Domino’s struggles as rival delivery services threaten to topple it

The Guardian Finance 1 day ago

All is not well in the land of the pizza. After an explosion in the number of chains selling some version of dough topped with tomato and cheese, the sector has been singed.

Pizza Express had to fend off speculation last week that it was going under as it entered talks to restructure £1.1bn of debt. Strada, Zizzi and Prezzo have closed hundreds of branches. These tales of woe reflect the rise and fall of the wider casual dining scene, which has suffered a surge in closures, including Jamie Oliver’s UK restaurant empire. Too many restaurants, rising costs and consumer wariness have slashed margins and turned boom to bust.

Diners’ tastes are also changing rapidly and the rise of aggregator delivery services such as Deliveroo and Just Eat has given people more options for ordering in.

The upheaval has even affected Domino’s Pizza, the delivery chain that reports on third-quarter trading on Thursday. Until recently Domino’s seemed unstoppable, as households skipped cooking to share an American Hot in front of the TV. Sales even rose during the great recession of 2009 as consumers replaced pricier meals out with a Domino’s.

Things aren’t so rosy now. In the UK and Ireland, which make up more than 90% of European sales, growth is slowing, food and labour costs are rising and the company’s franchisees are in revolt. On top of that, Domino’s operations in Europe are losing money. As a result of these problems the company, which operates under licence from its US parent, is looking for a new chairman and chief executive.

Aggregator delivery service Just Eat.

Domino’s 63 UK franchisees, who run almost all of its 1,109 stores, want a bigger slice of profits and are refusing to open more branches until the dispute is resolved. Two of the franchisees own more than 200 stores each, giving them plenty of clout, and talks are due to last into next year.

Domino’s half-year results showed like-for-like sales in the UK and Ireland up 3.9%, a slowdown from 5.9% growth a year earlier. David Wild, the outgoing chief executive, said this was a good performance in a difficult market.

But the number of like-for-like orders fell 3.4%. Analysts at the investment bank Berenberg reckon this means sales would have fallen without price increases. No wonder franchisees, who have had to pay Domino’s more for their ingredients, are angry.

“For a business that is highly dependent on competitive pricing and promotional offers, this is a worrying trend that could lead to sales falling, especially given the increasing competition,” the analysts said.

Losses at operations in Iceland, Norway, Switzerland and Sweden more than tripled to £6.4m, dragging underlying group pre-tax profit down 7.4% to £42.3m.

Domino’s has struggled for years to make inroads in Europe, often misjudging new markets. Wild threw in the towel in Germany after thrifty consumers remained loyal to the country’s independent pizzerias. Scrapping the international business may be tempting for new management – but that would leave Domino’s short of growth options in a packed UK market.

According to Domino’s, it has a distinctive position in Britain based on its association with TV programmes starting with The Simpsons and continuing with Britain’s Got Talent and Love Island. As “the official food of everything”, Domino’s is synonymous with chilling in front of the box, the story goes.

But that advantage may dwindle as viewing splinters between streaming channels and people take advantage of the array of foods on offer for delivery. The digital age is fragmenting industries and speeding up changes in consumption habits.

Mark Brumby, a leisure industry analyst at Langton Capital, said: “When Domino’s was doing well, if you wanted food delivered there wasn’t much choice. Now, whether it’s pizza or not, you’ve got a lot of choice.”

Tags: Business

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