Monday, August 3, 2009

A Closer look: Domino's Pizza Enterprises Ltd

I have always been a big fan of fast food, as a consumer and as an investor.

I used to have a stake in Restaurant Brands Ltd [RBD.NZX], the New Zealand franchisee of Pizza Hut, KFC and Starbucks.

As business these sorts of companies are excellent ones to own, if they are well managed, cost and service levels kept on top of and food quality maintained.

If none of these things are adhered to they can be a license to go out of business. RBD has struggled for years with the operation of its Pizza Hut franchisee, finally relenting and selling the business to owner operators.

Domino's Pizza Enterprises Ltd [DMP.ASX] is the Australian listed pizza chain franchisee that runs over 750 Domino's pizza outlets in Australia, New Zealand, France, Belgium, The Netherlands and the Principality of Monaco of all places and like most other fast food chains is currently doing well, with a huge rise of profit forecast that is to be announced 19 August because of the switch from going out to eat to punching the keypad and settling down on the couch with a pizza and Coke.

Webcast ImageWebcast
Q2 2009 Domino's Inc.[DPZ.NYSE] Earnings Conference Call (Replay)
07/22/09 at 11:00 a.m. ET

To be fair Domino's has been growing outlets, sales and profit for a few years before the current boom and it is a very well operated business, with a focus on the bottomline and customer satisfaction the two main keys to its success and it has ambitious plans to keep growing. It has grown quickly by purchases of other pizza brands, adding sub-franchisees and good old-fashioned organic growth through efficiencies and great marketing.

But beware the fast food business or any food business for that matter can be a fickle one. Pizza, more than any other slice of this market seems to have very big swings in business cycles from boom to bust and they operate on wafer thin margins and high throughput, with constant competition from mum and dad pizza stores to the other large and smaller chains.

Domino's does have an edge though. It specializes in one thing and does it well and its owner operators are the secret to the Australian Franchisor success (Domino's OZ is itself a Franchisee of big daddy Domino's Inc [DPZ.NYSE] in the USA but in turn has franchisees that own and operate individual stores that provide a percentage of their store turnover which is Domino's OZ main form of income-apart from sales from its company owned stores ) driving the Domino's brand, literally, to become the worlds largest Pizza Delivery and sales company.

Domino's Australia seems to be near the top of their current growth phase but having said that there will be more boom times to come and lets hope their good management gets them through the troughs to come.

The ASX listed stock seems fully priced at current levels and is worth adding to your portfolio during its down cycles.

Domino's @ Share Investor

Domino's Australia dominant in Australasia

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Related Links

Domino's Pizza Enterprises - Corporate Website | Investor Relations

DMP 2008 Annual Report - 10MB PDF

Related Amazon Reading

Getting Your Slice of the Pie: A Definitive Source for Prospering in Pizza
Getting Your Slice of the Pie: A Definitive Source for Prospering in Pizza by Tracy Powell
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c Share Investor 2009