CHENNAI/NEW DELHI - Amidst soaring inflation in the world's most populous nation, the world's biggest pizza brand, Domino's, has come up with a bold response: introducing the world's cheapest Domino's pizza.

Priced at just 49 rupees ($0.60), this pizza is being rolled out in India, which happens to be Domino's No.1 market outside America. The move is seen as the company's strategy to combat the impact of rampant inflation on its profits and to cater to price-conscious consumers who might otherwise be priced out.

Sameer Khetarpal, CEO of Domino's franchisee in India, emphasized that the company is determined to "own that price point." The affordable pizza, a seven-inch cheese pizza with a "sprinkle" of basil and parsley, is positioned as the cheapest offering available across all Domino's locations worldwide.

The CEO of Domino's franchisee in India emphasized that customers should visit the store or use the app due to the 49-rupee callout offer. He revealed that Domino's global team fully supports this strategy. The aim is to counter the trend of customers eating out less due to the overall higher prices, ensuring that existing consumers remain loyal to Domino's and do not opt for competitors.

In contrast, the price of Domino's cheapest savory pizza is much higher in other locations. In Shanghai, the same pizza is priced around $3.80, while in San Francisco, it costs about $12, as indicated by online menu prices.

Queries about Domino's pricing in India were redirected to the local franchisee, indicating that this pricing strategy is specific to the Indian market.

These companies are making efforts to retain the market share they gained during three decades of rapid expansion in a nation that holds significant importance for their future growth. However, the task is particularly daunting due to strong competition from India's street-food culture, where popular items like a sizzling samosa can be purchased for as little as 10 rupees. The need to maintain a competitive edge in the face of such local alternatives is a key focus for these global fast-food chains.

Based on interviews with six executives and 12 store managers, it was revealed that Domino's and other global fast-food giants, including Pizza Hut and Burger King, are facing the challenge of adapting their strategies to cope with soaring inflation in the massive market of 1.4 billion people.

As part of Domino's India pivot, Khetarpal revealed that the company has implemented a cost-saving initiative by removing lids from all pizza boxes sold at stores since December.

This simple change saves approximately 0.6 cents per box and results in significant packaging cost reductions, especially since 37% of Domino's Indian business comes from dine-in orders. These efforts are aimed at offsetting the financial challenges posed by the steep inflationary conditions in the country, which contributed to a 70% decline in profits during the first three months of 2023.

Khetarpal, the head of Jubilant FoodWorks, which operates 1,816 Domino's outlets in India, has taken proactive measures to combat the impact of "historic high inflation" on the company's profits. He conducts staff meetings every Monday to brainstorm innovative cost management solutions.

Jubilant FoodWorks, with its Domino's business being a major contributor to its $635 million in revenues last year, is exploring additional cost-saving strategies. According to Khetarpal, the company aims to negotiate rent rebates from certain store landlords by offering upfront payments. However, specific details about the potential cost benefits were not disclosed.

The focus on competitive pricing is not limited to Domino's alone, as other fast-food giants in India are also targeting the highly price-sensitive market. With inflation rates higher than many other markets, including the U.S., the industry hopes that affordable offers will attract customers to visit stores and use apps, potentially leading to increased sales from additional add-ons or upgrades.

In their efforts to tackle the impact of inflation and consumer budget constraints, companies are actively seeking innovative solutions to maintain their foothold in this critical market.

In response to the challenging inflationary environment in India, fast-food chains like Pizza Hut and McDonald's are aggressively promoting budget-friendly options to cater to price-conscious consumers. Pizza Hut has been promoting pizzas starting at 79 rupees ($0.96), their lowest-priced offering globally, while McDonald's introduced half-price meals in June to attract more customers and boost sales.

These cost-effective products are being supported by extensive marketing campaigns across the country, with banners displayed in stores and even posh malls in New Delhi.

Meanwhile, Domino's flagship inflation-buster is their 49-rupee pizza, which was launched in February. To make this affordable option possible, the company re-engineered the pizza by cutting costs, including reducing the number of tomatoes compared to their earlier cheapest offering at 59 rupees.

However, despite these efforts, the impact of inflation varies between different consumer segments in India.

Low and middle-income earners, who once considered dining at foreign chains as a lifestyle upgrade, are now tightening their belts due to rising costs.

On the other hand, wealthier consumers continue to spend on premium items like expensive smartphones and SUV cars.

During a visit to Domino's stores, Sameer Khetarpal observed the contrasting spending patterns, where some customers could only afford the 49-rupee pizza, while others in affluent areas were buying the more expensive gourmet pizzas priced as high as $14.

The stark difference in consumer behavior highlights the vast disparities in purchasing power among different social strata in the country.

Despite being a challenging year for Domino's, the leading fast-food restaurant in India with a 12.5% market share, other companies have also faced difficulties. Pizza Hut's pre-tax profit at Sapphire Foods decreased by more than half in the March quarter, and Burger King's India franchisee, Restaurant Brands Asia, experienced a 9% increase in net losses.

However, there is a glimmer of hope in the overall quick-service restaurant market in India, which is estimated at nearly $5 billion. Although smaller compared to the United States' $341 billion and China's $137 billion markets, it still presents growth opportunities.

The market for pizza, burger, and chicken restaurants, mainly dominated by Western chains and valued at $2.1 billion in India, is expected to expand, albeit at a slower pace. Euromonitor forecasts an estimated growth rate of approximately 15% annually until 2027, compared to the higher growth rates of 21% in 2022 and 43% in 2021, largely influenced by a post-COVID consumption surge.

Despite the growth prospects, the current environment remains challenging. Inflationary pressures are impacting consumers' spending capacity, particularly for the population accustomed to eating roadside food.

Devanshu Bansal, a consumer analyst at Emkay Global Financial Services, expressed that even with new affordable offers, some consumers still find them relatively costly.
For pizza enthusiasts like Kiran Raj, the allure of budget offerings is overshadowed by a preference for a more premium experience. He, among others, is willing to pay more for a cheese-loaded product with generous toppings. Kiran voiced his preference while savoring slices at a local restaurant in Chennai, emphasizing that big-chain sub-100-rupee pizzas often lack sufficient toppings, resulting in a less satisfying experience.