Who made the money from Domino’s China?The performance is lackluster and the staff cost is still high, and the comprehensive capacity utilization rate is only 71%.

Source: Zebra Consumer

　　On the evening of October 14, DeltaDPC Dash Ltd, the operator of Le Pizza China, submitted an IPO prospectus, which hit the Hong Kong stock market. In April this year, Dase shares submitted the form for the first time, and it automatically expired recently.

Dase is the exclusive master franchisee of Domino’s Pizza in mainland China, Hong Kong and Macau.It has 547 stores in 12 cities.

Domino’s is the world‘s largest pizza company by global retail sales in 2021, with more than 19,200 stores in more than 90 markets around the world as of June 19, 2022.

In 1996, Domino’s Pizza entered the Chinese market through a franchise model, taking the lead in setting up stores in Beijing, Tianjin and Sanhe, Hebei.

At that time, after Pizza Hut entered the Chinese market in 1990, the trend of pizza consumption gradually started;

In the early stage, Domino’s Pizza franchise was decentralized and its development was sluggish.

In 2010, Good Taste Limited, a company controlled by a French family trust, acquired Domino’s Pizza franchisees in Beijing, Tianjin, Shanghai, Jiangsu and Zhejiang to form the current Dase shares. In 2017, the company renewed the franchise agreement with Domino’s for 10+20 years.

After that, Domino’s also injected capital into Dase shares twice in 2020 and 2021, spending US$89.1 million, becoming the company’s second largest shareholder after Good Taste Limited.

　　Domino’s and Dase shares want to replicate the success of Yum! + Yum China in the Chinese market.Therefore, the company that Domino’s Pizza is listed on the Hong Kong stock market can be referred to as “Domino’s China”.

However, Domino’s China will really enter the outbreak period, and it will wait until Wang Yi and other core executives enter the company. Returnee Wang Yi worked at McKinsey for many years before entering McDonald’s China as the vice president of McDonald’s franchise. Joined the company as CEO in 2017 and became an executive director in 2021.

After that, the number of Domino’s stores in China increased rapidly, from only 188 at the beginning of 2019, to 508 by the end of June 2022, an increase of 1.7 times in 3.5 years, ranking first among the top five pizza brands in terms of growth rate.

In 2019, 2020, 2021 and the first half of 2022, there will be a net increase of 80, 95, 105 and 40 stores respectively. According to the plan, Domino’s Pizza in the Chinese market will add 120 and 180 new stores in 2022 and 2023, respectively.

To this end, Domino’s China has built three central kitchens in Sanhe, Hebei, Shanghai and Dongguan, Guangdong.

Currently,Domino’s Pizza ranks third in the Chinese market, behind Pizza Hut and Zumbo Pizza.As of the end of June this year, the number of Pizza Hut restaurants reached 2,711; previously disclosed data by Zumbo Pizza showed that as of 2020, the number of company-owned and franchised stores was 1,100+ and 500+, respectively.

Domino’s China’s revenue grew steadily, with RMB 837 million, RMB 1.104 billion, RMB 1.611 billion and RMB 909 million respectively during the reporting period. However, the company has never been profitable, with net profits of -182 million yuan, -274 million yuan, -471 million yuan, and -95.475 million yuan in the same period.

Continued losses are first and foremost related to the “birth” of Domino’s China. The company is a franchisee of Domino’s, and it has to pay a lot of authorization-related fees to the brand company every year, which were 39.5 million yuan, 50.7 million yuan, 115 million yuan, and 29.2 million yuan respectively during the reporting period.

Domino’s has had poor performance in recent years, and in August this year, it was reported that it withdrew from the Italian market, the birthplace of pizza. Therefore, we can only pin our growth hopes on the franchise model in emerging markets such as China, and collect brand rents.

Of course, the more important reason for the loss is the company’s business model.

The medium and long-term prospects of China’s catering market and pizza market are continuously optimistic. However, in recent years, it has been a difficult period for this industry. Under the influence of factors such as the epidemic, major catering brands, including Domino’s China’s largest competitor Pizza Hut, also felt the pressure of performance.

In this context, Domino’s China has establishedChangheThe increase in revenue from the improvement of operating efficiency is more valuable.

In 2020, 2021, and the first half of 2022, the company’s same-store sales growth rates were 9.0%, 18.7%, and 13.9%, respectively. Among them, the company’s new growth market (key cities other than Beijing and Shanghai) as the future focus of the company’s same-store sales The growth rates were 18.0%, 37.7%, and 22.1% respectively.

At the same time, key operating data such as unit price per customer, sales per store, and store profit margin also showed an overall growth trend.

main reason,Thanks to the development of pizza delivery business.Among all catering categories, pizza should be one of the most suitable categories for the takeaway scene. In the industry, pizza sold through takeaway channels accounted for 49% of the industry’s total revenue.

Domino’s China is even more prominent. During the reporting period, the revenue of takeaway channels was 586 million yuan, 822 million yuan, 1.180 billion yuan, and 650 million yuan, accounting for a stable between 70% and 75%.

The business of pizza retailers is divided into three parts: pizza produced in the central kitchen, cold chain distribution to chain stores, and then delivered to consumers by riders.

Moreover, because of the high proportion of takeaways and the company’s strength and market ambitions, Domino’s China chose to build its own production capacity, store system and distribution network.

This means a huge staff size. As of the end of June 2022, Domino’s China has 3,199 full-time employees and 9,705 part-time employees, most of which are riders and shop assistants.

Even if the company partially adopts the part-time wage model, the cost of employees remains high. Take 2021 as an example,The company’s employee compensation expenses were 703 million yuan, accounting for 43.66% of operating income.

Therefore, Domino’s China, which shoulders these two mountains, may have to wait until the moment of scale-based efficiency improvement in order to achieve stable profitability: reduce marginal costs in brand spending, and combine the production, retail and distribution links of production, retail and distribution. Capacity utilization has been raised. In the first half of 2022, the capacity utilization rates of the company’s three bases were 68%, 82%, and 55%, respectively.The comprehensive capacity utilization rate is only 71%which shows that is not enough.

In this fiercely competitive market, Pizza Hut, Jambo, Papa John’s and other brands are also increasing their positions against the trend. Domino’s China is struggling to catch up. When will it be able to enter Match Point?

Responsible editor: Zhang Haiying