DPC Dash - Domino's Pizza China Strengthened its Unique Positioning in China's Pizza Market in 2023

Rhea-AI Summary

DPC Dash, Domino's Pizza's exclusive master franchisee in China, has delivered robust first full-year results for FY2023. The company's unique positioning in China's pizza market, focus on delivery technology, and strong financial performance set it apart in the industry. With a '4Ds' strategy and expansion plans, DPC Dash aims to continue its growth trajectory.

Positive

• DPC Dash reported total revenues of RMB3.05 billion in 2023, a 51% increase year over year.
• The company's store-level operating profit reached RMB419.7 million in FY2023, up 105.1% from FY2022.
• Adjusted EBITDA increased by 117.7% to RMB301.7 million in 2023, with an adjusted net profit turning positive.
• DPC Dash achieved same-store sales growth of 8.9% year over year and opened 768 stores in 2023, sustaining positive growth for 27 consecutive quarters.
• The company aims to open 240 stores in 2024 and targets 1000 stores in China by the fourth quarter of 2024.
• DPC Dash attracted 6 million new loyalty program members in 2023, bringing total membership to 14.6 million, a 69.8% increase year over year.

Negative

• None.

Insights

Market Research Analyst

The expansion strategy of DPC Dash in the Chinese market, as outlined in their recent financial results, is a significant development for investors to consider. The 'go deeper, go broader' approach, alongside the opening of new stores, is indicative of the company's aggressive growth trajectory. Their store count increase and consistent same-store sales growth suggest a strong market fit and effective execution of their business model. The focus on delivery and digital channels is particularly noteworthy, as these are key drivers in the modern food service industry, especially in a mobile-centric market like China.

Moreover, the planned infrastructure investments, such as the opening of a central kitchen in Wuhan, signify a commitment to long-term growth and operational efficiency. This is important in a market where logistics and supply chain can be a differentiator. The robust increase in total revenues and significant improvement in store-level operating profit margins reflect operational leverage and could signal healthy cash flow prospects, a key metric for investors. However, it is essential to monitor how these investments will impact the company's balance sheet and whether the expansion will sustain the same level of profitability as the market matures.

Financial Analyst

Analyzing the financial health of DPC Dash, the reported increase in year-over-year revenue and the positive turn in adjusted net profit are strong indicators of the company's financial performance. The achievement of a double-digit store-level operating profit margin is particularly impressive, surpassing industry norms which often hover in the single digits for many franchise-based restaurant operations.

The company's ability to not only grow its revenue but also significantly improve its EBITDA margin suggests effective cost management and scalability of its business model. The positive trajectory in same-store sales growth over 27 consecutive quarters points to a sustainable demand for their offerings. However, investors should be cautious about the aggressive expansion plans and ensure that the growth is not coming at the expense of excessive debt or dilution of shareholder equity. The company's future store opening targets and their impact on capital expenditures will be a critical area to watch.

Consumer Behavior Expert

DPC Dash's strategic focus on localized menus and delivery services is a direct response to the evolving consumer preferences in China. The success of their loyalty program, with a substantial year-over-year increase in membership, indicates a strong brand resonance and customer retention. This is a positive sign for the company's market penetration and consumer loyalty, which are essential for long-term success in the competitive food service industry.

The impressive first 30-day sales figures for new stores and the long queues observed at store openings reflect a strong consumer demand and effective market entry strategies. The company's ability to dominate the top spots globally for first 30-day sales is a testament to their brand strength and operational excellence. However, maintaining this momentum as the market saturation increases will be a challenge. It's important to assess whether the company's growth is based on capturing market share from competitors or if it is expanding the overall market, which has different implications for long-term sustainability.

HONG KONG, April 8, 2024 /PRNewswire/ -- DPC Dash – Domino's Pizza China ("DPC Dash" or the "Company") (1405.HK), Domino's Pizza's exclusive master franchisee in the China Mainland, the Hong Kong Special Administrative Region of China, and the Macau Special Administrative Region of China, has delivered robust first full-year results for FY2023, following its successful listing in Hong Kong, and further strengthening its unique positioning in China's Pizza market.

DPC Dash inherits and further improves the brand strength of its franchisor, Domino's Pizza (NYSE: DPZ). Led by a seasoned and visionary management team, DPC Dash is a market leader differentiated from its competitors through its continuously developed, localized pizza-focused menu. DPC Dash's unique expertise and leadership in delivery technology, coupled with a focused, scalable, and replicable store economic model, further set it apart in the industry.

China's pizza market offers a significant untapped market opportunity. According to Frost & Sullivan, China had just 11.7 pizza stores per million population in 2022, compared to 30 and 29.5 in South Korea and Japan, respectively. The under-served pizza market in China is projected to post a compound annual growth rate (CAGR) of 15.5% from 2022 to 2027. DPC Dash published its First Quarter 2024 Investor Fact Sheet ("investor fact sheet") on April 2, 2024, which reported as  of March 24, 2024, DPC has entered 30 cities in China, showing a huge potential for regional growth.

As  a pizza company with a 30-minute delivery promise and offering a free pizza coupon if late, serving customers across all sales channels, namely website, official WeChat mini program, APP and third-party sales channels, in China, DPC Dash benefits from its delivery strength in the fast growing delivery market. The delivery market is expected to represent over 60% of the China pizza market in 2026, with 19% CAGR from 2022 to 2027, according to Frost & Sullivan. Per DPC Dash's Investor Fact Sheet, in 2023, 59.2% of DPC Dash revenue was generated by delivery orders. In mature markets for DPC Dash, such as Shanghai and Beijing, revenue generated by delivery orders accounts for over 75%.

Lead by a seasoned and passionate management team, DPC Dash formulated a focus on the "4Ds", including Delicious Pizza at Value, Delivery, Digital, and Development, to differentiate itself among peers in China. Meanwhile, the clear focus has supported DPC Dash in delivering strong financial results. Per DPC Dash's Full Year 2023 Financial Results, in 2023, total revenues reached RMB3.05 billion, representing a robust increase of 51% year over year and a CAGR of 40.3% from 2020 to 2023. DPC recorded revenues of RMB1.68 billion in the second half of 2023, up 21.7% compared to the first half of 2023. Store-level operating profit was RMB419.7 million in FY2023, representing an increase of 105.1% from RMB204.7 million in FY2022. Store-level operating profit margin was 13.8%, compared to 10.1% for FY2022. Adjusted EBITDA was RMB301.7 million, representing an increase of 117.7% from RMB138.6 million in FY2022. Adjusted net profit turned positive to RMB8.8 million, faster than expected. The Company generated a store-level operating profit margin of 13.8% and an adjusted EBITDA margin of 9.9% in 2023. Same-store sales growth reached 8.9% year over year, while store count jumped 30.6% in 2023 to reach 768. Since the third quarter of 2017, DPC Dash has sustained a positive trajectory by delivering same-store sales growth for 27 consecutive quarters. The consistency reflected the team's dedication and ability to deliver on a strategic vision.

In 2023, DPC Dash formulated a "go deeper, go broader" strategy, expanding its footprint in China's large and growing pizza market. Per DPC Dash's investor fact sheet,  as of March 31, 2024, DPC Dash has broadened its presence to 30 cities with a total of 835 stores. DPC Dash store numbers in Beijing and Shanghai reached 176 and 181, respectively. A total of 67 new stores have opened from January 1 to March 31 in 2024, entering one new city. In February 2024, DPC Dash opened its 800^th store in China in Jinan, Shandong. In March 2024, the first store in Jiangmen, Guangdong was opened. Long queues in front of these Domino's Pizza stores in China have become a common occurrence. Looking ahead, the company targets opening 240 stores in 2024, and aims to hold its 1000^th grand opening in China in the fourth quarter of 2024. As of March 22, 2024, the total number of net new stores, stores currently under construction, and stores that have been signed or approved has exceeded 74% of the full-year opening target. In addition, in 2025 and 2026, the company targets opening 300 to 350 new stores each year, according to DPC Dash's FY2023 financial results announcement published on March 27, 2024.

To support the stores in the central region, the Company intends to open a central kitchen in Wuhan in the fourth quarter of 2024, an addition to its existing central kitchens in Sanhe, Shanghai, and Dongguan. Moreover, the Company plans to relocate and upgrade its central kitchen in the northern region.

Amid the fast expansion, DPC Dash has achieved consistent success in all new cities opened in 2023. The 10 new stores opened between December 23rd and 24th all ranked among the top-15 for sales in the first 30 days among Domino's global system. Among which, four new stores locate in Xi'an, Changsha, Xiamen, and Hefei, representing DPC Dash's Northern, Central & West, Southern and Eastern China regions, respectively, climbed to the top-four spots globally, each of which exceeded RMB5 million in sales in the first 30 days. DPC Dash now accounts for all of the top-19 spots in Domino's global system for first 30-day sales. The success in the new markets demonstrates DPC's strong brand image and proven expansion capability.

In addition to the Company's rapid expansion and strong sales growth, DPC Dash's loyalty program has also been growing fast. According to DPC Dash's FY2023 financial results announcement, the company attracted 6 million new members in 2023, bring its total loyalty program membership to 14.6 million, representing an increase of 69.8% year over year. In addition, around 9.2 million new customers placed their first orders during the past 12 months.

On a conference call regarding the company's performance in 2023, Aileen Wang, Executive Director and CEO of DPC Dash, stated, "Being in the restaurant industry and specifically the pizza market, we distinguish ourselves through several key factors. We offer a localized pizza-focused menu that resonates with our customers. We bring unique expertise and a strong leadership position in delivery services. We embrace a technology-focused approach that enhances efficiency. And we utilize a scalable and replicable store-unit economic model. With these strengths, we are confidently charting a course towards continuously improving the profitability of our business group."

About DPC Dash

DPC Dash is Domino's Pizza's exclusive master franchisee in the China mainland, the Hong Kong Special Administrative Region of China and the Macau Special Administrative Region of China. Domino's Pizza, Inc., DPC Dash's global franchisor, is one of the most widely-recognized global consumer brands and the world's largest pizza company. Led by a seasoned and visionary management team, DPC Dash is a market leader that differentiates from competitors with, among others, a continually developed and localized pizza-focused menu, unique expertise and leadership in delivery, technology focus and scalable and replicable store economic model.

For more information, please visit www.dpcdash.com

For official company announcements, please visit www.hkexnews.hk

CONTACTS

DPC Dash Ltd Investor Relations:
DPC Dash Ltd
IR@dominos.com.cn

ICR, LLC
dpcdashIR@icrinc.com 

DPC Dash Ltd Media Relations:
ICR, LLC
dpcdashPR@icrinc.com 

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SOURCE DPC Dash Ltd

FAQ

What were DPC Dash's total revenues in 2023?

DPC Dash reported total revenues of RMB3.05 billion in 2023, a 51% increase year over year.

How many stores did DPC Dash open in 2023?

DPC Dash opened 768 stores in 2023, sustaining positive growth for 27 consecutive quarters.

What is DPC Dash's '4Ds' strategy?

DPC Dash formulated a focus on the '4Ds', including Delicious Pizza at Value, Delivery, Digital, and Development, to differentiate itself among peers in China.

What is DPC Dash's target for store openings in 2024?

The company aims to open 240 stores in 2024 and targets 1000 stores in China by the fourth quarter of 2024.

How many new loyalty program members did DPC Dash attract in 2023?

DPC Dash attracted 6 million new loyalty program members in 2023, bringing total membership to 14.6 million, a 69.8% increase year over year.