But the conditions for success during that era were some of the best the pizza chain could have wished for. COVID-19 lockdowns keeping everyone at home created huge – but temporary – demand for food delivery. Fast-food customers and investors alike were grabbing a slice of Domino’s, which reached a share price record high of nearly $160 in September 2021.
Since then, it hasn’t capitalised on the flash-in-the-pan success. Pizza sales have stalled. Profit predictions were downgraded three times in a year.
“It has been this huge growth story for a long time. The last two or three years hasn’t [delivered] any growth,” said Tom Kierath, investment banking firm Barrenjoey’s head of consumer research.
Investors fled the stock after van Dyck’s resignation was announced, sending the share price to little over a tenth of that peak to $16.96. Cowin was aware of the need to reassure rattled shareholders, with van Dyck’s departure coming so soon after Meij’s. The billionaire businessman has a personal stake – 25.7 per cent – in fixing this.
“The business has got to do better. We’re custodians of other people’s money,” Cowin said. “But to make this business successful, we have to have growth, and we have to do it now rather than on a long-term basis.”
What’s gone wrong at Domino’s?
Domino’s problems didn’t appear overnight. Many competitive edges that once made it a market leader have eroded over years. Meij sought to make Domino’s website and app best-in-class, spending nearly $23 million in half a year alone on digital platforms.
The investment doesn’t appear to have generated high returns.
“You had the Peloton bubble, you had the Lululemon bubble with everyone buying casual wear, and we had this Domino’s bubble because they were digitally well advanced beyond anyone else,” said food industry consultant and Titanium Food director Suzee Brain.
“That gave them inflated confidence that they were the new flavour of the month. So they started some really massive expansion off the back of a false economy.”
The rapid store roll-out across Europe and Asia, once a major sales driver, was reversing. In Australia, Domino’s couldn’t keep the sales spurt they enjoyed during the pandemic.
Executive chairman Jack Cowin is unwinding a number of investments decisions made by former CEO Don Meij.Credit: Jamila Toderas
“They weren’t able to keep a lot of those customers, because there’s another problem: the product is not all that great,” said Brain. “They’ve never marketed it because they make great pizza … But now, it actually needs to be about the pizza.”
Domino’s is facing a more competitive and diverse fast-food landscape in which players such as Guzman y Gomez and El Jannah are attracting younger customers and US chains Five Guys and Wingstop are keen for their slice of the market.
As Australia’s dominant pizza chain, industry watchers believe Domino’s must advocate more effectively for the entire pizza category.
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“As part of your ‘what we do for the kids for a family eating Sunday evening dinner’ [considerations], does Domino’s become part of the conversation more than it currently is? That’s the opportunity,” said one industry analyst who declined to be named.
The business must become more profitable, Cowin has told investors. Ideally, this would happen through a sales uplift, but as there’s no guarantee of that, costs need to be pulled out of the business. As delivery aggregators Uber Eats and DoorDash eat Domino’s lunch, IT spending has been an early target.
“Our technology is not any better than Uber’s and the other people that we have to deal with,” said Cowin. “If you don’t have a competitive advantage, let’s stop trying to recreate the wheel.”
Franchisee profitability is a key priority for Domino’s, with weekly store sales ranging from $30,000 to $100,000, Cowin revealed. But margins were eroded by the spurt of high inflation across ingredients such as cheese as well as wages, fuel and electricity. Meij tried to pass this on by imposing a 6 per cent delivery fee, which backfired with customers who punished the move by buying fewer pizzas.
“Relative price point becomes very important,” said Ten Cap co-founder and lead portfolio manager Jun Bei Liu. “This price increase for the fast-food category was just so wrong.”
Several fund managers, stock pickers and analysts believe at least some dead weight needs to be shed. Domino’s should sell France and exit Japan, said outspoken stockbroker Angus Aitken.
Barrenjoey’s Keirath agrees. “If they get Taiwan, right, is it going to move the dial? No, it’s becoming a distraction. The same in Malaysia,” he said.
“What you do by staying in those markets is you dilute the core markets.”
Who’s up for the job?
Recruitment is under way for Van Dyck’s replacement. But they will have to be someone who will have to play by the rules laid out by Cowin, who has made it clear he wants to see rapid change.
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“If you have a strong chair in place [who has] already said to the market, ‘well, that guy is not there because he’s not delivering on costs’, then the next person has to subscribe to that view,” said Ten Cap’s Liu.
“When you have to focus on costs, you got to be a tough person. You can’t be a nice guy.”
There are plenty who think Domino’s is still a good deal, such as Morningstar equity analyst Johannes Faul, who said the leadership instability has injected uncertainty in the short term but described the pizza chain as “a robust brand of the future”.
“We do think Domino’s still has growth ahead of it. Quite significantly so,” Faul said.
Aitken said there was still a “huge mass market” for Domino’s products. “The demise of Domino’s as a product is not apparent to us,” he said.
“We think backing the No.1 [quick-service restaurant] money-maker over 50 years, when he has no friends, is a great time to back Jack Cowin and Domino’s.”
Turning things around could take three years. “Jack might be in his 80s but he is hands-on and can fix this with the right team.”
