Domino’s raised its prices to fight inflation. It didn’t go to plan
The boss of pizza giant Domino’s has admitted the company failed to get the balance right when it upped delivery prices to counter inflation after the business reported first-half profits dropped by more than 20 per cent.
The company said that its plans to fight inflation “had not been optimal” in the first half, with decisions to increase product prices and delivery and surcharge fees impacting how often customers ordered, particularly in overseas markets like Japan and Germany.
“First and foremost, we actually got delivery pricing wrong, not carry-out pricing,” chief executive Don Meij told this masthead.
He said that while shoppers had increasingly returned in-store to pick up their takeaway orders, price increases for delivery had hurt how often customers ordered pizza.
The ASX-listed fast food business revealed on Wednesday that its sales had slipped by 4 per cent for the six months to December, and net profits had declined by $19.6 million to $71.7 million.
But Meij said the business had plans to help steady the ship, including a move to “flexible vouchers” that give customers more choice in what is included in a meal deal than what was previously available.
“Consumer sentiment is lower, but the fast food industry is buoyant,” he said.
Domino’s has been contending with rising costs for ingredients and business operations over the last several months, but Meij said he believed conditions were moderating.
“We still see inflation but it is nowhere near what we saw [last year],” he said.
Despite these assurances, investors sold the stock off heavily on Wednesday morning, sending it plummeting 20 per cent to $57.00 by 11:20am.
Analysts were wary after the business confirmed sales growth across the second half had been less than anticipated, and growth would be below its medium-term outlook of between 3 and 6 per cent.
The company confirmed that operations in Europe had been hit particularly hard during the half, with inflation impacting consumers and Domino’s delivery price increases resulting in fewer customer orders in France and Germany.
“Domino’s has a challenging six months ahead. Any franchising system needs to balance the health of franchisees and shareholders. In the near-term, franchisees will need more support,” MST Marquee analyst Craig Woolford said in a note to clients.
UBS analysts said there were risks ahead.
“Given [second half] sales headwinds and weaker [first half] net profit after tax, we see downside risk to FY23 net profit guidance,” Shaun Cousins said on Wednesday morning.
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