Domino’s Pizza in $1.5b sharemarket wipe-out amid cost of living pressures

Its CEO admitted that an “embarrassing” move backfired for the company as it hiked up prices to cover inflation, which ultimately scared away customers.

Domino’s suffered a $1.5 billion wipe out of its market value as it revealed the cost of living crisis was causing customers to cut back on buying pizzas and repeat orders dropped after it lifted prices.

Its share price plunged by 23.8 per cent and closed on Wednesday at $54.37 as it revealed a dramatic drop in profits for the first half of the financial year, while it also warned the next six months could be even tougher for the fast food chain.

Its shares have plummeted in recent years after reaching above $160 in September 2021 as its pizza orders boomed during the pandemic before slumping to around $72 in the past year.

With more than 3700 outlets across the world, including 700 plus in Australia, Domino’s had seen sales slow down far quicker in the past few weeks with same-store sales dropping 2.2 per cent after it lifted prices and added surcharges to combat rising food and energy prices.

Domino’s shares have taken a battering. Picture: Supplied

But the company admitted it had been too quick to pass on costs, which saw many customers ordering less often.

Dominoes chief executive Don Meij said the company had not got it right.

“The decreased volume obviously has a big impact on our earnings,” he said during the presentation of the company’s results.

“We are a volume business and less volume isn’t helping.

“I’m a little embarrassed to say that probably for the first time in a very long time we didn’t get it right in a buoyant market. So we haven’t gotten the share that we deserve.

“I would say that burgers overall is winning that, around the world, burgers are probably getting more right in most markets.”

Domino’s Pizza CEO Don Meij. Picture: Tim Marsden

He revealed that the company’s profit fell 28.3 per cent to $63.9 million in the six months to end of December, while revenue dropped 4.3 per cent to $1.1 billion, describing trading conditions this month as “tumultuous” as customers become more “price sensitive”.

Same sales store growth was expected to drop by 3 to 6 per cent in the medium term, he added.

In Australia and New Zealand, the group has been trialling a new system of flexible vouchers, which allows them to personalise specific meal offers by switching in and out of various items to cut the overall price and gain more value.

Customers were choosing pick up over home delivery. Picture: Supplied

Cost conscious customers had also been choosing to pick up orders rather than fork out on delivery in Australia, Mr Meij revealed, while hubs in CBD and inner-city locations which had been battered by the pandemic lockdowns had seen a pick up in trade.

“We haven’t always had the balance right for some customer groups, largely in delivery, as we responded to inflation to protect our franchisees’ businesses – we are working hard to correct that for all stakeholders,” Mr Meij said.

“In the initial stages of inflation, our expectation was that we could offset increased input costs by providing customers ‘more for more’ rather than passing price through.

“Given the challenging conditions and the effect on our franchisees we felt it was necessary to lift prices, including applying some surcharges.

“This was successful in protecting franchisee profitability, however given the speed of the change it was difficult to forecast the effect on customer repurchasing rates, especially where customers order less frequently such as Japan or Germany.

“It meant while we saw an initial benefit to franchisees’ unit economics, specific customer groupings, particularly in delivery, reduced their ordering frequency which resulted in December trading being significantly below our expectations.”

Domino’s has seen the rising cost of living hit orders. Picture: Jake Nowakowski

Meanwhile, shares in Australia’s biggest bank also slumped below $100 as investors become increasingly spooked about the hit the Commonwealth Bank’s profits will take as interest rates continue to be hiked.

It shares ended the day on Wednesday at $99.20 – with its share price dropping by 11 per cent since early February – more than three times as much as the overall stock market’s 3.3 per cent decline in the same period.

There are fears that the Reserve Bank of Australia has signalled its aggressive rate rising cycle will continue for at least another three rounds, which will expose the bank to more customer defaulting on their mortgages.