Latest / The Front / Domino’s losing dough after gangbusters growth

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Domino’s losing dough after gangbusters growth · The Front

• 0:03
  Speaker 1: From The Australian. Here's what's on the front. I'm christinaming it.
• 0:07
  Speaker 1: It's Friday, July thirty one, twenty twenty six. Pizza chain
• 0:13
  Speaker 1: Dominoes will close as many as sixty stores, half of
• 0:16
  Speaker 1: them in Australia and New Zealand, after posting its biggest
• 0:20
  Speaker 1: loss in decades. Investors are focusing on the positives, prompting
• 0:25
  Speaker 1: a share price jump, but Dominoes is far from out
• 0:28
  Speaker 1: of the woods. As skyrocketing inflation and some risky business
• 0:32
  Speaker 1: decisions bite, so can the servers of super cheap pizza
• 0:37
  Speaker 1: bounce back. Senior business reporter Eli Greenblatt is here in
• 0:41
  Speaker 1: just a moment. Eli Greenblatt is a senior business reporter
• 0:53
  Speaker 1: with The Australian and Eli I've got to start with
• 0:55
  Speaker 1: the hard hitting questions, what's your go to pizza order?
• 1:00
  Speaker 2: Like margarita and vegetarian. I've got kids as well, so
• 1:03
  Speaker 2: they've got pretty simple tastes. And either if you can
• 1:06
  Speaker 2: really judge the quality of a pizza chain or a
• 1:09
  Speaker 2: store by how they do the very simple things, which
• 1:12
  Speaker 2: is really a margarita or a vegetarian?
• 1:15
  Speaker 1: I agree. I think it's hard to stuff up a
• 1:16
  Speaker 1: margarita but I'm also partial to a barbecue chicken as well.
• 1:19
  Speaker 1: But I agree that the quality is where it's at.
• 1:22
  Speaker 1: Do you order from a Dominoza or a crust when
• 1:25
  Speaker 1: you get your pizzas, or do you prefer to go
• 1:27
  Speaker 1: out to eat?
• 1:28
  Speaker 2: You know, sometimes I go just locally and so an
• 1:30
  Speaker 2: independent pizza chain and kind of support them in the neighborhood.
• 1:34
  Speaker 2: Normally I just call up and pick it up. A
• 1:37
  Speaker 2: bit of fashion. I don't use Uber Eats or door Dash,
• 1:40
  Speaker 2: which probably makes me a minority these days. So many people,
• 1:43
  Speaker 2: especially young people, are on door Dash or they're on
• 1:47
  Speaker 2: Uber Eats and the lord of their pizza that way,
• 1:49
  Speaker 2: and they'll really go for a low cost operator or
• 1:52
  Speaker 2: someone who's quick, someone who's around the corner. But you know,
• 1:55
  Speaker 2: it's pretty tough out there because there's so much an
• 1:57
  Speaker 2: offer out there. It's becoming incredibly hard in that fast
• 1:59
  Speaker 2: food category.
• 2:01
  Speaker 1: Domino's is one of those that has certainly fit the
• 2:04
  Speaker 1: bill for fast food over the last few decades. Really
• 2:07
  Speaker 1: in Australia, they're back in the news. What's going on?
• 2:10
  Speaker 2: Yeah, Look they're having some troubles and they've been in
• 2:12
  Speaker 2: trouble for quite a few years actually, during COVID really
• 2:15
  Speaker 2: was their best of times, where the shares run as
• 2:18
  Speaker 2: high as about one hundred and sixty dollars. You know,
• 2:20
  Speaker 2: they were worth tens of billions of dollars. But since
• 2:23
  Speaker 2: then they've really collapsed. The shares are down about eighty
• 2:26
  Speaker 2: or eighty five percent, and last night that had an
• 2:28
  Speaker 2: update where they said that have good will impairments or
• 2:32
  Speaker 2: write offs of about three hundred million dollars, so that
• 2:35
  Speaker 2: will send them into a loss for the full year.
• 2:37
  Speaker 2: It'll be only their second loss in about twenty one
• 2:41
  Speaker 2: years of being on the ax. It'll be quite a
• 2:43
  Speaker 2: deep loss sales and negative across all their regions, so
• 2:47
  Speaker 2: it's Australia, New Zealand, Asia, Western Europe. They're really struggling,
• 2:52
  Speaker 2: and they've really had some big mishaps along the way
• 2:54
  Speaker 2: since the end of COVID, which has been around the
• 2:57
  Speaker 2: cost of their pizza, the way their pizzas livered, opening
• 3:01
  Speaker 2: too many stores and too many locations, expanding too quickly,
• 3:05
  Speaker 2: they had extra delivery fees they slapped on which they
• 3:08
  Speaker 2: had to then walk back from because customers were upset.
• 3:12
  Speaker 2: Competition from a lot of other retailers, and it's really
• 3:15
  Speaker 2: been quite difficult for them.
• 3:17
  Speaker 1: On the flip side, Domino's share price is up slightly,
• 3:20
  Speaker 1: certainly not to where it was as you said during COVID,
• 3:23
  Speaker 1: but it has jumped a little bit. Why would the
• 3:26
  Speaker 1: value of shares be going up when the company is
• 3:28
  Speaker 1: losing money.
• 3:29
  Speaker 2: Yeah, that's right. There's two interesting things going on at
• 3:31
  Speaker 2: the same time, two factors influencing the share price when
• 3:35
  Speaker 2: the shares came onto the market that were traded after
• 3:38
  Speaker 2: Wednesday night's update. So first of all, yes, a throndrebillion
• 3:42
  Speaker 2: dollar write off is pretty bad. That is non cash. However,
• 3:45
  Speaker 2: it's an accounting treatment and it doesn't affect the underlying
• 3:49
  Speaker 2: profitability of business. And in fact, even though there was
• 3:52
  Speaker 2: that big write off, even though sales were negative, the
• 3:56
  Speaker 2: underlying profit was actually okay. It came in with analyst expectations.
• 4:01
  Speaker 2: It was actually a bit better than what some analysts expected.
• 4:05
  Speaker 2: So in some ways it's a relief rally. But then
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  Speaker 2: the second thing is it really caught out the shorts,
• 4:10
  Speaker 2: people that were short in the stock. And just to
• 4:12
  Speaker 2: take maybe a few steps back, most people would be
• 4:15
  Speaker 2: aware of, you know, the traditional way of making money
• 4:18
  Speaker 2: in the share market where you buy low and sell high.
• 4:21
  Speaker 2: So you'd buy shares in a company you think it
• 4:23
  Speaker 2: will go higher, you sell for a higher price, you
• 4:26
  Speaker 2: make a profit. But you can also make money on
• 4:28
  Speaker 2: a falling share price. That's called shortening a stock. Now
• 4:33
  Speaker 2: what's happened with Dominoes is Dominoes actually was the most
• 4:36
  Speaker 2: shorted company on the AX. So when the share price
• 4:40
  Speaker 2: started to rise Thursday morning, the shorts were caught out.
• 4:45
  Speaker 2: They had to scramble back in to buy those positions back,
• 4:48
  Speaker 2: to buy those shares so they could not lose as
• 4:51
  Speaker 2: much money and give the shares back to the people
• 4:54
  Speaker 2: they borrowed from. So they had to cover their position.
• 4:59
  Speaker 2: They will pay dividend this year, but really it's a
• 5:03
  Speaker 2: shrinking business. The share price is certainly collapsing, and they're
• 5:06
  Speaker 2: struggling for a number of reasons, but one of them
• 5:09
  Speaker 2: is they've decided to pull away from promotions and discounts.
• 5:14
  Speaker 2: Normally would the Dominoes, there'd be lots of heavy advertising
• 5:17
  Speaker 2: of one of promotions discounts, heavily discounted home delivery offers,
• 5:23
  Speaker 2: which brought in the customers but wasn't very good for profit.
• 5:27
  Speaker 2: So new management, new leadership at Domino's, they've decided to
• 5:30
  Speaker 2: pull away from that and have kind of like an
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  Speaker 2: everyday low pricing, which is what you would see at,
• 5:36
  Speaker 2: for example, a Dan Murphy's or a Bunnis. When you
• 5:40
  Speaker 2: do that, the customers obviously will go elsewhere. So they've
• 5:44
  Speaker 2: had falling sales. That's hurt their profits. They're shutting down stores.
• 5:48
  Speaker 2: They're doing the best they can, but in the short
• 5:50
  Speaker 2: term there will be some pain.
• 5:52
  Speaker 1: Yeah. Friends and family of mine who have been subscribed
• 5:54
  Speaker 1: to Domino's Marketing have said in the past that the
• 5:57
  Speaker 1: text messages and emails that they've received, either with promotions
• 6:00
  Speaker 1: or deals, have been almost inescapable at times. Some have
• 6:04
  Speaker 1: even said that their relationship with Domino's Marketing has been
• 6:06
  Speaker 1: one of the most enduring of their lives, and that's
• 6:09
  Speaker 1: not happening anymore. Was that a misfire for them?
• 6:12
  Speaker 2: Do you think? I think it was. I suppose it
• 6:14
  Speaker 2: works for a while until it stops working. And I
• 6:17
  Speaker 2: think perhaps during COVID people were desperate. They were keen
• 6:19
  Speaker 2: on pizzas, very keen on home delivery, and that kind
• 6:22
  Speaker 2: of worked. But really the market is changing and they
• 6:25
  Speaker 2: were left behind. Also, they weren't really on those delivery
• 6:30
  Speaker 2: apps like door Dash and Uber Eats. Now, there were
• 6:33
  Speaker 2: some seemingly kind of logical reasons for that. They didn't
• 6:36
  Speaker 2: want to give away their margins to Uber Eats. They
• 6:39
  Speaker 2: also didn't want to trust their pizza to a third
• 6:42
  Speaker 2: party deliverer. That's understandable. They had their own army of
• 6:46
  Speaker 2: delivery people who did the delivery for them, so that
• 6:49
  Speaker 2: was all kept in house. But really the market's shifted
• 6:52
  Speaker 2: since then, especially for younger people. They're always on their
• 6:55
  Speaker 2: mobile phones and they've got those apps. They've got Uber Eats,
• 6:59
  Speaker 2: they've got door Dash, and if you're not on those apps,
• 7:01
  Speaker 2: you're then just not seen at all, You're just invisible.
• 7:05
  Speaker 2: You've got to be there. So a year or two ago,
• 7:08
  Speaker 2: the American parent, the NASDAQ listed Domino's Inc. Decided to
• 7:12
  Speaker 2: go on those apps. And look, there's going to be
• 7:15
  Speaker 2: some turbulence there, there's going to be some lost margins,
• 7:17
  Speaker 2: but it looks like it was the right decision because
• 7:20
  Speaker 2: they had to be in front of the customer, and
• 7:22
  Speaker 2: for now, the customer is on those apps, and you've
• 7:24
  Speaker 2: got to be there.
• 7:29
  Speaker 1: We have talked to you about Dominoes on the front
• 7:31
  Speaker 1: before ELI. That was back in twenty twenty three. As
• 7:34
  Speaker 1: you mentioned, when Dominoes lost millions of dollars because it
• 7:38
  Speaker 1: had put a nominal service fee on top of its
• 7:40
  Speaker 1: online orders. Australians at the time were starting to feel
• 7:44
  Speaker 1: the pinch of the cost of living crisis and weren't
• 7:47
  Speaker 1: prepared to cop that extra two dollars or so on
• 7:49
  Speaker 1: their bill. At the time, they did apologize for that
• 7:52
  Speaker 1: and said that it would never happen again, But they've
• 7:54
  Speaker 1: made a slew of other quite big changes since then
• 7:58
  Speaker 1: with all of that in mind, and should they have
• 8:00
  Speaker 1: maybe seen this particular downturn coming, probably.
• 8:05
  Speaker 2: Would have been helpful. I think if they looked deeper
• 8:07
  Speaker 2: into the market and kind of understood the consumer and
• 8:10
  Speaker 2: how they're shopping fast food and what they expect. I think,
• 8:13
  Speaker 2: you know, funny enough, with that delivery fee they put
• 8:16
  Speaker 2: on and they had to take off, that was to
• 8:19
  Speaker 2: deal with inflation. That was itself to cover their extra costs.
• 8:22
  Speaker 2: They had a huge increase in their bills for everything really,
• 8:26
  Speaker 2: from oil, from the packaging and the pizza, from labor,
• 8:29
  Speaker 2: from electricity, even cheese prices went up, and you know,
• 8:32
  Speaker 2: funny enough, at the time, Domino's was one of the
• 8:35
  Speaker 2: biggest buyer of Mozzulo cheese. In Australia they were number one.
• 8:39
  Speaker 2: They used so much cheese those prices went up and
• 8:41
  Speaker 2: they thought that's the only way to get the money back.
• 8:44
  Speaker 2: But yes, customers weren't happy with that.
• 8:47
  Speaker 1: Here's what Format Domino's Australia CEO Don Mage said about
• 8:51
  Speaker 1: the ill fated service fee in twenty twenty four.
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  Speaker 2: The whole industry has a delivery service fee, so we
• 8:57
  Speaker 2: fell on the trap that we should do it as well.
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  Speaker 1: But it's been a competitive advantage that we didn't have
• 9:01
  Speaker 1: a delivery service being our customers made it very clear
• 9:03
  Speaker 1: to us.
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  Speaker 2: Also, I think the problem for Dominoes they grew way
• 9:07
  Speaker 2: too fast. Their attention was spread across too many regions,
• 9:11
  Speaker 2: so they really though originally were Australia and New Zealand, Okay,
• 9:15
  Speaker 2: that makes sense. They were Western Europe. That's maybe something
• 9:18
  Speaker 2: you can handle. So they were France, Belgium, Germany, but
• 9:21
  Speaker 2: then they went into Japan and then Taiwan and then
• 9:24
  Speaker 2: Malaysia and Cambodia. It was too many regions across too
• 9:28
  Speaker 2: many time zones, too much going on. You know, the
• 9:31
  Speaker 2: Japanese pizza market is incredibly different to the Australian pizza market,
• 9:35
  Speaker 2: or the American pizza market and the German market is
• 9:38
  Speaker 2: different again. So really it was way too much to
• 9:41
  Speaker 2: do all from a Brisbane headquarters and it was just
• 9:45
  Speaker 2: they just lost focus.
• 9:51
  Speaker 1: Coming up the changing tastes driving Domino's downturn. I'm hungry.
• 10:08
  Speaker 2: What's so special as Dominoes?
• 10:10
  Speaker 1: That was my turn to cook dinner and I thought,
• 10:12
  Speaker 1: you know what, I'm just going to get the family Dominoes.
• 10:14
  Speaker 1: If someone can tell me why Dominoes is so cheap
• 10:18
  Speaker 1: in Australia, this is.
• 10:18
  Speaker 2: Probably the best Dominoes I've had in years.
• 10:22
  Speaker 1: Dominoes is quite unique in the Australian fast food market
• 10:26
  Speaker 1: in that it hasn't really attracted the ire of say
• 10:29
  Speaker 1: Starbucks during its time here. In fact, I would say
• 10:32
  Speaker 1: that Australians are almost proud of the wholesale rejection of
• 10:36
  Speaker 1: Starbucks in Australia. Do you think Australians and in some
• 10:41
  Speaker 1: of those other markets maybe as well, are just falling
• 10:43
  Speaker 1: out of love with cheap pizza or is there something
• 10:45
  Speaker 1: deeper going on here, what's actually driving all of this?
• 10:48
  Speaker 2: It could be I mean, people seem to have a
• 10:51
  Speaker 2: love it or hate a relationship with Dominoes or a
• 10:53
  Speaker 2: belief in Dominoes or thinking about their pizza, but they
• 10:56
  Speaker 2: do remain incredibly popular thousands of stores in Australia and
• 10:59
  Speaker 2: New Zealand, so that must be for a reason. People
• 11:02
  Speaker 2: do want it and there is a need therefore cheat pizza.
• 11:05
  Speaker 2: There's nothing wrong with that, I think, especially you know,
• 11:07
  Speaker 2: for a family with their own cost living pressures, if
• 11:10
  Speaker 2: they want to treat a cheat pizza does the trick
• 11:14
  Speaker 2: and there's certainly know nothing wrong with that, I think
• 11:16
  Speaker 2: for them. The competition just became huge, whether it's from
• 11:20
  Speaker 2: KFC and then Goodman and Gomez and that whole kind
• 11:23
  Speaker 2: of Mexican fast food scene that has come in, whether
• 11:27
  Speaker 2: it's also the supermarkets bullies call that Aldi made a
• 11:32
  Speaker 2: big push into frozen pizzas and really improving the quality
• 11:36
  Speaker 2: of those pizzas and the prices. Now again, people may
• 11:39
  Speaker 2: have a view on supermarket pizzas if they're good or
• 11:41
  Speaker 2: bad or not, but they're very priced competitive with takeaway
• 11:46
  Speaker 2: pizza from a store. The quality is improving all the
• 11:48
  Speaker 2: time and the price is coming down all the time,
• 11:51
  Speaker 2: so that's tough as well. And then you've got this
• 11:53
  Speaker 2: whole other movement perhaps of people moving away from carbs
• 11:57
  Speaker 2: or you know, it's a whole issue to itself about
• 11:59
  Speaker 2: the flax or the boom in GLP one drugs like
• 12:02
  Speaker 2: ozen pic where people are eating less and certainly eating
• 12:06
  Speaker 2: less bready products like pizza.
• 12:09
  Speaker 1: Yeah, that is an interesting I guess aspect of this conversation,
• 12:12
  Speaker 1: isn't it that what we eat and what we are
• 12:15
  Speaker 1: seen to be eating has been affected by that broad
• 12:18
  Speaker 1: a cultural shift. I guess. I don't know about you,
• 12:20
  Speaker 1: but it's really just made me want a slice of pizza,
• 12:22
  Speaker 1: to be honest. Thanks Eli. Eli Greenblatt is a senior
• 12:32
  Speaker 1: business reporter with The Australian. You can read all his
• 12:34
  Speaker 1: reporting and analysis right now at the Australian dot com
• 12:38
  Speaker 1: dot au