The introduction of delivery fees at Domino’s in March may provide some respite for the business and improve the outward appearance of like-for-like (lfl) sales for the remainder of the year, according to an analyst note from Berenberg.
The majority of franchisees are now charging fees ranging from 99p to £2.50, but Berenberg does not think the charges will have a major impact on demand, “given consumers increasingly expect these fees given the charges on the aggregator platforms”.
“While the fees are mostly kept by the franchisees, they will make lfl growth look better for the remainder of the year. By improving franchisee economics, they may also help Domino’s pass on more of the inflation in its own food and drink costs, which could be a risk to our call that company guidance appears optimistic,” it said.
Berenberg said it believed the pizza delivery company might miss consensus expectations this year, but that it thinks “bad news is already being priced in” and it is struggling to see further material downside risk.
Consensus assumes roughly flat profit before tax, year-on-year, in 2022. This is despite several significant headwinds, including the decline in systems sales year-on-year due to VAT returning to normal levels and the expectation that Domino’s will struggle to pass all its input costs inflation on to its franchisees.
“Domino’s has permanently transferred an undisclosed amount of the economics to the franchisees, as a result of the December 2021 resolution,” added the note. “Alongside store openings, the main lever with which to offset this is lfl sales growth, which at 3.9%, excluding store splits and the VAT impact, in Q1 seemed relatively unremarkable to us, considering Domino’s benefited from its first national promotional campaign in years.”
Earlier this month Domino’s Pizza Group reported order growth of 5.5% for the 13 weeks to 27 March 2022, driven by the recovery of collection sales.
