Domino’s capitalises on German appetite

Domino’s Pizza UK & Ireland is seeking to capitalise on German growth with an all-share purchase of the country’s master franchise and plans to expand the brand from two stores in Berlin to a 400-restaurant empire.

The company, Domino’s biggest master franchise in the world by number of stores, is buying 75 per cent of the German group, with the remainder going to an affiliate of European hotel operator Grand City Hotels.

It will pay £8.7m ($14.3m) in shares – or about 1.5 per cent of its market capitalisation – and provide a €7.5m (£6.6m) loan from cash reserves to fund the aggressive expansion plans.

The company expects to take a decade to achieve the 400-store mark and said it saw potential for double that number eventually.

“Ten years ago, we said we thought the UK could accommodate 600 to 700 and we’re past that now and growing,” said Chris Moore, chief executive.

“I think Germany is probably 10 to 15 years behind where the UK is, so in 10 years we might be revising those figures.”

He admitted that the German consumer was more cost-conscious than the British but argued that local chains, including the Joey’s, Smiley’s and Hallo brands, had shown in recent years that the German market for pizza takeaway and delivery was growing. Pizza Hut also has a presence there, although “that’s more of a sit-down experience”.

Chris Brockman, global food analyst at Mintel, said the market was “very fragmented and immature” though he warned that development would require time and investment.

Germans have taken strongly to takeaways and fast food in recent years, with 6 per cent annual growth in the market last year, nearly double that in the UK. And pizza is a popular food there, with Germany the biggest pizza retail market in Europe.

The shares rose 11 per cent, or 42p, to 436p on Wednesday, as most analysts welcomed a new source of growth.

Like-for-like sales at the group rose just 4.2 per cent in the 13 weeks to March 27, compared with 10.5 per cent the year before, although total sales were 11 per cent higher.

Domino’s other gambits for growth include lunchtime menus, a franchise with motorway operator Moto Hospitality and a 60-stores-a-year opening regime.

Lee Ginsberg, finance director, sought to quash any idea that the German move signified the UK “going ex-growth”.

“The market is still the size we envisage, the demographic drivers are still the same, operational leverage is coming through as we anticipated,” he said.

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