Back in August, Domino’s Pizza missed its FY18 forecast earnings by about the length and breadth of 18 exclusive franchise territories, and couldn’t explain how the franchisor has paid only 22.5 per cent of its reported statutory profit over the past four years in cash tax to the Australian Taxation Office.
It’s been a quiet couple of months since then, but investors were finally treated on Friday to an audience with the company’s savant leadership. Chief executive Don Meij is too great a man to allow mere profit guidance – let alone an abject failure to meet it – hold him back for a moment longer than feigned contrition dictates.
In Australia and New Zealand (from where Domino’s derives greater than half its group earnings), growth is slowing in both the (net) number of stores and sales per (existing) store. Around 80 per cent of new Domino’s stores that opened in the past 12 months were within 10 minutes’ drive of another one. The local market is saturated. And on Friday, the company reiterated its ANZ store target of 1200 by 2025.
But here’s a new tactic: Meij and his Australia and New Zealand boss, Nick Knight, devoted a significant portion of the session spruiking the benefits of what they call “store splits” (and what anyone else would call “franchise cannibalisation”).
To open 47 per cent more stores in an already over-serviced catchment area, and to do so by splitting the territories of 35 per cent of existing stores, Don clearly understands he cannot keep ignoring the burgeoning scepticism that this will end well for shareholders and franchisees, and not just management.
Thus the argument stubbornly goes that when a second Domino’s opens in a town of 100,000 people, that town will suddenly consume 2.5 million (Domino’s) pizzas instead of 1 million, and without the two (Domino’s) stores resorting to discounted (read: unprofitable) sales.
“It’s an absence of grace to get closer and closer to the customer because of the efficiencies that brings,” Meij claimed, forgetting the absence of grace for a franchisee getting closer and closer to more customers they now have to share with another store. Notwithstanding the fact this completely fails to account for the mass aggregation of all home delivery food, it’s an absurd contention you’d only expect from The Simpsons‘ Lionel Hutz.
But Don prosecutes it with flair; that we’ll pay! He downgraded his Brisbane digs, offloaded the Lamborghini with vanity number plates and even took down his personal website (paid for by franchisees‘ “marketing” fees), donmeij.com. But even Don 2.0 cannot do vanilla. Oh, no siree, Bob.
Fund managers and analysts present at Domino’s Hamilton office were titillated by Don’s dancing shoes: a pair of Balenciaga Speed Socks ($1072 from Mr Porter; comes with dust bags) with neon-green soles.
Maybe this is some kind of secret sauce to get the Japanese ovens firing because it’s the kind of foot candy we’d expect to see on a schoolgirl in Ginza rather than a middle-aged man in southeast Queensland. But hey Don, you do you!