Shooting Stars in Indian Coast
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US coffee chain Starbucks (NASDAQ: SBUX) will open its first store in India in Mumbai by the end of October.
Tata Starbucks Ltd, the equally owned joint venture between Starbucks Corp. and Tata Global Beverages Ltd, will open the outlet at Horniman Circle in downtown Mumbai. In January, the company announced it will launch 30-50 outlets in India in 2012 with an initial investment of $78 million to be split equally. The first few retail outlets will be launched in Mumbai and New Delhi, followed by other major cities, the company said at the time.
Starbucks has chosen Mumbai, which also happens to be the headquarters of the Tata Group, in contrast to its rival Dunkin Brands Group (NASDAQ: DNKN), which opened its flagship Dunkin’ Donuts store in India earlier this year in Delhi’s Connaught Place.
The company, headquartered at Canton in Massachusetts, plans to set up eight to 10 stores this financial year — all in Delhi. That, it says, would earmark its journey to slowly turn out to be a pan-India player with about 100 stores in the country in the next five years. Its strategy is to be an “affordable” eating place. This would thus be unlike the case in the US, where coffee reigns supreme in terms of revenue.
A La Carte
The world's largest restaurant company Yum! Brands (NYSE: YUM), with chains such as Pizza Hut and KFC, will invest in opening new outlets in India and speed up expansion as it targets more than $1-billion revenues in the country within five years.
Yum! Brands opened its first owned Pizza Hut store in the country few weeks back at Mumbai's Mira Road as it plans to take on the country's largest pizza chain Domino's Pizza more aggressively. India is one of the very few countries where the company is investing in equity as there is immense potential for growth in this business.
Yum! plans to double its overall investments and store count in the country in three years by bringing in $100 million and opening 500 outlets by 2015. Industry experts feel Yum!'s move could be a game changer in a market where most global restaurant chains follow franchisee models, and trigger a foreign investment boom in the restaurant market.
India is one of the fastest growing markets in the world. Retail consultancy Technopak Advisors estimates the country's 'eating out' market at close to $16,50,000 crore. The organized segment is valued at about $40,000 crore, growing 20%-25% a year. "Global chains are looking for more control of India operations and want more share of the value creation of their brands," Sahni said.
Domino's Pizza (NYSE: DPZ), one of the market leaders in the organized pizza home delivery segment in India, has now opened its 500th outlet in August. In the last few years, Domino's Pizza has not only aggressively expanded its footprint, but also has been focused on increasing customers across India through its offerings and delivery schedules.
Domino's India operations are the fastest-growing operations in the company's global system. It has a 55 per cent market share as per Euromonitor's 2012 report and over 70 per cent share in the pizza home delivery segment in India. Having reached the 500th store landmark, the company plans to continue with its aggressive growth path. According to Richard Allison, executive vice-president, Domino's Pizza International, said, "Globally, Domino's is present in over 70 markets but certainly the India operations have emerged as one of the largest and fastest growing."
Papa John's (NASDAQ: PZZA) are looking to open 12-15 stores this year, depending upon viable locations. The company, which currently operates 35 pizza outlets in the country, is now focusing on smaller stores based on cash and delivery model, in order to be commercially viable.
Papa John's is the world's third-largest pizza company, with more than 3,800 restaurants operating in 34 countries throughout the world.
All’s well on the home turf
All the five companies are doing well in their home turf. With the current P/E below 30, except DNKN, the stocks seem to be strong. All the companies have revenue and earnings growth and with biting deeper into the Indian appetite will definitely make their sales soar in the next quarter.
The current financial position in a nutshell for the five companies are:
At a time when India is looking to open up its retail sector to foreign investments further, with the emergence of plethora of global food brands, the industry appears to be quite lucrative and full of activity during the coming years. With these shooting stars falling on Indian coast, the stocks of these companies are bound to soar in near future with growth in their international sales.
SomnathGuha has no positions in the stocks mentioned above. The Motley Fool owns shares of Papa John’s International and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Starbucks. 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.If you have questions about this post or the Fool’s blog network, click here for information.