In the first half of 2024, the performance of the catering industry as a whole is under pressure due to weakened consumer purchasing power and intensified industry competition. In particular, the profitability has generally declined due to continued price wars and rising costs, resulting in even some large catering companies announcing losses.
However, if we look deeper, change is the source of growth. Following changes in consumer demands and habits, the catering industry has given rise to new competitive logic, such as high quality-price ratio. Those catering companies that align with this trend ultimately overcome the cycle and become the "minority" that grows against the trend.
DASZSE Corporation (01405.HK)-Domino's China is one of them, shining bright. Domino's China is the exclusive master franchisee of Domino's Pizza in mainland China, the Hong Kong Special Administrative Region, and the Macau Special Administrative Region of China.
Strong internal growth, core financial indicators reaching new levels.
Looking at the financial data in the performance announcement released by DASZSE Corporation on August 28, 2024, for the six-month period ending on June 30, 2024, DASZSE Corporation achieved record-high revenue in the first half of the year, achieving overall profitability, and both the company-level and store-level indicators improved.
According to the performance announcement, DASZSE Corporation achieved revenue of 2.041 billion yuan in the first half of the year, a year-on-year increase of 48.3%, far exceeding the industry benchmark of 7.9%. This was achieved on the basis of strong growth (such as a 51.4% year-on-year increase in revenue in the same period last year), reflecting strong internal growth. With increased penetration in existing cities and expansion into new cities, DASZSE Corporation achieved revenue growth from all markets, especially with the rapid growth of new stores in new cities.
During the same period, DASZSE Corporation's adjusted net income and net income attributable to shareholders turned positive. The adjusted net income was 50.89 million yuan, compared to a net loss of 17.445 million yuan in the same period last year; the net income attributable to shareholders was 10.907 million yuan, compared to 8.751 million yuan in the same period last year, but mainly benefited from a one-time non-operating fair value gain of approximately 0.12 billion yuan on convertible preferred ordinary shares. This means that this indicator officially turned positive in the first half of 2024, with a year-on-year increase of 24.6%.
At the store level, DASZSE Corporation is steadily advancing its expansion and improving its quality and speed.
As of the first half of the year, it has opened 914 stores in 33 cities in China, with a net increase of 146 new stores in the first half of 2024, accounting for over 60% of the new market stores. As of July 2024, in the domino's global top 30 sales ranking for the first 30 days, domino's China occupies 28 of the top 30 spots, almost dominating.
The 900th store of domino's China is open.
Another important indicator is SSSG (same-store sales growth), and domino's achieved a positive SSSG for 28 consecutive quarters with an SSSG of 3.6% in the period. Despite the impact of the macroeconomic environment, domino's has been able to maintain positive growth under a higher base, indicating that it has maintained good competitiveness in the market.
In addition, domino's has taken a series of proactive measures to enhance its operational efficiency. It has optimized supply chain management by unifying production and distribution through three central kitchens, strengthened cost control, and further improved store profit margins.
In the first half of the year, domino's store operating profit margin increased from 13.5% in the same period last year to 14.5%; store EBITDA profit margin increased from 18.7% in the same period last year to 19.3%.
Taking all these data into consideration, it is clear that domino's still has tremendous growth potential in the pizza market. With the opening of new stores, this not only increases revenue, but more importantly, the establishment of these new stores will further consolidate and enhance the brand image, forming a strong market influence.
More importantly, domino's has attached great importance to cost control and efficiency improvement. Through refined management, the company strives to reduce operating costs and improve production efficiency. This series of measures not only enhances the company's profitability, but also creates more profit space for shareholders.
As of August, domino's has achieved 95% of its target of opening 240 new stores for the year. Looking ahead to the whole year, domino's is expected to enter the thousand-store club in the fourth quarter of this year, and the annual performance is well supported.
High quality-price ratio + wide consumer group, combined with performance certainty.
Behind this, in addition to the continuous growth of the pizza market, the key is that Dashiyu shares have been providing consumers with high quality-price ratio products and services as part of their long-term strategy, as well as expanding the consumer base for their brand.
In the final analysis, nowadays, the concept of mass consumption is increasingly rational, pursuing quality-price ratio, and high quality-price ratio has become one of the core logics that dominates the competition in the dining industry. At the same time, high quality-price ratio also means efficiently digesting high costs, and there are not many dining companies that can truly benefit and create sustainable profits. Dashiyu shares have improved their market adaptability and competitiveness along with this.
Based on its forward-looking "4D strategy" - high-quality store development, high cost-effectiveness delicious pizza, excellent delivery service, and digital leadership, Dashiyu shares established its differentiated positioning early on and took the lead on this path.
Dashiyu shares chose to open small stores with an average area of 130 square meters, and achieved standardization of store products through control over central kitchens and support from the supply chain. While striving to ensure that all stores have delicious and consistent quality pizza, it also reduces costs such as rent and equipment for the stores. This model has brought competitive advantages to Dashiyu shares, enabling them to stand out in the fierce market competition.
Dashiyu shares continue to expand the consumer base and open up new consumption space. Expanding the consumer base often requires innovative approaches in product, service, and environment by dining companies, particularly in building a diverse product portfolio to satisfy the needs of different consumers.
Dashiyu shares introduces new products every 6-12 weeks in addition to their signature dishes and localized menus. These include new pizza flavors and crusts, such as the popular Golden Salted Egg Tender Chicken, Crispy and Fragrant Chicken with Crayfish, Teriyaki Beef and Potatoes, and they have achieved full price coverage across multiple categories. Their recently launched new product, the "Volcano" crust, brings a different and exciting experience for consumers.
Domino's China new product - "Volcano" crust.
In the "Back-to-Back" promotion launched every week by Domino's Pizza (offering a 30% discount on pizza on Tuesday and Wednesday), as well as the 2-3 traditional Mega Week (buy one get one free) promotions held each year, high-quality and cost-effective products are provided, continuously increasing customer repurchase rate. At the same time, Domino's Pizza China also collaborates with popular brands such as Tencent Games and Hello Kitty to launch limited-time promotions, attracting the younger generation of consumers.
Conclusion
Overall, the business logic employed by Domino's Pizza demonstrates its continuous growth. It benefits from both the growth dividends brought about by rapid expansion, as well as the growth dividends brought about by consumer choices and preferences. Therefore, competitive cost-effectiveness may actually be an opportunity for Domino's Pizza, helping to enhance its overall risk resistance.
In today's unpredictable market, growth means that companies must have a more stable foundation and greater resilience. Such companies are undoubtedly rare. The new value of Domino's Pizza may still be waiting to be discovered by the market.