India's Pizza Wars
Published: September 25, 2007
By Sheridan Prasso

(Fortune Magazine) -- Thumping dance music, waiters darting from the kitchen with hot plates, children chasing balloons. "It's rocking," says 23-year-old software engineer Nishant Gupta, squirting ketchup onto his pizza before dipping it in a mound of mustard and taking a bite.

Welcome to Pizza Hut gone global. This one is in Bangalore, in predominantly vegetarian southern India. And it's at the epicenter of a heated battle for domination between two American pizza purveyors: Pizza Hut and Domino's.

In fact, there's a Domino's right across the street. And while Gupta swears by his $3 Veggie Lovers personal pan pizza at Pizza Hut and says Domino's is better at delivery than taste, the competition has its fans too. Like Arvind Inalalli, another 23-year-old software engineer, who has just ordered a medium-sized vegetarian pizza for $4.80 from a uniformed Domino's waiter. "If you ask me to compare," he says, turning away from a cricket match on a wall-mounted TV, "this is the best."

. Apart from local adulteration practices - plenty of chili flakes, ketchup, and other condiments - these pizzas at Domino's and Pizza Hut taste the same as in the U.S. What's different is the intensity of the competition. Pizza Hut has 134 locations across India (and 13,000 worldwide); Domino's, 149 (8,500). Both are adding about 50 stores a year - quadruple the average in other markets.

In up-and-coming neighborhoods like this one in Bangalore, home to a large number of tech workers, the stores are often across the street from each other, something executives at both companies confirm is unusual. Another Bangalore location, Commercial Street, also has Pizza Hut and Domino's facing off. Bangalore alone has 20 Domino's outlets, with five more planned by the end of this year. By comparison, McDonald's has just three in Bangalore and 105 in India.

The two pizza chains have been in India for about a decade, but the battle started getting feisty only in the past few years when Pizza Hut, a division of Yum Brands, began a push to double its outlets and Domino's began adding in-house seating.

Both chains claim to be leaders: Pizza Hut for casual dining, Domino's for delivery. But there's quite a bit of crossover. Domino's has been renovating its takeout storefronts to add eat-in tables and now does up to 40% of its business in some locations that way. Pizza Hut claims as much as 50% of sales from delivery in some stores, and ten of its outlets are takeout only. Pizza Hut boasts 30% year-over-year sales growth in India; Domino's says its is 55%. (Neither chain breaks out sales figures for India.)

It's still early rounds, but the pizza fight is shaping up something like this:

Left jab, Pizza Hut: "We've been voted India's favorite food brand for each of the last four years, over any other brand," says Graham Allen, who runs the international division of Yum Brands, which also owns KFC and Taco Bell.

Counterpunch, Domino's: "Productwise we have no match. We are clearly the market leader," asserts Domino's India CEO Ajay Kaul. "A Pizza Hut across the road does not in any way dampen our spirits. Our competition is elsewhere, from traditional Indian food."

Right hook, Pizza Hut: "We don't have any competition," says Anup Jain, Pizza Hut's marketing director in India. "They [Domino's] are not a restaurant player. You eat out of a box. At Pizza Hut you get table service. You get to order appetizers, salads, and dessert as well. Everyone can copy our product, but they cannot copy our culture. Delivery actually follows eating out as a habit. We go and create the market first. We introduce the concept of pizza, and then consumers bring it home. It's great for competition to follow. I think they want to follow us."

Uppercut, Domino's: "We have some real die-hard Domino's eaters who'll travel any distance to find us," says Kaul. "There's no doubt that Domino's is better than anyone else in the market."

Who will emerge as heavyweight pizza champ is anyone's guess. But the stakes are high. For Pizza Hut, India is one of the company's three highest-priority markets. Its projections call for 300 stores by 2012. "While it's relatively small now," says Allen, "we see it as a huge opportunity."

Domino's is equally enthusiastic: Kaul says he wants 500 Domino's outlets in India by 2010. A recent McKinsey Global Institute study projected that India's middle class, currently at 50 million, will grow, amazingly, to 583 million by 2025, and that India's masses of young people will spend more outside the home than their parents' generation. They're the chains' target population. Urban centers are also key to success, and India has 35 cities with more than one million people, compared with just nine in the U.S.

It's not all that surprising that pizza is big business in India. The product itself is similar to India's native cuisine. Unlike Chinese and Japanese, Indians eat leavened bread (naan), and a popular traditional version slathers it in butter and garlic - not unlike garlic bread, the most often ordered side dish at both Domino's and Pizza Hut franchises in India.

Cheese (paneer) is ubiquitous in India's northern cuisine. Tomatoes and all kinds of sauces are prevalent everywhere. Combine these ingredients into one gooey, oily, tasty dish that you can eat with your hands - as Indians traditionally do - and you have a hit.

It's estimated that 80% of Indians are vegetarians, so pizza suits that Indian cultural aspect too. Both chains are scrupulous about keeping "veg" from "non-veg" in their kitchens and invite people in to see the separate prep areas. There are even pizza options for India's 5.2 million Jains, followers of a religion that prohibits eating onions or garlic. And stores in heavily Muslim areas don't offer pepperoni.

Mix in another aspect of Indian culture, and you begin to see why both chains are excited about their growth prospects. "Indians are great socializers," says Pizza Hut's Allen. "That plays right into what Pizza Hut stands for as a brand." Indeed the chaos at Pizza Hut is a deliberate marketing strategy. "We call it 'customer mania,'" says Jain. "All the crew members do a dance during peak hours every day. It's a very local thing. It kind of breaks the ice in what otherwise can be a standoffish atmosphere. Customers just love it."

That's certainly true for Praveen Jaya - ram, 32, who occasionally eats at a Pizza Hut in Bangalore on Sunday evenings with his wife and 4-year-old son. "It's friendly here," he says over a $6.25 four-course meal for two that includes a chicken tikka pan pizza, garlic bread, tomato soup, and mango ice cream. "Once or twice a month eating here is okay," he says, acknowledging that local dining options are much cheaper. But being able to afford a night out at Pizza Hut is a mark of success in increasingly affluent India.

For its marketing strategy, Domino's has revived a practice abandoned in the U.S. in 1993: the 30-minutes-or-free-delivery guarantee. "I have a Pizza Hut across the road, so I have to do it in terms of brand visibility," says Alok Pandey, Domino's regional manager for southern India. But, he admits, traffic, monsoon rains, and new neighborhoods spreading out like tendrils make meeting the delivery cutoff a challenge. Sometimes, Pandey says, he has to give away as many as 70 pizzas in a weekend (about 2% of total orders).

Meanwhile, the Pizza Hut across the street has counterpunched with an offer of its own: 50% off for a delivery that takes more than 30 minutes. Ladies and gentlemen, let the slugfest continue.