When Domino's Pizza Inc. came to India in 1996 – in the first wave of international fast-food brands to enter the country – the company had to start with some basic education of its market.
"We had to do, 'This is a pizza and it's made from ingredients you are familiar with, but the shape is different,'" said Harneet Rajpal, vice-president for marketing of Domino's Pizza India.
Indians embraced it, enthusiastically enough that Domino's now has 513 outlets across 112 cities in India, with a restaurant and delivery business. But a couple of years ago, Domino's concluded it needed to start a second round of vigorous education: Convincing a new group of Indians that they belong in restaurants.
"People acknowledged the pizza was very good, the service was very good, but the biggest hindrance in our category was that people perceived that Domino's was a very expensive brand. We said we have to break the perception," Mr. Rajpal explained. Only a tiny tranche of Indian society, the top tier of the middle class, particularly those with experience living or travelling abroad, was in the habit of routinely eating out. For everyone else, restaurants – if they went there ever – were only for the most special of occasions.
That middle class is estimated at about 250 million people, no small market in itself, but far smaller than Domino's envisaged for a country of 1.2 billion. "We have to be a mass market brand to open stores at the rate we want to," Mr. Rajpal said.
Domino's, working through its master franchisee Jubilant FoodWorks Ltd., put its product developers to work designing a pizza they could sell for under a dollar. The big savings came in cheese, when the company replaced mozzarella with what it calls "liquid cheese sauce." In 2008, Domino's India launched its first Pizzamania, priced at 35 rupees (about 65 cents).
"It opened doors for a lot of Indians who had never tried Domino's or ordered us at home," Mr. Rajpal said. "We see a lot of new people who had never tried pizza coming to us – and over time graduating to other products. … It's democratic consumption now."
This strategy is also being aggressively pursued by the other big players in the $12.5-billion Indian fast-food industry. While organized retail has only 5 per cent of the fast-food market (the rest is made up of stand-alone restaurants and road-side dhabas), it is growing with explosive speed, about 36 per cent last year, dominated by a handful of international brands.
McDonald's Corp. is the clear leader, according to a market analysis by Euromonitor released in October, with 2 per cent of the quick-service market. Pizza Hut Inc. and KFC Corp. – which, like McDonald's and Domino's, entered India in 1996 – each have close to 250 outlets. Subway, which arrived in 2002, is playing a fast game of catch-up with 320 stores in 60 cities and plans to top 400 sites next year; Baskin-Robbins has locked up the dessert market, with 425 stores in 95 cities, including many far from the country's major urban hubs.
All of these firms have relied on the international cachet of their brands, said Piyush Sinha, who heads the Centre for Retail at the Indian Institute for Management in Ahmedabad, to get people in the store.
And all are now using a "sub-dollar pricing" strategy to try to convince a new segment of consumers that regular visits to a fast-food outlet are feasible for them.
KFC has been the market leader here, with a "Streetwise" range offering a hot chicken meal starting from 25 rupees. Domino's Pizzamania is now priced at 44 rupees. McDonald's offers a full hot lunch for under a dollar. Pizza Hut has 60-cent "iPan" pizzas for delivery.
Subway, which struggled initially because of the higher cost of its ingredients, this year experimented with a "toastie," a 60-cent open-face sandwich, that marketing manager Sanjiv Pandey said appeals both to Indians' love of hot food and the low-budget market. "It is a phenomenal entry level price point and it's worked fantastically well for us."
All of this ultralow pricing is paired with aggressive print and television marketing, showing people who clearly cover a wide socioeconomic range eating in the outlets. Prof. Sinha said there are signs it's working.
Jagan, 32, takes his wife and son on regular trips to a Domino's not far from their working-class neighbourhood in Delhi. Mr. Jagan, who uses only one name, runs a tiny shop selling paan (betel leaf for chewing) and earns about $200 a month. Their favourite order, he said, is the barbeque meat pizza – and, of late, garlic sticks, a new discovery for the family. Mr. Jagan said they also visit McDonald's on occasion, and although the family struggles financially, "we can afford this treat." Their usual bill for a twice-monthly visit is about $4.
A confluence of factors is driving the expansion of quick-service restaurants here: There is rapid urbanization, not just in the megalopolis cities such as New Delhi and Mumbai, but especially in small towns and mid-sized cities. India's urban population is expected to double in the next seven years, and two-thirds of it is under the age of 30.
"The rising number of nuclear families, exposure to global trends, the increasing number of employed women, an increase in the number of dual-income households, they have all had a significant impact on eating-out habits," said Amit Jatia, vice-chairman of Hardcastle Restaurants Pvt. Ltd., a franchisee that operates McDonald's restaurants in the west and south of India. That has made the fast-food segment the fastest growing part of the restaurant market, he noted.
Hardcastle plans to double its India stores (currently 153 of the 280 in India) over the next three years with an investment of $100-million. Yum Brands India, parent company for Pizza Hut and KFC (and which recently brought Taco Bell to India) says it will open 1,000 outlets – half of them KFC stores – and generate $1-billion (U.S.) in revenue from India by 2015.
Prof. Sinha noted that the standard ingredients for a fast-food restaurant – such as high hygiene standards, stylish presentation and refrigerated delivery chains – don't come cheaply in India, while real estate is prohibitively expensive in most urban areas. That means companies have to have high-frequency visits and large orders from their customers; only the big brands can afford to float an Indian venture. "India is a big market – but ask seriously how many of them are making money and when they will make money?"
Mr. Jatria said Hardcastle has been "break-even at the store level for a few years now" and "has witnessed strong double-digit growth in same-store sales continuously for the last six years."
Prof. Sinha said the ultralow-cost items are being used as bait but companies are gambling that the strategy will pay off. "For a large business like McDonald's or Pizza Hut, what you're losing in India is a small part of your overall picture – but it's clear you can't make money with that infrastructure on that price point."
Sandeep Kataria, chief marketing officer of Yum Restaurants India, said the company started to see the payoff in audience growth in 2010, and that wooing the consumers of small towns is the core of its plans. "We've seen great success in smaller towns," he said, listing fairly obscure centres such as Bairelly, Manipal and Vijayawada among those where KFC opened this year.
Fast-food's "Indianized" menu
McDonald's offers chicken tandoori and aloo (potato) patty sandwiches. Subway offers mint, chili and eggless mayonnaise (for strict vegetarians) as toppings. Chicken is the main meat offering; most restaurants do not serve beef or pork, in deference to Hindu and Muslim sentiments.
Domino's pioneered delivery, startling customers with its "30 minutes or it's free" promise (a massive logistics achievement in cities such as New Delhi and Mumbai that regularly experience total traffic gridlock). McDonald's has since taken the lead in delivery, with a 24-hour call centre and online ordering. It has also been the first to experiment with drive-throughs and gas-station outlets.