DON MEIJ ON PIZZA HUT: THEY WON'T BE OUR BIGGEST COMPETITOR
Written on the 26 September 2016 by James Perkins
DOMINO'S Pizza (ASX: DMP) CEO Don Meij has rubbished talk that a new enterprise bargaining agreement will halve existing franchisee profits and says a merged Pizza Hut-Eagle Boys will not be his company's main competitor.
A Deutsche Bank analyst has claimed that an updated enterprise bargaining agreement will cost Domino's Pizza franchisees $30 million and that head office will have to step in to support some stores.
"That was one analyst and is completely incorrect from our point of view," Meij tells Business News Australia.
"We have been preparing for this since 2008 and have already absorbed some of the increases. It will definitely be a large increase, but it has been overstated and continually dredged up as part of telling the Domino's story.
"I said this report was inaccurate back in June."
The Fair Work Ombudsman has delayed its decision on Sunday penalty rates until December, preventing a final deal to be reached with Domino's staff.
Meij says the Brisbane-based company already provided a "sizeable" pay increase in July in anticipation of the decision.
He declined to share how much the new agreement would cost, saying that it would "give away our hand" but, "we are planning for the worst".
"Even with that increase, our franchisees are expected to have a record year."
Domino's launched its new menu last week and Meij says the pizza chain will hire an additional 2,500 staff within existing stores as a response to its popularity.
This is in addition to the 1,000 new staff the company will hire in new stores that will open between now and Christmas.
This rapid expansion comes as new Pizza Hut owner Allegro Funds holds talks with Eagle Boys franchisees to create a stronger competitor to Domino's. Allegro reportedly hopes to add 60 of the 112 franchisees to the Pizza Hut network, to grow it to 400 stores.
"From a franchisee point of view, those competitors have been asleep, so now we are a bit more aware of them. However, this market is so big you can't have everyone eating Domino's, there has to be others," says Meij.
Once again, he says the level of competition that will come from the new Pizza Hut has been "overstated" and cited NPD Group's CREST report as the best breakdown of the foodservice industry.
"Domino's has 32 per cent of the market and combined, Pizza Hut and Eagle Boys will have less than 10 per cent of the market, and that is very low."
Meij sees his biggest competitors as the burger and fried chicken chains and other quick service restaurant operators that are still many times the size of Domino's.
The company's investments in technology that allow faster and more precise pickup and delivery times has put Domino's in competition with burger chains such as McDonald's that have traditionally been a quicker option for fast food.
"It is all about new technology alongside our new menu, which gives people an alternative to sitting in a drive through. Why would you go to a drive through when you could have any food delivered in 10 minutes?
"We are seeing the most extraordinary growth in Domino's history, it is incredible. The market is huge.
"Right now, the proposition for Domino's to double its existing store count is not a dream, it is there to execute - we want more stores on the ground to get closer to our customers."
Domino's is trading steady on the ASX today, up just 0.06 per cent at $71.780 per share. The company has enjoyed a dream run over recent years and has almost doubled its share price in the past 12 months.