per-employment test

1. PESTELanalysis
India is a democratic country with a business-friendly government. It is one of the
world’s top investment destinations and it has a consumer base about 1.2 billion people. Food
and Beverage accounts for over 60% of customers’ spending. The consumption is growing at the
rate of 30% per year. With a constantly rising income of Indian citizens, different analytics count
that the fast food market will be growing by about 11-18% per year.
India has the highest level of young population; the group of 15-35 is the target group for
most of pizza companies. “An average pizza consumption is 3 pizzas a year with more than 50%
of the population eating pizza at least once in a year. It can potentially become 5-8 pizzas per
year in the future” said CEO of Jubilant Foodworks Ltd (Domino). Fast-food companies have
their focus on young urban consumers who eat out more often, who are more aware of the
western dishes, who have much more willingness to order home delivery and do it online. At this
moment, online accounts for about 36% of the total delivery business (for developed market it is
about 70%). Therefore, most of the economists agree that online ordering is expected to become
the main channel in the nearest future. An online channel is better in margins because of fewer
staff required, larger size of orders caused by the tendency to order more various dishes and in
larger quantity compared to orders made through phones.
It is also important to mention that India has 29 states with different government
regulations. Consumer tastes, computer literacy, and knowledge of English are different across
the country.
Also, there are other trends that should be taken to the consideration:
- Health and wellness: Health and wellness consciousness and awareness is reaching its peak
amongst young urban consumers. With the lack of time and rising disposable incomes, local
consumers are reaching the stage where they do not mind spending extra money on healthier
food options.
- Legal factor: The full-service restaurants registered a slowdown in growth due to the changed
taxation structure in 2015. The service tax in 2015 increased from 12.4% to 14%. This
resulted in the average transaction price increasing considerably. As a result, some of the
consumers are beginning to move away from fine dining. Another government decision
about bonuses act or any other employment regulation may affect the company’s income. In
addition, according to Ernst &Yong, there are some cases when government forces the
companies to spend at least 2% of the income on the social needs.
Porter’s Five Forces Analysis
1. Competitive rivalry or competition (strong force).
The fast food restaurant industry in India includes many firms of various sizes, such as
global chains like Domino, Pizza Hut, Papa John’s, Pizza Express, Sbarro, CPK, and
local mom-and-pop fast food restaurants. Most of the medium and large firms
aggressively market their products which make the competition even tougher for small
chains.
2. Bargaining power of buyers or customers (strong force).
XXX pizza doesn’t have yet international brand recognition, it is much harder to attract
the first customers in India in comparison to company with high brand recognition. At
the same time, with the low switching costs, customers can easily switch their

2. preferences in fast-food restaurants. The one, which will satisfy their needs, will have the
highest market share.
3. Bargaining power of suppliers (strong force).
Suppliers influence a small store in one location much more than it affects an old and big
restaurant chains. In addition, there are a lot of unknown factors in the new country and
local government regulation should be considered. In some cases, Indian government
force foreign companies to use certain amount of local raw materials in the production. In
businesses where Foreign Direct Investment (FDI) exceeds 51%, government will force
companies to use at least 30% of the raw materials or goods to be sourced from India,
preferably from micro, small or medium enterprises, village and cottage industries,
artisans and craftsmen.
4. Threat of substitutes or substitution (strong force).
There are many substitutes to pizza, such as products from other fast food restaurants,
Indian local bakeries, or even food from home. It is also easy to shift from pizza to these
substitutes (low switching costs). In addition, these substitutes are competitive in terms of
quality and consumer satisfaction. Substitutes are the major issue that the company must
address through approaches like product quality improvement.
5. Threat of new entrants or new entry (high force).
It is calculated by adding levels of switching costs, cost of capital, and cost of brand
development. Before the developing of a strong brand name in India, XXX pizza will be
facing the same threat of new entrants as any other local mom-and-pop restaurant. At the
same time, XXX may succeed in cost efficiency through the XXX IS, even though it will
not receive benefits from economy of scale.
Maincompetitors
As it was mentioned earlier, there are many direct (pizza companies) and indirect
competitors in India. On the country level, there are at least two main competitors Domino and
Pizza Hut for XXX pizza. In big cities, they usually place the stores in corporate areas,
universities, malls and other places where the target customers hang out more frequently.
Domino pizza, operated by Jubilant Foodworks Ltd (JFL) through the master franchise,
publicly traded company, is the main competitor. Its focus is delivery. In additional, it has
similar advertisement 30 minutes or free pizza. The entire operation from taking the customer
order to packing a freshly made pizza runs on an 11 minute schedule. The company proudly
calls itself “The pizza delivery experts.” Domino is the market leader with approximately 70%
market share in the pizza delivery segment. Menu of the Domino included not only pizzas but
also the pastas, chicken wings, cheese dips, and deserts; beverage is coca-cola.
Another brand that has a substantial presence in the Indian market is Pizza Hut operated
by Devyani (private company). In contrast to Domino, Pizza Hut concentrates on in-restaurant
dining. Pizza Hut is positioning themselves as a provider of a unique dining experience. Another
advantage is pizza customization. “Food in style” defines Pizza Hut’s experience. According to
the web-site pizza delivered in 30 minutes or it is given for free.
Domino Pizza Hut
The main target group is the middle class and
lower middle class who are interested in
spending their money on pizza but in low price.
It is targeting at the rich and higher middle
class people suggesting an ambiences of
enjoyment and amusement.

3. 1,004 stores in 230 cities 432 (approximately)
>50% of Pizza’s market share About 20% of pizza’s market share
Average meal price
Rs 600 for two persons (approximately)
Average meal price
Rs 600 for two persons (approximately)
Future plans: JFL is planning to open and
increase its presence on highways. It is
facilitated by the presence of the good operation
of production centers and own supply and
delivery chains
Future plans:
Target growth by expanding in the current
geographies
JFL employs many part-timers and weekenders
who help during peak hours of lunch and dinner;
the number of employees thus increases in peak
season.
XXX will face competition with those companies in all big cities in India. In addition, there are
many others brands in Indian market such as Pizza Villa, CKP, Little Caesar’s, Pizza Express,
and many more (https://en.wikipedia.org/wiki/List_of_restaurant_chains_in_India)
SWOT analysis
Strength Weakness
Strong brand image in Russia
Excellent service
Quality of food
Adaptability to local market
Marketing support
Strong and supportive team from Russia (XXX
University)
Use of technology (XXX IS)
Video streaming of producing the pizza
Not knowing the cultural differences
No relationship with suppliers
High price
Lack of variety
Lack of distributor chains that will allow to
benefit from economies of scale
There may be no Internet in some places
Lack of business partners (for Domino, it is
Inox and IRCTC)
Hard to control the quality in a new place
Opportunities Threats
Increase an international brand awareness
(through USA and China pizzerias)
Develop new offerings
Customization
Partnership with local popular companies with
identifiable brand names (for example, packaged
ice cream and exploit the brand name)
Partnership with food-tech delivery companies
(Zomato, Foodpanda )
Social responsibility
Strong competition
Changing the government regulation
Geopolitical issues
High inflation (rental inflation ranges around
5-7%)
Health concerns (pizza is not a healthy
choice for customers)

4. Recommendations
Business model
I recommend choosing the delivery business model. XXX should target at young people
with middle and high income, who are interested in a good quality of food and memorable
experience of tasting the western cuisine.
Location
For the first pizza store, I would suggest to open pizzeria in the city with sufficient
infrastructure development like education, high internet availability, and/or high presence of
foreigners (travelers). In those types of cities, XXX may gain competitive advantage by using the
online ordering and video streaming of safe pizza creation process.
Legal form
My suggestion is to enter the Indian market by creating a Joint Venture between foreign
branch operation (USA) and a third party which is knowledgeable of the Indian market.
There are at least seven reasons for this choice:
- Language. In India, it is advisable to have documents in English as it is widely understood
across India, including in judicial forums
- Laws. Existing laws and regulation in franchising business in the USA is much more
developed than in Russia. There are more experienced lawyers, counselors, and advisers in
the USA
- Taxation purpose. Companies incorporated in India are treated as Indian companies for
taxation (domestic 33.66%, foreign company 41.82%) Also, there is Double Taxation
Avoidance Agreement with more than 80 countries and the USA is in the list.
- Risk. JV has less risk than wholly-owned subsidiaries
- Financial benefits from having a local partner (access to local banks, realtor agencies,
insurance companies, and other local entities)
- Local partner may provide a better customer service speaking the same language and
knowing the local traditions
- Having a local partner will allow franchisor to focus on the core issue of its international
franchise: improving the marketing and business strategy, changing the products with
accordance to local taste, and protecting the IP rights, trademarks, and design.
A joint venture is more like an agreement of limited duration that can be either renewed
or replaced by another partnership vehicle. There will be 3 different scenarios in the future:
- Partnership
- Master franchise relationship
- Direct franchise relationship from America’s branch office.
The two options available for establishing a joint venture in India are contractual joint
venture and equity based joint venture (company, LLP, or partnership). In contractual joint
venture, a new jointly-owned entity is not created. There is an agreement to work together but
there is no agreement to start an entity owned by the parties which work together.
Despite contractual joint venture, which is typical for a franchisee relationship, according
to www.Indialegalhelp.com, I would recommend to create an equity based JV in order to have
more control over JV. In addition, presence in a new market will help to understand customer
tastes, location development, employment system, and supply chain.

5. There are several different types of equity based JV that foreign companies may create. It
may be company (private limited or public limited), partnership, LLP, and venture capital fund.
LLP firm, as a creation of foreign company and an Indian company, has the advantage of being
easy to wind up after its purpose is over and the liability of the two partner companies is limited.
Key advantages of using an LLP firm compared to a company are as follows:
- Low cost of incorporation of an LLP
- Flexibility of rules of governance based on Agreement between the Partners
- Partners can be companies while management is by Designated Partners who are individuals.
This way ownership and management are separated.
- Low annual maintenance cost
- Before the project takes off, there may be no need to get the accounts audited
- An LLP firm does not have to pay Dividend Distribution Tax on share of profits transferred
to the Partners, which makes LLP a tax advantageous structure
- Voluntary winding of an LLP firm which has no creditors is very easy and can be done
without intervention of any court or tribunal
No doubt, there are other potential disadvantages and problems that may be seen by the
company after creating the JV:
- Corporate Structure. It may be the problem in some cases, who takes the critical decision and
liabilities?
- Dilution of Profits. Royalties may be considered by foreign partner as dividends even though
the purpose of them is different.
- Miscommunications. People with expertise refuse to share the knowledge.
- Additional risk from borrowing in local banks using the assets of other counterparty as
guarantees.
Regulationof Food and Beverage industry in India
The regulatory authority for the food and beverages industry in India is the Food Safety
and Standards Authority of India (FSSAI), established by the Food Safety and Standards Act,
2006. Chapter – 2 of the Food Safety and Standards (Licensing and Registration) Rules, 2011
deals with licensing and registration of food business and provides that all Food Business
Operators (FBOs) shall be registered or licensed in accordance with the procedure provided
therein. Under the Food Safety and Standards (Licensing and Registration of Food Businesses)
Regulation, 2011, local units or franchisees have to obtain a separate license from the local
authority. The FBO needs to submit the details of the processes, controlling mechanism and food
safety monitoring structure of all the units/ outlets spread in different cities/ States, which is to be
updated by the FBO from time to time.
Trademarks
In India, the trademark registration authority is the Trade Marks Registry, which has its
head office in the city of Mumbai, and branch offices at 4 other cities namely, Ahmedabad,
Chennai, Delhi, and Kolkata (http://www.ipindia.nic.in/tmr_new/). The Indian Trade Marks Act,
1999 provides for recorded or registered users of a mark with the Registrar of Trade Marks by
filing a prescribed form TM-28. In India, any person other than a registered proprietor of a
trademark may be registered as a registered user of the trademark in respect of all or any goods/
services for which the trademark is registered. This type of licensing is usually an explicit
agreement, disclosing the terms of royalty, extent of permitted use, termination of permitted use

6. etc., accompanied by an application for registration of the agreement. The permitted use of the
trademark by the registered user/ licensee/ franchisee shall be deemed to be used by the
registered proprietor (the franchisor) under the Indian Trade Marks Act. The term “permitted
use” as defined under the Indian Trade Marks Act entails the use of the registered mark by a
third party with the consent of the registered proprietor by way of a written agreement or a
registered user. It is pertinent to mention here that the common law also recognizes the licensing
of an unregistered trademark.
Start-Up Summary
Usually, it takes 50/50 with the local partner but legal advice is required. According to
the Indian law, Foreign Direct Investment is not permitted in any sectors. The same is true for
investment in LLP. Investment in LLP Firms is permitted only in sectors in which 100% FDI is
permitted through automatic route without any performance linked conditions.
Main competitors
After choosing the city, competitor analysis should be made. Local competitors should be
chosen within 15 miles radius. Their menu, delivering system, suppliers, sales, target group, and
aggressiveness of marketing performance have to be analyzed.
Suppliers
Local partner should be able to identify the most preferable supplier.
Payroll processing
As it was mentioned earlier, the competitors employ many part-time workers during pick
seasons. Average salary may be found on the HR websites. Most of the time, people are working
for cash without legal registration. While India culturally does not have a strong tipping tradition,
in most of the tourist towns tips are expected. Therefore, the salary of delivery personal will
depend on the chosen location. Cooperation with food- delivery companies should be considered
more closely.
Recommendations for menu
In India, vegetarian fast food constitutes around 45% of the whole fast food market.
Thus, in India the restaurant menu should have a variety of vegetarian dishes. Also, it should be
more spicy dishes and more cheesy ones. In addition, since more and more people are changing
lifestyles towards more healthy and sporty, options such as salads, soups, greens and sugar-free
beverages should become prominent in XXX’s offerings.
Due diligence and max investment in JV
Important step before creating the JV is a formal due diligence process. It should help to
evaluate the expectations and limitations of the Indian associate, to check the validity of the
partners’ business operations the company needs to review the validity of the documents made
by the prospective partners, and to evaluate any risk factors associated with the potential
partners.
Due diligence Components
- Credit reports

7. - Personal financial statements
- Business Financial records
- Bank Statements
- Tax records
- Source of funds
There are more other non-finance categories that need to be considered before making an
offer. Such as business reputation, criminal records, regulatory actions, negative press, and
reference checks.
Since, there is at least one publicly traded company in the same sector as XXX Pizza there
should be enough data to calculate an approximate value of operation, total value of the company
using the FCF method. This data may be used as a proxy for investment in a new market.