UK’s Domino’s Pizza eyes major expansion into Germany

By Matt Scuffham, Reuters

MILTON KEYNES– The fledgling German operation of Domino’s Pizza UK & IRL PLC could grow to be twice as big as the UK business, incoming Chief Executive Lance Batchelor said on Monday.

Domino’s, which operates the British and Irish franchises of the global delivery brand and opened its first stores in Germany this year, believes the German market has the potential to support between 2,000 and 3,000 shops. “If it (Germany) is not bigger than the UK we’ve failed,” said Batchelor, who becomes CEO after Christmas. “The best case is that we’ve got a market there that could be twice the size of the UK for us and provides a runway long after we run out of properties in the UK,” Batchelor told Reuters in an interview at Domino’s factory in Milton Keynes, north of London. “We’re absolutely confident that we have got a winner there that’s going to be national and going to be big.” Domino’s has four shops in Germany so far with another two due to open by the end of the year. Collins Stewart analyst Wayne Brown said the German market offered significant growth potential over the long term with 42 million households compared with 29 million in the UK. “The German take-away/pizza delivery market remains immature when compared to the UK, dominated by independent operators with six recognized branded players. However, the trends seen in the UK, whereby branded eating out and take-away establishments are taking share from the independents, are equally prevalent.” Under German franchise laws, Domino’s must open 12 shops which it manages directly before offering shops to potential franchisees. It plans to open 12 new shops next year and 14 the following year before expanding more aggressively and has factored in losses for its first three years in the country. “Once the individual stores are hitting profit immediately (after) they open then we have a model we can take to our franchisees, new ones in Germany and maybe a few of the Brits as well. We’ve got some UK franchisees who have asked if they can join us and 400 Germans who have expressed an interest,” Batchelor said. The average Domino’s Pizza franchise earns 100,000 pounds in profit each year and the average franchisee runs five outlets. Domino’s, which has over 700 shops in Britain and Ireland, has performed strongly through the economic downturn, benefiting from cash-strapped customers staying in and ordering takeaways rather than going out to eat. Batchelor said Domino’s was continuing to ramp up expansion in Britain, where it sees opportunities to exceed its long-term target of 1,200 shops. “There’s hundreds more sites out there,” Batchelor said. “Experience around the world tells us we’re low-balling it in terms of what’s the potential. If you talk to the Australians or the Americans they’re operating at double the penetration level we are in the UK. If you asked them how many stores we could sustain in the UK they’d probably say 2,000.” Batchelor is due to take up the chief executive role on Boxing Day after Chris Moore retires. Shares in Domino’s were up 1.1 percent to 400 pence at 1545 GMT, valuing the business at around 650 million pounds.