As Domino’s Pizza Enterprises seeks to revitalize its French and Japanese markets, scepticism arises due to perceived transparency issues

Domino’s Pizza Enterprises, a leader in the global fast-food industry, is currently facing significant market scepticism as it attempts to revamp its underperforming divisions in France and Japan. Goldman Sachs has recently expressed concerns regarding the transparency and conviction of Domino’s strategic plans, following a strategy day held by the company last Friday.

The ASX-listed pizza chain, which flourished during the COVID-19 pandemic, saw its shares drop by 4% to $38.58 on Monday, amidst ongoing profitability challenges in its international markets. These challenges are compounded by a controversial decision to implement delivery surcharges as a means to offset rising costs for ingredients and labour—a strategy that has evidently not sat well with consumers.

Lisa Deng, a broker at Goldman Sachs, criticized Domino’s management for their handling of the issues, particularly in France and Japan. According to Deng, the company’s presentations lacked depth in addressing the core issues facing these markets, leaving investors unconvinced about the proposed path to recovery. This path seemingly relies heavily on pausing store roll-outs and applying further discounts to regain profitability.

The situation in France has been problematic for years since Domino’s entered the market in 2006. Similarly, in Japan, the expected growth has not been realized, with consumers engaging less frequently than anticipated. This makes it difficult to gauge the potential success of new offers and menu items introduced in these regions.

The competitive landscape is also intensifying. For instance, Guzman y Gomez, a Mexican-themed fast food chain, recently announced a significant fundraising effort to fuel its expansion, while Pizza Hut, under new ownership by California’s Flynn Restaurant Group, is aggressively expanding in Australia.

Citi analyst Sam Teeger suggested that Domino’s might even see store closures in Japan due to over-expansion without sufficient market consolidation. Teeger pointed out that a more concentrated geographical strategy might have yielded better results initially, rather than the broad approach that was taken.

Despite these challenges, Domino’s remains committed to its long-term goals in Japan, targeting an expansion to 2000 stores by 2033 from its current count of 1015. The company is also exploring new operational strategies, such as partnering with third-party delivery services during non-peak times to manage costs—a departure from its traditional model which emphasizes complete control over product quality.

Investor confidence continues to waver as evidenced by the recent actions of analysts at Macquarie, who have lowered their earnings forecasts for Domino’s by 3% for this year and 4% for the next. These adjustments reflect expectations of a slower store roll-out and softer margins particularly in the Asian markets.

As Domino’s prepares for upcoming investor meetings in Europe next month, stakeholders are keenly waiting to see if the company can provide more clarity and a robust strategy that will reassure them about the future profitability and growth of its operations in France and Japan