Finance Finance News How Domino’s crushed Pizza Hut to become the king of Aussie takeaway

How Domino’s crushed Pizza Hut to become the king of Aussie takeaway

Domino's Pizza has been an incredible success story – at least from a financial perspective.
Domino's Pizza has been an incredible success story – at least from a financial perspective. Photo: AAP
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This week Domino’s Pizza hit the headlines with news its CEO Don Meij earned an astonishing $37 million last year, making him by far the highest-paid chief executive in Australia.

The news sparked outrage among The New Daily’s readers, with the comment section of our article boiling with indignation that someone could be paid such an obscene sum for flogging pizzas, and allegedly exploiting workers in the process.

Given the level of outrage, The New Daily decided to dig a bit deeper, and find out what a CEO has to do to earn this kind of money.

The answer was pretty interesting. If you set aside the serious allegations of exploitation and underpayment, and look exclusively at the financial results, then there are no two ways about it: Mr Meij is running an exuberantly successful business.

Domino's CEO Don Meij earned $37 million last year, according to ACSI.
Domino’s CEO Don Meij earned $37 million last year, according to ACSI.

Its success contrasts strikingly with the struggles of its biggest rival, Pizza Hut, which has plodded along wearily in the dust while Domino’s has galloped off into the sunset.

Domino’s exceptional success, it seems, comes down to two things, and neither of them is its pizzas. They are its tech prowess, and its vast distribution network.

In fact, when you look at it through this lens, Domino’s looks like an Amazon-style tech company that happens to deliver pizzas.

But before going into that, let’s have a look at the numbers.

Domino’s exuberant growth

Domino’s Pizza Enterprises is an ASX-listed company related to, but essentially separate from, the US company of the same name. It operates restaurants in Australia, New Zealand, Belgium, France, the Netherlands, Japan and Germany.

Over the last five years Domino’s has expanded at a terrific rate, and this expansion is reflected in just about every metric.

Its share price at the start of 2012 was $7.80. Today it is worth $47.92 – more than six times the value.

Its store growth has also been phenomenal, going from 970 across the countries in 2013 to more than 2200 today.

Domino’s profits have been excellent, growing by double-digit percentages every year since 2013 – from $30.4 million in 2013, to $118 million in 2017.

For potential investors, one of the most important metrics is revenue growth, and in this area Domino’s has also outdone itself, growing revenue in double-digit percentages every year, and by almost 100 per cent in 2014.

Pizza Hut, by contrast, has been lacklustre. In Australia, the Pizza Hut franchise is owned by a holding company called Out of the Box, which is itself owned by private equity investor Allegro.

Unlike Domino’s, Pizza Hut is not listed on the stock exchange, which means it publishes much less information about its finances. However, financial research company IBISWorld estimates its revenue has gone from $156.5 million a year in 2013, to $240 million in 2018.

The vast majority of that growth came not from organic growth, like Domino’s, but from the acquisition of Australian pizza chain Eagle Boys.

The graphics below compare the growth of Pizza Hut and Domino’s. As you can see, Domino’s absolutely pummels Pizza Hut.

Why has Domino’s done so well?

Andrew Ledovskikh, senior industry analyst at IBISWorld, told The New Daily the secret to Domino’s success was that it got ahead of the game on tech and delivery.

“Domino’s invested very heavily in its online platform and its delivery system, and that played very well for it,” he said.

“Their platform was extremely advanced and extremely innovative, and very easy to use. That was the core of their business.”

This, he said, created “a lot of excitement among franchisees”, which allowed it to expand its network of stores. This massively boosted its delivery network, meaning it could offer ultra-quick delivery. It currently offers a 20-minute delivery guarantee.

Pizza Hut, by contrast, which had built its empire on eat-in restaurants, and which was the biggest pizza takeaway at the turn of the century, failed to ride the tech wave with anything like the aplomb of Domino’s. As a result, Mr Ledovskikh said Pizza Hut “was just never able to compete” with Domino’s.

Pizza Hut attempted to compete with a major cost-cutting program. But this backfired in a big way when, in 2015, 288 of Pizza Hut’s 298 franchisees launched a class action against Pizza Hut for damaging their business through this cost-cutting exercise.

Mr Ledovskikh predicts that Domino’s superb run will continue with double digit growth this year – and the rise of Uber Eats and Deliveroo are unlikely to derail this.

So, is Mr Meij worth $37 million a year? Mr Ledovskikh would not pass judgement on this, except to say: “The company has done really well, and the board has decided it’s worth it for them.”

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