9
December 2024
LEI: 213800Q6ZKHAOV48JL75
This
announcement contains Inside Information
Domino's Pizza Group
PLC
New Profitability and Growth
Framework with franchise partners
Domino's Pizza Group ("DPG" or "the
Company") is pleased to announce that it has reached a new
five-year framework with its franchise partners to capitalise on
its significant long-term growth opportunity.
In particular, it underpins our
confidence in our targets of in excess of 1,600 stores delivering
£2.0bn of systems sales by 2028 and 2,000 stores delivering £2.5bn
of system sales by 2033 driving profit growth across the
system.
The new framework will see the
transition of the existing and very successful Memorandum of
Understanding ("MoU") to a new Profitability and Growth Framework
("PGF"). The PGF will commence on 3 January 2025 following the
conclusion of the existing MoU on 2 January 2025.
DPG and its franchise partners have
made significant strategic progress together since 2021 under the
MoU, collectively benefiting from an aligned system. New store
openings have accelerated, national value campaigns have delivered
increased orders, and we have brought more innovation to customers.
In addition, app customers have doubled, our service times have
significantly improved and GPS technology was rolled out. We also
successfully launched and scaled nationally on Just Eat and Uber
Eats. The PGF will embed the new ways of working that have enabled
the relationship to go from strength to strength and ensures
continuation of our mutual achievements of the last three
years.
The PGF aligns DPG and franchisees
through shared investment in marketing, technology and creates a
framework of incentives to drive meaningful new store
openings. Given the long term nature of the
PGF, the Board also now expects to make several additional
investments, which are highlighted below, to underpin the longer
term growth of the business for the whole Domino's
system.
Although the PGF has an initial term
of five years, it is intended to last beyond this period
with arrangements reviewed periodically and
adjusted by mutual consent. This will provide more agility for the
parties to adapt to, and capitalise on, changing market
conditions.
The PGF was negotiated with the
Domino's Franchise Association ("DFA") and received unanimous
support from franchise partners.
Key
highlights of the PGF
We believe the PGF will deliver
significant long-term benefits for DPG and the broader system. The
PGF establishes a platform to build further on the strategic
progress under the MoU and underpins our confidence in our stores
and system sales targets.
Enhanced marketing contribution: The National Advertising Fund ("NAF") is a core pillar of our
competitive advantage. Franchise partners already contribute a
substantial 4.0% of system sales to the NAF which is used to
support national campaigns and promote the Domino's brand. This
contribution will continue under the PGF. In 2021, DPG increased
its marketing investment consistent with its MOU commitment. Under
the PGF, this will be replaced by a fixed 0.2% of system sales to
the NAF.
Digital Investment: DPG and its
franchise partners have committed to increase digital investment to
enhance its product offering further and widen its competitive
advantage. With c.9.5m app customers, our new eCommerce platform
and our loyalty trial underway, we are excited by the potential to
drive increased order frequency from our digital capabilities.
Under the MoU, DPG invested £20m in technology which included the
build of a new eCommerce system, this investment is now complete
and there is no similar one-off investment under the PGF. From 1
July 2025, franchise partners will increase their contribution to
the eCommerce fund to 1.0% of system sales,
an increase from the current 0.75%, based on DPG completing a
defined technology milestone. DPG will also
now contribute 0.25% of system sales into the eCommerce fund to
support the increasing platform running costs.
New
Store Incentives: To maximise the
opportunity in lower address count territories DPG has adjusted the
new store incentives - all new store incentives under the PGF will
now be paid over five years compared to the current three years.
Incentives will remain at £100k for a virgin territory and £150k
for a split territory. In addition, new stores with an agreed lower
average weekly unit sales will qualify for a new
incentive.
National Value Campaigns: Offering customers value for money is essential in the current
environment. Our successful national value
campaigns will continue under the PGF with DPG support through a
new food rebate mechanism for our franchise partners which has been
structured to increase like-for-like orders.
DPG's incremental contribution to
the PGF directly is expected to be c.£3-4m per annum from
FY25.
Outlook
We continue to trade in line with
expectations. In the first 9 weeks of Q4, total orders are up 5.3%
(Q3 24: +3.5%) and like-for-like sales are up 2.7% (Q3 24:
+0.7%).
As with other major employers in the
UK, the recent UK budget has significantly increased the cost of
labour for both DPG and our franchise partners, who are
particularly impacted. Although we have identified specific
mitigation plans, we now believe that the annual impact for DPG
will be c.£3m per annum from FY25 onwards.
Given the long term nature of the
PGF, the Board now expects to make several investments to support
the longer term growth of the business for the whole Domino's
system. These investments will support our progress towards our
medium and long term store and system sales targets. An additional
c.£4-5m per annum will be invested in the cost base in several
areas including the continued stability and innovation of our
technology platform, strengthening our cyber security and the
commencement of the process of increasing our supply chain
capacity.
Andrew Rennie, CEO said:
"I'm delighted to have reached a longer-term framework with
our world-class franchise partners. This new framework is a vital
step in driving the future growth of both DPG and our franchise
partners. We've shown since 2021 that when we are aligned with our
franchisees, we can achieve so much together, and this framework
will take our partnership to the next level.
The framework is good news for all our stakeholders. Having a
five-year framework in place provides a strong platform for the
long-term, sustainable growth of the brand, and will help us build
a larger and more cash-generative business which will deliver
stronger returns. It also means we will be
well placed to address the headwinds all consumer-facing businesses
will inevitably face in 2025 and will ensure we are in a strong
position to thrive in the years that follow.
I'd like to thank all our franchise partners and the DFA for
the constructive discussions over the past few months. We look
forward to continuing to offer customers outstanding value and
service, whilst bringing the Domino's brand to even more areas of
the UK."
Mark Millar, DFA Chairman, said:
"The DFA and its members are pleased to have agreed a new
framework for driving profitability and growth. Against a backdrop
of significant and unexpected tax increases from the UK budget,
having a five year framework in place provides some much needed
certainty for our members. I'd like to thank Andrew and his team
for conducting the discussions in the spirit of driving growth for
the entire Domino's system, and we are excited about the
opportunities ahead."
This announcement contains inside
information for the purposes of Article 7 of EU Regulation 596/2014
as it forms part of domestic law of the United Kingdom by virtue of
the European Union (Withdrawal) Act 2018, as amended (together,
"MAR").
The person responsible for making
this notification is Adrian Bushnell, Company Secretary.
For
further information, please contact:
Domino's Pizza Group plc:
Will MacLaren, Director of Investor
Relations - 07443 192 118
Brunswick:
Tim Danaher, Abbie Sampson - 020
7404 5959
About Domino's Pizza Group
Domino's Pizza Group plc is the UK's
leading pizza brand and a major player in the Irish market. We hold
the master franchise agreement to own, operate and franchise
Domino's stores in the UK and the Republic of Ireland. As of 6
December 2024, we had 1,362 stores in the UK and
Ireland.