Pizza Hut & The Indian Pizza Market

Merrill, can you provide a short introduction to your background in the pizza industry?

I’ve been in the quick service restaurant space for close to 32 years. I started my career in 1987, working from the bottom, on the front counter at McDonald’s, in Melbourne, Australia. I worked my way up to being the regional head for Asia. I started my career in 1987 and I was with McDonald’s for 23 years. In 23 years, I spent time with McDonald’s in more than 18 geographies, from Australia, to the South Pacific. I also opened the Middle East for the McDonald’s company and, as I mentioned earlier, I was the regional head for Asia.

In 2010, I decided to part with McDonald’s. I took a year off and, in that year, I went and studied at Wharton and did my Advanced Management Program. At the same time, I wrote a book called Expand Your Brand, which is about what I did at McDonald’s for 23 years, going into new countries and developing the brand.

Following that, I was then the CEO of Domino’s, in Indonesia. I was there for three years and I was part of a team that was responsible for the turnaround of Domino’s in Indonesia. In 2016, I was approached by the largest franchisor of Yum! Brands, which was KFC and Pizza Hut, to move to Malaysia and run their company, as the managing director. The QSR company in Malaysia owns the rights to Pizza Hut and KFC in four countries, being Malaysia, Singapore, Brunei and Cambodia. The total number of restaurants was 1,400. I ran that business for three years and then Yum! approached me and asked me to join them in taking over the Pizza Hut business in the Indian subcontinent.

Currently, I manage four countries, which are India, Sri Lanka, Bangladesh and the Maldives. I manage these countries and the total number of restaurants in this space is about 550. In the next three years, we intend to double the numbers in the region. In a nutshell, that’s my experience with fast food or quick service restaurants. Since 2013, I’ve been working with the two leading brands for pizza.

How does the consumer perception of pizza in India compare to other countries in South East Asia?

The benefit of the pizza business in India is that Pizza Hut has been in India for close to 20 years. For the last 13 years of that, it has been given the award as one of the most trusted brands in the quick service restaurant business, in India. Also, in terms of the competition for pizzas in India, we are the number two player. The number one player is Domino’s and they have nearly three times the number of restaurants that we have there. The biggest plus point for that is that there are plenty of opportunities for us to grow but also, in India, the idea of pizza is very common. It is not like in other parts of Asia where you have to explain to them what a pizza is all about. In India, it’s a very common word. In fact, in lockdown, there was a survey that asked people, in India, what would be the first thing you will do when lockdown is over. The number one answer was, we want to have pizza and biryani, which is an Indian rice and protein mixed dish.

The good thing about this is that the pizza business, the pizza name, in India, is well-known and it’s well accepted by the people all over the country. If you went into another geography, such as Vietnam or another part of Asia, you’ve got to spend a lot of time on educating the consumer on what a pizza actually is.

Do the Indian consumers not have a similar aversion to dairy products like the Chinese consumer would?

The consumers vary. In some countries around the world, pizza is looked upon as a very up-market product, so it’s an affluent thing; middle class, higher middle class and above, would be used to pizza. If you went into second and third tier cities in Asia, people would still not understand that concept of what a pizza is all about. The blessing of pizza in India is that it has been around for a long, long time.

How has the penetration of pizza, as a category, within the organized food sector in India, grown over time?

In India, you have two types of sector. One is the organized food sector, which is where you have global brands. Then you have the unorganized food sector, which is all the small, local players in the country. In India, that split is 70:30; 30 is the organized players and 70 is the unorganized players. When you look at this whole thing, you can just see the potential of growth for organized players, branded players, in the future of Pizza Hut and the other brand players, in India.

You have also got a huge number of people that are moving into the next level or the next class, so you would go from lower middle class to middle class. That number is close to the population of the United States, which is about 300 million people. They are already moving to the next segment so these people are now becoming more affluent, they like to spend time with aspirational brands. All the global players there are now becoming aspirational and something for the consumers in India.

What is the rough penetration or market share of pizza, as a category, within that 30% of organized food?

The penetration wouldn’t be that high. To give you a rough idea of numbers, first of all, the pizza business has the highest penetration of all quick service restaurant players, whether it is burger or chicken or whatever. In the pizza category, there are close to 2,500 organized players, between the two big brands and also a couple of smaller brands that have got 100 or 200 stores. The pizza category, in India, would be the most penetrated of that 30%. But there is a huge opportunity for penetration as you have to remember, in India, you are looking at 1.3 to 1.4 billion people. You’ve got nearly 350 million people who are in that middle-class category. If you just take the 350 million people who can afford to buy pizza and you compare that to the US, the US, in pizza chains, would just have a huge amount of stores, compared to what we have in India, which is 2,500 stores.

Do you think the price point or the image of pizza being an affluent or aspirational dish is going to remain? You are going to have this huge influx of demographics that are going to move up to the middle class, so you don’t actually need to lower the price to increase the market size.

As part of our strategy and part of the strategies of most of the organized players, you always have entry-level value. Entry-level value enables somebody – who can’t afford to spend the same kind of money as somebody in the middle-class band would do – the ability to try it out. They try it out, at entry level and then, as they get used to it and their lifestyle or earning power increases, they can then move from entry level into the next tier.

In QSR, in most countries around the world, especially in India, you have a tiered menu. You have an entry level and you have a level where it’s a meal for one; then you have another value meal which may be a meal for two; then you have a value meal for a meal for four. You will have these value meals that give people the choice to be able to trial something different. Of course, you have got the high end where you have people who have got money and wouldn’t mine spending three or four times what this person would spend on getting a large family meal deal.

How are the consumer preferences or market structure different in the tier one cities, versus tier two and three?

In India, the majority of our restaurants are in tier one. I would say, even with the competition, it’s tier one and tier two. I don’t think anyone has gone into the tier three cities. When you have got so much opportunity in tier one and tier two, you don’t want to spend all your time going to tier three, because then you’ve got the challenges of logistics and training and operations and all that stuff. You have to manage something that is far away and you haven’t got any other restaurants in that area. If you look at what is happening in China, you have got most of the global players that are in tier one, tier two. Now, they are slowly getting to tier three. But the main focus has always been, fill up all your opportunities in tier one, then move to tier two before you go onto tier three.