Franchise grumbles hurt Domino’s profit
PROFITS at fast food chain Domino’s have tumbled amid a battle with its franchisee store owners and troubles overseas.
It posted profits of £61.9m, down 22pc on a year earlier. Sales in stores open more than a year in the UK increased 4.6pc compared with a year earlier, while revenues across the entire group increased by 9pc to £1.2bn.
In addition to the UK and Ireland, Domino’s also operates stores in countries including Switzerland, Liechtenstein and Germany. But its international business has hurt growth as it struggles abroad to replicate the success of its pizza.
Norway and Sweden have proved particularly tough to crack. David Wild, the chief executive of Domino’s, said: ‘Internationally, we have experienced some growing pains which have hampered our overall financial performance.’
Analysts said the slump in profits came as a shock.
Earnings were hit by one- off costs such as £4.5m for the Norwegian expansion.
Wayne Brown, an analyst at Liberum, said: ‘There is no comment from Domino’s on current trading and vague guidance on openings – both quite telling in our view.’
The pizza firm has also been struggling to meet ambitious store opening targets in the UK amid a backlash from franchisees who run its shops and who have been dragging their heels over opening new outlets as they demand a larger slice of Domino’s profits.
They have also complained of a financial hit from higher ingredient costs.
Domino’s opened 58 stores in the UK last year but has scrapped targets for the year ahead, saying openings are likely to be lower given the dispute.
It now has more than 1,100 stores, a figure which is 500 short of its long-term target.
Russ Mould, investment director at AJ Bell, said: ‘ Once the poster child of the franchise industry, profit is now going backwards.
‘ It would be fair to say Domino’s language is increasingly cautious and that the outlook is gloomy.’
Boss Wild said the firm was confident the rift between management and franchisees would be resolved soon.
He said: ‘I talk to franchisees every day and what’s clear is everyone wants this bridge to be built where we start working collaboratively together with success.
‘You have to build a bridge from two sides though. We’re reaching out now and we’re getting a positive response.
‘But we’ve got to complete the construction of the bridge and that’s something that we’re still working on.
‘I think that it will definitely resolve itself over the next year, hopefully sooner.’
The Milton Keynes-based firm, which is completely separate from Domino’s in the US, makes 90pc of its sales in Britain.
It sold a record 102m pizzas last year, which is equivalent to 6.5 every second.
The fast food chain’s best-sellers included its cheeseburger pizza which comes topped with ground beef, gherkins, onions and burger sauce.
The company recently launched a low- calorie range of pizzas called Delight, which contains around 100 calories per slice, compared with 200 for the average Domino’s slice.
Wild said the range was ‘doing OK’ but added: ‘I wouldn’t say it’s blowing the doors off.’
Domino’s Pizza shares were 0.7pc, or 1.6p, higher last night, at 234.7p.