Domino’s route to 8,000 US locations hit by construction delays
Domino’s unit count growth is slowing due to construction and permitting delays. / Photography: Shutterstock.
Domino’s efforts to strengthen its U.S. market face a common problem: construction delays.
Specifically, the company said delays in permitting and construction have slowed unit growth, a problem that is expected to persist for at least a year.
“We’ve already signaled that in the United States, between the permitting and construction delays that we’re facing, we’re going to see a slowdown,” Sandeep Reddy, Domino’s chief financial officer, told investors this week. “This downturn has happened.”
“Until we see the permitting and construction timelines come down completely, it will be a headwind,” he added.
Indeed, Domino’s U.S. unit growth has averaged about 60 locations per quarter between the fourth quarter of 2020 and the first quarter of this year.
Still, the company only added 22 slots in the second quarter and 24 in the third.
On a percentage basis, that means Domino’s unit count growth fell to 2.7% in the last 12 months, from 3.7% in the same period a year ago.
Domino’s, however, believes its unit growth will return soon because franchisees can generate a return by building new locations. “The demand is very strong from our franchisees,” Reddy said. “That’s why we’re really, really confident that we’re on track to hit that 8,000+ mark.”
Permitting and construction delays in recent months have affected more than a few restaurant chains and have apparently continued, although some supply chain issues appear to have eased. Companies like Noodles and Shake Shack have had issues with building new restaurants in recent months, among other things.
For Domino’s, this 8,000 location mark is a key goal. Just before the pandemic hit, the Ann Arbor, Michigan-based pizza chain made it a key strategic goal to build more locations in existing markets, dubbed “fortressing.” With 6,400 locations, that means it needs another 1,600 restaurants to reach that level.
According to the company, adding more locations per market would generate more take-out sales while improving delivery times and overall service. The company felt the move was key to making it more competitive in the face of growing competition from delivery players.
In other words, he was willing to give up some short-term same-store sales growth in exchange for overall retail sales growth.
It is not certain that the company will achieve this. Retail sales growth has slowed in recent quarters as same-store sales have struggled to emerge from the pandemic, which the company initially blamed on driver shortages but now appears to be impacted more by inflation and spending restrictions on its major consumers.
But that certainly doesn’t hurt the growth of takeout sales. Same-store delivery sales increased 20% in the third quarter, while same-store delivery sales fell 7.5%. Domino’s expects to become more competitive with more traditional fast food chains in the coming months.
Domino’s has also recently used refranchising to further stimulate its growth. The company refranchised its Michigan market, for example. And it recently sold 114 locations in Salt Lake City and Phoenix to 11 franchisees. “The refranchising strategy for us is really more of a growth strategy,” CEO Russ Weiner told investors.
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