(Original title: Over 60% of Domino’s China’s three-year loss of 900 million came from Beijing and Shanghai)
Financial Associated Press, October 17 (Editor Ma Yijie)According to the announcement of the Hong Kong Stock Exchange, on October 14, Dase, a subsidiary of Domino’s Pizza, submitted an application for listing in Hong Kong, and Bank of America was the sole sponsor.
According to the prospectus, Dash Shares (hereinafter referred to as “Domino’s China”) is the exclusive master franchisee of Domino’s Pizza in mainland China, Hong Kong, China and Macau, China.As of the first half of 2022, the number of stores in the company’s network (all directly operated by Dase) increased by 170% to 508 stores from 188 stores as of January 1, 2019.
According to the prospectus, from 2016 to 2019, the scale of China’s pizza market increased from 22.8 billion yuan to 33.5 billion yuan, with a compound annual growth rate of 13.7%. From 2021 to 2026, the market size is expected to grow at a CAGR of 13.6%, reaching 68.9 billion yuan in 2026.
According to Frost & Sullivan, given the low penetration rate, the pizza market in China still has huge potential.As of 2021, there will be about 24 pizza outlets per million people in first-tier and new first-tier cities, while there will be about 14 and 6 pizza outlets per million people in second- and third-tier (or lower-tier cities), compared with Japan and South Korea per million people during the same period. There are about 28.1 and 28.3 stores per million people.
It is worth noting that in the Chinese pizza market, delivery sales are growing rapidly and are expected to account for the majority of revenue in the next five years.From 2016 to 2019, the takeaway revenue of China’s pizza market increased from 7.6 billion yuan to 14.1 billion yuan, with a compound annual growth rate of 22.9%. From 2021 to 2026, the size of China’s pizza delivery market is expected to grow at a CAGR of 19.9%, reaching 44.3 billion yuan in 2026, which is expected to account for 64.3% of China’s pizza market.
Financial data shows that more than 70% of Domino’s China’s revenue relies on delivery.From 2019 to 2021 and the first half of 2022, the company’s revenue from delivery orders was 586 million yuan, 822 million yuan, 1.180 billion yuan, and 650 million yuan, accounting for 70.0%, 74.5%, and 73.2% of the company’s total revenue for the same period, respectively. % and 71.5%, the company’s revenue in the same period was 837 million yuan, 1.104 billion yuan, 1.611 billion yuan and 909 million yuan respectively. Despite the continuous growth in revenue, the company was still in a state of loss during the reporting period, recording losses of RMB 182 million, RMB 274 million, RMB 471 million and RMB 96 million respectively.
In addition, more than 80% of the company’s revenue in 2019 came from the Beijing and Shanghai regions, and in recent years, the revenue contribution from other new growth market regions has continued to increase. As of the first half of 2022, the revenue of Beijing and Shanghai stores accounted for 63.8%.The prospectus shows that the profit margins of the stores in Beijing and Shanghai are relatively high compared to the new growth markets. The average cash investment return period of the company’s stores opened in Beijing and Shanghai in 2021 is expected to be 32 months, while the stores opened in the new growth markets during the same period will have a higher return on investment. The typical cash payback period is expected to be 45 months.
The company stated that the financing will be used to expand the store network and the construction of central kitchens, including the planned opening of 357 new stores in 2023-2024, the expansion of central kitchens in Shanghai, Sanhe and Dongguan, and the new central kitchen project. In addition, it will also be used to transform the business operation system, enhance technical capabilities, strengthen digital platform marketing, and improve financial management and supply chain systems. The company reminded that based on the previous loss record, it has not been able to guarantee the profitability of future growth, and there is also uncertainty in the growth trend of new stores. Unexpected factors such as the epidemic will also affect the company’s operations. Moreover, the company’s operations are very dependent on the franchise authorization from Domino’s. The current franchise agreement is valid until June 1, 2027, and the company has the option to renew for two additional 10 years.