Chinese cuisine foray adds spice to Jubilant’s menu

Dunkin’ Donuts and Domino’s Pizza to mitigate near-term impact of the new segment

After a good set of numbers for the December 2018 quarter, the stock of Jubilant FoodWorks (JFL) felt some pressure due to the promoter’s proposal for royalty payments. The stock recovered after the proposal was withdrawn. The other trigger for the stock was the breakeven for its Dunkin’ Donuts business ahead of its internal target. What should help add to incremental revenues is the decision of the company to foray into Chinese cuisine brand Hong’s Kitchen.

Analysts at HDFC Securities believe that the new venture gives the company entry to a large category and enables it to benefit from the untapped opportunity in the ‘fast casual’ Chinese segment. Further, Chinese cuisine commands a high margin profile as it is difficult to replicate at home and there is scope to leverage back-end infrastructure (like commissary, management expertise, technology).

Chinese is the second-most preferred cuisine in India, which itself highlights the demand potential for JFL’s new food segment. Also, the expected price points of Hong’s Kitchen are likely to be reasonable, and awareness and behavioural improvement in consumers toward hygienic food should auger well for JFL’s Hong’s Kitchen.

While demand for the same is dependent on several factors such as taste, quality and promotional support, attractive pricing will help JFL bridge the price gap between low-cost street vendors and premium fine dining Chinese restaurants, believe analysts at Edelweiss Securities. Hong’s Kitchen’s average pricing is almost on a par with its close peer Wok Express. What would also help JFL is its established customer base and their brand loyalty, and learnings from initial failure of its Dunkin’ Donuts, says an analyst.

Given the fact that details about expected investment and store addition strategy among others are not yet known, these could impact JFL’s near-term earnings, caution analysts. Nonetheless, its key Domino’s Pizza vertical should help mitigate the near-term impact, if any.

JFL now has started its everyday value (EDV) offer for a single customer by offering a single pizza at a discounted price. Originally, it was only for two pizzas. Also, JFL is pushing 20-minute pizza delivery against 30 minutes currently. All these should propel same-store sale growth (SSSG) of JFL.