Monday, May 28, 2012

Will India go nuts over doughnuts?

The humble looking ring-shaped friedcake or the doughnut, which till now was one of the least fancy items in a patisserie, has found its own special place in the Indian confectionery market. The recent launch of popular US based chain Dunkin’ Donuts in India has turned the spotlight on the gooey fritter.

Moreover, its entry has brought intense competition for Singapore based Mad Over Donuts (MOD), India’s first doughnut chain, set up in 2008. MOD until now had a fairly monopolistic status because except bakeries and patisseries, there were very few exclusive doughnut brands in India.

‘Dough’ing differently?
Though both Dunkin’ Donuts and MOD offer classic, savoury and fruit flavoured doughnuts, have approximately the same number of doughnuts in their range, and are also similarly priced; the two are positioned differently. While MOD claims to cater to all age groups across categories, Dunkin Donuts is positioning itself as a ‘hang out’ zone for the urban young.


In terms of the menus too they differ widely. With only doughnuts and coffee in their product portfolio, MOD has maintained its focus largely on its eggless fried doughnuts. With ‘Love at First Bite’ as its tagline, it has positioned itself as a fun brand and involves consumers in experiencing the cooking process with its live kitchen concept.
 

The more the merrier
The positioning of Dunkin’ Donuts, on the other hand, is that of an all day food cafĂ©. The menu consists of a whole range of beverages and sandwiches besides doughnuts. Explaining the business model further, Dev Amritesh, COO and President, Dunkin’ Donuts India – Jubilant FoodWorks, says, “Dunkin’ Donuts is known for its donuts for sure, but is also about coffee, sandwiches, all day snacks and other beverages. The brand name in India has the sign of “Dunkin’ Donuts & More” to signify our wide product range and the unique experiences that our restaurants offer. In addition, there is a chilled out, modern and relaxed environment. We are confident that Indian consumers will love our format and our product offering.”

To bring the brand to the Indian shores, the international baked goods and coffee retailer has entered into an alliance with the fast-food operator Jubilant FoodWorks, which runs Domino’s Pizza chain in India.

With a broader product portfolio, Dunkin’ Donuts seeks to fill the vacuum space in between the QSRs, which according to Amritesh are transactional in nature, and cafes, which offer an experience but not necessarily many food options. It is directly competing with another famous international coffee chain, Starbucks, slated to launch in India soon.

According to Ramanujam Sridhar, Founder CEO, brand-comm, a wider menu will work well for Dunkin’. “Doughnuts can give you a point of entry but if given a choice, Indian consumers will move back to staple food options. An esoteric, niche market loses it steam after some time. So this strategy will give them a wider fare without losing its basic appeal,” he opines.

In the view of Ashwani Arora, Research Head at Market Xcel, while this strategy will give an edge to the brand, consumer’s choice will be the ultimate deciding factor. The craving by frequent travellers to consume international brands will work in its favour.

MOD, however, doesn’t perceive this as a looming threat. Their focus remains on doughnuts and providing items that compliment the product like juices, bubble tea and cup cakes.

Adding an Indian touch
Doughnuts are an international offering and to make it suitable for the Indian palette and have a wider consumer base extending across all genres, both brands have localised several products in their range. Dunkin’ Donuts has focussed on palette localisation as opposed to concept localisation and most of the fillings, spices, and proteins used in their products match the Indian taste buds. The beverages include an alphonso mango milkshake and a litchi milkshake, especially introduced for India. In addition, while most of their doughnuts are the same as the international range, mango and roasted coconut are the two new flavours included in the Indian menu. Interestingly, the two brands also offer almost their entire range of doughnuts as eggless to have a wider appeal.

Commenting on the localisation in the MOD menu, Tarak Bhattacharya, COO, MOD, says, “We have regular, seasonal flavour festivals designed especially for the local taste palette. These are launched once in five weeks and are a treat to one and all. One of our festivals was the Savoury Donut launch. They were widely relished and accepted; in fact they few of them with salsa sauce, cheese, pesto are on our permanent menu.”


 India: Mad over doughnuts yet?

Both chains have come up with innovative strategies to capture a larger share of the pie but has the size of the pie grown over the years? Has this sweet dessert found acceptance among Indians or is it still the indulgent food of a select few?

According to Sridhar, doughnuts are a relatively new food category in India. “Doughnuts are a new concept in India. Its primary customers are the affluent people who have tried and liked the product in their travels abroad and are happy to satisfy their indulgence back home. The customer base is gradually increasing through word of mouth,” he explains.

Sridhar, however, has some reservations about the likely time in the day that these doughnuts are to be consumed, considering they are by and large a breakfast meal in the West. On the other hand, Arora optimistically feels that in certain sections, doughnuts may well replace the traditional Indian snack – samosa.

“Snacking is at an all-time high. Today’s young urban generation is always in a mood to experiment. Donuts is increasing finding acceptance in India, currently the product is consumed by the upwardly mobile, but with youngsters ever wanting to try new things the phenomenon may take less time to become a mass consumption item. With increase in vendors selling coffee and snacks on the go, products like pastries, donuts, cookies become side items to be enjoyed with beverage of the choice,” Arora opines.

Both the players and experts therefore agree that the primary motive is to popularise the food in India and enhance the consumer base and that more players will only add to the growth of the category.

“The experts in the industry believe there is enough space to grow and add, hence the entry of new players in the organised market is seen to contribute and grow the market, then eat away the share of the existing. The brands basis price points will have their own patrons and segments to cater. The consumers will benefit and so will the trade. This may pose win-win situation for both, though the margins for the smaller brands will receive a hit but volumes will drive the growth and have a significant positive impact on the bottom line,” says Arora.

According to Amritesh, the evolution of all the three categories the international brand operates in, namely beverages, sandwiches, and doughnuts is still in its early stages and competition will only help it to grow and tap the potential in India.

Price: A dissuading factor?
Many feel the product is priced in the higher range, which makes it a niche food category catering to only the urban affluent class. For instance, a single doughnut at Dunkin’ and MOD is pegged at Rs45 and Rs 50, respectively.

“At present, doughnuts are projected as a premium product that is consumed abroad and the pricing is on the higher side because of the same reason. The price will have to stabilise over time once it gets more exposed and if it becomes a deterrent,” says Sridhar.

However, Market Xcel’s Arora doesn’t see price posing a challenge to the products success. “The category product is surely targeted at the upper segments of the society, later than sooner should price be the selling proposition. The people no more are hesitant to shell out a 100 rupee note for a cup of coffee and there is no reason that the price factor would dissuade a real connoisseur. The product line is not targeted at the base of the pyramid and is going to stay the same for some years. Think of how Pizza entered India and now is an omnipresent offering, in all versions and at all price points, yet we believe it is an Italian dish was meant for discerning consumers,” he explains.

The players however, choose to differ. Dunkin’s Amritesh feels the pricing to be fair. To lower costs, Dunkin’ Donuts is in fact sourcing most of the ingredients locally. A lot of their initial investment was made to overcome the existing backend challenges in India and Amritesh believes that by removing such challenges, many brands are being able to provide a value proposition to Indian consumers.

“Our gourmet, eggless donuts are an affordable indulgence and easily available due to our wide-spread reach. Given the imported ingredients we use and hygiene and quality we emphasise upon, we are a value for money brand. Our customer base is huge and covers all income groups,” says Bhattacharya from MOD.

Sweet temptation
According to inputs from Market Xcel, the bakery industry in India is pegged at Rs 3,000 crore and though the current size of such products may be negligible, but with category products growing at 40 per cent year on year, it is inevitable for such products to assume substantial share within the urban space in the coming years.

Mad Over Donuts, which boasts of 3,30,000 fans on its facebook page, recently opened its first store in Bangalore. It currently operates 34 stores across India in Delhi/NCR, Pune, Mumbai, and Bangalore and targets to reach 100 stores by 2013. Similarly, with an intended investment of 12 to 13 crores this fiscal year, Dunkin Donuts has huge expansion plans for India. In their first year, they plan to open ten company owned stores in Delhi/NCR and 80 to 100 stores across India in the next five years.

If the expansion plans of the two brands and their road map for India is anything to go by, doughnuts are clearly a profitable food category fast gaining ground in India.

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