Will competition slow down the growth of Domino’s Pizza pizzerias?
During the coronavirus pandemic, Domino’s Pizza Inc. (NYSE: DPZ) pizza chain rapidly increased sales. The takeaway or delivery sales model developed many years ago has most successfully fit into the new conditions.
Domino’s Pizza was one of the few chains that did not seriously rebuild the work system due to the coronavirus. As a result, Pizza remains one of the most popular types of food with delivery in the United States and other countries, which supports Domino’s Pizza sales worldwide. However, increasing competition may put pressure on the company’s growth. Today, the advantage of the network is the focus on the sale of franchises.
Franchisees own the vast majority of Domino’s Pizza’s 17,819 establishments worldwide. For example, in the USA, the company owns only 364 establishments. The franchise model decentralizes responsibility, which reduces the capital investment required for expansion. Ultimately, this helps the company to control costs. But are these savings enough to maintain strong financial performance? The most severe pressure on Domino’s Pizza by universal delivery networks such as DoorDasz, Uber Eats, etc. Now consumers have much more opportunities for choice, up to complex dishes.
Over the past decade, Domino’s Pizza’s revenue has increased by 10% per year, but against the background of growing competition, this figure may decrease in the next ten years. Should bear in mind that the pizza chain has an excellent operating margin, which leaves room for a price reduction or other marketing programs. Thus, Domino’s Pizza has a strong business that has the resources to withstand competition.
DPZ shares have experienced several rallies and are now trading only 13% below 52-week highs. At the auction on October 1, DPZ stock was worth $475.07.
