Domino's reports record financial result off back of digital and customer innovation

Pizza maker chalks up stellar results as it battles to quash allegations around visa fraud, underpayment of wages and financial pressure across its franchise network

ASX-listed Domino’s has chalked up more than $1 billion in first-half network sales for the first time in its history, a result it says was buoyed by an emphasis on customer-led offerings, food quality and digital technology.

The results come in an otherwise tough week for the pizza maker, which came under fire after allegations emerged about visa fraud, underpayment of wages and penalties across its franchise network.

Domino’s reported a 21.1 per cent increase in group revenue to $539.4 million for the six months to 31 December, off a 26.8 per cent increase in network sales over the same period. In A/NZ, Domino’s reported a 23.9 per cent growth in underlying EBITDA to $55.2m, off the back of 17.2 per cent growth in revenue to $150.1m.

Group CEO and managing director, Don Meij, said the launch of the ‘Taste the colour’ menu last September, Domino’s most significant menu upgrade in eight years, contributed 17.4 per cent growth in same store sales across A/NZ. The strong emphasis on digital innovation, including the deployment of frictionless payment options such as Android Pay and Apply Pay, also helped improve customer experiences, he said.

Carry-out online order growth was a key contributor to the first-half results, and the group noted more than 50 per cent of orders were made online, a 32 per cent increase over the six-month period. The launch of the ‘On-time cooking’ initiative in 2016, which tracks consumers coming to collect their order through GPS and starts cooking their order only when they’re in a hot zone around the store, helped lift these sales, Meij said.

Other technology initiatives over the past 12 months included trials of the Dru robot, a robotic deliveryman, the launch of the ‘Zero click app’, and Domino’s InstaGift for gifting pizzas. The group is also utilising data-driven insight in a bid to down delivery times from the traditional 30-minute window to just 10 minutes under the ‘Project 3/10’ initiative. Over the next 3-5 years, Domino’s plans to have pizza ready for pick up in three minutes or delivered to a customer’s house in 10 minutes.

“Our focus on innovation is always with our customers as our first priority; we continuously work on streamlining the order experience, and ceaselessly conduct testing to ensure this is as smooth as possible,” Meij said. “Our team constantly tests and implements changes to our online environment, including incremental changes such as varying aspects of our ordering process, to make it easier for our customers and increase online conversion rates.”

Domino’s said it’s growing its mobile-first development and making further investments into artificial intelligence, both in the name of improving customer engagement further. Alongside this, the group is working with partners in the social media and search space to trial and implement more targeted marketing platforms.

The stellar financial results are a bright spark is what has been a tough week for Domino’s, after allegations were made in an article by Fairfax Media of staff exploitation, visa fraud and financial pressure across its 600-strong franchise network.

In an attempt to quash these reports, Meij stressed it wasn’t just Domino’s headquarters enjoying strong profitability, but also the group’s franchisees. He noted 87 per cent of new stores in the first half were opened by existing franchisees or store managers, and that EDBITA for Australian stores had increased by 31.7 per cent over the past two years.

The average franchisees EBITDA is expected to between $245,000 and $257,000 in the current financial year, based on an owner maintaining 1.8 stores, while EDBITA per store is forecast to be between $138,000 and $145,000 in FY17. Meij also stated that of its 600 stores, 21 were unprofitable in the previous financial year and received financial assistance from the group as a result.

In addition, Meij provided details of the group’s compliance program, which audits franchisees to ensure they’re compliant with Domino’s ‘zero tolerance policy’ for unethical behaviour. Since launching three years ago, 456 store spot checks had been completed, as well as 102 store audits, via a third party. These had recovered $4.2m in underpaid wages and superannuation from franchisees, which Meij said represented just 0.8 per cent of the total labour costs of the franchise network.

As a result of these checks, four franchisees had been removed from the system and an additional 22 franchisees exited, he said. In regards to employment visa fraud, Domino’s said it received its first query last week and is investigating the matter now.

“It is disappointing to us that there is anyone that would break from Domino’s policies and process,” Meij stated during a briefing with journalists. “We are embarrassed by some of those individual’s actions, but we will not apologise for our zero-tolerance policy and will work to support our franchise network.”

Technology innovations of the past year, meanwhile, extended to local staff management and included attendance management solution, Tanda, which builds and analyses rosters.

Domino’s will announce more technology advancements at its next Abacus event on 1 March.

Thanks to the strong results, Domino’s upgraded its underlying EBITDA and NPAT guidance for the full year to 32.5 per cent growth, a figure in line with the 33.6 per cent lift on the prior corresponding period in EBITDA to $116.2m, and a 30.8 per cent increase in NPAT to $539.4m.

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