade to lower entry points within the QSR industry. In our view, this phenomenon is probably temporary in nature,” Ravi Jaipuria, Non-Executive Chairman of Devyani International said.

On the competition from regional players, Vijay Jain, CFO, Sapphire foods, noted, “We acknowledge that the competitive intensity in this category and the number of players in this category, both regional players and national players could be one of the reasons (for pizza category’s performance).”

Vishal Jain, an assistant manager with Sapphire Foods, also acknowledged the competitive intensity in the pizza category and the number of players in this category, both regional and national players.

Coping Up With Competition
To have the biggest slice of the market, Domino’s and Pizza Hut are trying different initiatives to attract customers.

Pizza Hut, for instance, introduced a new menu by giving it a more premium appeal. Also, some initiatives in terms of additional promotions, through value layers and additional marketing spends.

“We have launched from a menu refresh perspective and are going to help us and compensate. We are going to mass media as far as the new range is concerned that is at the top end of the category. We are taking initiatives from a gamification perspective because that draws the youth in,” Manish Dwar, Executive Director & CFO · Devyani International.

Also, the brands launched loyalty programs and offers for the customers.

Domino’s, in Q2FY24, launched a regional menu to compete with the local competition, starting with a dedicated East Range during the Durga Puja festival in West Bengal.

“This year again, Domino’s introduced Kashundi Mutton and Prawns, thereby adapting to the local preference and this was again launched during Durga Puja festival. We are continuously looking at improvements in the existing systems, processes and way of doing things,” Khetarpal highlighted.

The brand is using data and technology to sharpen our discounts, therefore leading to a better realisation of the same product. It is also using data and technology to sharpshoot its offers to improve penetration of combos, which has led to an increase in average ticket size, Khetrapal emphasised.