Domino’s: U.S. unit growth starts with better unit margins

Staff Writer
Domino’s: U.S. unit growth starts with better unit margins

Officials for Ann Arbor, Mich.-based Domino’s Pizza Inc. said they were pleased with the company’s global performance in 2011, but chief executive Patrick Doyle said the brand has not achieved the momentum it wanted in terms of domestic restaurant growth.

The number of franchised locations in the United States grew in 2011, he said, but mostly as a result of strong franchisees acquiring 58 company-operated locations. Since 2008, weaker franchise operators were asked to leave the system by selling their underperforming units to stronger franchisees. But in 2012, Domino’s wants to start growing the system again by building new restaurants, Doyle said.

“We expected to see better domestic store growth numbers in 2011, based on the good year our operators had in 2010,” Doyle said Tuesday during Domino’s fourth-quarter earnings call. “However, we experienced spikes in commodity prices in 2011, which eroded store margins during the summer and made franchisees more hesitant to expand.”

Domino’s, whose 4,907 locations in the United States include 4,513 franchised units, will work to improve unit economics to better allow franchisees to grow in 2012, Doyle said.

“There was a period of time where the best return [franchisees] could get would be to buy some stores from a franchisee leaving the system,” he said. “Those opportunities start to disappear, and those who want to grow are going to need to build new stores.”

Growing sales, mitigating costs

In the fourth quarter, new side dish products like Stuffed Cheesy Bread and Parmesan Bread Bites helped Domino’s improve its levels of retention, customer satisfaction and guest frequency, while contributing to increased check averages and profits, Doyle said.

Domino’s said it will also focus on its bottom line with labor improvements. During the Jan. 1-ended fourth quarter, nearly 2-percent improvements to labor costs resulted from a combination of higher sales and leverage from online ordering and carryout sales.

“Even though I talk about the store-level pressure on margins, the fourth quarter was better for our corporate stores and our franchisees,” Doyle said. “That’s nice forward progress there, and it’s a trend that we need to keep going. … We’ve got a newer, higher level of sales, and the stores as they adjust to that higher level are figuring out how to get more efficient over time and settle into that new higher base and grow from it.”

Domino’s rang up about $1.8 billion in online sales globally, or about $34 million a week, in 2011, Doyle said. The chain’s domestic system now handles one-third of its orders online, and it had its best online-sales week ever during the week of Cyber Monday in December, Doyle added.