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Domino’s has shown every other fast-food rival how to scale in India.

At roughly 1,570 outlets, the American fast-food chain has 2.5X the footprint of Pizza Hut. And its local franchisee Jubilant Foodworks’ revenue of Rs 4,400 crore (US$564 million) in the year ended March 2022 is more than the combined topline of Pizza Hut and KFC’s India franchisees.

What’s more, Jubilant created the playbook for food delivery well before food delivery was even a thing in India. And while most restaurants bemoan their dependence on foodtech majors Zomato and Swiggy, Domino’s continues to hold its own.

As a result, Jubilant shares surged almost 9X in the five years to October 2021, when they touched their all-time high.

But it’s been a different story since.

The stock has shed 43% of its value since October, and the broader stock-market volatility is only a minor factor.

With Domino’s, Jubilant feasted on India’s fast-food market. Now, it’s time to go on a diet

Investors have sent Jubilant’s market cap soaring not just because of its ability to expand the Domino’s store network and bolster its sales, but because it was doing so with industry-leading profitability.

That is still the case. But when Jubilant declared its results for the quarter ended March 2022, shareholders were in for a surprise. Jubilant’s Ebitda margins, despite rising year-on-year, fell sharply from the previous quarter—from 26.6% to 25%.

Sure, inflation was bound to weigh on Jubilant. Raw material costs and other expenses, relative to revenue, had both gone up. But the company had hiked Domino’s prices by 5-6% in December, followed by a similar hike in April.

This is a really big deal for a brand like Domino’s. It prides itself on its low prices and attractive deals that make these prices seem even better.

So, making Domino’s pizzas dearer is not something that comes naturally to Jubilant. In fact, the company had left prices unchanged for at least three years before December, according to an analyst who tracks Jubilant.

Besides, the simple fact is that ordering a Domino’s pie will now pinch customers more. And these hikes strike at the heart of their perception that Domino’s is, or at least was, somehow immune to inflation, going by its stagnant rates till recently.

This isn’t lost on Jubilant CEO Pratik Pota, who had this to say during its recent earnings call:

Muddying the waters further when it comes to profitability is Jubilant’s decision to stay aggressive on the expansion front.